Tariff Hikes, Trade Fraud, and Enforcement: White-Collar Risks of Trump’s New Duties
The recent surge in U.S. tariffs—10% on imports from multiple countries, escalating to 54% on Chinese goods (if not higher)—has sent shockwaves through global trade and the financial markets (which are down more than 10%). Beyond the immediate economic repercussions, these tariffs significantly heighten the risk of customs fraud (as well as other crimes) as companies may attempt to circumvent increased duties. This article, written by white-collar defense leader Eric Rosen, explores and explains the white-collar risks associated with the new tariffs, including potential fraud schemes, enforcement trends, and the legal ramifications for businesses
High Tariffs as a Catalyst for Customs Fraud
Trade experts and enforcement officials alike recognize a basic truth: high tariffs create high incentives to cheat. A 34% duty can mean the difference between profit and loss on an import deal, and unscrupulous players may seek creative – if illegal – means to avoid the added cost. In fact, the Trump Administration itself is “keenly aware” that in a '‘high-tariff environment” companies might attempt “creative, or even fraudulent, strategies to minimize tariff payments”. These strategies often take the form of customs fraud schemes: undervaluing goods, misclassifying products under incorrect tariff codes, and misrepresenting the country of origin to sidestep country-specific duties. With tariffs at levels not seen before, evenoutright smuggling and transshipment ploys become more tempting. Companies may engage in improper “tariff engineering” – routing goods through low-tariff jurisdictions or making only token changes to products – all in an effort to disguise their true origin or value.
Such tactics are not theoretical. During the 2018-2019 U.S.–China trade war, for example, authorities noted a sharp rise in country-of-origin fraud. Vietnam’s customs agency reported dozens of cases where goods from China were illegally relabeled as “Made in Vietnam” to evade U.S. tariffs. Chinese exporters frequently shipped products through third countries – Vietnam, Thailand, Malaysia, Oman, the UAE, and others – to conceal the Chinese origin and evade tariffs.
In one instance, U.S. customs caught a scheme in which a Vietnam-based wood manufacturer was importing Chinese timber, slapping “Made in Vietnam” labels on it, and re-exporting it to the U.S. to dodge tariffs. Products were simply “funneled through Vietnam, Malaysia, Cambodia and Indonesia, evading duties” – nullifying the relief the tariffs were supposed to provide. These examples illustrate the kind of misdirection and transshipment schemes that proliferate when tariffs rise.
Misrepresenting Origin and Transshipment: Schemes to Evade Tariffs
Two closely related fraud schemes are expected to surge under the new tariff regime: misrepresenting the country of origin and tariff evasion through transshipment. These schemes both involve disguising a product’s true origin to claim a lower-duty (or duty-free) status.
False Country-of-Origin Declarations: Importers may falsify the stated origin of goods on customs entry documents, invoices, or product labels. For example, a product actually made in China (facing 34% U.S. tariff) might be falsely declared as made in Vietnam, Taiwan, or any country not subject to the same duty. This can involve forged certificates of origin, mislabeled packaging, or cooperation with overseas suppliers to misidentify where an item was produced. In the last trade war (sigh), Vietnamese officials cited a “recent rise in...origin fraud to beat tariffs on Chinese goods”, noting that “country of origin fraud has surged since the trade war began”. Electronics, textiles, steel, and even honey were among sectors where Chinese goods were mislabeled as products of other countries.
Transshipment via Third Countries: This is a common method to facilitate the origin fraud above. Transshipment means routing goods through a third-country intermediate port or facility – often performing some minor repackaging or processing – before final export to the U.S. The goal is to make it appear that the item comes from the intermediate country, not the true country of manufacture. Loopholes are not hard to find. Chinese steel imports, for example, come not directly from China, but indirectly via countries like Oman, Thailand or the UAE – all of which import Chinese materials and then re-export them as if they were local products. The moment a new tariff or trade order is imposed, some bad actors start “hopping from country to country, changing names, shifting shipments, just to stay ahead” of U.S. enforcement. We can expect similar maneuvering now. A 50% tariff on a developing-nation supplier creates a massive incentive to route goods through a neighbor with a lower tariff.
