Tariff Evasion Schemes: What It Means for U.S. Importers

The U.S. tariff landscape has seen unprecedented change over the past several months, with substantial tariffs being imposed on goods imported into the U.S. These tariffs have been announced, paused, revised, or in some instances declared unlawful. We urge U.S. importers to carefully examine their import practices and responses to current and future tariffs to ensure that they remain compliant and avoid costly and time-consuming allegations or investigations of potential impropriety.

As changes to tariff policy continue, new methods of tariff evasion are emerging. One recent development involves exporters enticing U.S. businesses with seemingly attractive offers, including promises to absorb the full burden of U.S. import duties.¹ If these deals sound too good to be true, that’s because they are: often, “absorbing tariffs” is achieved through illicit strategies to evade duties—strategies that can expose unsuspecting buyers to serious legal risks.

A common approach is the misuse of “delivery duty paid” shipping terms, where the seller assumes responsibility for all import duties. In this scenario, exporters—often through freight forwarders—will understate the value of goods or mislabel them, sometimes both, so that the tariff rates are lower than they might otherwise be. Shipments will then be routed through shell companies that act as “importers of record.” 

Under the relevant regulations, the “importer of record” is responsible for submitting customs declarations and paying all required duties. One of the more important forms submitted is the Customs and Border Protection (“CBP”) Form 7501, which sets forth detailed information about the shipment, including country of origin, valuation, and classification within the tariff schedule. The CBP Form 7501 also includes an express representation that the information provided is true and accurate.

After submission of the forms, the importer has 10 or 30 days to pay its tariff bill. As a safeguard to ensure duties are paid, CBP requires a customs bond of at least $50,000, which is issued through surety companies. But in these evasion schemes, the so-called “importers of record” are often shell companies created solely to facilitate fraud. Once the customs bond is fully utilized, these entities frequently disappear without formal insolvency proceedings, leaving outstanding tariff obligations unpaid. This scheme is perpetuated by quickly setting up new shell companies with fresh details, creating an ongoing cycle of evasion. 

This scheme differs from the widely recognized—and legally above-board—“First Sale rule.” The First Sale rule allows businesses to calculate customs valuations based on the price paid in the First Sale of goods, typically from the manufacturer to the middleman, rather than the final price paid by the importer. Properly applied, this rule can reduce declared customs values, leading to lower tariffs owed, all while remaining fully compliant with U.S. customs law. However, leveraging the First Sale rule requires meticulous recordkeeping, transparency, and close collaboration with all parties involved in the supply chain to ensure the rule is applied correctly and withstands CBP scrutiny. 

While schemes such as shell-company manipulation are not new, the scale of their use appears to have grown in direct response to high-tariff policies imposed under the Trump administration. And buyers are not always innocent victims; reports suggest that some U.S. companies are actively pressuring their counterparts to participate in these and other similarly risky practices to maintain pre-tariff pricing.

Another prevalent strategy of tariff evasion is illicit transshipment, where goods destined for the U.S. are rerouted through third countries to disguise their true origin. For instance, goods may be relabeled or repackaged in countries with preferential tariff treatment, allowing them to sidestep penalties. More traditional tactics, such as undervaluation and product misclassification, also remain common.

These practices are not just regulatory breaches—they can lead to significant legal jeopardy for U.S. companies. Under customs law, buyers who fail to exercise due diligence may face fines, seizure of goods, and even criminal charges if found complicit. Moreover, federal authorities have increased their scrutiny of these evasion tactics, increasing the likelihood of detection. Entering into such arrangements, whether knowingly or unwittingly, can lead to significant and lasting consequences.

In the current trade climate, businesses must exercise caution and diligence when engaging with sellers who promise tariff-free deals. If the offer looks too good to be true, it probably is. While navigating high tariffs is challenging, turning to risky schemes to avoid them places both sides of the transaction in jeopardy. A strong compliance framework and careful vetting of trade partners aren’t just good practices—they’re essential safeguards in these precarious times.

Why Companies Face Steep Civil and Criminal Costs When Customs Compliance Is Compromised

The risks of being entangled in tariff evasion practices—whether knowingly or unknowingly—are impossible to overstate, especially in today’s enforcement environment, where tariffs have become a central focus of regulators. (See U.S. DOJ provides long-awaited clarity on enforcement priorities with key policy updates, with significant emphasis on self-disclosure). 

As we’ve detailed in prior guidance on this issue (see Navigating the Storm: U.S. Tariff Hikes and Managing the Impact), for U.S. companies, the potential exposure spans both civil and criminal liabilities. Whether it’s pressuring foreign suppliers to engage in customs fraud or improperly benefiting from under-invoicing, transshipment, or misclassification, the implications can be severe.

