Wholesaler to Pay $1 Million in Settlement Under the False Claims Act for Scheme to Avoid Paying Customs Duties
Photo credit: Leslie Rose Photography
On October 3, 2017, the Acting Manhattan U.S. Attorney announced that it settled claims under the False Claims Act (“FCA”) with the Pennsylvania-based clothing wholesaler Notations, Inc. The action was initiated by a whistleblower, who filed an action against the companies in January 2013 under the FCA’s qui tam provisions, which allow private individuals to bring FCA claims on behalf of the United States, and receive awards of 15% to 30% or the total amount collected in a successful case. The United States intervened in the action in July 2016.
In the settlement, Notations admitted and accepted responsibility for failing to take action in response to multiple warning signs that its business partner, Yingshun, was paying less in import duties than it should have been paying. Yingshun, which imports clothing from China, submitted false and fraudulent invoices to U.S. Customs and Border Protection (“CBP”), showing prices for imported garments that were discounted by at least 75 percent, thus reducing the corresponding amount of import duties owed on the clothing to CBP.
Warning signs that Yingshun’s business practices were fraudulent include the fact that Yingshun’s commercial invoices lacked basic information such as the name and address of the invoice recipient. This problem was flagged by Notation’s bank, yet Notations did not investigate or request changes to Yingshun’s documentation. Further, Notations failed to verify that Yingshun’s procedures for importing clothing conformed with applicable law, and failed to verify whether Yingshun was filing truthful and accurate documents with CBP.
Notations agreed to pay $1 million in damages and to implement a written compliance policy, including employee education on identifying red flags in import transactions and measures to report all potentially fraudulent conduct to CBP.
As noted by Homeland Security Investigations Special Agent Melendez, who assisted in the investigation, “[e]vading the payment of customs duties to increase profits is not a victimless crime; it has a negative effect on the U.S. economy and law-abiding importers.” Utilization of the FCA is therefore an important part in preventing these negative consequences. Likewise, increased use of the FCA and whistleblower provisions in wildlife laws could also greatly increase detection and prevention of wildlife trafficking.
Individuals and organizations that import wildlife products into the United States are subject to the same requirements as Notations and Yingshun. Proper training of CBP officials to detect illegal trafficking schemes such as falsely labeled products, as well as increasing education on whistleblower rights in the wildlife crime context, would boost detection of illegal importation of wildlife products. Thus, wildlife laws with whistleblower provisions, such as the Lacey Act, and the FCA are essential tools in preventing wildlife trafficking.
Whistleblowers are an indispensable part of detecting and stopping such fraud against the government, and this settlement is an important step in holding accountable those that engage in, or even contribute to, customs fraud, including in the context of wildlife trafficking.
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May 9, 2025