Country-of-origin misrepresentation violates customs laws and, if done knowingly, can trigger severe (criminal) penalties. U.S. rules determine a product’s origin based on the last place where it underwent a “substantial transformation” – meaning a significant manufacturing process that changes the product’s nature or value. Simply routing goods through a third country or doing a light repackaging does not change the true origin. For example, in the Toyo Ink case (2012), a Japanese company imported color pigment from China and India, did some finishing work in Japan/Mexico, and then declared Japan/Mexico as the origin to avoid high anti-dumping duties on Chinese/Indian pigments. The U.S. government alleged the finishing steps were “insufficient to constitute a substantial transformation,” making the origin declaration false. Toyo Ink ultimately paid $45 million to settle False Claims Act charges for this scheme.
False Claims Act Liability for Tariff Evasion
Plaintiffs lawyers take note - customs fraud can be prosecuted through the False Claims Act (FCA). Traditionally used against fraud in government contracts or healthcare billing, the FCA is increasingly being deployed to pursue importers that misstate information to avoid paying import duties. Misrepresenting a product’s origin or value to underpay tariffs can be treated as a “reverse” false claim – essentially, a fraud to avoid paying money owed to the government (as opposed to making the government spend money).
Under the FCA, the penalties are draconian: violators pay triple the amount of the underpaid duties, plus additional fines per violation. These fines add up fast when every customs entry can count as a separate false statement. For example, if a company evaded $1 million in tariffs, they could owe $3 million, plus tens of thousands of dollars for each false entry form submitted. The Justice Department has signaled that it will “aggressively” use the FCA in the customs context – a stance reiterated by top officials in recent speeches. In fact, DOJ’s Michael Granston (a senior Civil Division official) specifically highlighted tariff evasion as a key focus and described the FCA as a “powerful enforcement mechanism” to address fraud on Customs.
What makes the FCA potent is the role of whistleblowers. As described in other sections of our website, the law allows private individuals (known as “relators”) to file qui tam lawsuits on behalf of the government if they know of a company dodging duties. These whistleblowers can collect 15–30% of any recovery, which, given the treble damages, can be huge. With tariffs this high, the potential rewards for whistleblowers grow as well. Insiders at companies will blow the whistle if they see their employer secretly falsifying origin labels, or a competitor tipping off the DOJ if a rival’s mysteriously low prices suggest tariff evasion.
Recent enforcement shows that customs-related FCA cases are happening. We already mentioned Toyo Ink’s $45 million settlement over false origin claims. In another example, in 2024 two U.S. importers (Precision Cable and a related firm) paid $10 million to settle FCA allegations that they falsified invoices to undervalue Chinese imports by 70% and thus grossly underpaid tariffs. Another apparel company paid $7.6 million for a similar long-running scheme of underreporting the value of imported clothes. These cases demonstrate DOJ’s willingness to pursue not just origin fraud but also duty underpayments through false valuations or misclassification. Any misstatement on a customs entry – whether about origin, classification, or value – can lead to an FCA investigation if it resulted in avoiding tariffs.
DOJ Criminal Prosecutions: From Tariff Dodges to Prison Terms
Civil FCA penalties are only part of the risk. The tariff dodges being contemplated can also amount to criminal violations, and DOJ appears increasingly ready to bring criminal charges in this arena. In the past, many customs violations were handled administratively by CBP (with civil fines). But now, due to the aggressive nature of the tariffs, we should “expect criminal enforcement to accelerate” under the new trade regime.
