Using the False Claims Act to Ensure Trade and Export Compliance

May 30, 2013 — The Federal False Claims Act imposes liability on government contractors who submit false claims for reimbursement to the federal government. Contractors who make false claims to intermediary government contractors or to brokers or distributors may also be liable under the whistleblower statute. The stakes are high — as much as $11,000 for each false claim plus three times the amount of the government’s actual loss. Between 2009 and 2012, the government has recovered more than $13 billion from those alleged to have violated the False Claims Act.

The False Claims Act works because of the courageous participation of insider informants who decide to collaborate with the government to fight fraudulent activity. Under the whistleblower language contained in the Act, “relators” can initiate lawsuits against a company engaged in fraud against the government. If the government ultimately makes a recovery in the case, whether in a settlement or in a judgment following a trial, the tipster is eligible to receive up to 30 percent of the amount recouped.

When the False Claims Act Whistleblower is a Business Competitor

In many qui tam lawsuits, the whistleblower is an employee of the government contractor engaged in fraudulent billing practices. But in a recent $45 million False Claims Act settlement with Toyo Ink SC Holdings Co., Ltd., the whistleblower was one of the Japanese company’s U.S. competitors, John Dickson. Dickson received almost $8 million as part of the settlement.

In the 2009 qui tam lawsuit, Dickson alleged that Toyo, a large manufacturer of printer ink, was not in compliance with U.S. trade regulations and the payment of duties. Toyo had misrepresented the country of origin of its ink pigment, alleged Dickson, in order to escape paying anti-dumping fees and customs duties required for pigment originating in China and India. Further, by allegedly representing that the pigment originated in Mexico, Toyo received duty-free treatment under NAFTA. Dickson successfully alleged that by making these false claims about its imported products, Toyo had violated the False Claims Act.

The statute is generally used to recover funds paid to unscrupulous government contractors in the health care, military or educational fields, for example. But the Toyo case could signal the government’s expanded use of the whistleblower statute to address trade and export violations, reports Lexology. Further, Dickson’s sizable settlement with Toyo could spur other business competitors to file False Claims Act suits against companies that violate U.S. laws concerning nonpayment of customs duties and antidumping fees.

Company Insiders Most Likely to Notify U.S. of False Claims

Thus far, the Toyo settlement is the exception, not the rule. False Claims Act violations are most likely to be revealed by insider employees who want no part of defrauding the U.S. government. These conscientious individuals have rights under the False Claims Act. The experienced lawyers at Waters & Kraus know how to protect tipsters in qui tam litigation and protect their interests. Contact us by email or phone our attorneys at 855.784.0268 to learn about our whistleblower practice.