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Customs fraud whistleblower lawsuit results in $15M settlement by furniture retailer

Customs fraud Z Galleries

Furniture retailer Z Gallerie agreed to settle allegations made by a whistleblower that the company engaged in customs fraud by falsely classifying its imports from China. (Photo by Nick Bastian)

A furniture retailer agreed to pay $15 million to the federal government to settle charges that it had allegedly engaged in customs fraud and violated the False Claims Act by misclassifying wooden bedroom imports it shipped to the US from China.

The qui tam whistleblower lawsuit against California-based Z Gallerie, which had an estimated sales revenue of $183.5 million last year, was brought by a whistleblower in the e-commerce furniture retail industry, according to the Justice Department.

The qui tam provisions of the False Claims Act allow a private citizen to bring a lawsuit against a company for defrauding the government. The whistleblower then is entitled to receive a reward based on the funds recovered as a result of the lawsuit. The whistleblower in this case will receive $2.4 million.

Z Gallerie’s alleged customs fraud involved misclassifying, or conspiring with others to misclassify, bedroom furniture it imported from China as non-bedroom furniture from 2007-2014. For example, DOJ said, Z Gallerie labeled six-drawer dressers and three-drawer chests as “grand chests” and “hall chests” on customs forms.

Misclassifying certain imports violates “anti-dumping” regulations, which levy taxes on certain imports to protect US manufacturers from foreign companies “dumping” products on US markets for prices well below domestic cost. Imports of wooden bedroom furniture manufactured in China have been subject to the antidumping duties since 2004.

Customs fraud can occur in a variety of other ways:

  1. Falsely undervaluing imported products.
  2. Misrepresenting anti-dumping duty obligations.
  3. Misstating country of origin to avoid anti-dumping duties, or to gain preferential duty status in programs such as the Caribbean Basin Initiative.
  4. Misdesignating country of origin to avoid apparel quotas, thereby causing an underpayment of tariffs.

For more information on how the False Claims Act is used to stop customs fraud, read Phillips & Cohen whistleblower lawyer Erika Kelton’s article in BNA’s International Trade Reporter, Privatizing customs fraud enforcement under the False Claims Act.

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