Samsung Electronics America Agrees to Pay $2.3 Million to Resolve False Claims Act Allegations

Samsung Electronics America Inc. (Samsung) has agreed to pay $2.3 million to resolve allegations that it caused the submission of false claims for products sold on General Service Administration (GSA) Multiple Award Schedule (MAS) contracts in violation of the Trade Agreements Act of 1979 (TAA), the Justice Department announced today. Samsung is an electronics distributor and marketer headquartered in Ridgefield Park, New Jersey.

“The Department of Justice is committed to protecting public funds and guarding against abuse of federal procurement programs,” said Assistant Attorney General Stuart F. Delery for the Justice Department’s Civil Division. “This settlement upholds important trade priorities by ensuring that the United States only uses its buying power to purchase from countries that trade fairly with us.”

MAS contracts are contracts awarded by GSA to multiple companies supplying comparable products and services. Once GSA negotiates and awards the contract, any federal agency may purchase under it. Like many other federal procurement contracts, GSA MAS contracts require the vendor to certify that all products it offers for sale comply with the TAA. The TAA generally requires the United States to purchase products made in the United States, or another designated country with which the United States has a trade agreement.

Samsung has authorized resellers who hold GSA MAS contracts. Samsung certifies to the authorized resellers that Samsung will provide TAA compliant products and the resellers in turn list those products on the resellers’ GSA MAS contracts. The settlement resolves allegations that, from January 2005 through August 2013, Samsung caused resellers of its products to sell items on their GSA MAS contracts in violation of the TAA by knowingly providing inaccurate information to the resellers regarding the country of origin of the goods. The United States alleges that Samsung represented to the resellers, who in turn represented to federal agencies, that the specified products were made in TAA designated countries, generally Korea or Mexico, when the specified products were in fact manufactured in China, which is not a TAA designated country.

“It is unacceptable to sell unauthorized foreign electronics to the United States,” said GSA Acting Inspector General Robert C. Erickson. “We expect all companies doing business with the federal government to comply with contracting laws.”

The allegations resolved by the settlement were originally brought in a lawsuit filed by Robert Simmons, a former Samsung employee, under the False Claims Act’s whistleblower provisions, which permit private parties to sue for false claims on behalf of the United States and to share in any recovery. Mr. Simmons’ share of the settlement has not yet been determined.

The investigation and settlement were the result of a coordinated effort among the U.S. Attorney’s Office for the District of Maryland, the Commercial Litigation Branch of the Justice Department’s Civil Division and the GSA’s Office of Inspector General.

The case is United States ex rel. Simmons v. Samsung Electronics America, Inc. et al., No. AW-11-2971 (D. Md.). The claims resolved by the settlement are allegations only and there has been no determination of liability.  Released August 19, 2014.


ICE, CBP in Houston seize illegally imported honey valued at $2.45 million

HOUSTON — Special agents with U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI), and officers with U.S. Customs and Border Protection (CBP) have seized since October illegally imported Chinese honey valued at $2.45 million destined for U.S. consumers.

The seized illicit honey that was abandoned or forfeited totals 660 barrels weighing 203,280 kilograms (448,156 lbs.). The containers’ shipping documents indicated the bulk honey originated in Latvia. 

HSI and CBP have stepped up efforts regarding commercial fraud investigations that focus on U.S. economic, and health and safety interests. Anti-dumping schemes create a divergent market that negatively affects legitimate businesses.

"Helping to ensure a safe food supply is an important component of border security," said Brian M. Moskowitz, special agent in charge of HSI Houston. "HSI and our law enforcement partners are committed to working together on behalf of the American people to identify and remove potentially dangerous or adulterated products from store shelves to help keep our families safe. We also work to ensure that no one benefits from circumventing U.S. trade and import laws."

In December 2001, the U.S. Commerce Department imposed anti-dumping duties after determining that Chinese-origin honey was being sold in the United States at less than fair-market value. The duties first imposed were as high as 221 percent of the declared value. Later these duties were assessed against the entered net weight, currently at $2.63 per net kilogram, in addition to a "honey assessment fee" of one cent per pound of all honey.

In 2008, federal authorities began investigating allegations of organizations on the "supply side" of the honey industry that were circumventing anti-dumping duties through illegal imports, including transshipment and mislabeling. In October 2002, the U.S. Food and Drug Administration issued an import alert for honey containing the antibiotic Chloramphenicol, a broad spectrum antibiotic that is used to treat serious infections in humans, that is not approved for use in honey. Honey containing certain antibiotics is deemed "adulterated" within the meaning of federal food and drug safety laws.

This is an ongoing investigation with assistance provided by HSI Frankfurt Attaché Office and Latvian customs authorities.

Illegal Chinese garlic imports pounding U.S. industry

Gilroy calls itself "the garlic capital of the world." These days, not so much.

In little more than a year, a single Chinese company has flooded the U.S. market with 60 million pounds of garlic, almost half of it through the Port of Oakland, in a scheme to avoid penalties that protect domestic growers.

The dumping of Chinese garlic has severely hurt the U.S. industry. Half of California's biggest garlic packers have disappeared in the past decade, says industry leader Bill Christopher of Gilroy.

The Chinese operation unraveled in December, thanks to detective work by customs agents. It was a rare success for U.S. Bureau of Customs and Border Protection, which is struggling to contain fraud in the flood of all sorts of Chinese goods arriving at U.S. ports.

Foreign companies and their partners on U.S. soil have routinely flouted U.S. trade law, evading penalties designed to protect domestic industries, a Hearst Newspapers investigation has found.

Court records, shipping documents and interviews with investigators combine to tell a story of widespread importing fraud and U.S. customs failures that damage a wide variety of U.S. industries and deprive the Treasury of billions of dollars.

