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Customs Fraud Crackdown: A Growing False Claims Act Priority and How Whistleblowers Can Help
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Customs Fraud is hot and heavy and in the bullseye of the Department of Justice’s radar. Especially in light of the ongoing Tariff Wars, the Department of Justice (DOJ) has put a spotlight on customs fraud as a major enforcement priority under the False Claims Act (FCA). Businesses that evade import duties through dirty little tricks like the misclassification of goods, undervaluation of shipments, falsification of country-of-origin, or illicit “dropshipping” schemes (often involving goods from China) are facing increased scrutiny.
For potential whistleblowers with insider knowledge of these schemes, this trend can greatly enrich one’s bank account if they blow the whistle first and the right way. The False Claims Act empowers private individuals to expose fraud against the government – including customs duty evasion – and to receive a customs fraud whistleblower reward of up to 30% which could be in the millions if they are successful with the case.
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Why Customs Fraud Is Now a DOJ Priority
Not long ago, customs and tariff violations were a relatively niche area for False Claims Act cases, which more commonly targeted healthcare or procurement fraud. But as Bob Dylan sings, “The times they are a-changing.” The U.S.-China “trade war” and new tariffs have put import compliance in the spotlight, and the DOJ is responding with vigorous enforcement. In 2018, the U.S. imposed steep Section 301 tariffs (often 25%) on hundreds of billions of dollars worth of Chinese goods. This created a huge incentive for some importers to dodge these duties – and the DOJ took note. With fraud against the government, the antidote is the False Claims Act – a statute that incentivizes insiders equipped with information to step up and report the misconduct.
Recent DOJ actions confirm this shift to customs fraud. For example, in March 2025, DOJ announced an $8.1 million settlement with a flooring importer that had evaded tariffs on Chinese goods (more on that case below) (1). Congress has even shown bipartisan support for cracking down on customs fraud, as a bill introduced in 2024 would create a DOJ task force on trade fraud and require annual reports on enforcement.
The Bottom line is paying import duties is not optional – it’s the law. And now more than ever, the DOJ is pursuing those who flout that law by engaging in customs fraud. It creates an opportunity for insiders to step forward and help stop these fraud schemes, with the backing of the federal government.
How Customs Fraud Schemes Work (and How They Evade Tariffs)
Here are some common customs fraud schemes used to avoid tariffs or duties:
Undervaluation of Goods (Underreporting Value): The importer declares a value far below the real price paid, so that ad valorem (value-based) duties are calculated on a lower amount. For example, if a shipment of Homer Simpson dolls cost $1,000, a fraudster might only declare $500 on the invoice to cut the duty in half to save du-oh! This often involves fake or double invoices – one showing the true price (for the seller’s records) and a second, falsified invoice with a lower price for CBP (2). By declaring an artificially low value, they illegally evade a portion of the customs duties owed (2).
(The Barco Uniforms case is a prime example, where a uniform supplier allegedly used two sets of invoices to undervalue Chinese imports.)
Tariff Misclassification of Products: Every product has a specific code in the Harmonized Tariff Schedule (HTSUS) that determines its duty rate. Fraudsters deliberately misclassify goods under a different HTS code that carries a lower (or zero) duty. For instance, X-ray vision glasses might attract a high tariff, so an importer might (mis)declare them as regular glasses to obtain a lower rate.
In one recent case, a company admitted it misclassified imported footwear and provided inaccurate descriptions of shoe materials to its brokers – resulting in significantly lower duties than they were obligated to pay if properly classified (3). Misclassification schemes essentially lie about what the product is to exploit a cheaper tariff category (3).
False Country-of-Origin & Transshipment (Tariff Evasion via Third Countries): This scheme exploits trade policies that impose higher tariffs on certain countries (like China). Companies import goods made in Country A (e.g. China) but claim they originate from Country B (e.g. Vietnam or Malaysia) which has lower or no tariffs. Often the goods are “transshipped,” routed through an intermediary country, sometimes with superficial repackaging or fake labels, to disguise their true origin (4).
A 2025 case showed a flooring importer doing this: it falsely declared Chinese-made wood flooring as “Made in Malaysia” to avoid the steep anti-dumping and 25% Section 301 tariffs on Chinese flooring (1).
