Redi-Bag Agrees to $7.3 Million Settlement Over Alleged Customs Duty Evasion

Key Takeaways

• $7.3 Million Settlement: Redi-Bag and CEO agreed to pay $7.3 million to resolve False Claims Act allegations related to evaded antidumping duties.
• False Country-of-Origin Allegations: The Justice Department alleged the company identified Chinese-manufactured plastic retail carrier bags as originating from Hong Kong on customs entry forms.
• Concealment Claims: Prosecutors alleged the company concealed the products' true origin by covering or removing "Made in China" markings, withholding information from its customs broker and CBP, and canceling orders facing customs inspection.
• Whistleblower Recovery: Former contracted sales representative John Maierhoffer, who filed the lawsuit under the False Claims Act's qui tam provisions, will receive approximately $1.33 million from the settlement.

Deep Dive

The Department of Justice announced Wednesday that New York Packaging, which does business as Redi-Bag, and its chief executive, have agreed to resolve allegations that they falsely declared the country of origin of imported polyethylene retail carrier bags, allowing the company to avoid antidumping duties owed to the United States.

The bags, prosecutors alleged, were manufactured in China but shipped through Hong Kong before entering the United States. Customs documents nevertheless identified Hong Kong (not China) as the country of origin. That's crucial because polyethylene retail carrier bags manufactured in China were subject during the relevant period to Antidumping Duty Order No. A-570-886. When applicable, the order imposed duties of up to 77.57% of the value of the imported goods, part of a trade remedy designed to protect domestic manufacturers from products sold below fair market value.

Every shipment entering the United States carries a paper trail. Importers must tell U.S. Customs and Border Protection where goods were made, what they are worth, whether they are subject to duties, and how much is owed. The system depends less on dramatic enforcement than on the expectation that those declarations are truthful. The government's allegations suggest that trust was deliberately exploited.

According to the Justice Department, Redi-Bag and its CEO knew the bags originated in China but nevertheless represented them as products of Hong Kong on customs entry forms, thereby avoiding the antidumping duties that would otherwise have applied. The United States further alleged that the company concealed the bags' true origin by withholding information from both its customs broker and Customs and Border Protection, directing employees to cover up "Made in China" markings, instructing the manufacturer to remove those markings, and canceling orders after learning they would be inspected by customs authorities.

Assistant Attorney General Brett A. Shumate said companies that benefit from access to U.S. markets must also accept the obligations that accompany that access, including the payment of import duties intended to protect American manufacturers and workers from unfair foreign competition. U.S. Attorney Robert Frazer for the District of New Jersey said the agreement demonstrates that businesses accused of evading antidumping duties through unlawful conduct will continue to face investigation and enforcement.

Customs and Border Protection Commissioner Rodney S. Scott framed the case as one extending beyond a single importer. Customs laws, he said, depend on consistent enforcement if they are to preserve both the integrity of U.S. borders and a level playing field for companies that comply with trade rules.

The case began not with a government audit but with a former insider. The lawsuit was filed under the False Claims Act's qui tam provisions by John Maierhoffer, a former contracted sales representative for Redi-Bag. Those provisions allow private individuals to sue on behalf of the United States when they believe the government has been defrauded and to receive a share of any recovery if the case succeeds. As part of the settlement, Maierhoffer will receive approximately $1.33 million.

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