A variety of federal fraud statutes can be applied to tariff evasion cases, often in combination. Key charges may include:
Customs Fraud / Smuggling (18 U.S.C. § 545): It’s a felony to knowingly import merchandise “contrary to law”, which covers smuggling goods or misrepresenting facts to evade import laws. Prosecutors use §545 to charge schemes like false classifications or origin lies to avoid duties. For example, if a company creates fake paperwork to say “Origin: Thailand” when it’s really China, that is importing contrary to law. DOJ recently invoked this law in a case where an importer routed Chinese-origin goods through other countries to dodge tariffs – the individual pleaded guilty in December 2024 for this transshipment scheme. That case (United States v. Esquijerosa) underscores that sneaking Chinese goods in via third countries can lead to a criminal conviction, not just civil fines.
False Statements (18 U.S.C. § 542 or § 1001): Lying to the government is a crime. Submitting falsified customs documents – for instance, a fraudulent invoice or a fake certificate of origin – can violate the general false statement statute (§1001) or the customs-specific false entry statute (§542). These have been used when importers intentionally provide false documentation or declarations to CBP about material facts like origin, value, or classification. Each false document or electronic entry can be a separate criminal count.
Conspiracy (18 U.S.C. § 371): If multiple actors (say, an overseas supplier and a U.S. importer, or an importer and its freight forwarder) agree to commit trade fraud, conspiracy charges can be brought. Conspiracy is often easier to prove than substantive offenses and carries up to five years’ imprisonment per count. In the transshipment context, DOJ has used conspiracy charges alongside smuggling counts.
IEEPA Violations: Interestingly, because some of Trump’s tariffs are imposed under emergency economic powers (IEEPA), willfully evading those tariffs could even be charged as violations of IEEPA, carrying potentially 20-year maximum sentences. If a tariff is framed as a national security measure (like those on China), scheming to circumvent it might be cast as evading U.S. trade sanctions.
What do these criminal enforcement efforts look like in practice? They can be costly. In one 2021 case, six companies linked to a Chinese billionaire were convicted in a $1.8 billion customs fraud conspiracy – they had disguised huge volumes of Chinese aluminum as “pallets” to avoid paying duties and to deceive investors. The jury found them guilty of fraud and passing false papers through customs, and ultimately they were ordered to pay $1.8 billion in restitution and penalties. In another case, a Florida couple orchestrated a scheme to avoid $42 million in duties on Chinese plywood by falsely claiming it was from Malaysia and Sri Lanka; they were caught and each received 57-month prison sentences in 2024.
These are not isolated incidents – DOJ is actively looking for such cases. DOJ’s message is clear: those who engage in deliberate tariff evasion run the risk of criminal prosecution, with company executives potentially facing indictment and incarceration.
Heightened Scrutiny by CBP and Supply Chain Audits
Front-line enforcement will also intensify at the border. U.S. Customs and Border Protection (CBP) – the agency charged with collecting tariffs and policing imports – has been instructed to prioritize enforcement of these new trade measures. In fact, recent presidential directives explicitly told CBP to “impose the maximum penalties permitted by law” for tariff violations and to step up reviews of import classifications and origins. We should expect CBP to deploy a mix of traditional inspections and modern analytics to catch evaders:
Data Analytics and Import Monitoring: CBP has “unparalleled access to detailed import data” for virtually all shipments entering the country. They are increasingly using big data tools and algorithms to spot discrepancies or anomalies that suggest fraud. For example, if imports of a particular product from Country A suddenly spike right after tariffs are imposed on Country B (a known producer of that product), CBP’s systems will flag it. Unusual trade patterns – like a small intermediary country exporting volumes far beyond its production capacity – draw scrutiny. CBP will also analyze valuation data: if an importer is consistently declaring abnormally low values for goods compared to industry norms, that’s a red flag for undervaluation fraud. In short, the era of “hiding in the numbers” is ending; CBP’s analytical prowess makes it harder to get away with systematic evasion.
