What Is the False Claims Act & How Does It Affect Importers?

In June 2025, the Ninth Circuit Court of Appeals upheld a $26 million False Claims Act judgment against Sigma Corporation—an importer that falsely declared the country of origin on its goods. Instead of accurately reporting that its pipe fittings were made in China (which would have triggered steep antidumping duties), Sigma claimed they were made in Taiwan. That misrepresentation cost them.

Why does this matter? Because it highlights how the government is cracking down on customs violations like:

• Falsely declaring country of origin
• Undervaluing imports
• Misclassifying products to reduce duties

Even if you're not intentionally trying to cheat the system, carelessness or reckless disregard can still land you in legal hot water under the False Claims Act (FCA). And with the Department of Justice (DOJ) stating it will "aggressively" pursue illegal foreign trade practices, importers should take this as a serious warning.

What is the False Claims Act?

The False Claims Act is a U.S. law that imposes liability on individuals or companies who knowingly submit false or fraudulent claims for payment to the federal government. It’s one of the most powerful tools the U.S. government uses to fight fraud, and is especially common in the healthcare, defense and government contracting sectors.

According to the Justice Department, the False Claims Act provides that any person who knowingly submits, or causes to submit, false claims to the government is liable for three times the government’s damages plus a penalty that is linked to inflation.

The False Claims Act:

• Targets the known submission of false information, which includes actual knowledge, deliberate ignorance or reckless disregard for the truth
• Imposes civil penalties (including treble damages — 3x the amount of the false claim)
• Allows for whistleblower (qui tam) lawsuits, where private individuals can sue on behalf of the government and share in any recovery

How does FCA liability occur?

FCA liability can arise when someone knowingly submits false information or improperly avoids an obligation to pay the government. Conspiring to commit these acts also is a violation of the FCA.

The use of the FCA to prosecute customs fraud isn’t new. A notable example is the 2019 Toyo Ink case. Toyo Ink Americas and its subsidiaries agreed to pay $45 million to settle FCA allegations after allegedly evading antidumping duties on certain color pigment imports.

According to the U.S. Department of Justice, Toyo Ink falsely claimed that pigments manufactured in China and India originated in Japan and Mexico by transshipping the goods through those countries. The company argued that the finishing processes conducted there constituted substantial transformation, but the DOJ disagreed—finding the steps were not enough to change the product’s origin under U.S. law. The whistleblowers who brought the case were awarded $11.25 million as a share of the government’s recovery.

This case underscores how improper origin claims—even when layered in technical arguments—can trigger enormous liability. Though substantial transformation is a legitimate way to change the country of origin of a product, misapplying that concept can result in major FCA liability. We explain how to properly use substantial transformation in the country of origin section below and in the article, Why Country of Origin Matters More Than Ever for Importers.

How does the False Claims Act affect importers?

Even though the FCA isn't specific to international trade, importers and exporters can face liability under it in several key situations, especially if they are involved in contracts with the U.S. government or benefit from federal programs.

Risk areas for importers include:

1. Undervaluing Goods

Deliberately or carelessly undervaluing imported goods is one of the most common and costly violations that can trigger FCA liability. U.S. Customs and Border Protection (CBP) uses the declared value of imported merchandise—typically listed on the commercial invoice—to assess duties and taxes. When that value is misstated, the result can be treble damages, substantial per-violation fines and even criminal exposure.

While the transaction value—the price actually paid or payable—is the preferred method of valuation under U.S. law, there are many situations where this number isn’t straightforward or acceptable on its own. That’s where CBP’s appraisement hierarchy under 19 CFR §152 comes into play.

Examples where invoice value is not acceptable:

• Related-party transactions that influence price
• Goods sold on consignment or barter
• Missing or incorrect documentation
• “No charge” samples or promotional items not properly valued

Read more about the appraisement hierarchy in our article How to Determine Value for U.S. Customs, and we explain what can be added and subtracted from value in the article Everything Has a Value—to U.S. Customs.

