Tariff fraud in the China trade: Who is responsible, and why does it continue

By Jeffrey A. Newman, Esq. MBA with ai help

Every shipment that enters the United States comes with a story told on paper. Before a container is unloaded in Los Angeles, Newark, or Savannah, the importer files a set of documents with U.S. Customs and Border Protection: an entry summary, a commercial invoice, a bill of lading, a certificate of origin. Those documents are supposed to describe the goods honestly: what they are, where they were made, and what they are worth,because that is how the government decides what duties are owed. When the paperwork tells the truth, the duty is assessed, the duty is paid, and the goods move on. When the paperwork lies to lower the bill, that is customs fraud, and in 2026 it has become one of the most actively prosecuted forms of cheating in American trade.

The reason is straightforward. Duties on many Chinese goods are no longer small. On top of ordinary tariffs sit the Section 301 tariffs from the trade war, and on top of those sit antidumping and countervailing duties imposed when a foreign manufacturer sells below cost or benefits from government subsidies. Layered together, the rate on some Chinese products climbs to a level that can swallow a company’s margin. As attorney Alexander Owens put it plainly, the higher the tariff, the greater the incentive to evade it. Raise the toll and you raise the reward for anyone willing to slip past it.

## The three main types of fraud

Most customs fraud falls into three categories, and each one is a lie about a different thing the paperwork has to swear to.

The first is **misclassification** a lie about *what the product is*. Every import is assigned a code in the tariff schedule, and each code carries its own duty rate. Misclassification means taking a good that owes a high duty and declaring it under a code that owes a lower duty, or none at all. It can be crude or elaborate. In the largest case of its kind ever settled, a group of companies importing Chinese aluminum extrusions had the metal spot-welded into shapes that resembled pallets, then declared it at the border as finished merchandise so it would appear exempt from the duties it actually owed. That case, against Perfectus Aluminum and its affiliated warehouses, settled in May 2026 for $549.5 million the largest trade-related False Claims Act recovery on record.

The second is **undervaluation** a lie about *what the product is worth*. Because duty is charged as a percentage of value, a lower declared value means a lower duty. Importers understate value by using a second, lower invoice, or by leaving out costs the law requires them to include: the molds and designs the buyer supplied to the factory, royalties owed on the product, or the real price paid between a company and a related company it quietly controls. The goods are worth a dollar, the paperwork says they are worth a dime, and multiplied across thousands of containers the difference becomes a fortune that stays in a private pocket instead of going to the Treasury.

The third is **country-of-origin fraud**, most often carried out through **transshipment** a lie about *where the product was made*. To dodge the China-specific duties, a Chinese good is shipped first to a third country such as Vietnam, Taiwan, Malaysia, or Thailand, where it is unloaded, relabeled, given new paperwork, and sent on to the United States as a product of that third country. The legal test is whether the good was “substantially transformed” there ΓÇö whether real manufacturing work was done to make it a new product. Frequently nothing happens in the third country except a change of label. One importer of tungsten carbide products routed Chinese metal through Taiwan and declared Taiwan as the origin; that case settled for $54.4 million.

A few newer variations are drawing attention as well. Some importers abuse the “de minimis” rule that lets low-value parcels enter duty-free by breaking shipments into small pieces. Others exploit “delivered duty paid” arrangements, in which a foreign supplier promises to handle all duties, giving the U.S. buyer a convenient reason not to ask how the numbers came out so low. And as the government considers tariff refund programs, enforcement lawyers expect a wave of fraud aimed at claiming refunds that were never earned.

## Who is responsible: the importer of record

On every shipment there is a party the law calls the **importer of record**, and that party is legally responsible for the truth of the declaration. Since the Customs Modernization Act of 1993, the burden of getting it right has rested on the importer under a standard called **reasonable care**.

Reasonable care means the importer cannot simply look away and hope the numbers are right. The importer must make sure the product is classified correctly, declare the full and true value with nothing left out, confirm the genuine country of origin rather than trusting a label, keep the supporting records for five years, and produce them when Customs asks. The obligation covers classification, valuation, origin, quota rules, intellectual property, and, increasingly, proof that no forced labor went into the supply chain.

