$8 Million in Penalties for Evading AD Duties & False Claims Act Allegations
The Department of Justice announced that a U.S. defense contractor [Kilgore Flares Company] and one of its subcontractors [ESM Group, Inc] have agreed to pay $6 million and $2 million, respectively, to resolve allegations that they violated the False Claims Act by selling or conspiring to sell defective goods to the U.S. military and, in the case of the subcontractor, knowingly evaded antidumping (AD) duties.
The U. S. military uses infrared countermeasure flares to divert enemy heat-seeking missiles away from U.S. military aircraft. A primary component of these flares is ultrafine magnesium powder, which combined with other materials, provides ignition and enables the flares to burn at high temperatures and at rates that mimic an aircraft’s engine. Kilgore’s contracts with the army prohibited the use of magnesium powder from foreign countries (except Canada) in order to maintain domestic manufacturing capability in the the interest of national defense.
The United States alleged that ESM knowingly misrepresented the content of the ultrafine magnesium powder imported from China in order to avoid paying antidumping duties owed to the United States. Antidumping duties protect against foreign companies “dumping” products on the U.S. market at prices below cost. The U.S. Department of Commerce assesses and U.S. Customs and Border Protection (CBP) collects these duties to protect U.S. businesses and level the playing field for domestic products. At the time of the imports alleged in this case, ultrafine magnesium powder from China was subject to a 305% antidumping duty.
The government further alleged that Kilgore used the illegally imported Chinese magnesium powder purchased from ESM in the countermeasure flares it sold to the U. S. Army. The Chinese magnesium powder allegedly violated both the requirement for domestically produced powder and engineering specifications required by the contracts.
Prior to the civil settlements with Kilgore and ESM, five former employees and agents of ESM pleaded guilty to criminal offenses related to the magnesium importation scheme, including ESM’s former president, Charles Wright. The criminal defendants were ordered to pay more than $14 million in restitution.
To read the entire press release: DOJ
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