New Risks - 10 signs of Tariff Evasion

The implementation of significant new tariffs and retaliatory measures between major economies like the U.S. and China, as well as the European Union, has created strong financial incentives for tariff evasion.  

Driven by rising import duties, complex supply chains, and inconsistent enforcement, organizations are under pressure to reduce costs to offset the current economic challenges. This creates an environment ripe for crossing the line from legitimate tariff mitigation into illegal evasion. 

As economist Derek Kellenberg of the University of Montana notes, "We find that for every 1% increase in tariffs, there's a 3% increase in misreporting of trade values in industrialized high-income countries." This statistic underscores the growing prevalence of tariff evasion and its direct correlation with rising tariff rates.

What is tariff evasion?

Tariff evasion occurs when importers deliberately misrepresent imported goods to avoid paying the appropriate duties or to pay reduced rates. Unlike legitimate tariff optimization strategies, evasion involves fraudulent practices that violate customs laws and regulations. 

What constitutes illegal tariff evasion?  

1.        Falsifying the Country of Origin

Declaring goods as originating from a country with lower or no tariffs when they actually come from a country subject to higher duties (like Section 301 tariffs on Chinese goods) is illegal. This includes simply relabeling products without meeting the legal requirements for changing origin.

2.        Using Transshipment Schemes

Routing goods from a high-tariff country (e.g., China) through a third country (e.g., Mexico, Vietnam, Malaysia) and claiming the third country as the origin without the goods undergoing a "substantial transformation" there is a common evasion tactic. Minor assembly, repackaging, or dilution usually do not qualify as substantial transformation.

3.        Undervaluing Goods on Customs Declarations

Declaring a lower value for imported merchandise than its actual transaction value to reduce the amount of ad valorem (percentage-based) duty owed is illegal. This often involves using double or false invoices.

4.        Misclassifying Products

Using an incorrect Harmonized Tariff Schedule (HTS) code to place goods in a category with a lower duty rate than the one that correctly applies is a form of evasion. Examples include classifying items inaccurately (e.g., specific furniture as a different type, certain steel as another grade) to avoid higher tariffs.

5.        Manipulating Invoices or Documentation

Providing CBP with any entry documents (like invoices, packing lists, certificates of origin, CBP Form 7501) that contain false information regarding origin, value, classification, or quantity is illegal and can lead to penalties under customs law and the False Claims Act.

6.        Using Shell Companies or Fronts for Deception

Setting up complex business structures or using unrelated entities solely to disguise the true origin, value, or nature of imported goods to avoid duties is a fraudulent practice.

7.        Assuming De Minimis Exemptions Apply

Illegally claiming eligibility for programs like the de minimis exemption (e.g., by artificially splitting large shipments into multiple small ones below the threshold) or falsely asserting goods qualify for preferential treatment under free trade agreements constitutes evasion.

8.        Relying on Minor Assembly or Cosmetic Changes

Simply assembling or making minor changes to products in a third country does not legally change their origin for tariff purposes.

9.        Conspiring with Suppliers or Freight Forwarders

Coordinating with others to evade tariffs (e.g., through false declarations or transshipment) can lead to conspiracy charges, which are easier to prove and carry significant penalties.

10.  Ignoring Whistleblower Risks

Under the U.S. False Claims Act, whistleblowers can receive 15% to 30% of recovered revenue in customs fraud cases. And these aren’t just employees. They’re ex-partners, logistics providers, and even competitors. If someone uncovers evidence of tariffs evasion and reports it, your company could be under investigation overnight.

Increased Tariff Evasion Enforcement

The U.S. has significantly intensified its tariff evasion enforcement efforts in recent years, reflecting the government's growing concern about the impact of such practices on domestic industries and federal revenue CBP frequently refers suspected violations to DOJ for civil and criminal investigation and enforcement. With the administration’s focus on tariffs, companies should expect CBP and DOJ to place increased emphasis and resources on tariff enforcement to deter and penalize evasion and maximize the effect of administration policy priorities. CBP also began using artificial intelligence to identify suspicious trade patterns, particularly focusing on sudden shifts in import sources following new tariff impositions.

Recent cases illustrate that DOJ can and will pursue criminal charges for tariff evasion:

• In September 2024, DOJ charged an importer of truck tires with conspiracy to smuggle tires made in China (which were subject to a 73.99% tariff) by transshipping them through third countries, including Canada and Malaysia. DOJ alleged that the defendant filed documents with CBP that fraudulently represented the Chinese-origin tires as originating in countries other than China. The defendant also was alleged to have created two sets of invoices – one set that fraudulently undervalued the tires (which was presented to CBP) and another that reflected the actual value of the tires. The scheme resulted in a $1.9 million loss of revenue to the US. The defendant pleaded guilty to one count of conspiracy and cooperated in the government’s investigation. He was sentenced to time served followed by three years of supervised release and ordered to pay $1.9 million in restitution.

  
  

• In March 2025, Evolutions Flooring Inc., based in San Francisco, agreed to pay $8.1 million to settle allegations that it falsely declared Chinese-manufactured multilayered wood flooring as originating from Malaysia. The scheme enabled the company to evade significant antidumping and countervailing duties, along with Section 301 tariffs, all of which apply to flooring products imported from China. The Department of Justice claimed that the mislabelled imports were part of a broader attempt to undercut legally required tariffs and gain an unfair advantage in the US market. The case originated from a whistleblower under the False Claims Act, who will receive approximately $1.2 million as part of the settlement. The DOJ emphasised that customs fraud of this nature is being treated as a serious form of tax evasion and will be aggressively prosecuted.

How SEIA can help you detect tariff evasion in your organization: 

Dealing with evasion is a critical task for trade compliance organizations ranging from sanctions compliance to the increased focus on tariffs, and monitoring the business for such risks can be challenging.   

SEIA offers advanced data analytics solutions that provide unparalleled transparency while continuously monitoring for trade compliance risk indictors across the business.   

• Dedicated tariff evasion risk indicators to ensure compliance and appropriate oversight of international trade 

• Identification of patterns of potential customs fraud, such as mis-declared origins or undervalued goods, as well as order splitting and classification changes 

• Data governance prioritization to support efficient customs processes 

• SEIA’s approach enables early intervention before non-compliant customs activities escalate into major violations 

Contact us:

contact@seiatech.com

Schedule a Demo: