Between the end of World War II and the first term of President Donald Trump, the average tariff rate on foreign goods entering U.S. commerce hovered around 2 percent. According to geopolitical strategist Peter Zeihan, the United States maintained low tariff barriers as part of a deliberate—and ultimately successful—Cold War strategy of “bribing up” a global alliance of countries willing to contain the Communist threat posed by the Soviet Union.[1] When the Cold War ended in 1989, however, so did the national security justification for allowing easy, low-tariff access to the American market, according to Zeihan.[2]
Whether or not one agrees with Zeihan’s thesis, tariff burdens that once operated as marginal costs for American businesses have increased dramatically since Trump’s second term began. The average U.S. tariff rose from 2.2 percent in January 2025 to 10.91 percent in October, an increase of nearly 394 percent in under a year.[3] In some sectors, the average tariff burden is even more pronounced.[4] Steel and aluminum imports now face average duties of 39.8 percent, while automotive goods are subject to tariffs of about 21 percent.[5] In antidumping cases brought by the U.S. Department of Commerce—which impose additional duties on imported goods found to be sold in the United States at unfairly low, “dumped” prices that injure U.S. industries— duty rates reaching well into triple digits are not uncommon. As tariff rates have leaped upward, costs that were once a rounding error have, for many companies, become a major factor influencing pricing, sourcing, supply‑chain structuring, and margin planning.
In this context, whether one’s competitors pay their fair share of tariffs becomes a significant—if not existential—issue for many businesses. After all, if a business is playing by the new tariff rules and their competitors are not, those competitors gain a critical pricing advantage that can cause the business to lose substantial market share and even threaten the company’s financial viability.
This is where the False Claims Act (“FCA”) comes in. The FCA is a federal statute dating back to the Civil War, when price gouging of the U.S. government by military suppliers was epidemic. The FCA allows the federal government to sue parties that knowingly submit false payment claims or otherwise avoid paying monies owed to the government and can also trigger criminal exposure under related federal criminal laws.
A key feature of the FCA is its qui tam mechanism, which grants private individuals (“relators”) the right to file an FCA claim on behalf of the government. If the case succeeds, the relator is rewarded with up to 30 percent of the government’s recovery. The FCA thus effectively deputizes private individuals and companies to help enforce the law. Yet because the Court of International Trade (“CIT”) has exclusive jurisdiction over certain civil actions “commenced by the United States,” for years a threshold procedural question has lingered: in what court may private litigant FCA claims arising from underpayment of duties/tariffs be brought—only the CIT or also federal district courts?
On June 23, 2025, the U.S. Court of Appeals for the Ninth Circuit answered this question, at least for that circuit. In Island Industries v. Sigma Corp.,[6] the court upheld a $26 million judgment in an FCA case for evasion of antidumping duties. In so doing, it also ruled that a relator’s FCA claim based on failure to pay duties may proceed in either federal district court or the CIT. The court reasoned that the CIT’s exclusive jurisdiction provision for customs actions “commenced by the United States” does not bar a private relator from bringing an FCA claim in district court, even if the federal government later intervenes in the private action, as frequently occurs.[7]
Island Industries also clarified that 19 U.S.C § 1592 of the Tariff Act does not displace or supersede the FCA. Instead, the court explained that the Tariff Act and the FCA overlap, so a relator may pursue an FCA claim in district court while U.S. Customs and Border Protection pursues remedies under the Tariff Act in the CIT. Courts evaluating customs-related FCA claims in other jurisdictions have reached similar conclusions.
The decision in Island Industries adds significantly to the toolkit of lawyers representing businesses that suspect their competitors may not be paying their fair share of tariffs and thereby may be gaining a competitive edge. If the Island Industries rationale is widely adopted, it will allow these lawyers to bring relator claims for tariff avoidance against their clients’ competitors in the local district court as opposed to being forced into the CIT with its specialized rules and procedures. Lawyers representing clients who are playing by the new tariff rules should therefore welcome this decision.
This article offers a framework for advising clients on how to identify, assess, and respond to potential FCA issues raised in the customs/tariff context as a relator in a private qui tam action.
It should be noted at the outset that this article does not attempt to address the specific issues raised by so-called whistleblower FCA claims brought against a company by one of its own employees. While the issues arising from an FCA whistleblower lawsuit overlap with many of those treated in this article, such actions also involve topics peculiar to whistleblower claims and so go beyond our scope.
Island Industries’ Road Map for Identifying Duty/Tariff Evasion by Competitors
The Island Industries opinion provides insight for lawyers and outlines how a relator can identify potentially unlawful duty-avoidance practices on the part of business competitors using information that market participants already possess or can easily and lawfully obtain.
In Island Industries, the relator began with a discovery that the competitor’s pricing appeared inconsistent with what antidumping duties would ordinarily require for welded outlets, the product at issue.[8] The relator then compared the competitor’s publicly available marketing descriptions and the observable physical features of the products to the duty requirements for welded outlets under the applicable antidumping orders.[9] This comparison indicated that the products’ advertised characteristics matched items subject to antidumping duties, even though the competitor’s customs filings classified them as duty-free.[10] In other words, when the relator compared the readily accessible sources with the competitor’s customs filings, the relator uncovered discrepancies that suggested the duty status declared at entry did not match how the products were being marketed in the industry.[11]
The relator also noted that the competitor publicly described the goods as welded outlets yet declared them as steel couplings on its customs forms, a classification that avoided antidumping duties.[12] This example illustrates how competitors’ product descriptions on the internet and pricing patterns—combined with scope rulings, binding letter rulings, and the Harmonized Tariff Schedule—can be valuable sources for determining whether one’s competitors are playing by the tariff rules.