In the garlic case, Jinxiang Hejia Co. skirted duties of more than $2 a pound by initially securing favorable terms granted to companies that do not appear to threaten U.S. industries.

The Chinese company's first shipment totaled a mere 7,000 pounds. After receiving the favorable terms, Hejia dropped more than 60 million pounds of cheap garlic on the U.S. market from November 2012 to early this year, shipping records show.

That amount is roughly the annual output from Christopher's operation. His Christopher Ranch is the country's largest garlic packer.

In October, customs agents closely examined shipments arriving in Oakland and New York. They discovered that Hejia was not producing all that garlic, and that packing codes identified a source as another producer - a company responsible for 255 unpaid duty bills amounting to $12 million.

Grower pessimistic

Hejia's exports have stopped, but Christopher, who is producing a third less garlic than he used to, fully expects the flow to resume from other Chinese companies outmaneuvering U.S. authorities.

His pessimism springs from experience.

"They'll send it from China under one name, and then it will change names on the ship," Christopher said. "Our government is trying to help us, but there are just not enough people to stop the dumping."

In a report to Congress last year, Customs and Border Protection estimated that Chinese outfits account for roughly 90 percent of the $1.79 billion in unpaid U.S. duties. The total includes $541 million for garlic imports.

The report said many importers have "disappeared or dissolved" before paying duty bills and lamented the "increasing complexity" of strategies to defraud the government.

The true amount of money lost to taxpayers probably reaches into the billions, but it is unknowable because of the clandestine nature of fraud and poor record-keeping by the customs bureau.

Customs is guarded about its operations. The agency, part of the Department of Homeland Security, declined to make officials available to talk about collections and duty evasion.

Even Congress has difficulty getting answers. In January, the agency got around to replying to Sen. Ron Wyden's requests dating back to 2012 for documents related to specific duty collections.

Responding to the Oregon Democrat, the customs bureau blamed "systems limitations" for its inability to provide details of collections, contending that finding documents "would be time-consuming and cause diversion of essential resources."

Bad honey

In skirting antidumping duties, importers evade other rules intended to protect against contaminated products, investigators say.

For example, the customs agency seized 100 tons of adulterated honey from a smuggler who began serving a three-year prison term in January after pleading guilty to brokering hundreds of loads of Chinese honey falsely labeled Malaysian or Indian.

The smuggler, Jun Yang of Houston, also had $200,000 worth of Chinese shrimp adulterated with chloramphenicol, a potent antibiotic unapproved for use in food products in the United States.

The honey investigation also snared a Southern California business owner, Hung Yi "Katy" Lin, who reported to prison in November after pleading guilty to cheating the government out of $39 million in import duties on Chinese honey falsely labeled as syrups and sweeteners.

After it was imported and stored in warehouses in Los Angeles and Houston, Lin arranged for new labels that described the contents of drums as honey of various origins - but not Chinese, according to court records and investigators.

Critical reports

Despite such successes, the customs agency's performance has been subject to withering assessments.

The Government Accountability Office reported in 2012 that customs officials couldn't provide a list of confirmed duty evasion cases and had failed to track administrative changes designed to improve matters.

An online system enabling U.S. industries to tip customs officials of suspicious imports is supposed to help remedy the fraud. But the customs bureau reported that it had confirmed just 15 of 149 allegations in 2012 while discounting another 11, leaving more than 80 percent of the tips unresolved.

'Laughing at us'

U.S. manufacturers are running out of patience.

"They (the Chinese) are laughing at us," said Joseph Shauf, plant manager at GEO Specialty Chemicals.

The Indiana company is one of just two U.S. manufacturers of glycine, an amino acid used in many products. Shauf said his company is spending more than $750,000 annually on legal fees, research and investigators to enforce a dumping order "just to stay in business."

"It's the Whac-A-Mole principle," Shauf said. "We go after the people who are doing this, but they just disappear and a new company pops up. We've seen no progress, and it's frustrating."

The mushroom scam

A Chinese mushroom producer with partners stretching across the country used methods that have become standard in circumventing dumping penalties.

More than a decade ago, the U.S. International Trade Commission imposed antidumping duties after concluding that canned mushrooms from China harmed the American mushroom industry so severely that 20 percent of U.S. workers had lost their jobs.

Blue Field Sichuan Food Industrial Co., in southwestern China, learned to avoid the punitive duties by exploiting a loophole called a "new shipper review."

Blue Field started with modest exports of mushrooms at a reasonable price, shipments that didn't appear to threaten U.S. manufacturers - the same strategy later used by the Chinese garlic exporter.

Soon, Blue Field became one of America's main suppliers of the type of mushrooms favored in restaurants and institutions, sending hundreds of shipments in amounts ranging from 35,000 to 150,000 pounds at a time, records show.

Nearly 50 of Blue Field's shipments arrived at the Port of Oakland in 2008 and 2009, according to shipping records.

Companies vanish

During a series of Commerce Department reviews, the duty rate for Blue Field grew higher and higher until, in September 2012, it soared to 308 percent. In other words, for a shipment of mushrooms valued at $1 million, an importer would owe the government more than $3 million.

Blue Field's shipments stopped.

Nine companies that supplied the same phone number on shipping documents received more than 300 million pounds of Blue Field's mushrooms during a period in which the sky-high duty rates came into effect, records show. That's likely to mean duty bills of at least $100 million.

But collecting will be difficult if not impossible: At least five of the companies have dissolved or can't be located.

Adam Gordon, a lawyer in Washington whose clients include American mushroom producers, said the Blue Field case fits the pattern of duty evasion.

"This is, unfortunately, typical of the kinds of schemes that we have seen," he said, "and it leaves you wondering how many haven't yet been found."

Bill Lambrecht is a reporter in the Hearst Newspapers Washington bureau.