Whistleblower John Dickson was rewarded with $7.9 million after filing a qui tam lawsuit that helped the federal government uncover a Japanese ink producer’s antidumping scheme. Toyo Ink and affiliates agreed to pay $45 million to settle allegations that it made false claims regarding its carbazole violet pigment 23 (CVP23) imports to avoid paying customs duties.
Dickson Alleges False Statements on Country of Origin Labeling and Customs Docs
The Japan-based Toyo Ink SC Holdings Co. Ltd. is a global pigment producer with affiliates in New Jersey and Illinois. CVP23 is a pigment required in ink production and has been subject to U.S. Customs duties since 2004 for imports from China and India. Additional antidumping duties (ADs and CVDs) are required on CVP23 with Chinese or Indian origin. For CVP23 produced in any other country, the additional US antidumping duties don’t apply.
John Dickson, CEO of South Carolina-based Nation Ford Chemical, is a competing domestic producer of CVP23 and suspected fraud in Toyo Ink’s country of origin claims, alleging that, between April 2002 and March 2010, Toyo Ink submitted false documents to the U.S. Customs and Border Protection (CBP) to avoid paying required import duties on pigments produced in China and India.
According to the whistleblower claim, Toyo misrepresented CVP23 from China and India as having been produced in Mexico and Japan to avoid paying the required antidumping duties.
Import Duties Safeguard U.S. Businesses from Foreign Pricing and Subsidies
The U.S. imposes taxes/duties on imported items for certain products made in countries that the Department of Commerce determines are priced unfairly due to foreign government subsidies. Taxes imposed on the import of these goods help safeguard U.S. businesses that do not receive similar subsidies.
Specifically, the government argued that Toyo knowingly misidentified the CVP23’s country of origin in its import declarations sent to the CBP to avoid paying the ADs and CVDs that otherwise would have been required at importation. Toyo indeed passed its CVP23 through Mexico and Japan during the finishing process, but its inputs were sourced from India and China. The company then declared Mexico and Japan as countries of origin to allegedly circumvent paying the antidumping fees.
Substantial Transformation Required to Designate Country of Origin
Companies violate the U.S. False Claims Act when they knowingly making false claims to the government for payment or to avoid payments required by law. The false claims in this case stem from misrepresentations that a product has met federal exemption regulations when it has not. When the CBP requires documentation about imported goods to establish whether or not antidumping duties are required, falsification of that documentation constitutes a false claim.
The U.S. government declared that the finishing step in Mexico and Japan did not substantially transform the CVP23 and was therefore not sufficient to designate these as the country of origin. “Substantial transformation” is defined by CBP Regulations as a change in “name, character or use.” The required duties for CVP23 imports from China and India should have been paid upon U.S. delivery.
Dickson Awarded Over $7.8M under False Claims Act Qui Tam Provision
Under the FCA, whistleblowers who file qui tam complaints on behalf of the federal government are eligible to receive up to 30 percent of the total recovery awarded in a successful case. Mr. Dickson was awarded a cash whistleblower award of $7,875,000 for bringing the alleged violations to light. No determination of liability was made in this settlement.
“Importers seeking access to United States markets must comply with the law, including the payment of Customs duties meant to protect domestic companies from unfair competition from abroad,” said Principal Deputy Assistant Attorney General for the Justice Department’s Civil Division, Stuart F. Delery. “This settlement demonstrates that the Department of Justice will zealously guard the public … taking action not only against those who fraudulently obtain government funds, but also against those who inappropriately avoid paying money owed to the United States.”
The case is another in a series of False Claims Act settlements where competitors became whistleblowers to spur immediate action when rival firms’ deceitful conduct created an unfair advantage. The lawsuit is also one of many False Claims whistleblower lawsuits filed in anti-dumping and other Customs violations situations. An insider reports many more settlements in Customs violation cases are anticipated.