By McCabe Law Firm News and Insights

Fighting Customs Fraud: Protecting the US Economy

Customs fraud is a serious issue that undermines fair trade, harms domestic businesses, and costs the U.S. government billions of dollars in lost revenue. Unscrupulous importers attempt to avoid customs duties through deceptive practices, including false classification, undervaluation, and transshipment.

Many engage in fraud to lower customs duties or obtain improper drawback refunds, depriving the government of necessary revenue. Combatting such fraud is crucial for maintaining a level playing field and protecting U.S. businesses from unfair competition.

Customs fraud schemes, such as undervaluation and transshipment, allow dishonest importers to illegally lower customs duties and claim improper drawback refunds, causing financial harm to the U.S. economy. Whistleblowers play a vital role in exposing these violations and ensuring compliance with customs laws. At The McCabe Law Firm, we work directly with trade compliance officers, customs brokers, and logistical insiders to expose these tax evasion rings via the False Claims Act.

This article explores the different types of customs fraud, the penalties for violating customs laws, and how whistleblowers can report customs fraud under the False Claims Act.

What Customs Duties Are

Customs duties are taxes levied on imported goods to regulate trade, generate revenue for the federal government, and protect domestic industries from unfair competition. These duties are essential for ensuring that foreign goods do not flood the U.S. market at prices that undercut domestic importers and manufacturers. The customs system ensures that import duties are fairly applied and that businesses do not engage in unfair trade practices to lower customs duties illegally.

There are different types of customs duties, including specific duties (fixed per unit of goods) and ad valorem duties (a percentage of the product’s value). Some importers try to evade duties by misclassifying products, underreporting their value, or disguising their country of origin, which constitutes customs fraud.

Antidumping and Countervailing Duties

Antidumping duties are imposed on imported goods that are sold in the U.S. at prices lower than their production cost or below their fair market value in the exporting country. This practice, known as dumping, gives foreign exporters an unfair advantage over domestic importers and can harm U.S. industries by driving down prices artificially. Antidumping duties correct these price distortions and prevent unfair competition.

Similarly, countervailing duties are levied on goods that receive government subsidies from foreign countries. These subsidies enable foreign companies to sell products at artificially low prices, putting U.S. businesses at a disadvantage. Countervailing duties neutralize the impact of these subsidies and restore fair competition in the U.S. market.

Importers attempting to evade duties may misrepresent the actual country of origin or reroute goods through an intermediate country to avoid antidumping and countervailing duties. This is a form of customs fraud known as transshipment fraud. Because antidumping tariffs can sometimes exceed 100% to 200% of the product’s base value, the financial incentive for dishonest importers to commit transshipment fraud is massive.

Role of U.S. Customs and Border Protection (CBP)

The U.S. Customs and Border Protection (CBP) plays a critical role in customs enforcement, ensuring that imported goods comply with U.S. trade laws. CBP officers are responsible for:

Monitoring imports to detect customs fraud
Investigating customs violations, such as false statements or forged or altered invoices
Preventing illegal activity, including misclassification, undervaluation, and transshipment
Verifying the actual cost of goods to prevent importers from reducing duties owed illegally
Ensuring proper documentation to prevent improper drawback refunds
Inspecting shipments for compliance with the Harmonized Tariff Schedule and marking duties

CBP works alongside other federal agencies, such as the Department of Justice (DOJ) and the U.S. International Trade Commission (USITC), to conduct customs fraud investigations. These agencies prosecute dishonest importers who engage in fraudulent trade practices.

Enforcement of Customs Duties

The federal government enforces customs laws through audits, investigations, and penalties. Companies or individuals who evade duties by making false statements, altering invoices, or misrepresenting imported goods may face severe consequences.

Customs Fraud Investigations and False Claims Act Lawsuits

When customs fraud is suspected, the government initiates customs fraud investigations to uncover illegal practices such as:

False country of origin claims to bypass antidumping and countervailing duties
Forged or altered invoices to falsely lower the actual cost of imported merchandise
Multiple shipments or under-invoicing to reduce duties owed
False claims for improper drawback refunds

Violators may face legal action under the False Claims Act (FCA). This law allows the government to recover triple damages (treble damages) and impose statutory penalties against those who file false claims to avoid paying import duties. Crucially, the evasion of a customs duty constitutes a “reverse false claim” under the FCA, meaning liability is triggered by knowingly withholding money that belongs to the government.

