Tariffs and trade obligations are quickly becoming a key area for government investigations and enforcement actions. This February, an official in the Department of Justice’s Civil Division announced that the DOJ would “aggressively” pursue enforcement actions related to “illegal foreign trade practices.” In May, the head of the DOJ’s Criminal Division announced it would prioritize “[t]rade and customs fraud, including tariff evasion” in criminal investigations. And in the past weeks, DOJ has announced settlements totaling over $24 million for alleged customs fraud, including one in the Northern District of Texas.
Meanwhile, various states and businesses have filed lawsuits challenging President Donald Trump’s use of the International Emergency Economic Powers Act to impose broad tariffs, such as those in April’s “Liberation Day” announcement. Recently, in V.O.S. Selections, Inc. v. Trump, a majority of the Court of Appeals for the Federal Circuit concluded that these IEEPA tariffs exceeded the president’s authority. But that does not mean tariffs are over. The lawsuits are ongoing, and the administration has signaled that it will look to other statutes — such as those used during the first Trump administration — should it lose on the IEEPA issue. No matter the outcome, these cases demonstrate that tariffs will remain an important policy tool for years to come.
With tariffs being an administration priority, the DOJ’s heightened focus on tariff evasion and trade cases suggests that enforcement actions will reach broadly into the supply chain. Companies and executives should take heed of the various penalties outlined below.
How Do Customs Duties Work?
Customs procedures are complex, but some general concepts can illustrate how an enforcement action might arise. Merchandise imported into the United States must be “entered,” meaning that entry documentation must be filed with the U.S. Customs and Border Protection so it can assess the customs duties owed on the goods. This documentation is commonly referred to as the “Entry Summary” or Form 7501. Among other things, the entry documentation includes representations about the imported goods’ value, country of origin and classification, and it requires a supporting invoice that shows the value of the merchandise being imported. The importer must declare whether the merchandise is subject to duties and, if so, the amount of duties owed.
Typically, the amount of duties assessed is ad valorem, that is, based on the value of the merchandise. If an importer enters a $1,000 widget subject to a 15 percent duty rate, she would owe $150 in duties. But the duty rate depends on the classification of the merchandise. For example, as illustrated by a recent Department of Commerce Notice, a steel or aluminum widget may be subject to a different duty rate than a plastic one. Here, the Harmonized Tariff Schedule of the United States is crucial; it sets out the applicable tariff rates and categories for merchandise imported into the United States. Importers and customs brokers use numerical codes known as HTS codes to identify the classification of the goods during the entry process. Both the declaration of the value of the goods and the selection of the HTS codes contribute to the determination of duties owed. Duty evasion schemes often involve misrepresentations in these two areas.
In addition, the duty rate also depends on the country of origin. This designation identifies where the merchandise was grown, produced or manufactured, or it can reflect where the merchandise was “substantially transformed” into the final product. And it can have a significant impact on the duties assessed, as illustrated by President Trump’s recent executive order imposing an additional 40 percent duty rate on various products from Brazil. For that reason, another common duty evasion scheme involves transshipment, whereby merchandise is shipped to a country with a lower tariff rate and then declared to CBP as originating from that second country.
Furthermore, certain commodities may be subject to heightened duties, such as antidumping or countervailing duties. Antidumping duties combat unfair trade practices whereby foreign producers sell merchandise in the United States below fair market value, to the detriment of domestic manufacturers. Countervailing duties offset subsidies by foreign governments, which can disadvantage or harm domestic producers. The Form 7501 includes a specific box — “Entry Type” — for importers to declare whether the imported merchandise is subject to antidumping or countervailing duties.
CBP has authority to assess penalties and liquidated damages and to seize merchandise for violations of customs laws. The fines, penalties and forfeitures division oversees the bulk of these administrative enforcement actions. But CBP frequently refers matters to the DOJ as well. The representations made to CBP during the importation process can serve as a predicate for criminal and civil actions for tariff evasion.
Potential Criminal Liability for Duty Evasion
Various statutes impose criminal penalties for misrepresentations involving the importation of goods into the United States. For example, 18 U.S.C. § 541 prohibits the entry of falsely classified goods into the United States, and it applies to anyone who “knowingly effects” any such entry. 18 U.S.C. § 542 prohibits the entry of goods by means of false statements, and it references fraudulent or false invoices, declarations and affidavits, among other things. Violations of these statutes can result in criminal fines and terms of imprisonment for up to two years. In aggravated cases, the DOJ can use the anti-smuggling statute — 18 U.S.C. § 545 — which can result in imprisonment for up to 20 years.
But these are not the only criminal statutes that may apply to illegal entries. Prosecutors can also charge crimes such as conspiracy and wire fraud. In one case, the DOJ pursued criminal charges against the CEO of an apparel company for allegedly participating in a “double-invoicing” scheme to avoid customs duties. According to prosecutors, the apparel company directed overseas manufacturers to prepare, in addition to their real invoices, a second set of fraudulent invoices that the company submitted to CBP to lower its duty obligations. The indictment charged the CEO not only with one count of falsely effecting the entry of goods, but also with one count of conspiracy to commit wire fraud and one count of wire fraud — both of which carry a maximum sentence of 20 years in prison.
In another case, the DOJ brought conspiracy charges against the owner of a tire company for a transshipment scheme. According to prosecutors, the defendant and his co-conspirators caused Chinese truck tires to be transshipped to the United States through countries such as Canada and Malaysia. By misrepresenting the tires’ country of origin on the entry paperwork, the conspirators avoided antidumping and countervailing duties assessed on truck tires manufactured in China. The owner pleaded guilty to an information charging him with conspiracy to commit an offense against the United States.
