Sales of Chinese products off the GSA Schedule has resulted in a $2.3 million False Claims Act settlement.

According to a Department of Justice press release, Samsung Electronics America, Inc. has agreed to the settlement to resolve allegations that Samsung informed GSA Schedule resellers that certain products were manufactured in “designated countries” under the Trade Agreements Act, when in fact those products were manufactured in China.

GSA Schedule contracts require that vendors certify that their products comply with the Trade Agreements Act.  The TAA, in turn, generally requires that the government buy products manufactured in the United States or in a “designated country” with which the United States has a trade agreement.  Many countries are designated countries under the TAA, but China is not a designated country.

Samsung has designated resellers who hold GSA Schedule contracts.  Samsung certifies to its resellers that its products are TAA compliant, and those resellers then offer the products for sale off their Schedule contracts.

Robert Simmons, a former Samsung employee, filed a “whistleblower” False Claims Act lawsuit against Samsung.  Mr. Simmons alleged that between 2005 and 2013, Samsung certified that certain products were manufactured in designated countries (primarily Mexico and South Korea), when in fact those products were manufactured in China.  The resellers then sold those Chinese products off their Schedule contracts.

The $2.3 million settlement resolves the False Claims Act allegations against Samsung.  It is unclear whether the Department of Justice is pursuing any legal action against the resellers.  As the “qui tam” whistleblower, Mr. Simmons will be entitled to some portion of the settlement.

The Samsung settlement is notable in two respects.  First, it demonstrates that GSA Schedule contracts are subject to the TAA, and that the products offered must be manufactured in the United States or designated countries.  Second, the case demonstrates that the Department of Justice does not limit its False Claims Act enforcement solely to prime contracts.  In this case, Samsung’s resellers were the ones who actually sold the products to the government–but it was Samsung that coughed up $2.3 million.