In yet another antidumping U.S. False Claims Act lawsuit where a company throws its dishonest competitor under the bus, electrode manufacturer, Graphite Electrode Sales Inc. filed a qui tam claim against rival Ameri-Source for allegedly scheming to avoid paying import duties on its Chinese-made graphite electrodes.
Ameri-Source agreed to pay $3 million to resolve the allegations and Graphite Electrode Sales was granted a $480K reward for filing the whistleblower claim that exposed the fraudulent acts.
Whistleblower Graphite Electrode Alleges Customs Duty Evasion via Misrepresentation
Graphite Electrode became suspicious of Ameri-Source when it learned that, between December of 2009 and March of 2012, the Pennsylvania-based rival company allegedly evaded duties on 15 shipments of small-diameter graphite electrodes from China by knowingly misrepresenting that they were duty free large-diameter electrodes. Graphite Electrode filed a whistleblower lawsuit under the qui tam provision of the FCA in 2013 and the U.S. government opted to intervene (took over prosecution of the whistleblower case) in February 2016.
The federal government imposes antidumping duties on certain imports to protect U.S. manufacturers from unfair competition from abroad due to foreign pricing and government subsidies, i.e. “dumping” goods on U.S. markets at below-cost prices.
Since August 2008, graphite electrodes imported from the Peoples Republic of China with a diameter of less than 16 inches have possessed a duty of 160 percent, collected by the U.S. Department of Homeland Security’s Customs and Border Protection (CBP). Larger diameter graphite electrodes require no payment of antidumping duties.
Importer, Not CBP, Responsible for Proper Import Labeling and Declarations
Accurate labelling and declaration of imported goods is the responsibility of the “importer of record”, not the CBP. Since the burden of valid documentation falls on the importer, antidumping evasion is in violation of the False Claims Act, i.e. a company is avoiding payment of legitimate fees/duties to the U.S. government.
The $3 million settlement resolved allegations against four defendants; Ameri-Source International Inc., Ameri-Source Specialty Products Inc., Ameri-Source Holdings Inc. and SMC Machining LLC. Under the qui tam FCA provision, the whistleblower is entitled to a cash whistleblower award of up to 30 percent of the funds recovered. Graphite Electrode Sales Inc. was awarded approximately $480,000 of the $3,000,000 settlement.
“The nation’s Customs Laws are designed to protect domestic manufacturers from foreign products that enter the country at below-market prices due to unfair practices abroad,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “This settlement shows that the Department of Justice is committed to pursuing claims against anyone involved in a scheme to seek an unfair advantage in U.S. markets by evading duties on imported goods, including the individuals who run the companies and knowingly participate in such schemes.”
Ameri-Source’s Ajay Goel & Thomas Diener Hit w/$250k Criminal Smuggling Fine
In addition to the civil False Claims settlement, Ameri-Source and owners Ajay Goel and Thomas Diener were charged criminally with two counts of smuggling products into the U.S. In the guilty plea, the defendants admitted that the company falsely declared Chinese graphite electrodes as being over 16 inches in diameter, when in actuality they were less than 16 inches in diameter and therefore subject to the import duties.
Chief Judge Joy Flowers Conti of the U.S. District Court in the Western District of Pennsylvania imposed an additional $250,000 criminal fine and applied the $3 million civil penalty payment to the $2,137,420 in antidumping duties Ameri-Source allegedly defrauded from the government.
“Antidumping duties level the playing field for U.S. manufacturers,” said CBP Commissioner R. Gil Kerlikowske. “This is a prime example of how U.S. Customs and Border Protection partners with the Department of Justice, U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (ICE HSI) and the U.S. Department of Commerce to enforce antidumping duty laws.”
Customs Violations are Legitimate Subjects of a False Claims Act Whistleblower Lawsuits
The case illustrates two points: a company with a competitor that is cheating taxpayers can avail itself of the U.S. False Claims Act to take positive action (file a whistleblower lawsuit) when regulators are slow or unwilling to act and a company, not just an individual, can earn a whistleblower cash award for spotlighting offending conduct where the government and taxpayers are financially damaged.