Physical Inspections and Verifications: Alongside data, CBP can increase physical cargo exams, especially for shipments with high-risk profiles. We might see more frequent requests for documentation to verify origin (e.g. production records, bills of materials) and even factory audits abroad under programs like Customs Trade Partnership Against Terrorism (CTPAT) or through cooperation with foreign customs. The prior trade war spurred international cooperation – Vietnam’s customs, for instance, said it was “increasing cooperation with U.S. authorities” to combat origin fraud. CBP can also invoke special duties retroactively: if they determine goods were misdeclared, they can assess the proper tariff and penalties after the fact, sometimes years later.
Enforcement Actions and Penalties: CBP has administrative penalty authority under laws like 19 U.S.C. §1592. If fraud is found (a “material false statement” or omission on entry documents), CBP can impose penalties up to the full value of the merchandise (or even more, if duties were evaded) in cases of intentional fraud. Even lesser violations (like negligence) can incur significant fines. In serious cases, CBP will refer matters to DOJ for the civil or criminal actions discussed above. The cooperation between CBP and DOJ is tightening: in FY2024, the government itself (outside of whistleblowers) originated 423 new False Claims Act investigations – nearly triple the number from five years prior, reflecting a surge largely driven by customs and tariff issues. In addition, CBP may suspend import privileges or cancel preferential trade program benefits for offenders.
No Exemptions or Loopholes: Authorities are closing loopholes that previously enabled evasion. For example, one early tariff dodge was shipping goods in small $800-value parcels to use the “de minimis” import exemption (which allows low-value shipments to enter duty-free). The new measures have targeted that: the administration even moved to eliminate the de minimis exemption for China-origin goods, so that all Chinese shipments, no matter how small, would incur the tariff (though this was briefly paused to manage port delays). This kind of policy change signals that regulators are plugging gaps aggressively. Similarly, free trade zones or bonded warehouses – sometimes used to mask origin by repackaging – will be watched carefully.
Given this environment, global companies should anticipate a far more rigorous oversight of their supply chains by U.S. authorities. Every link in the chain – from sourcing raw materials to the final import entry – may be scrutinized for tariff compliance. CBP and partner agencies will be asking tough questions: Where was this product actually made? Were any materials from a high-tariff country introduced? Can you prove the manufacturing processes done in an intermediate country were substantial enough to confer a new origin? Companies that cannot substantiate their claims risk having shipments seized or delayed, and face hefty penalties.
Compliance Challenges for Global Companies and Intermediaries
For multinational companies, the new tariffs pose not just an economic challenge but a compliance and legal risk challenge. Firms with global supply chains must nowcheck every aspect of their import operations to avoid accidental (or intentional) tariff evasion that could lead to enforcement actions. Key challenges include:
Supply Chain Transparency: Companies need clear visibility into their suppliers and sub-suppliers. If a U.S. importer is buying goods from a vendor in Japan, but that vendor sources components from China (now subject to 34% tariff), the country-of-origin of the final product might still be China under U.S. law unless substantial transformation occurred. In a high-tariff regime, blindly trusting a supplier’s word is risky – if the supplier misleads or engages in transshipment, the U.S. importer will be on the hook to CBP. Ensuring truthful origin documentation is now a critical compliance task.
Third-Party Risks (Freight Forwarders and Brokers): Importers rely on freight forwarders, customs brokers, and logistics providers to handle shipping and import paperwork. These intermediaries can introduce risk if they cut corners. For instance, a freight forwarder in Asia might offer to reroute goods through an intermediate hub and provide “corrected” paperwork. Customs brokers, who prepare and file entry documents, have a duty to exercise due diligence; if a broker knowingly files false information (like an incorrect origin or value), they not only risk losing their brokerage license but could also face FCA or criminal liability for “causing” false statements to be submitted. Brokers and forwarders have been implicated in past customs fraud schemes (e.g. warehousing companies that helped relabel goods were convicted in the $1.8B aluminum case). Companies must carefully vet and instruct their intermediaries: cheap shipping services that promise to evade tariffs are a no-go.