One point catches many companies by surprise: **you cannot hide behind your customs broker**. The broker files the paperwork, but if the paperwork is wrong, the liability runs to the importer, not the broker. When Customs sends a formal inquiry the CF-28 request for information, followed if needed by the CF-29 notice of action an importer who cannot show its work watches its goods reassessed at the highest applicable rate, and the penalties begin.

Those penalties can be severe, and the sharpest tool is not a customs statute at all. It is the **False Claims Act**, a Civil WarΓÇôera law originally written to punish contractors who cheated the Union Army. Underpaying a duty you owe counts, in the law’s eyes, as a false claim against the United States ΓÇö specifically a “reverse” false claim, because you are keeping money you owe rather than taking money you don’t. Under the Act, the government can recover three times the duties evaded, plus a penalty for every false entry. And the Act contains the provision that has set this whole area on fire: its whistleblower program, which lets a private person who knows about the fraud file suit on the government’s behalf and keep a share of the recovery.

## Who the offenders are, and why they do it

The companies caught up in these cases are usually not shadowy operations. They are ordinary importers in industries where duties run highest ΓÇö aluminum, steel, furniture, textiles and apparel, tools, and plastics. Recent enforcement actions include Grosfillex, which paid $4.9 million over patio furniture; an importer that paid $6.8 million over plastic resin; office-furniture importers; and the tungsten carbide and aluminum cases already mentioned. China sits at the center of nearly all of it. Of 46 reported customs-fraud recoveries under the False Claims Act that Owens studied, 37 involved goods imported from China.

Why do otherwise legitimate businesses do this? Rarely out of some grand criminal design, and that is the uncomfortable part. They do it because margins are thin and a competitor down the street is doing the same thing and winning the contract. They do it because a foreign supplier offers to deliver everything with duties already “handled,” and it is easier not to ask how the price came out so low. They do it because supply chains are long and murky, and tracing the metal back to its true origin takes effort no one wants to spend. And they do it because the penalty, if it ever comes, feels distant compared to the certain cash of this quarter. They treat the duty as an obstacle to get around rather than a debt they owe.

The government no longer sees it that way. In just the first five months of 2026, customs-fraud recoveries under the False Claims Act passed $570 million more than any full year before it and the running total of such recoveries has climbed above $918 million. A single whistleblower in the aluminum case is expected to receive roughly $96 million. The Justice Department’s broader trade-fraud effort has crossed $1 billion. Customs enforcement is getting sharper, whistleblower awards are getting larger, and the large awards are, as the lawyers note, the best advertisement the whistleblower law has ever had.

## If you know about tariff fraud, here is what to do

If you have seen this firsthand the second set of invoices, the aluminum “pallets,” the Chinese goods that came home from Taiwan wearing a new label you may be in a stronger position than you realize.

Under the False Claims Act, a private person with knowledge of customs fraud can bring a case on the government’s behalf and share in what the government recovers. Awards typically run **15 to 30 percent** of the recovery, and because the government can collect three times the duties evaded plus penalties, awards in this area have reached into the tens of millions of dollars. You do not have to be a company insider; competitors, customs brokers, and freight forwarders have all brought successful cases.

A few things are worth knowing early. **Timing matters:** the law generally rewards the first person to file on a given fraud, so waiting can cost you the case. **The law protects you:** the False Claims Act prohibits retaliation against employees who report fraud, and cases are filed under seal, so the defendant does not learn your identity at the outset. **You don’t need a finished case:** you need specific, credible knowledge ΓÇö documents, dates, shipments, names not proof of every element. And **preserve what you have:** invoices, entry summaries, emails, and shipping records are what turn a suspicion into a claim.

If you believe you have knowledge of tariff or customs fraud and want to understand your options confidentially, contact Jeff Newman Law. Consultations are free and confidential. www.Jeffnewmanlaw.com 617-823-3217