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Eric HavianConstantine Cannon
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UK Whistleblower Exposes Attempt to Deceive US Military

November 04, 2015 by Eric Havian

Richard Pike and Yulia Tosheva*   

Illicit trade in goods can be a profitable enterprise for unscrupulous suppliers. Customers may pay a premium for goods thought to come from a particular source without realising that they are getting a cheaper, lower quality alternative. Such deception can be hard to identify even if the customer is a sophisticated public body.

This is illustrated very well in a case from last week that shows how foreign nationals can play an important role in exposing wrongdoing (and also, in some cases, earn financial rewards themselves).

On 19 October 2015, the U.S. Department of Justice announced  that ECL, a British company doing business with the U.S. military as Ban-Air Storage Systems ("ECL"), pleaded guilty to conspiring to smuggle goods into the United States and was ordered to pay a forfeiture money judgment of $1,066,132.10. The case was reported by the United Kingdom resident Todd Mihajlovic who filed a civil qui tam lawsuit under the False Claims Act  in the U.S. District Court for the District of Delaware in 2012. [1]  The False Claims Act, also known as the “Lincoln Law”, provides financial incentives for whistleblowers to expose attempts to rip-off the US Government even if the individuals concerned are not US citizens or residents.  Mr Mihajlovic should get 15% to 25% of the forfeiture amount as a result of the successful outcome.   

ECL sold, among other goods, large scale steel racking systems. According to court documents, between November 2011 and September 2013, ECL intentionally failed to accurately mark its merchandise “Made in China,” in an effort to deceive the end-users, including the United States military, as to where these products were manufactured.  The conspiracy enabled ECL to pass off its shelving product as compliant with the Buy American Act (BAA) and Trade Agreements Act (TAA) when, in fact, it was using prohibited Chinese steel.

Exposing this sort of deception without whistleblowers would be difficult because the evidence will tend to be located in lots of different countries – the goods having been produced in one country and shipped through at least one other, which may not even be where the supplier is based. [2]  Attempts are being made at an international level, by bodies such as the Organization for Economic Cooperation and Development (OECD), [3] to provide better data for national authorities to formulate their enforcement strategies but the challenges are significant. Indeed, there are often difficulties even in coordinating between domestic agencies as noted in one recent official UK report. [4]

It is likely, therefore, that whistleblowers will continue to play an important role for the future.  If the victim of the deception is the US Government then it can be financially rewarding as well as being morally the right thing to do. 

 


*Richard Pike and Yulia Tosheva are attorneys in the London office of Constantine Cannon, an international law firm with offices in New York, London, Washington, DC and San Francisco, specializing in antitrust, commercial litigation and the representation of whistleblowers.

[1]  http://www.prnewswire.com/news-releases/mceldrew-young-reports-uk-whistleblower-exposes-conspiracy-to-smuggle-goods-by-military-contractor-ecl-solutions-300163457.html  

 [2]  http://www.interpol.int/Crime-areas/Trafficking-in-illicit-goods-and-counterfeiting/Legal-assistance/Legal-publications.

[3]  http://www.oecd.org/gov/risk/oecdtaskforceonchartingillicittrade.htm

[4]  http://www.bbc.co.uk/news/uk-25028781

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