How to Minimize Risk

Importers must:

• Understand when invoice value alone is not acceptable
• Maintain detailed records and supporting documentation for all value elements
• Educate suppliers to provide complete, properly formatted invoices
• Ensure brokers are informed of all assists, additions and deductions
• Establish internal controls and use compliance tools to prevent costly errors

2. Misclassifying Products

Incorrectly classifying imported goods under the Harmonized Tariff Schedule of the U.S. (HTSUS) is one of the top risk areas for FCA enforcement—and it's more common than many importers realize. Misclassification can occur when companies use the wrong HTS code to:

• Avoid higher duty rates
• Qualify for a duty-free program or free trade agreement (FTA) eligibility
• Bypass review by another U.S. government agency

If CBP or the DOJ determines that misclassification was done knowingly or with reckless disregard, it can trigger FCA liability, leading to treble damages and significant per-entry penalties.

In a recent Shipping Solutions webinar, trade compliance expert Robert Imbriani shared an example involving something as simple as a pair of pliers. Even for a basic product, proper classification required knowing whether they were slip-joint or not—information that could significantly affect the correct 10-digit HTS code and, ultimately, the duty rate. That level of detail is required not only for duty accuracy, but also to satisfy rules of origin under FTAs like USMCA.

Shipping Solutions Product Classification Software makes it easier to get your classifications right. It eliminates the need to manually search hundreds of pages of HTS codes by letting you:

• Search by product description or partial code
• Instantly compare classification options
• Stay up to date with changing regulations

Try it for free here.

Pro tip: If you discover a past misclassification, consider voluntarily disclosing the error to CBP. A proactive correction may help reduce or avoid FCA-related penalties and limit your exposure.

3. Misrepresenting Country of Origin

Importers who falsify the country of origin—whether by relabeling, transshipping or ignoring complex origin rules— to avoid tariffs, gain preferential treatment under free trade agreements, or to avoid anti-dumping or countervailing duties are playing with fire. Under the FCA, violators can be liable for three times the government’s loss in damages plus substantial per-claim penalties—more than $25,000 per violation.

Examples of illegal strategies include:

• Transshipping goods from China through another country to sidestep tariffs
• Falsely claiming FTA eligibility (e.g., USMCA) without meeting origin rules
• Relabeling goods to disguise their true origin

However, using substantial transformation to shift origin—where the product becomes new in name, character or use—in a third country is a legal strategy. For example:

Raw wood is imported from Indonesia into Vietnam, where it is cut, shaped, stained and assembled into finished dining tables. Since the raw material (wood) is transformed into a new product (furniture) with a different name, character, and use, the country of origin becomes Vietnam.

But remember, simply repackaging or relabeling a product—like placing Chinese-made phone chargers in U.S.-branded boxes—does not count as substantial transformation. The original country of origin still applies.

If you’re sourcing components from multiple countries, determining the correct origin isn’t always straightforward. But getting it wrong—intentionally or otherwise—can cost you. Learn more in our free guide, How to Qualify for a Free Trade Agreement.

Once you’ve confidently determined the correct country of origin, the next step is just as important: properly documenting it. Inaccurate or incomplete paperwork can delay customs clearance—or worse, expose your company to fines and penalties.

To make it easier, we’ve created free certificate of origin templates for each of the U.S. free trade agreements, so you can ensure you’re including all of the required information. If you need a COO stamped by a chamber of commerce, an eCO is the fastest most affordable way. You can create one here.

Best Practices For Importers to Avoid False Claims

• Use import controls and product classification software as a team approach. Accurately classifying your products is only the first step. Once you’ve identified the correct HTS code, you also need to understand all the tariffs and import restrictions that may apply—especially in today’s complex trade environment. That’s where combining Shipping Solutions Product Classification Software with our Import Controls Software can give you a major compliance advantage. Here's how the tools work together:

  Product Classification Software helps you quickly find the correct HTS code for your goods by searching keywords or partial codes and comparing matches. This step ensures your base duty rate is accurate.

  Import Controls Software takes that HTS code and shows you any additional tariffs (like Section 301, Section 232, IEEPA, or reciprocal duties), country-specific controls, and prohibitions—all of which could drastically change your final landed cost or lead to FCA exposure if overlooked.

  In our article Tariff Help for U.S. Importers, our in-house expert Lisa Nemer explains exactly how to use both import and product controls software.

• Have a robust export compliance program (ECP) in place. Screen thoroughly, maintain clear documentation, and ensure licenses and end-use statements are accurate.
• Train your employees. Staff should be trained on U.S. export and import laws and the risks of false claims, especially if handling compliance filings or contracts.
• Implement internal reporting systems. Allow employees to report concerns safely to help prevent whistleblower actions.
• Audit and monitor your processes. Periodically review practices tied to government dealings and trade compliance.

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