The DOJ can also pursue parallel criminal and civil enforcement actions for tariff evasion schemes. In one instance, the government alleged that a furniture company and its successor evaded duties by falsely describing wooden bedroom furniture as “metal” or “non-bedroom” furniture on documents submitted to CBP. The government pursued criminal charges against two of the companies’ executives, who pleaded guilty to conspiracy to defraud the United States in violation of 18 U.S.C. §§ 371 and 542. Notably, the furniture companies and the two executives also agreed to pay more than $5.2 million to resolve civil allegations that they violated the False Claims Act in connection with the scheme. As explained below, the FCA is the primary civil enforcement tool for fraud against the government, and it can reach situations even where there is no underlying criminal investigation.
Potential Civil Liability for Duty Evasion
The FCA provides that any person who knowingly submits (or causes to be submitted) false claims to the government is liable for three times the government’s damages plus penalties (31 U.S.C. § 3729(a)). Originally enacted in 1863 in response to defense contractor fraud during the Civil War, the FCA gained new prominence in 1986 when it was strengthened by Congress. In the 2024 fiscal year, FCA settlements and judgments exceeded $2.9 billion.
For tariff evasion cases, the key section is the “reverse false claim” provision, 31 U.S.C. § 3729(a)(1)(G). While the FCA largely proscribes false representations to obtain money from the government, the reverse-FCA provision focuses on the opposite situation; it applies to those who knowingly make or use materially false records or statements to avoid or decrease an obligation to pay money to the government. Under this section, misrepresentations on entry paperwork to avoid tariff obligations can lead to potential FCA liability.
In addition, the FCA provides for liability against anyone who conspires to commit an FCA violation, per 31 U.S.C. § 3729(a)(1)(C). This section of the statute can potentially reach parties who knowingly participate in a fraudulent scheme even if they do not submit false entry paperwork to CBP. And because the FCA provides for treble damages and penalties, a party’s exposure can easily exceed the loss of revenue associated with the improper entries.
Beyond the hefty damages, another of the FCA’s risks is that whistleblowers (known as relators) can initiate these actions by filing a qui tamlawsuit on behalf of the government. Cases are filed under seal, without being served on the defendant. The seal period allows the government to investigate the relator’s allegations and determine whether to intervene in the action and litigate the claims. Often, after investigation, the government reaches a settlement that obviates the need for litigation. These settlements can be substantial; in one instance, a Japanese ink company and various affiliates agreed to a $45 million settlement for alleged failure to pay antidumping and countervailing duties.
But even if the government declines to intervene, that does not necessarily end the case. The relator has the option to litigate the claims on the government’s behalf. And the FCA provides relators with a powerful incentive to do so; it allows them to receive up to 30 percent of the recovery in a successful action plus reasonable attorneys’ fees and expenses.
Recent actions by the DOJ demonstrate its increased focus on tariffs and trade cases for civil enforcement. Earlier this year, the DOJ intervened in a qui tamlawsuit against a uniform company, certain of its suppliers, and two executives for an alleged tariff evasion scheme. The government’s complaint alleged that the defendants conspired to undervalue garments imported from China to avoid or decrease duty obligations on that merchandise. Among other things, the government alleged that the defendants used a double-invoicing scheme to present false entry summaries to the CBP and that the uniform company persisted with the scheme even after a third-party auditor advised it of risks. The original lawsuit was filed by one of the company’s former directors pursuant to the FCA’s qui tamprovisions.
The DOJ has also announced a number of FCA settlements related to tariffs and duty evasion. For example, in January 2023, DOJ reached a $22.8 million settlement with a vitamin importer to resolve allegations that it misclassified more than 30 of its products to avoid paying customs duties. In March 2025, the DOJ reached an $8.1 million settlement with a flooring importer and its two owners to resolve allegations that they caused false information to be submitted to CBP regarding the country of origin and the identity of the manufacturers of wood flooring imports. And in July 2025, the DOJ settled with a furniture company to resolve allegations that it violated the FCA by evading antidumping and countervailing duties on items made from extruded aluminum originating from China. In turn, these settlements will likely prompt whistleblower firms to focus on duty evasion schemes when evaluating potential qui tamlawsuits.
Takeaways
With the DOJ’s emphasis on tariff enforcement, companies and executives should ensure they have adequate compliance safeguards and internal reporting mechanisms for their procurement departments and supply chains. Solicitations from overseas manufacturers to avoid tariffs have proliferated in recent months. Turning a blind eye to trade violations can lead to potential liability, particularly where a company is purchasing imported merchandise at a price that seems too good to be true.
Further, companies with potential exposure do not need to wait and see if they draw a government subpoena or whistleblower suit. Procedures exist for parties to self-disclose misconduct, as illustrated by another recent DOJ settlement in the trade space. A timely self-disclosure can result in more favorable resolution as the DOJ can factor in cooperation with an investigation and appropriate remedial measures. Companies seeking to make a voluntary self-disclosure should consult experienced attorneys who can guide them through the process and ensure they receive proper credit for their efforts.
Richard B. Roper is a partner and head of the White Collar and Investigations practice group at Vartabedian Hester & Haynes LLP. He previously served as the United States Attorney for the Northern District of Texas.
Richard J. Guiltinan is a partner in the firm’s White Collar and Investigations practice group. He previously served as an Assistant United States Attorney in the Northern District of Texas.
The opinions expressed in this article are those of the authors in their personal capacity, and they do not necessarily reflect the views of their firm or its clients. This article is for informational purposes only and should not be taken as legal advice.