Understanding Tariff Fraud: A Growing Concern for Global Trade

emails419
Sep 1
2 min read

Updated: Oct 13

Tariff fraud is a form of customs fraud where importers or exporters intentionally misrepresent information to border authorities. This is done to avoid paying full tariffs, duties, or taxes. Such actions undermine fair trade, cause governments to lose revenue, and give dishonest traders an unfair advantage.

The Rising Importance of Compliance

Tariff fraud isn’t just a compliance issue anymore—it’s making headlines. The Department of Justice (DOJ) has made tariff evasion a criminal enforcement priority, and the media is taking notice.

Recently, many in the trade world have sensed a shift: enforcement is accelerating. A recent DOJ memo marked trade fraud as a top focus. Whistleblower tips are reportedly up more than 150% over last year. DOJ attorneys are especially interested in shipments imported under shell companies, misdeclared country-of-origin, transshipment, and anything resembling a workaround for the Trump-era tariffs now being reimposed and expanded.

Common Red Flags of Tariff Fraud

What’s drawing scrutiny? Here are some common red flags:

Falsifying invoices, entry documents, or product values
Misdeclaring country of origin—especially goods linked to China
Routing shipments through third countries to mask origin
Double invoicing and valuation tricks
Tax evasion tied to unpaid duties
Using shell companies to import under false DDP terms

Even honest errors can raise red flags. Customs sees them as patterns, not mere paperwork mistakes.

Common Methods of Tariff Fraud

Understanding the methods used in tariff fraud can help businesses avoid pitfalls. Here are some common techniques:

Undervaluation
Declaring goods at a lower price than their actual value.
Example: Reporting a $10,000 shipment as worth only $3,000.

Misclassification
Assigning goods to the wrong tariff category that carries a lower duty.
Example: Declaring luxury leather handbags as “plastic shopping bags.”

Transshipment / False Origin
Routing goods through a third country and falsifying paperwork to hide the real country of origin.
This method is often used to bypass country-specific tariffs, especially during trade wars.

Smuggling or Misreporting Quantity
Not declaring part of the shipment or hiding restricted goods among legitimate ones.

Fraudulent Free Trade Claims
Claiming eligibility under free trade agreements (like NAFTA/USMCA) without meeting the rules of origin.

Legal & Economic Consequences

The consequences of tariff fraud are severe. They include:

Fines and Penalties: Heavy financial penalties for companies and individuals.
Seizure of Goods: Shipments can be confiscated at the border.
Criminal Charges: Serious fraud cases can lead to imprisonment.
Trade Distortions: Honest businesses face unfair competition.
Revenue Loss: Governments lose billions annually due to customs fraud.

How It’s Detected & Prevented

Detection and prevention are crucial in combating tariff fraud. Here are some methods used:

Customs Audits: Regular audits of invoices, shipping documents, and company records.
Data Analytics: Utilizing data analytics to spot anomalies in declared values.
International Cooperation: Collaborating internationally to track suspicious trade flows.
Technology: Employing technology like blockchain and AI for secure supply-chain verification.

Conclusion

Tariff fraud poses a significant risk to global trade. As enforcement increases, businesses must remain vigilant. Understanding the methods and consequences of tariff fraud is essential for compliance and maintaining a fair trading environment.

If you need more info, please contact us at agfus.com.

By staying informed and proactive, we can help ensure a level playing field for all businesses engaged in global freight and logistics services.