DOJ Identifies Tariff Fraud as Enforcement Priority

The Trump administration’s announcement of a panoply of steep tariffs on April 2, 2025, and the associated tariff negotiations that followed, has been met with extensive media coverage and analysis.  To emphasize the seriousness of the new tariff regime, the Department of Justice (“DOJ”) — in its May 12 Memorandum on White Collar Crime¹ — announced that it will prioritize for investigation and prosecution cases involving “trade and customs fraud, including tariff evasion.”  Nonetheless, schemes to evade the tariffs have been on the rise.  These illegal practices have included:

• Underreporting the value of imported goods to U.S. Customs and Border Protection (“CBP”) to pay a reduced tariff.  This scheme may involve selling the imported goods to a related entity at an artificially low price.  The difference in price between the actual value and the value reported to CBP is made up out of the government regulator’s sight. 
   
• Misclassifying the item into a lower tariff category, such as calling a polyester shirt a cotton one.
   
• Transshipment, which involves sending goods to a third-party country for re-export to the United States with new packaging or insignificant alterations, to take advantage of the third-party country’s more favorable tariff rates.  This may well explain why in April, when Chinese exports to the United States fell by 21%, Chinese exports to Southeast Asian countries (with more favorable U.S. tariff rates) rose by the same percentage.²

These types of schemes to avoid tariffs are not new, and they remain illegal.³  Lying in a declaration on a CBP importation form regarding a product’s country of origin or manufacture, or about whether the importer is affiliated with the exporter, can form the basis for criminal prosecution or a civil False Claims Act⁴ (“FCA”) action.  While Customs declarations can be complex, negligence or gross negligence in their completion can result in civil penalties for importers or their authorized agents.⁵

The criminal statutes most frequently utilized by the DOJ to combat tariff fraud are 18 USC §541 and 18 USC §542.  Section 541 makes it a crime to import goods or merchandise “at less than the true weight or measure thereof, or upon a false classification as to quality or value, or by the payment of less than the amount of duty legally due.” Section 542 makes it a crime to knowingly sell or trade in imported goods introduced into United States commerce by means of any fraudulent or false document or statement, even if the United States was not deprived of a lawful tariff.⁶

Violations of these sections can result in fines up to $250,000, as well as up to two years imprisonment on each count.  In addition, if a tariff fraud involves the use of mail or electronic communications — such as submitting a false customs declaration electronically — it can potentially be charged as mail or wire fraud.⁷  An enterprise engaging in a pattern of such illegal activity that affects interstate or foreign commerce could theoretically be charged with a RICO violation. 

Tariff violators are also vulnerable to private whistleblower (“relator”) suits, known as qui tam actions, under the FCA.⁸  FCA suits can result in treble damages and significant penalties.  DOJ is actively encouraging whistleblowers to come forward with information about tariff violators that would support government-prosecuted FCA cases.⁹  A recent example of a whistleblower doing just that has resulted in the filing of an FCA case by the government in South Carolina seeking more than $6 million in fines and penalties against an alleged tariff evader.¹⁰  If the government declines to adopt a relator’s case, the whistleblower can still pursue the case independently in court.  Not only can an employee become a whistleblower, but so can an observer or even a competitor who seeks to capitalize on knowledge of wrongdoing. 

With tariff compliance being an enforcement priority under the Trump administration, businesses must exercise care and maintain the highest levels of compliance with customs laws and regulations.  If problems are suspected, consultation with counsel and prompt investigation are essential.  If violations are uncovered, timely self-disclosure to DOJ could result in leniency and potential non-prosecution. 
 

This article was written by Alan Brudner and Scott Resnik, Partners, and Sofia La Bella, Associate, in Katten Muchin Rosenman LLP’s White Collar Criminal Defense and Investigations Group, with the assistance of Summer Associate Alexa Bieber.

¹ Press Release, U.S. Dep’t of Just., Focus, Fairness, and Efficiency in the Fight Against White-Collar Crime (May 12, 2025), https://www.justice.gov/criminal/media/1400046/dl?inline. See also Justin Wise, DOJ Frauds Unit Tasked With Pursuing Evasion of Trump Tariffs, Bloomberg L. (July 10, 2025, 5:00 AM), https://news.bloomberglaw.com/daily-tax-report/doj-frauds-unit-tasked-with-pursuing-evasion-of-trump-tariffs (referencing DOJ’s restructuring of several units to form a new “Market, Government, Consumer Fraud Unit” within the Criminal Division that will focus on trade fraud and other white collar crimes affecting consumers and investors).   

² Ana Swanson & Lazaro Gamio, Trade Crime is Soaring, U.S. Firms Say, as Trump’s Tariffs Incentivize Fraud, N.Y. Times (May 27, 2025), https://www.nytimes.com/2025/05/27/business/economy/trump-tariffs-trade-crime.html.

³See, e.g., U.S. v. Rosenthal, 126 F. 766 (C.C.S.D.N.Y. 1903), aff’d, 145 F. 1 (2d Cir. 1905); U.S. v. Broker, 246 F.2d 328 (2d Cir. 1957). 

⁴ 31 U.S.C. §§ 3729-3733.

⁵ 19 U.S.C. § 1592 prescribes civil penalties administered under CBP procedures that range from the domestic value of the merchandise (for fraud) to four times the duties due (for gross negligence) to twice the duties due (for negligence), and includes potential assessments for violations that did not cause a loss in the duties collected.

⁶See U.S. v. Zhang, 833 F. Supp. 1010 (S.D.N.Y. 1993) (finding charges under several Customs statutes not multiplicitous). 

⁷See, e.g., U.S. v. Heon Seok Lee, 937 F.3d 797 (7th Cir. 2019). 

⁸ 31 U.S.C. §§ 3729-3733.

⁹See, e.g., Press Release, U.S. Dep’t of Just., Civil Rights Fraud Initiative (May 19, 2025), https://www.justice.gov/dag/media/1400826/dl?inline. See also Corinne Ramey, Battling Tariff Fraud Is a Little-Known Front in Trump’s Trade War, Wall St. J. (July 14, 2025, 9:00 AM), https://www.wsj.com/us-news/law/battling-tariff-fraud-is-a-little-known-front-in-trumps-trade-war-297d49b7?reflink=desktopwebshare_permalink.

¹⁰ Complaint in Intervention, U.S. ex rel. Joyce v. Global Office Furniture, LLC, et al., No. 2:20-cv-01223-DCN, ECF No. 50 (D.S.C. July 15, 2025).