Companies importing goods into the United States often must collect tariffs called customs or import duties. The government assesses over a $100 billion per year in custom duties. These numbers are only set to grow as tariff rates continue to rise.
But like the federal tax system, the customs system relies largely on private actors (here, importers) to accurately report relevant information (e.g., the type of good imported, its value, and its country of origin) and make appropriate payments to the government.
Increasingly, the government relies on whistleblowers to expose customs fraud. And through the False Claims Act, the federal government’s premier whistleblower law, individuals with knowledge of customs fraud can tip off the government and, if their case proves successful, obtain an award in return for their information.
What are Custom Duties?
Custom duties are taxes on imported goods which are levied primarily to protect American businesses from unfair foreign competition. Duties are based on a percentage of the value of the import goods. The Harmonized Tariff Schedule sets out tariffs on countless goods. The U.S. Department of Commerce sets these tariff rates.
Duties are often focused on curtailing two forms of predatory competition: dumping and unfair foreign subsidies – however, tariffs may serve other goals too.
Dumping occurs when a company exports a product and sells it an unduly low price – generally below the price it sells the product in its home market or even below the cost of production.
Unfair Foreign Subsidies are government subsidies which assist foreign producers and exporters – giving foreign companies an unfair leg up in the marketplace.
How Are Tariffs Enforced?
United States Customs and Border Protection collects tariffs and enforces the operative tariff laws.
What is Customs Fraud?
Customs fraud is the fraudulent practice of reducing or wholly evading custom duties (tariffs) on imported goods. The government largely relies on importers to ensure that appropriate duties are collected. That fact, coupled with the sheer amount of goods imported into the United States, creates an opportunity for fraudulent conduct. After all, the government can only inspect a tiny percentage of shipments entering the country.
Customs fraud create two key public policy problems:
First, it cheats the government out of money which it is legally owed. And when the government loses revenue, every citizen ultimately bears the cost.
Second, companies engaged in customs fraud are able to improperly sell goods at unduly low prices – thus harming both domestic and foreign companies that play by the rules. This creates an uneven competitive playing field.
What are Examples of Customs Fraud?
Customs fraud comes in many flavors but among the most common schemes are the following:
Undervaluation: Given that custom duties are tied to the value of the imported goods, oftentimes the simplest way to illegally evade tariffs is by claiming that the product is worth less than it really is.
Transshipment and Country of Origin Falsification: Custom duties are levied based on the country of origin. In order to disguise the country of origin, bad actors may ship goods through one or more intermediate countries which have lower (or no) tariff rates than the country of origin. For example, a fraudster may ship goods from China (which is subject to high tariffs) to Canada (which is subject to much lower tariffs) and declare that the goods are Canadian upon entry in the United States.
Further, whether or not the goods are transshipped at all, fraudsters may simply misrepresent the country of origin.
Misclassification: Companies may mislabeled goods under false tariff codes in order to avail themselves of lower tariff rates.
Counterfeit Documentation: In order to avoid customs obligations, companies may create fraudulent invoices, bills of lading, or certificates of origin.
Structuring: Structuring occurs when a large shipment is split up so as to make it appear that numerous, smaller claimed shipments occurred. By splitting up a large shipment into smaller ones, importers can then claim the “de minimus” exception which allows importers to avoid duties entirely for certain small transactions.
How Does the Whistleblower Law Work?
The False Claims Act, the federal government’s oldest and most successful whistleblower statute, covers a wide array of frauds on the government, including customs fraud. This is because the False Claims Act addresses not just affirmative frauds on the government (e.g., illegally obtaining money from the government) but also cases where actors illegally evade their obligation to pay money to the government (e.g., tariff evasion).
Among other remedies, the False Claims Act provides for treble (triple damages) and whistleblower awards for up to 30% of the government’s recovery.
The United States Department of Justice, which investigates and litigates False Claims Act cases, has shown a growing interest in pursuing whistleblower cases involving customs fraud. Whistleblowers are critical for enforcement because customs fraud is particularly difficult to root out. While CBP provides some degree of oversight, it can only inspect and actively police a very small number of shipments. Whistleblowers with knowledge of customs fraud can prove to be invaluable partners to the government.
Exemplary False Claims Act Recoveries Arising from Allegations of Customs Fraud
Recent years have shown an upsurge in FCA recoveries premised on customs fraud. Many of these cases have involved goods imported from China. China is both a major manufacturer of goods and subject to very high tariff rates. That means that there is a particularly high incentive for importers of Chinese goods to engage in illegal tariff evasion. With the recent increases in duties on Chinese goods under the Trump administration, there will surely be more fraud involving the importation of Chinese goods for years to come.
- In March 2025, the DOJ announced a $8.1 million settlement with a flooring importer and its owners. The government alleged that the company evaded duties on wooden flooring imported from China. The whistleblower was awarded $1.215 million.
- In January 2023, the DOJ announced a $22.8 million settlement with a vitamin/supplement importer arising from allegations that it misclassified goods and fraudulently underpaid custom duties on products it imported from China.
- In September 2020, DOJ announced a $22.2 million settlement resolving allegations that a major industrial engineering company made false statements on its customs declarations to avoid paying appropriate duties. The whistleblower was awarded $3.7 million.
- In April 2020, DOJ announced a $5.2 million settlement with an importer and its executives arising from allegations that an importer illegally evaded paying antidumping goods on wooden furniture imported from China.
How Can I Blow the Whistle on Customs/Tariff Fraud?
Filing a False Claims Act case allows whistleblower to tip the government off on customs/tariff fraud while also providing the opportunity to seek a whistleblower award. The False Claims Act also provides certain anti-retaliation protections.
An experienced whistleblower attorney can explain the risks and rewards associated with pursuing a case. Pietragallo Gordon Alfano Bosick & Raspanti has represented whistleblowers for decades and has a wealth of experience in partnering with the government. Contact us if you are interested in pursuing a customs/tariff fraud whistleblower case. An initial consultation is free and confidential.