Trump’s Tariffs and the Risk of False Claims Act Liability

Earlier this month, when President Trump announced comprehensive tariffs, I speculated about whether or not the administration’s new tariff policy could create an environment that could lead to legal claims against some companies and their directors and offices. While I anticipated (and continue to anticipate) the possibility that there will be tariff-related D&O claims, one possibility I had not considered is the prospect that the new U.S. tariff regime could lead to increased number of tariff-related False Claims Act claims.

In an interesting April 16, 2025, memo, the Nixon Peabody law firm explains how “evasion of tariff requirements, including via false representation of countries of origin and undervaluation or misclassification of goods, creates the risk of substantial liability under the False Claims Act.” The law firm’s memo can be found here. (Hat Tip: John Jenkins of The CorporateCounsel.net Blog, who linked to the law firm memo in his April 23, 2025, post on the blog.)

As readers will recall, on April 2, 2025, President Trump issued an Executive Order declaring a national emergency due to trade deficits, and imposing an across-the-board 10% tariff, as well as additional tariffs for other countries with larger trade deficits. On April 9, 2025, President Trump announced a 90-day suspension of the tariff rates higher than 10%, with the exception of tariffs on China, which were increased. The President has also taken a number of related tariff actions, including creating tariff exceptions for electronic devices as well as separate additional tariffs on automobiles and certain auto parts.

As the law firm memo notes, President Trump has “signaled his intention to vigorously enforce new tariff requirements and has directed U.S. Customs and Board Protection (CBP) to pursue maximum penalties against violators.”

 Under the Section 592 of the Tariff Act of 1930, the U.S may file a legal action to collect lost revenue and civil penalties for the fraudulent, grossly negligent, or negligent entry of merchandise into the United States by means of material false information or material omission. The U.S. may seek significant penalties as well as the collection of unpaid taxes or duties. Violators who knowingly make false statements to evade tariffs may be subject to criminal penalties, including fines and potential imprisonment.

In addition to potential liability under the Tariff Act, tariff and import noncompliance exposes companies and individuals to potential False Claims Act liabilities. The FCA imposes liability for knowingly submitting false claims for payment to the government and also for knowingly avoiding obligations to pay money to the government (known as “reverse false claim”). There are a number of ways an FCA claim can arise in the tariff context.

U.S. importers must declare, among other things, their goods’ country of origin and value, whether the goods are covered by antidumping or countervailing duties, and the amount of duties owed. The CBP relies on these representations to determine the correct amount of any duties. Importers bear an affirmative duty to use “reasonable care” to ensure the tariff-related information is accurate. Importers who knowingly provide false information to the CBP risk FCA liability. As the law firm memo puts, “because the FCA’s knowledge standard embraces not just actual knowledge but also deliberate ignorance or reckless disregard, taking affirmative measures to ensure reporting accuracy when goods cross U.S. borders is essential to minimizing potential FCA exposure.”

The law firm memo reports that “recent sizeable settlements of FCA actions premised on alleged avoidance of customs duties and import violations reflect increased use of the FCA by both relators and the government.” These FCA liability cases include claims that importers “falsely represented countries of origin and undervalued or misclassified goods to avoid tariff obligations.”

The memo cites several recent examples, noting that these kinds of actions involving alleged violations of trade law obligations “are increasingly common.”

For example, as the law firm memo notes, just one week before President Trump’s April 2, 2025 tariff announcement, Evolutions Flooring and its owners agreed to pay $8.1 million to settle allegations that they violated the FCA by knowingly evading customs duties on wood flooring manufactured in China. In a point that emphasizes the number of different parties who might pursue an FCA claim against an importer, the relator in this case was one of Evolutions’ competitors, alleging that Evolutions submitted false information to the CBP regarding the wood flooring’s manufacturers and country of origin. The U.S. Department of Justice’s March 25, 2025, press release about the company settlement quotes an agency spokesperson as saying that “The department will pursue those who seek an unfair advantage in U.S. markets, including by evading the duties owed on goods imported into this country from China.” 

Similarly, in August 2024, Alexis LLC, a womenswear company, agreed, after the U.S. government intervened, to pay nearly $7.7 million to settle a qui tam action brought against the company by a former employee’s affiliate, alleging that the company had underreported the value of imported goods. The Southern District of Florida U.S. Attorney’s  August 9, 2024 press release about the settlement can be found here.

In September 2020, Linde GmbH, a German industrial engineering company and its U.S. subsidiary agreed to pay more than $22.2 million to settle a relator’s qui tam allegations that the company had knowingly made false statements on customs declarations to avoid paying import duties on material used in building natural gas and chemical plants. The U.S. Department of Justice’s September 25, 2020, press release about the settlement can be found here. The law firm memo notes that the relator in the qui tam action was a former manager of Linde’s U.S. subsidiary, again underscoring the number of different directions from which these kinds of claims can come. The DOJ’s press release notes that as part of the settlement, the relator was to receive $3.7 million.

The law firm memo says with respect to the examples that “these are merely a handful of recent examples of wide-ranging customs based FCA enforcement across multiple industries.” The memo notes further that “not only does the failure to comply with customs requirements carry significant financial risk in the event of an FCA judgment or settlement, but allegations by competitors and whistleblowers can spark lengthy and expensive government investigations.”

The risk of these kinds of customs-related FCA actions means that “international market participants face heightened risk associated with violations of the customs laws, particularly in the near term.” All companies, the memo concludes that all companies involved in international trade “should take action to assess, track, and ensure compliance with updated tariff and customs rules.”

The upshot of the law firm’s lengthy and detailed memo is that in assessing potential liability arising from the U.S. government’s new tariff regime, one significant area of liability risk concerns the False Claims Act and the possibility of competitor, whistleblower, and governmental claims alleging that the company engaged in “reverse false claims” by misrepresenting the country of origin of its goods or underreporting its value. The fact that tariffs are now much more extensive in the past and much more pervasive seems to suggest that the potential for these kinds of claims is even greater than previously was the case.

Readers focused on the potential D&O liability exposures for these kinds of claims as well as the possible coverage under D&O policies for costs incurred in defending and settling these claims will want to refer to my prior posts on the topic, most recently here.

A related issue readers concerned about these topics will want to consider is that at least one court has held that the federal statutory provisions allowing qui tam False Claims Act action is unconstitutional, as discussed here. The district court’s opinion in that case may be an outlier, as numerous other courts have upheld the constitutionality of the FCA’s qui tam provisions. The district court’s opinion is currently on appeal.