Trade Fraud: the Wild, New Frontier of White Collar Crime
19 ORE. REV. INT’L LAW 1 (2018)
93 Pages Posted: 29 Jun 2018
Date Written: June 15, 2018
For this article, we have constructed a database of all trade fraud cases pursued in the United States between 2000 and 2016. While such a database would appear to be readily available, it is not because of inconsistencies in reporting and incomplete government data sets. Our database is shows that trade fraud cases brought by the U.S. Department of Justice increased nine-fold between 2000 and 2016. Forty-two percent of these cases have been criminal prosecutions, while fifty-eight percent have been civil cases. All civil cases have been brought under the civil False Claims Act (FCA), and almost every FCA case has been initiated by relators under the FCA’s qui tam provisions. All trade fraud cases fall into two types of fraud: misrepresentations regarding the nature of products imported, and misrepresentations regarding a product’s country of origin. This article discusses the characteristics of each type of fraud and the practical and policy implications of pursuing them.
We discuss how, in today’s global world where international trade permeates every economic exchange, there is tremendous financial incentive for dishonest businesses, individuals and countries to lie about what they import, receive, or sell. Importers, countries and related businesses can avoid millions of dollars in duties and tariffs as well as inspection of defective products, simply by falsifying what is being imported or where goods are from. We identify the variety of stakeholders who are injured when trade laws are flouted and import duties avoided. Honest businesses are hurt by dishonest competitors, consumers are exposed to unsafe products, industries suffer economic losses because of companies that dump products and engage in predatory pricing, and a country’s treasury is robbed of millions of dollars in import duties.
Focusing on the use of the FCA to pursue trade fraud, we discuss how the FCA, long recognized as the premiere tool for pursuing fraud upon the federal and state governments, can be deployed effectively by the U.S. Department of Justice and by relators against trade fraud. We also highlight the implications of FCA exposure for businesses, outlining how suspicious pricing (“prices too good to be true”) coupled with sloppy import protocols by suppliers and the FCA’s “reckless disregard” mens rea, subject every business engaging in the import of goods as well as in the purchase, sale or marketing of imported goods, to liability under the FCA. We identify the steps businesses can take to ensure that that their corporate compliance plans, inhouse training, and internal investigation protocols adequately address their exposure for trade violations.
Lastly, this article identifies steps policymakers, particularly the U.S. Departments of Justice and Homeland Security, could take to enhance the FCA’s effectiveness in combatting trade fraud. These steps include: more effective coordination of trade fraud detection and prosecution efforts among the U.S. Customs and Border Protection Agency, the U.S. Departments of Homeland Security, the U.S. Department of Justice, and the Department of Commerce (DoC) including DoC’s International Trade Administration and International Trade Commission; deployment of dedicated specialists for trade fraud similar to the “Centers of Excellence” created by the Department of Homeland Security and the Customs and Border Protection Agency; establish a full and open data base for trade law claim submissions similar to databases available in the Medicare area; cost-free, specific steps the U.S. Administration of Courts, U.S. Department of Justice and PACER could take to improve consistent and centralized reporting of trade fraud matters.
This article makes the argument that whatever the merits of a free-trade versus protectionism debate, trade fraud should be aggressively pursued. Prosecuting trade fraud is a politically neutral way to ensure fair trade. By pursuing the millions of dollars of trade fraud being committed daily by importers, the United States can avoid a trade war and ensure that global exchanges are fair to all. Lost in the “trade war rhetoric” are the simple facts that massive trade fraud is occurring every day and little is being done to stop it. This article discusses how highly effective tools such as the civil False Claims Act could be deployed to effectively combat this fraud, and along the way, provide an alternative to trade war as the means to achieve fair trade.
Keywords: Trade war, Trade fraud, Trade policy, Civil False Claims Act, White collar crime, Prosecution of trade fraud, Fair trade, Qui tam, Relators, Corporate compliance, tariff fraud, tariff enforcement, trade enforcement, import fraud, import duty fraud, import duty enforcement
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