New trade policies—and particularly tariffs—are at the top of the agenda for President Donald Trump and his new Administration. Indeed, in his first weeks in office, President Trump has already imposed tariffs on major trading partners, proposed a new system of “reciprocal” tariffs that would upend U.S. trade policy, and indicated plans to further restrict Chinese investment in the United States.

Exactly how the Administration intends to ensure compliance with the new tariffs while also achieving its stated goal of reducing the size of the federal workforce remains unclear.¹ One likely avenue is extending the U.S. Department of Justice’s use of the False Claims Act (“FCA”), which officials have already signaled will play an increased role in the implementation of President Trump’s enforcement agenda. The possibility of vigorous FCA enforcement fueled by private whistleblowers further raises the stakes on customs compliance.

The Trump Administration’s Tariffs and Customs Enforcement

Immediately upon assuming office, President Trump ushered in a rapidly changing trade environment. On January 20, 2025, President Trump issued the “America First Trade Policy” memorandum, outlining the immediate trade priorities for his Administration and directing various agencies to prepare reports on a wide variety of trade issues impacting U.S. companies.² That same day, he declared a national emergency concerning the “sustained influx of illegal aliens and illicit opioids and other drugs” from Canada, Mexico, and China, laying the groundwork for new tariffs.³

On February 1, 2025, invoking the International Emergency Economic Powers Act, President Trump issued three executive orders that imposed tariffs on imports from Canada, Mexico, and China.⁴ Those orders imposed a 10 percent tariff on imports from China, as well as 25 percent tariffs on imports from Mexico and Canada except for “energy and energy resources” of Canada, which were subjected to an additional 10 percent tariff.⁵ The China tariff took effect February 4, 2025, and later doubled when President Trump imposed an additional 10 percent tariff on Chinese imports, effective March 4, 2025.⁶ After a 30-day delay, the Canada and Mexico tariffs also took effect March 4, 2025. These tariffs remain in flux, however, as the Trump Administration continues to amend the tariffs’ timing, scope, and possible exemptions. On March 6, 2025, President Trump amended the Canada and Mexico tariffs to (1) exclude goods that qualify for duty-free entry under the U.S.-Mexico-Canada Agreement rules of origin and (2) lower the tariff on potash to 10 percent.⁷

President Trump also signed two proclamations that expand preexisting tariffs on steel and aluminum pursuant to Section 232 of the Trade Expansion Act of 1962 (“Section 232”).⁸ These revised measures (scheduled to take effect on March 12, 2025) will increase the tariff on aluminum products to 25 percent, eliminate all country exemptions and product-specific exclusions, and expand the universe of “derivatives” covered by the Section 232 tariffs.⁹ These proclamations also direct U.S. Customs and Border Protection (“CBP”), the largest enforcement agency of the U.S. Department of Homeland Security and responsible for administering U.S. customs laws, to prioritize reviews of the classification of imported steel and aluminum articles and derivatives, and to impose the maximum penalties permitted by law in case of noncompliance.¹⁰

Additionally, on February 13, 2025, President Trump issued the “Reciprocal Trade and Tariffs” memorandum to various cabinet secretaries and other high-ranking executive officers.¹¹ The memorandum emphasizes the new Administration’s concern over “unfair trade practices” and calls on certain cabinet agencies to develop a plan for increasing U.S. tariffs in response to other countries’ tariffs, tax policies, exchange rates, and unfair practices.¹²

Overview of Customs Enforcement

Section 592 of the Tariff Act of 1930 (“Section 592”) establishes importers’ obligations under U.S. customs laws and penalties for noncompliance.¹³ Among other things, Section 592 prohibits persons from introducing merchandise into the commerce of the United States by means of material false statements or omissions.¹⁴ CBP is authorized to penalize violations resulting from negligence, gross negligence, or fraud, while importers that exercise reasonable care in the importation of goods are not subject to penalties.¹⁵ Where CBP has “reasonable cause to believe” there has been a violation, Section 592 establishes procedures that must be followed to impose a penalty.¹⁶ Such procedures include issuing a “pre-penalty notice”; allowing the importer a “reasonable opportunity” to make representations as to why a penalty should not be issued; and imposing a final “penalty notice” that sets forth the agency’s final determination and the findings of fact and conclusions of law upon which the decision is based.¹⁷

