With the second Trump administration holding the reins of the executive branch, companies should brace for a renewed focus on trade enforcement. The administration has already begun to expand tariffs on a variety of items imported from key trading partners, and these expanded tariffs mean not only higher costs but also an intensified scrutiny of importers’ compliance, which may result in increased customs-based False Claims Act (FCA) actions and other enforcement efforts.
Mere weeks into his second term, US President Donald Trump was the first president to utilize an International Emergency Economic Powers Act (IEEPA) provision to issue executive orders immediately imposing tariffs following the declaration of a national emergency related to national security, foreign policy, or the economy. On February 1, 2025, President Trump imposed tariffs on goods from Mexico, Canada, and China based on assertions of a surge of illegal migrants and drugs into the United States from those countries.
While the actions against Canada and Mexico have been paused for 30 days while the countries negotiate, the actions against China became effective on February 4. In addition to imposing a blanket 10% tariff on nearly all Chinese-origin imports, the action also eliminated the de minimis entry type for Chinese goods, exposing more imported merchandise to heightened tariff action. Following significant delays at the ports, the de minimis repeal was then subsequently also paused on February 5 until “adequate systems are in place to fully and expediently process and collect tariff revenue . . . for covered articles otherwise eligible for de minimis treatment.”
We do not expect tariff implementation under this administration to end here as President Trump recently announced a plan to impose so-called “fair and reciprocal” trade tariffs on major US trading partners and has suggested that his administration will impose additional import tariffs on specific types of goods, such as semiconductors and pharmaceuticals, in the near future.
Moreover, beyond executive action, the US administration may work to implement tariffs through the legislative branch. Throughout the election, President Trump proposed lowering the corporate tax rate in order to encourage domestic production of goods and suggested that the costs of this tax reform be offset by increased revenue from expanded tariffs via the process of “reconciliation.”
Other legislative means, including Sections 201 and 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962, allow for targeted remediation to identified unfair trade practices or national security concerns, often focusing on specific industries, products, or countries of origin, and were utilized by President Trump during his first administration. See our prior LawFlash for a discussion of the various tools the US administration has at its disposal to impose tariffs.
The FCA is used to combat fraud against the federal government. While the FCA is typically viewed as a statute impacting government contractors and those in the healthcare industry submitting Medicare or Medicaid claims, it has increasingly been used against importers—even those with no connections to government contracting or the healthcare industry—for alleged customs violations.
FCA cases based on alleged violations of customs laws are brought under FCA Section 3729(a)(1)(G), also known as the “reverse false claims” provision, which prohibits the “knowing” avoidance of a government payment obligation. This knowing standard is defined broadly to include not only actual knowledge but also deliberate ignorance and reckless disregard of the truth or falsity of the information. As such, specific intent to defraud is not required.
Perhaps the most unique aspect of the FCA allows so-called “whistleblowers,” known as qui tam relators, to not only file but also litigate alleged FCA violations on behalf of the United States. These relators receive a portion or bounty of any recovered funds, which creates a strong financial incentive for relators and their counsel. In fact, the bulk of the US Department of Justice’s (DOJ’s) FCA docket is made up of relator-initiated cases. See our LawFlash describing the DOJ’s fiscal year 2024 FCA statistics for further details.
Traditionally, qui tam relators were insiders, such as current or former employees of a company. Presently, relators come in all stripes and include “professional” relators who comb data for alleged FCA violations and even competitors, which has been a phenomenon especially with respect to customs-based FCA claims.
FCA cases initiated by relators are filed under seal to give DOJ the opportunity to investigate the claims and decide whether to intervene and take over litigation of the matter. During the seal period, or prior to complaint filing in the case of DOJ-initiated cases, the government’s use of certain devices—such as a Civil Investigative Demand (CID) or an agency subpoena—may be the first indicators of FCA allegations to a company.
In the context of international trade, alleged FCA violations often fall within the following categories: (1) undervaluing the imported product, (2) misrepresenting the classification or type of imported product, and (3) misrepresenting the country of origin of the imported product.
Given the ramifications of a liability determination under the FCA, including treble damages and per-claim monetary penalties, many FCA suits that are not dropped or dismissed prior to trial resolve via settlement. In the customs context, alleged FCA violations have resulted in a number of multimillion-dollar settlements by importers, including engineering and manufacturing companies, apparel companies, and other sellers of imported goods.
While the constitutionality of the FCA’s qui tam provision is currently facing renewed challenges (as described in our earlier LawFlash) and the jurisdiction over customs-based FCA claims also has resurged recently (as discussed in this LawFlash), neither is likely to deter continued relator and DOJ pursuit of alleged import violations under the FCA. In sum, we have seen an increase in customs-based FCA cases in recent years and anticipate that increased tariff activity by the administration will result in heightened activity in the FCA space as well.
In addition to dealing with FCA allegations, expanded tariffs could subject importers to other enforcement risks.
Importers may see enhanced scrutiny by US Customs and Border Protection (CBP) of their imports to determine if entry summary data is correct. CBP may reach out to an importer for additional information about imported merchandise through either a CF-28 Request for Information or a CF-29 Notice of Action.
Section 592 of the Tariff Act of 1930 (19 USC § 1592) prohibits importing or attempting to import merchandise by means of material omissions or false and material documents or electronic data. This statute authorizes CBP to impose penalties for customs law violations from fraud, gross negligence, or negligence. Importers can face liability under Section 592 even when the government does not lose any duties or other revenue, but violations where there is a loss can subject an importer to penalties up to 8x that loss.
It is important for importers to respond to any CBP inquiry and understand that there are methods for contesting a CBP decision (which vary depending on whether liquidation has occurred) and ways to mitigate and obtain relief from CBP-imposed penalties.
There are also numerous federal laws that criminalize customs violations, with penalties ranging from monetary fines to imprisonment, including the following:
These various criminal statutes give the government an expansive toolbox to investigate and prosecute importers.
The US administration’s aggressive stance on trade enforcement has been consistent, with additional expanded tariffs and stricter oversight on the horizon. Companies importing goods and materials should anticipate greater scrutiny from CBP and DOJ and increased activity by qui tam relators, and may want to consider ways to mitigate such risks and defend themselves should the need arise. For further information on this subject, please refer to our recent webinar; materials can be requested from Kate Koster.
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