Articles Posted in Customs Fraud

It is difficult to imagine looking for a woman’s dress and NOT shopping at JC Penney’s, Belk’s, Sears, Nordstrom’s, Lord and Taylor or online at “overstock.com”. Yet, to avoid purchasing clothes that were manufactured overseas, and imported to the United States under false pretenses, one would have to find somewhere else to shop to be completely sure. Motives, Motives Far East, Richard Stotter, and Barry Blikstein have all agreed to pay the federal government $13,375,000 to settle a False Claims Act case. The various defendants are alleged to have “undervalued” their imports to avoid paying millions of dollars in tariffs. The recent settlement is the largest customs fraud case ever resolved in New York. Interestingly, the settlement follows a similar settlement in 2014 by Dana Kay and Danny & Nicole, also importers of women’s dresses, in the amount of $10 million. Thus, in less than two years, dress producers have paid over $23 million to the federal government to settle False Claims Act cases involving the underpayment of applicable duties.

The fraudulent scheme was well hidden in these closely held corporations. The scheme was fairly simplistic in that Motives would supply a commercial invoice to US Customs officials declaring the value of the imported clothing items without disclosing that a separate payment was made to the factory for the same items. This fraudulent procedure, referred to as “undervaluing”, went on for over 10 years. In the case of Motives, the procedure involved preparing a “cost sheet” pricing out the cost of a particular garment and then deducting as much as $2.50 per garment BEFORE calculating the customs duty owed (generally around 24%) and then adding the $2.50 back into the amount to be paid for the garment. This scheme would result in ripping off Uncle Sam by between $.55 and $.75 per garment; however, since Motives was importing millions of dresses, skirts and other men’s and women’s garments, the fraud amounted to a significant loss to United States taxpayers.

“Customs fraud is a somewhat intricate area as there are many ways for an importer to “value” the imported product; however, this was a fairly straightforward fraud”, said Michael D Fitzgerald, a lawyer in Eatontown representing the whistleblower who initiated this case under the federal False Claims Act.

The names are as American as apple pie — J.C. Penney’s, Belk’s, Nordstrom’s and Lord & Taylor. The clothes sold in these stores that were manufactured by Dana Kay and Danny & Nicole and its affiliate companies, however, were made overseas and imported to the U.S. under false pretenses. Now Dana Kay and affiliates have agreed to pay the federal government $10,000,000 to settle a False Claims Act case in which they are alleged to have fraudulently valued their imports in order to avoid millions of dollars in tariffs. This is the largest Customs Fraud case ever settled in New York.
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Kid Brand announced the termination of two executives because of problems involving underpayment of customs duty on furniture. The New Jersey company appears to owe as much as $7 million to U.S. Customs.
The allegation against the company, and subsidiary LaLobi, relates to duty that should have been paid on furniture manufactured in China. The duty is owed because of what is referred to as “anti-dumping” provisions. “Dumping” is a practice where a manufacturer sells a product at or below the actual production cost. The Customs Service imposes the duty to “level the playing field” for U.S. manufacturers.
It has not yet been disclosed how the information came to the attention of Custom officials. However, if the information was brought to the officials’ attention by a “whistleblower” the Federal Government will be paying a “relator fee” of up to 30%. It is unusual for the government to pay the full 30%. Rewards of 15-20% are not unusual. If a relator is involved a reward of around $1.4 million can be expected.