Section 592 provides for different penalty amounts depending on, inter alia, the importer’s level of culpability and cooperation.¹⁸ For instance, the maximum penalty for a fraudulent violation is a fine of up to the domestic value of the merchandise at issue.¹⁹ In cases of negligence or gross negligence, an importer may be subject to a fine of two to four times the unpaid duty amount or the domestic value of the merchandise, whichever is less.²⁰ CBP is also authorized to require the importer to pay the unpaid duty amount in addition to any penalty.²¹

Importantly, the federal government, through the Justice Department, has exclusive authority to bring claims to enforce penalties assessed pursuant to Section 592.²² The U.S. Court of International Trade (“CIT”) has “exclusive jurisdiction of any civil action which arises out of an import transaction and which is commenced by the United States” to recover, inter alia, customs duties and civil penalties under Section 592.²³

Overview of the False Claims Act

The FCA provides the primary framework for preventing individuals and companies from defrauding the federal government, either by fraudulently claiming payment from the government or by avoiding payment owed to the government (a “reverse false claim”).²⁴ The FCA imposes significant liability on persons who fraudulently make false claims meant to appropriate government assets, including civil penalties, treble damages, and, where applicable, whistleblower attorneys’ fees.²⁵

Under the FCA, a cause of action may be commenced by either the Justice Department or a private individual (i.e., a whistleblower, known as a “relator”).²⁶ Under the latter approach, known as a qui tam action, the relator’s complaint remains under seal and out of public view until the Justice Department, which is notified of the matter when the complaint is filed, decides whether to intervene in the case.²⁷ If it does, the United States takes the place of the relator and assumes primary responsibility for prosecuting the case.²⁸ Depending on a whistleblower’s contribution to the prosecution of the action, they may be entitled to receive as much as 30 percent of the proceeds or settlement amount. The potential to recover such sums strongly incentivizes whistleblowers to disclose suspected wrongdoing under the FCA.

The Trump Administration’s Use of the FCA to Punish Customs Duty Evasion

The FCA is one of the Justice Department’s primary and most effective tools for protecting the federal fisc from fraud, waste, and abuse. The Justice Department reported a total recovery of $2.9 billion in FCA settlements and judgments in the 2024 fiscal year, and the highest-ever number of qui tam suits brought by whistleblowers.²⁹ It should therefore come as little surprise that the Trump Administration has stated its intention to further leverage the FCA to advance its enforcement priorities in a number of different areas, including trade. Indeed, in a recent speech, Michael Granston, the Deputy Assistant Attorney General in the Civil Division’s Commercial Litigation Branch, discussed the Trump Administration’s commitment to aggressively enforcing the FCA across various industries.³⁰ In doing so, he emphasized that the FCA has been and will continue to be a powerful tool in combating evasion of customs duties owed to the federal government. ³¹These remarks not only signal how the Trump Administration may seek to enforce its trade policies but also serve as an invitation to the relators’ bar to initiate FCA claims alleging customs duty evasion.