It is important to note, however, that public sources alone may not be sufficient to sustain a qui tam claim where the core allegations have already been aired publicly.[13] Under the FCA’s public disclosure bar, 31 U.S.C. § 3730(e)(4)(A), dismissal may be required (unless opposed by the government) if “substantially the same allegations or transactions” were publicly disclosed in a qualifying federal hearing, a federal report/audit/investigation, or the news media.
Nevertheless, Island Industries demonstrates how publicly available market facts can signal duty evasion by a competitor and so produce a substantial recovery. Indeed, the relator’s investigation in Island Industries led to a $26 million judgment against the defendant, of which the relator received more than $2.7 million.
Step by Step: How to Tell If Your Client’s Competitors Are Abiding by the New Tariff Landscape
Step 1: Begin with Industry Expertise and Market Knowledge
The strongest initial indicator that something may be amiss is often a business’s own understanding of its products, including its supply chain and tariff obligations. When a competitor’s pricing or other market terms diverge in ways that cannot be justified by volume, logistics, or commercial factors, that discrepancy may warrant closer scrutiny. Certain unfair practices, when taken, can first manifest as unusual or unexplained pricing advantages. Some of the most common include: (1) misclassification, where a product is assigned an incorrect—often lower‑duty—tariff category under the Harmonized Tariff Schedule (“HTS”), the system the United States uses to classify imported goods; (2) implausible country‑of‑origin claims, where goods with a true origin in a higher‑tariff jurisdiction are declared as originating in a lower‑tariff country; and (3) undervaluation, where the declared customs value is set below the actual price paid or payable, reducing the duty base and artificially lowering tariff‑related costs.
Step 2: Identify Red Flags
Certain patterns surface repeatedly in customs‑related FCA cases. These red flags can include (1) a competitor classifying its product under an awkward or clearly inappropriate HTS code, which can lead to undeservedly low duty rates—for example, when an importer declares precision‑machined stainless‑steel valves under an HTS code intended for unprocessed steel billets, potentially bypassing the higher duties that would otherwise apply to finished industrial equipment; (2) origin declarations that do not align with known manufacturing presence, meaning the declared country‑of‑origin does not match where the product’s meaningful manufacturing actually occurs, because customs generally determines origin based on the location of the product’s substantial transformation—not where the goods were merely shipped, packaged, or lightly finished; or (3) valuation practices that seem inconsistent with industry standards.
Step 3: Collect and Preserve Reliable, Lawful Evidence
If concerns persist, the next step is gathering supporting documentation. For example, one can draw from trade data platforms (including manifest‑based shipment data), product catalogs, pricing histories, scope rulings, and (as in Island Industries) marketing materials to test whether a competitor’s public product representations and observable product characteristics are consistent with the duty treatment that the importer appears to be claiming. In some cases, import‑related information may only become available later in the process through government information requests or subpoenas, Freedom of Information Act responses, or litigation discovery.
Step 4: Evaluate Whether Key FCA Elements May Be Implicated
Once irregularities are identified, it is essential to understand whether the legal elements that underpin a customs‑related FCA theory might be present. Lawyers should look for:
- A plausible obligation to pay duties on a given product
- Indications that the competitor’s conduct was not an error and instead was a knowing or at least reckless effort to avoid duties/tariffs
- Evidence that any false statements made by the competitor would have affected duty assessment
Patterns across multiple entries, repeated misclassifications, or persistent valuation discrepancies often indicate more than one‑off clerical errors.
Step 5: Organize a Coherent Factual Narrative
As Island Industries demonstrates, a strong submission—whether to internal compliance teams, outside counsel, or when seeking the government’s intervention in a qui tam action—depends on presenting a clear account of what the competitor is doing and why it matters. Companies should thus assemble a narrative supported by documentation, trade data, scope or letter rulings, and detailed comparisons between commercial representations and importer filings, if these are available. The relator in Island Industries did precisely this by aligning publicly observable facts with the duty framework and highlighting where the two could not be reconciled.
Step 6: Engage Counsel and Consider Appropriate Next Steps
If concerns remain after an internal assessment, businesses should consult counsel experienced in customs and FCA matters. Counsel can help evaluate potential exposure, assess whether additional information is needed, and determine whether intervention by the government in a private FCA action is likely. Timing can also be important, particularly under the FCA’s first‑to‑file rule, which bars later suits alleging the same facts as a pending FCA action.[14] Thus, early legal engagement helps ensure that next steps are taken thoughtfully and in compliance with applicable confidentiality rules.
Conclusion
Island Industries demonstrates how the qui tam, that is, private litigant provisions of the FCA can level the playing field if tariff-dodging shenanigans are giving an unfair advantage to your clients’ business competitors. This Ninth Circuit decision significantly expanded lawyers’ forum selection options for bringing private FCA claims to include the local district court and not just the CIT. Accordingly, if your business client is seeking to address unfair tariff avoidance by its competitors, the practical framework offered in this article can help you navigate the FCA’s complex private litigant provisions in order to protect your clients’ interests.
Peter Zeihan, Here We Go (Mar. 5, 2018). ↑
Id. ↑
Penn Wharton, Penn Wharton Budget Model: Effective Tariff Rates and Revenues (Updated January 15, 2026) (Jan. 15, 2026). ↑
See id. ↑
Id. ↑
Island Indus., Inc. v. Sigma Corp., No. 22‑55063 (9th Cir. Aug. 21, 2025). ↑
Id. at 16–17. ↑
See id. at 12, 26–27. ↑
See id. ↑
See id. at 14. ↑
See id. at 12–14. ↑
See id. at 12–14, 26–27. ↑
31 U.S.C. § 3730(e)(4)(A). ↑
Id. § 3730(b)(5). ↑
