A widely held belief in international trade circles is that only the importer of record bears legal responsibility for customs duties when goods enter the United States.
Many companies have structured their import transactions specifically to avoid being designated as the importer of record, believing this shields them from liability.
This approach has fuelled a sharp rise in “delivered duty paid” or DDP transactions, particularly as tariffs on goods from multiple countries have increased significantly.
Under DDP arrangements, the seller takes responsibility for filing customs entry documents and paying applicable duties, with the buyer receiving title only after goods clear customs.
Jonathan Tycko, an attorney at Tycko and Zavareei LLP who represents whistleblowers in qui tam cases under the False Claims Act, says this belief is fundamentally mistaken.
The False Claims Act makes it illegal to commit financial fraud against the government, including customs fraud, and authorises private parties to file lawsuits on the government’s behalf to recover unpaid duties.
These cases, known as qui tam actions, can result in treble damages, meaning unpaid duties of one million dollars could generate three million dollars in recoverable damages, plus additional penalties.
The private party bringing such a case, called a relator, is entitled to between 15% and 30% of the total amount recovered for the government.
Tycko sets out three distinct legal theories under which a company that is not the importer of record may still face liability for customs fraud committed by its overseas supplier.
First, the False Claims Act holds defendants liable not only for their own violations but also for “causing” someone else’s violations, meaning a buyer who suspects fraud may be implicated regardless of their formal customs status.
Second, the statute includes a conspiracy provision, under which any company that agrees to participate in a transaction it suspects involves fraud can be held separately liable for its partner’s violations.
Third, because a buyer who qualifies as the owner, purchaser, or ultimate consignee of imported goods could legally have acted as the importer of record, the government may argue that company retained an obligation to ensure duties were properly paid.
The Department of Justice has endorsed all three theories in active litigation, in a case titled United States ex rel. Lee v. Barco Uniforms, Inc., which involves the importation of licensed uniforms made in China on a DDP basis.
In that case, the government alleges the US-based purchaser was on notice that its supplier would likely engage in customs fraud as a means of keeping prices artificially low.
The government further alleges the US purchaser went along with the arrangement in order to offer more competitive pricing when bidding for contracts to supply licensed uniforms to large corporate clients.
Tycko warns that under the False Claims Act, “suspecting” and “knowing” are frequently treated as equivalent, meaning wilful ignorance of a supplier’s likely fraud offers little legal protection.