Part 2 of 4 in a series drawn from the Barnes & Thornburg white paper "False Claims Act and Criminal Enforcement in the Tariff Context: Practical Guidance for Companies, Corporations, and Executives"

Importers often assume that a customs problem stays a customs problem: the entry was wrong, CBP assesses a penalty under Section 1592 of the Tariff Act, and the exposure is bounded by the merchandise.

The current enforcement environment does not work that way. A single set of facts can support civil fraud liability with treble damages, felony charges, money laundering and RICO exposure, and — for public companies — securities liability.

The False Claims Act and Customs

The False Claims Act (FCA ) is the government's primary civil tool for fraud involving federal funds, and it is usually associated with healthcare and defense procurement. Two theories apply in the tariff context.

Under a direct false claims theory, a company submits — or causes the submission of — a false claim to the government. A customs entry that materially understates the duties owed is the paradigm case.

The reverse false claims theory is the one that makes this area dangerous. Rather than targeting a request for government money, it reaches anyone who knowingly conceals or improperly avoids an obligation to pay the government. Unpaid or underpaid customs duties are exactly that kind of obligation — Congress amended the statute in 2009 to confirm as much. The consequence is that efforts to reduce tariff obligations through fraud can trigger liability even absent an affirmative false filing.

The Ninth Circuit's 2025 decision in Island Industries Inc. v. Sigma Corp. is the seminal appellate decision affirming this theory in the customs context. It is also a useful lesson in FCA arithmetic. The jury found misclassification on 205 separate entry summary forms, producing trebled damages of $24,256,638 plus $1,824,145 in per-claim penalties — a judgment exceeding $26 million on roughly $8 million in unpaid duties.

That multiplier is the point. Because each entry constitutes a separate claim, importers with high entry volumes face aggregate penalties that bear little relationship to the duties at stake. And materiality, which might otherwise limit exposure, offers little protection: misrepresentations of origin, classification, or valuation are virtually always material, because they directly determine what is owed.

"Knowingly" Is a Lower Bar Than Most Importers Assume

Liability requires that a company act "knowingly" — but the statute defines that term to reach past actual knowledge, covering deliberate ignorance and reckless disregard as well. No proof of specific intent to defraud is required.

The Supreme Court sharpened this in United States ex rel. Schutte v. SuperValu Inc. (2023), holding that what matters is what the company itself believed, not whether a reasonable person "might have known." A company that continued using a classification it privately believed was wrong cannot escape liability by constructing a defensible argument after the fact.

That collides with the reasonable care obligation importers owe on entry, which is a continuing duty — it applies anew each time and requires importers to account for changes in law, new CBP rulings, and evolving interpretations. A classification adopted in good faith years ago can become indefensible as intervening rulings and tariff schedule amendments accumulate around it.

It Isn’t Just Classification and Valuation

Misclassification, undervaluation, country-of-origin misrepresentation, and AD/CVD evasion are the categories most importers build controls around. DOJ's enforcement typologies extend well past them — into shell importers of record, free trade agreement "swapping," broker conduct, manifest data, drawback claims, port shopping, and product-safety certifications.

Forced labor shows how far the perimeter sits from where most programs draw it. Criminal liability under 18 U.S.C. § 1589(b) reaches anyone who knowingly benefits from participation in a venture engaged in forced labor while knowing or recklessly disregarding that fact. That exposure reaches past the importer to down-chain distributors and retailers.

A Civil Case Can Turn Criminal

Civil FCA liability is only part of the picture. Criminal charges here have been pursued for smuggling, conspiracy to defraud the United States, wire fraud, and false statements. Because the Trade Fraud Task Force was built to coordinate DOJ's Civil and Criminal Divisions — and because the Ceratizit settlement expressly reserved criminal charges — a civil investigation may be accompanied by, or develop into, a criminal one at any time. Beyond that sit two sources of exposure that rarely appear in trade compliance planning:

Money laundering and RICO. The customs smuggling and false-entry statutes are "specified unlawful activities" for money laundering purposes, which means ordinary post-importation transactions — reselling misclassified goods, moving tariff savings to a parent company — can become chargeable conduct. RICO adds a conspiracy theory reaching executives who never committed the underlying fraud but agreed to further the scheme.

Securities law. For public companies, trade fraud can implicate the books-and-records and internal-control provisions of the federal securities laws, along with periodic disclosure obligations.

The FCA Reaches Individuals

The FCA's definition of "person" includes individuals as well as entities, and DOJ has been explicit that pursuing culpable individuals is a priority in every corporate investigation. Exposure is most acute where misconduct is pervasive rather than isolated, where senior management directed it or knew and failed to stop it, or where it occurred without an effective compliance program.

Under SuperValu, an executive who suspected entries were inaccurate and consciously chose not to investigate may face personal liability even if a reasonable person might not have known.

Where to Start

A useful exercise: identify the classifications in your entry data that produce the largest duty savings, and ask what the company actually believed when it adopted them — and whether anything has changed since. That is the question the government will ask.

Our white paper, “False Claims Act and Criminal Enforcement in the Tariff Context,” sets out the full framework: each liability provision, the damages and whistleblower mechanics, every enforcement typology with the conduct that triggers it, the money laundering and securities exposure summarized above, and the roles of DOJ's newly created components, CBP, HSI, Commerce, and the EAPA process.