• Reputational Harm: Consequences of customs compliance failures extend far beyond financial and legal liabilities. Public disclosure of customs violations often generates significant negative press coverage, which can quickly erode trust with stakeholders, customers, and business partners. An additional risk is the potential revocation of Customs-Trade Partnership Against Terrorism (“C-TPAT”)² status, which offers companies valuable benefits, such as reduced inspections at ports, shorter border wait times, and access to cost-saving CBP resources. Losing C-TPAT certification can increase costs and signal broader compliance failings to the market, intensifying reputational and operational repercussions.
• Civil Risks: At minimum, businesses risk hefty fines, seizure of goods, and penalties for customs violations. Additionally, violations could trigger enforcement under the False Claims Act (“FCA”), which allows for damages of three times the unpaid duties, plus significant per-violation penalties. Civil actions of this nature frequently attract whistleblower involvement, amplifying legal and reputational risks.
• Criminal Risks: In more serious cases, where collusion or willful participation is suspected, companies and individuals may face criminal charges, including conspiracy, wire fraud, or lying to federal investigators. Under federal law, criminal customs-related violations carry potential prison terms, hefty fines, or both.

And enforcement authorities are increasingly focused on customs compliance. Federal agencies such as the Department of Justice (“DOJ”) and CBP have stepped up efforts to monitor and penalize importers whose records suggest duty evasion schemes. Companies cannot plead ignorance. For example, if financial records show that tariff rates on imports from countries subject to recent tariff increases remained unchanged when comparing periods before and after the tariff increases, any claims that the business was unaware of potential customs fraud are unlikely to protect them from liability.

Building and Maintaining a Strong Compliance Framework

The best way to mitigate these risks is through a comprehensive Compliance Management Framework that is tailored to your organization’s needs and priorities. With tariff enforcement now a key focus of the DOJ, compliance measures must adapt to meet emerging challenges. Strong compliance practices can help detect red flags before they grow into regulatory liabilities.

Here are some practical steps that businesses can take:

• Update Compliance Communication and Training: Existing training programs should be refreshed to include detailed guidance on tariff-related risks, including specific scenarios such as under-invoicing, misclassification, and transshipment schemes. Staff across all relevant departments—particularly purchasing and logistics but also controlling and group risk management—should receive this training. Senior leadership should consistently highlight the importance of full compliance on this matter in internal communications.
• Introduce Second-Level Checks: Establish additional layers of review for high-risk transactions, such as those involving ambiguous product listings, unusually low prices, or unconventional routing through third-party countries. Consider requiring oversight from a compliance officer or an external consultant for shipments that seem out of step with current tariff structures.
• Review Internal “Know-Your-Business-Partner-Check” Processes: Ensure that suppliers and other business partners, such as customs brokers and logistics providers, are thoroughly vetted through your internal business partner and vendor approval programs. Where relevant, involve your compliance officers in the countries of supply origin to perform further checks on the respective suppliers.
• Engage Stakeholders Beyond Compliance Teams: Tariff-related risks often touch purchasing, finance & controlling, and logistics functions, among others. Integrating compliance efforts into these departments increases awareness and reduces silos where risky practices might go unnoticed.
• Request and Review Documentation from Suppliers: If a deal seems too good to be true—such as paying pre-tariff increase prices on post-tariff increase imports—ask your supplier for customs documents, including declarations of value and classifications. If they cannot produce these, it might be a red flag.
• Conduct Periodic Audits: Perform regular audits of your own import and customs records. Identify patterns or discrepancies, flag imports that consistently show lower-than-average declared values and verify any product reclassifications.
• Close Contact Between Management, Compliance and Purchasing: Managers and compliance officers should maintain close and regular contact with purchasing and logistics teams (e.g., through regular meetings or jour fixes) to stay informed about emerging challenges and proactively address any critical developments.
• First Sale Program: If a company wishes to implement a First Sale program, it should (1) maintain comprehensive and detailed records of all changes, including supporting documentation (e.g., bills of materials, product specifications, and any changes that could impact dutiable values); and (2) request binding representative rulings from CBP on the First Sale program.

There is no one-size-fits-all solution, and the exact measures will vary depending on your organization’s size, scope, and risk profile. But proactive steps like the ones listed above serve not only to mitigate exposure but also demonstrate good-faith compliance to regulators—a factor that can be critical in reducing penalties should violations be discovered.

In today’s enforcement climate, ignoring these risks isn’t just costly—it’s unsustainable. A strong compliance framework is no longer optional; it’s a business imperative.
 

¹ See, e.g., Chinese exporters are offering sweet deals to U.S. businesses. They often come wrapped in fraud, CNBC (May 19, 2025).

² Customs Trade Partnership Against Terrorism (CTPAT), U.S. Customs and Border Protection.