Criminal and Civil Penalties for Customs Fraud

Companies and individuals involved in customs fraud can face:

Criminal penalties: Severe corporate fines, imprisonment for corporate officers, and permanent seizure of imported goods.
Civil penalties: Heavy asset forfeitures, payment of treble damages, and total exclusion from future import/export licensing.
Qui tam lawsuits: Whistleblowers can file False Claims Act cases and receive a financial reward if the government recovers money.

The CBP and other enforcement agencies take customs fraud seriously, as it directly impacts the U.S. economy. When dishonest importers use fraudulent means to lower customs duties, they not only harm domestic businesses but also deprive the federal government of significant tax revenue.

Common Customs Fraud Schemes

False classification: Misrepresenting products under the Harmonized Tariff Schedule (HTS) to ensure they are taxed at a lower rate or escape trade restrictions entirely.
Country of origin fraud: Claiming an incorrect actual country of origin to evade targeted sanctions, retaliatory tariffs, or bypass trade restrictions.
Undervaluation: Declaring a lower actual cost of goods on customs entry documents to reduce ad valorem duties owed.
Forged or altered invoices: Falsifying commercial invoices or using a dual-invoicing system to conceal the true value of merchandise from port authorities.
Transshipment fraud: Shipping goods through an intermediate hub country where the goods are repackaged or falsely relabeled to disguise their true point of origin.
False claims for drawback refunds: Requesting reimbursement for duties never actually paid or falsely overstating re-exported inventory to claim larger financial refunds.
Shipment splitting: Dividing large industrial shipments into smaller packages to bypass standard customs clearance controls.

These fraudulent activities distort competition by allowing dishonest importers to sell products at artificially low prices, undercutting domestic businesses and violating customs laws. This not only harms U.S. companies but also poses risks to consumers when fraudulent importers misrepresent the safety, quality, or authenticity of imported goods.

Customs Fraud and the False Claims Act

The FCA is one of the most powerful legal tools for fighting customs fraud. It allows whistleblowers to report suspected trade violations and bring qui tam lawsuits on behalf of the federal government. If successful, the customs fraud whistleblower may receive a financial reward—often a significant portion of the recovered funds.

How the False Claims Act Works in Customs Fraud Cases

Under the FCA, whistleblowers (known as relators) can file FCA cases against dishonest importers who conceal the actual cost of merchandise or falsify shipment records. The Department of Justice (DOJ) investigates these False Claims Act lawsuits, often recovering millions of dollars lost to alleged customs fraud. Whistleblowers who provide valuable information may receive a significant percentage of these recoveries, built on top of the statutory treble damages collected by the government.

Importance of Whistleblowers in Customs Fraud Investigations

Many customs fraud investigations begin with a customs fraud whistleblower—an insider who has knowledge of illegal activity within a company. Customs brokers, import/export specialists, logistics coordinators, purchasing agents, and former employees can all expose suspected trade violations.

Reporting Customs Fraud

Who Is a Customs Fraud Whistleblower?

A customs fraud whistleblower is anyone with insider knowledge of fraudulent customs enforcement violations. Employees, customs brokers, freight forwarders, domestic competitors, and former business partners who have evidence of such misconduct can file lawsuits to expose wrongdoing under the False Claims Act.

Why You Need Experienced Whistleblower Counsel

Customs fraud cases involve highly technical regulations under the Harmonized Tariff Schedule. An experienced whistleblower attorney at The McCabe Law Firm can:

Audit your documentation (such as dual commercial invoices or false bills of lading) to confirm an actionable False Claims Act violation exists.
Draft and file your qui tam lawsuit completely under seal in federal district court, fully protecting your identity while the Department of Justice investigates.
Insulate you from workplace retaliation using federal whistleblower safe harbor provisions.

Conclusion

Customs fraud involves illegal attempts to avoid customs duties, harming U.S. businesses and taxpayers. Whistleblowers play a crucial role in exposing such fraud and ensuring customs laws are upheld.

If you possess internal emails, tracking records, or accounting ledgers showing that an importer is systematically undervaluing goods or forging country-of-origin markings, contact The McCabe Law Firm today for a private, confidential legal consultation.