Byline: Jennifer Owens

WASHINGTON — The American Textile Manufacturers Institute went public Wednesday with its accusation that The Limited Inc. and one of its suppliers, Tarrant Apparel Group, are systematically transshipping garments from China through Hong Kong.
The public announcement followed a decision on Tuesday by a federal court in Los Angeles to unseal ATMI’s civil lawsuit against the Limited and Tarrant, originally filed on Sept. 25.
The lawsuit was filed under the False Claims Act, which gives individuals and associations the right to sue on behalf of the government in fraud cases. The law has been used successfully to fight Medicare and defense contractor fraud, but ATMI is the first to try the act on a trade issue.
If successful, ATMI officials say their suit could set a precedent as a deterrent for fighting transshipments. However. Joseph Pelzman, a professor of economics and international affairs at George Washington University, whose studies on the market value of quota have been used by the Limited, called the suit “a nonissue….It’s not up to ATMI to argue the American position; it’s up to the White House.”
The suit, filed in Los Angeles because the suspect garments arrived through the Long Beach Seaport Area, names as defendants numerous Limited subsidiaries, including Victoria’s Secret Stores, Lane Bryant Inc. and Henri Bendel Inc., as well as the Limited’s importing arm, Mast Industries Inc. of Andover, Mass. The other defendant, Tarrant, is a Los Angeles-based importer doing business as Fashion Resource Inc., which resells to the Limited as well as to other stores.
The suit charges that based on a year-long private investigation by ATMI, the Limited and Tarrant have filed false Customs records claiming certain apparel imports originated in Hong Kong when they were actually produced in China.
According to Paul D. Cullen Sr., a longtime trade lawyer now representing ATMI in the case, private investigators produced seven boxes of “photos, documents and other physical evidence” to the Justice Department showing transshipping occurring at nine Hong Kong manufacturers supplying Tarrant and the Limited.
Cullen said ATMI’s only witnesses in the case so far are its own investigators but added that he plans to depose Limited executives and investigate the company’s records.
“I think that [evidence] will come out in the proceedings,” Cullen said, adding later, “You can’t have transshipments on this scale without leaving a massive paper trail.”
Cullen said it will be his job to tie Limited executives to the alleged transshipping.
At the Limited, general counsel Samuel P. Fried said in a prepared statement that the chain has “zero tolerance for any violation of our policies or any law.”
Those policies, said Fried, include compliance with all import laws: “We require that all of our suppliers be particularly vigilant about compliance with country of origin and other requirements of the U.S. Customs Service and related agencies.”
Fried added that he had not had time to review the entire suit.
Contacted Wednesday, Tarrant chairman and chief executive officer Gerard Guez, who has been listed as a defendant along with Tarrant president Todd Kay, said he wasn’t aware of the suit.
“We have not heard of it, and we can not comment on something we have not seen or heard of,” Guez said.
Meanwhile, Customs officials said they, too, were getting their first look at ATMI’s allegations.
According to Carlos Moore, ATMI’s executive vice president, ATMI gave its investigation results to Justice since it planned to proceed with a False Claims Act lawsuit.
“We felt this was a different approach and that it would be a deterrent,” he said.
ATMI believes Customs is dedicated to fighting transshipping but lacks the needed resources, Moore said. “It seemed to us that [ATMI’s investigation] should be viewed as complementary” to Customs’ own efforts, he said.
Should the Limited and Tarrant lose the ATMI case, both will be liable for three times the revenue lost to the government, plus penalties of between $5,000 to $10,000 per false claim and legal fees.
Neither Cullen nor Moore would estimate the total potential liability, but both said the suit involves thousands of shipments.
Under the act, ATMI would receive 25 to 30 percent of the proceeds if the government does not intervene.
So far, Justice has opted out of the suit, according to ATMI. This means the ATMI alone would have complete responsibility for pursuing the case. Cullen was quick to add, however, “I think if you look at the history of the False Claims Act, the government only took part in one out of four cases. This is not unusual.”
But industry sources say the Limited can take comfort in the fact that Justice has not taken up ATMI’s case. Said one trade source, “They made their best case with 100 pages of evidence and the government turned them down.”
Pelzman of George Washington University, further denigrating the suit, called its chances for success “ATMI’s wishful thinking.”
“Rather than telling their members to become more competitive with China, instead they’re going to make it more expensive [for China] to deal with Customs,” he said.

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