Internal Controls and Training: Global firms should review their internal controls on import compliance. This means updating written policies to account for the new tariffs (e.g. screening all imports from now high-tariff countries, requiring high-level approval for any change in supply routes, etc.). Training employees is vital – everyone from procurement officers to shipping clerks should understand that mislabeling origin or undervaluing invoices is fraud with serious consequences, not a mere “technicality.” The concept of providing “reasonable care” in imports now entails extra vigilance.
Whistleblower Management: As noted, employees or even competitors can become whistleblowers under the FCA. This adds another layer of risk for companies: a disgruntled employee aware of shady import practices could turn directly to the DOJ. Organizations should cultivate a culture where staff are encouraged to report concerns internally (e.g. via hotlines) so that issues can be fixed early rather than litigated later. Additionally, companies may want to assess whether any past import practices (from prior years’ tariffs) could now come back as an FCA case, and if so, consult legal counsel to mitigate or disclose appropriately.
In short, global companies, import/export businesses, and the web of third-party facilitators must all adapt swiftly. The legal exposure is not abstract – real cases show that everyone from a womenswear importer to a chemical conglomerate to logistics firms can be ensnared.
Looking Ahead: Enforcement on the Horizon
Trump’s tariff policy is, in effect, a giant stress test of corporate compliance. Past experience suggests that some portion of industry will attempt to evade the tariffs – and when duties are as high as 50%, the temptation is even greater. But the U.S. government may retaliate. Expect to see:
More whistleblower suits uncovering fraud that would otherwise remain hidden (the DOJ’s FCA filings and investigations are already at record highs).
More DOJ-led crackdowns, possibly making examples of prominent violators to deter others (we might see headline-making arrests or large settlements in the coming year).
Closer international cooperation (countries like Vietnam, Malaysia, and Mexico will face pressure to assist in verifying exports and clamping down on fake re-export schemes).
Legislative tweaks to empower enforcement – for instance, laws that make tariff evasion a more clearly defined federal crime, or that allocate more funding to customs enforcement teams, could gain bipartisan support.
Bottom line: The new tariffs could spark a wave of white-collar customs violations – but DOJ, whistleblowers, and CBP are gearing up . We are likely to see a surge in trade-related investigations, FCA lawsuits, and even criminal prosecutions as enforcement tries to keep pace with fraud. Companies that engage in misrepresenting origin or transshipping goods to evade tariffs do so at their peril, facing triple damages, penalties, and potential jail terms for executives in egregious cases. The trade war may be escalating, but so is the war on customs fraud – and the government appears determined to pursue those who “inappropriately avoid paying money owed to the United States.” In this climate, vigilance and integrity in trade compliance are more important than ever.
Dynamis is an elite litigation boutique with offices in Boston, New York and Miami. If you or your company is facing scrutiny over import practices, contact our team. We’ve handled (and are still handling) high-stakes investigations involving the DOJ, CBP, and SEC.
FAQs
Q: What constitutes customs fraud under U.S. law?
A: Customs fraud includes actions such as misdeclaring the country of origin, undervaluing goods, and misclassifying products to evade tariffs.
Q: How does the False Claims Act apply to tariff evasion?
A: The FCA allows the government to pursue entities that knowingly submit false information to avoid paying tariffs, with penalties including triple damages and fines.
Q: What role do whistleblowers play in detecting customs fraud?
A: Whistleblowers can file qui tam lawsuits under the FCA, potentially receiving a percentage of the recovered funds, thus incentivizing the reporting of fraudulent activities.
Q: What recent trends indicate increased enforcement of customs compliance?
A: The Department of Justice and Customs and Border Patrol have intensified scrutiny, utilizing data analytics to detect fraud and pursuing both civil and criminal actions against violators.
Q: How can companies ensure compliance with customs regulations amid rising tariffs?
A: Implementing robust internal controls, conducting regular supply chain audits, and ensuring transparency with third-party partners are critical steps for compliance.
