Greater Rewards, Broader Application of False Claims Act Should Elicit Importer Caution, Sidley Says

At the same time that trade-related False Claims Act cases cover an increasing number of types of allegations against importers and exporters, the rewards doled out to whistleblowers seems to be on the rise, Sidley Austin said in an April 29 analysis. Discussing increasing trade exposure in FCA cases in part two of a series on the practice (see 2104210028), Sidley said there is a trend of increased payout size. "These factors foreshadow an increase in trade-related FCA actions in the near future,” the firm said.

Based on three settlements in 2020, "the whistleblowers received approximately 18% of the recovered amount for violations of the FCA," the firm said. "Comparing this percentage of whistleblower recovery in 2020 to that of 2015, where the average whistleblower recovery in three cases was approximately 17%, indicates an increase in the portion of the FCA settlements provided to whistleblowers in the international trade context for bringing an FCA case."

With greater awards to the whistleblowers in these cases, including one case involving a $22.28 million settlement, the incentives to file such claims are high. “The possibility of receiving a bigger piece of the settlement pie may encourage would-be whistleblowers,” Sidley said. "Corporate counsel for importers" should "pay particular attention to FCA risks," due to the "greater incentive to be a whistleblower, coupled with the expanded pool of possible whistleblowers in view of case law interpreting" amendments to the FCA,

The trend stems from the Amendments to the Fraud Enforcement and Recovery Act of 2009, said the law firm. Due to the FERA Amendments, “reverse false claims” have been established where importers are being charged for not paying money that otherwise would have gone to the government, thus increasing trade exposure.

The FCA lawsuits also involve a broader set of customs violations since the FERA changes, said Sidley. "Customs violations that have been brought since the FERA Amendments in terms of the type of illicit actions to which FCA liability may attach" include "misrepresentation of origin, misclassification, under valuation, and inaccurate quantity reporting in entry declarations."