There is ample precedent for using FCA claims to penalize customs fraud. As noted above, such cases typically arise as reverse false claims actions in which a party is alleged to have knowingly and improperly avoided paying money owed to the federal government, such as customs duties.³² Such cases can also be described as “wrongful retention cases.”³³ For example, in U.S. ex rel. Doe v. Staples, Inc., 773 F.3d 83 (D.C. Cir. 2014), WilmerHale successfully defended the Appellees in a qui tam action arising from the claim that office-supplies retailers had mispresented the country of origin of Chinese pencils to avoid paying antidumping duties.³⁴

In recent years, the Justice Department has been increasingly active in pursuing trade-related FCA cases involving customs fraud, some resulting in significant monetary awards. The following is an illustrative list of recent trade-related FCA actions:

• In December 2012, a Japanese company paid $45 million to settle an FCA action in which it was alleged to have knowingly misrepresented the country of origin of certain goods to evade customs duties.³⁵
• In February 2015, importers paid in excess of $3 million to settle FCA claims that they fraudulently evaded antidumping and countervailing duties on Chinese-made aluminum imports.³⁶
• In September 2020, a German engineering company and its U.S. subsidiary agreed to pay $22.2 million to settle allegations that they violated the FCA by misrepresenting imports in order to avoid customs duties. Of this amount, the relator received approximately $3.7 million.³⁷
• In July 2021, two U.S. clothing companies and their owner admitted to violating the FCA by employing yearslong false invoice schemes that underreported the true value of imported goods to avoid customs duties. The companies and their owner agreed to pay a total of $6 million to settle the civil allegations, on top of related criminal penalties.³⁸
• In January 2023, a vitamins and nutritional supplements manufacturer admitted to violating the FCA by engaging in a fraudulent, years-long scheme to misclassify thousands of products imported from China in order to avoid customs duties. The California-based company agreed to pay the government $22.8 million to resolve the matter, of which the relator received more than $4.5 million.³⁹
• In December 2023, a furniture importer paid $798,334 to settle an FCA action alleging the importer had misrepresented the value of merchandise imported into the United States from China to evade customs duties.⁴⁰
• In August 2024, a womenswear brand agreed to pay the government $7.6 million to settle allegations that it violated the FCA by underreporting the value of imported apparel and the customs duties owed on such articles.⁴¹
• In August 2024, two Wisconsin-based companies that sold wiring and power distribution products agreed to pay more than $10 million to settle allegations that the companies violated the FCA by evading customs duties through a false-invoice scheme that undervalued goods imported from China.⁴²

Given the sharp increase in tariff rates in recent weeks along with the Trump Administration’s stated commitment to using the FCA to enforce the tariffs, we expect the trend of increasing trade-related FCA enforcement to continue. And although the Justice Department has typically pursued FCA penalties in cases involving clear customs fraud, we might expect the government to apply the FCA in more novel ways to fulfill its enforcement mandate.

Legal Developments in Trade-Related FCA Cases

While the Justice Department may look to bring FCA cases built on customs violations, there are significant and unresolved questions about the viability of FCA claims in the customs context.⁴³ Among these are several fundamental questions of subject matter jurisdiction that are currently on display in Island Industries, Inc. v. Sigma Corp., an FCA case involving customs duties that is currently pending in the U.S. Court of Appeals for the Ninth Circuit.⁴⁴

In that case, the relator, Island Industries, brought reverse false claims against business competitor Sigma, alleging that Sigma submitted false statements to the United States for the purposes of avoiding an obligation to pay antidumping duties owed on imported pipe materials. Sigma was found liable following a jury trial in the U.S. District Court for the Central District of California and ordered to pay more than $26 million in damages and penalties based on its avoidance of $8 million in customs duties.

On appeal, the Ninth Circuit requested that all parties and the United States, appearing as an amicus curiae, file supplemental briefing on two issues of subject matter jurisdiction that had not been raised during merits briefing. Specifically, the court first asked whether the appeal must be dismissed for want of subject matter jurisdiction based on Ninth Circuit precedent establishing the CIT’s exclusive jurisdiction over FCA cases brought to recover damages stemming from unpaid duties.⁴⁵ And second, the court asked whether subject matter jurisdiction fails because Section 1592, not the FCA, provides the exclusive means for recovering unpaid duties.⁴⁶

These questions illustrate the statutory tension between the FCA and the comprehensive customs legal regime. That is, while it is well established that federal district courts have jurisdiction over FCA claims, that statutory grant of jurisdiction appears to clash with the CIT’s “exclusive jurisdiction” in cases involving customs duty evasion.⁴⁷ While resolution of these questions remains pending, interested parties should take stock of the potential implications of the Ninth Circuit’s forthcoming decision, which could have considerable consequences regardless of how the court rules. If the Ninth Circuit’s decision limits the unrestrained use of the FCA by whistleblowers to bring claims in district courts based on customs duty evasion, it could throw a wrench in Justice Department efforts to use the FCA as a tariff-enforcement mechanism. However, the opposite could also occur, opening the floodgates for trade-related FCA litigation.

