June 30, 2025
In a major win for whistleblowers, the Ninth Circuit has issued a landmark decision in Island Industries v. Sigma Corp. The decision holds that importers who knowingly evade customs duties can be held liable under the False Claims Act (FCA)—and that private whistleblowers can bring those cases in federal district court. This decision resolves several key legal questions and significantly strengthens the legal foundation for future false claims customs fraud qui tam actions.
According to the whistleblower’s complaint, Sigma knowingly misclassified its imported products on customs forms. Sigma described the products as “steel couplings,” which were not subject to duties. Yet, Sigma marketed and sold the same items to customers as “welded outlets.” Welded outlets are a type of pipe fitting that is subject to an antidumping duty. By falsely labeling the products and declaring that no duties were owed, Sigma avoided paying millions. The case proceeded without government intervention, and a jury ultimately found Sigma liable for violating the FCA. Sigma appealed, challenging the forum by arguing that under 28 U.S.C. § 1582, only the Court of International Trade—not a federal district court—had jurisdiction over customs-related recovery actions.
The whistleblower, supported by the United States as an invited amicus, prevailed. The Ninth Circuit held that whistleblower-initiated FCA suits based on customs evasion belong in federal district courts. The Court clarified that § 1582 applies only to civil actions the government initiates to recover customs duties. It does not apply to qui tam cases brought by private relators under the FCA. Specifically, the Court cited the Supreme Court’s reasoning in United States ex rel. Eisenstein, which held that a relator is not “the United States” unless and until the government intervenes in the action.
Importantly, this ruling highlights that § 1592 does not displace the FCA. Instead, the statutes operate in parallel. While § 1592 provides administrative and judicial remedies for the government to pursue duties and penalties against importers, the FCA remains fully available to address the same fraudulent conduct—whether the government pursues it with the cooperation of a whistleblower or a whistleblower proceeds directly under the qui tam provisions.
Sigma also argued that it could not be liable under the FCA because it was unaware of the applicable antidumping duty order when it filed its customs forms. The Ninth Circuit rejected that defense, emphasizing that the FCA does not require specific intent to defraud. It only requires knowledge, deliberate ignorance, or reckless disregard. The Court found ample evidence that Sigma failed to conduct even basic due diligence and concluded that an importer has an affirmative obligation to determine what duties are owed. This holding suggests that failure to investigate risks of noncompliance is not a defense—it can be evidence of liability.
The Ninth Circuit’s decision in Island Industries v. Sigma Corp. represents a victory for whistleblowers and clarifies that the FCA applies in the area of international trade enforcement. By confirming that customs fraud cases can be brought in federal district court—not the Court of International Trade—the Ninth Circuit resolved a long-standing procedural uncertainty that had discouraged some whistleblowers from coming forward.
Finally, the court rejected the notion that ignorance of a trade obligation can excuse false statements to the government. Importers have a duty to inquire into the duties owed on their products. Failure to conduct basic due diligence may support the finding of deliberate ignorance under the FCA.
Together, these holdings strengthen the FCA as a tool for combating customs fraud and ensure that whistleblowers can play a critical role in protecting U.S. trade laws and taxpayer dollars.
If you have information about customs fraud, contact us for a free and confidential consultation. We’re here to help.