DOJ Considering Adding Corporate Integrity Agreements to FCA Settlements, Attorneys Say

The attorneys noted that the Trump administration has clearly made trade enforcement a priority, evidenced by the standing up of the Trade Fraud Task Force (see 2509180045). The FCA is one way the task force is looking to bring new enforcement cases, in the form of "reverse" false claims actions, where a company or individual is accused of submitting a false claim or statement meant to lower the amount of duties they otherwise owe the government.

During the webinar, Jesse Witten said there's been a large uptick in new FCA cases, with over 1,400 new FCA matters opened in 2024, with most of them coming from whistleblowers who are entitled to file suit under the statute. Witten said, ordinarily, there will only be between 700 and 800 new FCA cases opened per year covering customs fraud and other industries.

Witten noted that the FCA "gives the government very broad investigative powers to serve what are called civil investigative demands," which are "demands for documents," and also let the government "take investigatory depositions." While he said this is a "bit unusual," since the government ordinarily can't compel a deposition, it can compel depositions of the defendant or third parties under the FCA.

DOJ also will do "witness interviews," and those can be arranged with the defense counsel after a subpoena has been served. Witten said enforcement authorities can even conduct surprise interviews with certain company executives, noting that he worked on cases in which federal agents will arrive at someone's house late, at 6 p.m. or 7 p.m., for an interview or arrive at many different witnesses' homes at the same time. Witten said he's also had a case in which a government agent had a witness wear a recording device to record a conversation with other company executives.

Witten added that FCA investigations "take a long time," noting that the longest investigation he worked on took 10 years before it was settled. "There's not a whole lot you can do as a defendant to move things along" other than agree to settle, he said, adding that the government's "rule of thumb" regarding settlements is to get the defendant to pay two times whatever the injury to the government is.

In the trade context, Witten said this figure "can far exceed the profit margin from the sale of the products that are being imported." The two-times-the-injury rule is most ordinarily found in the defense and health care contexts. For the trade context, the government may use "ability-to-pay settlements," which are "very exacting" and can "bring the defendant to the brink of bankruptcy," Witten said.

Another element of FCA settlements involves additional elements, such as "corporate integrity agreements" or monitoring clauses. While these haven't really been used in the trade context, Witten said that he's talked with officials at CBP who said "they're trying to develop some templates for corporate integrity agreements to be part of settlements." He also noted that DOJ has an internal process for settling FCA cases that requires the agency attorneys to make a decision on whether separate claims will be brought against any individual executives themselves.

Peter Baldwin, another Faegre Drinker partner, said he expects the number of trade-related FCA settlements to increase by the end of the year, particularly with the end of the government shutdown. He expects "over the course of the next few weeks, you will have a number of settlements announced" and that 2025 and 2026 are going to be record years for the FCA.

Baldwin added that DOJ enforcement is not country- or industry-specific, noting that companies shouldn't think they are safe from FCA liability simply because the amount at issue is small or their product is not of strategic importance.

To illustrate this, Witten noted that one of the cases he's working on is for an importer of plastic products that "are essentially commodity products." The importer said the goods' country of origin was Hong Kong, but the government said the products were made in China and accused the importer of misclassifying the goods. The result has been a three-year FCA investigation, and Witten said he suspects the origin of the issue was a whistleblower, due to the level of depth of information on the importer's business contained in the complaint.

Witten said the investigation has led to a "sizable document production" from the client, the deposition of the CEO and the interview of former employees. He added that it's been "difficult" to actually prove the goods were made in Hong Kong, since the goods were made over five years ago and involve thousands of products. Amidst the investigation, the U.S. added another claim against the company that imports for which the company said were actually from China were misclassified.

Baldwin also noted that DOJ has increasingly been using an "undervaluation" theory more for rooting out FCA enforcement, paying attention to situations in which importers reduce their duty liability by undervaluing the goods being imported. The attorney said "DOJ is becoming more active in terms of pursuing valuation theories," adding that he has increasingly seen foreign manufacturers and facilitators "fairly blatantly offering to undervalue goods to reduce the amount of tariffs that importers are paying."