Key Takeaways

The newly imposed tariffs present challenges to businesses to ensure compliance with the rapidly changing regulatory landscape and significant work for the agencies tasked with enforcing the U.S. trade and customs laws. The current trade environment presents heightened risks for all importers. With rising tariffs, importers may have increased incentives to mitigate tariff exposure, carrying heightened risks of customs noncompliance. Given that the Trump Administration has indicated that it intends to use the FCA for customs enforcement, companies should be mindful of the following:

• FCA enforcement in customs matters is a real possibility. With President Trump continuing to threaten and impose tariffs against key U.S. trade partners, the need for stricter enforcement of U.S. customs laws will become a more pressing concern. Interested parties should not overlook the distinct possibility that the government may rely more heavily on the FCA as a tool for enforcing customs violations.
• Concerns and increased scrutiny of federal agency spending resources and priorities will likely not impede the use of the FCA. The Trump Administration has narrowed the scope of the Justice Department’s enforcement priorities to align with President Trump’s policy objectives on trade, immigration, illegal drugs, and diversity initiatives, likely shrinking the agency’s employee footprint. But even if the Justice Department sees a reduction in its workforce, the FCA’s financial incentives for whistleblowers would allow FCA enforcement to continue apace, fueled by private parties pursuing FCA claims.
• Companies should take proactive measures to mitigate the risk of FCA liability. Importers across all industries should pay close attention to their customs compliance programs given the Trump Administration’s intense focus on tariffs and their enforcement. Among other things, companies should (1) evaluate their policies and practices for trade compliance; (2) ensure the integrity of key trade data elements like country of origin, tariff classification, and valuation; (3) review their customs declarations for accuracy; (4) be mindful that with an increased use of FCA litigation and investigations, noncompliant companies could be faced with significant financial and operational burdens; and (5) promote a culture of compliance whereby potential relators feel comfortable and encouraged to raise concerns within the company, rather than proceed directly with a qui tam.
• Be aware of the practical consequences of having to face FCA claims. Importers and other interested parties should also understand what practical effects might arise from an increase in FCA investigations and claims. As a general observation, the move would mark an increase in theories of liability—that is, the FCA would be supplementary to those criminal and civil causes of action that importers already face. The outcome of Island Industries, Inc. v. Sigma Corp. could greatly affect the viability of using FCA claims as a means of customs enforcement. Additionally, FCA cases—which often drag on for years—have distinct features that make such claims particularly onerous for responding parties.
• FCA cases can entail significant investigative and litigation costs and lead to severe financial penalties. There are also the exorbitant penalties and increased financial burdens. In addition to traditional compensatory damages, the FCA provides for treble damages, significant fines, and attorneys’ fees, enabling the government and private persons to recover hefty sums. And unlike certain enforcement actions brought against importers, there is no requirement to demonstrate specific intent to defraud the government or relator to prevail in an FCA claim. Similarly, FCA actions are more judicially focused in nature, meaning whether at the investigative or litigation phase, an FCA claim is potentially far more costly and burdensome than a typical civil penalties action, such as those brought under Section 592.

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WilmerHale is following these matters closely and is prepared to provide updates on legal and political developments affecting the possibility of increased FCA enforcement. WilmerHale is also available to advise clients on best practices for avoiding FCA exposure, including building and enhancing customs compliance programs in light of the intense focus on trade-related issues.