Apparel Importer to Pay $1.3 Million to Settle Customs Fraud False Claims Act Case
Importer High Life and the U.S. settled a False Claims Act case in which the company was charged with knowingly underreporting the value of apparel entries, leading it to avoid duty payments. According to a stipulation and order of settlement filed Jan. 25 at the U.S. District Court for the Southern District of New York, High Life will pay the government $1.3 million, $650,000 of which counts as restitution. The company agreed to fully cooperate with the U.S. investigation of the other individuals and entities linked to the customs fraud scheme (United States v. High Life, S.D.N.Y. # 23-00631).
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From January to June 2016, High Life violated the FCA by underreporting the value of its apparel on 67 customs entry forms. The scheme began after three of the company's shipments were detained in December 2015. High Life then switched its business model from buying imported goods on Landed Duty Paid terms to Free on Board terms, the settlement said.
With LDP terms, the overseas vendors carry out the import responsibilities, with High Life paying the vendors the freight and customs duties costs. Under FOB terms, High Life paid for freight and customs duties. Before the switch was officially made, the vendors and High Life had carried out certain purchase orders on LDP terms. After the switch, High Life declared the value of the imports based on the price the vendors paid at the factories.
Goods can be valued using their first sale price only if they "were the subject of a bona fide sale between the Vendors and the factories, clearly destined for export to the United States, and the factories and the Vendors dealt with each other at arm’s length, in the absence of any non-market influences that affected the legitimacy of the sales prices," the settlement said. High Life, though, started with a negotiated LDP price to calculate what the company wanted the FOB and first sale price to be, then used the first sale price to declare the value of the 67 shipments at issue, the settlement said.
High Life declared the duties should be calculated based on the first sale prices. If the company paid duties based on the prices it itself paid, the importer would have paid much higher duties, the settlement said. It gave High Life 14 business days to pay $1.3 million to settle the charges.