“Dropshipping” E-Commerce Schemes: A modern variation of false origin involves direct-to-consumer shipments. In legitimate dropshipping, a customer’s online order is shipped directly from an overseas supplier. Fraudulent actors abuse this model to avoid detection and duties – for example, breaking large shipments into many small packages sent directly to U.S. buyers, each valued under the $800 de minimis threshold so they can slip in duty-free. By doing so, they try to exploit legal exemptions meant for low-value personal imports.
Each of these schemes violates U.S. customs laws and can trigger liability under the False Claims Act. The government views the false customs declarations as false statements made to dodge a financial obligation (the obligation to pay tariffs). That brings us to how exactly the FCA comes into play.
The Whistleblower’s Role in Exposing Customs Fraud
Often, it’s not the government’s computers or random inspections that crack the case – it’s insiders and industry whistleblowers who speak up the right way through a False Claims Act Customs Fraud whistleblower lawyer. Customs fraud can be sophisticated and hidden deep in a company’s records (for example, knowing which invoice is real vs. fake, or spotting that the “Made in Vietnam” label is bogus). Employees, former employees, business partners, or even competitors are frequently the ones with the knowledge to expose the wrongdoing.
Under the FCA’s qui tam mechanism, a private individual (the whistleblower, referred to as the “relator” since they’re relating the claim of the government through their own lawsuit) can file a lawsuit on behalf of the United States against the offending company (2). These lawsuits are filed confidentially under seal (in secret), giving the government time to investigate the allegations without tipping off the defendant. If the case leads to a recovery – via settlement or judgment – the whistleblower is entitled to a share of the government’s recovery of up to 30% of what the government recovers.
In customs fraud cases, the qui tam process has proven invaluable. Many of the recent tariff fraud enforcement actions were kick-started by whistleblower tips or filings. For example:
- In the Barco Uniforms case (filed April 2025), a former executive at the company came forward with information about a double-invoice scheme to undervalue imported uniforms (2). She filed a qui tam lawsuit under the FCA, which remained sealed as the government investigated. The DOJ ultimately intervened, filing its own complaint accusing the company of evading duties on apparel from China.
- In the Evolutions Flooring case (settled 2025), the whistleblower wasn’t an employee, but rather a competitor in the flooring industry. The competitor (Urban Global LLC) noticed something was fishy – possibly due to pricing disparities – and did some digging, even conducting internet research on the supposed Malaysian manufacturers. They filed a whistleblower suit under the FCA. The government’s investigation, aided by CBP, confirmed that Evolutions was (mis)declaring Chinese wood as Malaysian. As a result of coming forward, the competitor will receive about $1.2 million of the $8.1 million settlement as their relator share (1).
The government heavily incentivizes whistleblowers because it knows their insider information is often the only route to formulating a winning case. The government relies on credible sources and information presented to them to determine their investigative priorities. In frauds involving imports/exports, agencies like CBP or HSI might suspect a pattern (for example, sudden import surges from a third country, or trade data anomalies) but the insider details are needed to prove intent and identify the players. Whistleblowers provide the smoking gun evidence and context that can turn a decent hunch into a rock solid legal case.
Given DOJ’s current focus, whistleblowers in the customs arena are more important than ever in helping the government catch and deter these schemes.
Tariffs, Enforcement, and Opportunities for Whistleblowers
The confluence of high tariffs on Chinese goods, zealous government enforcement, and incentivized whistleblowers has created a perfect storm for customs fraudsters – and a perfect opportunity to halt fraud. The U.S. government’s message is unambiguous: paying the proper customs duties is not just administrative, it’s a legal obligation that they will enforce aggressively through the False Claims Act if necessary.
The past few years have seen an unprecedented emphasis on trade compliance in the FCA arena, and all signs indicate that this trend will continue. CBP has beefed up its investigative efforts (even forming special task forces and using data analytics to spot anomalies), DOJ is devoting resources and publicly highlighting these cases, and even Congress is pushing for tougher measures against tariff evasion.
For whistleblowers with knowledge of such fraud, now is the time to act. The government is actively looking for cases to pursue in this area, and a well-founded whistleblower report can not only stop the wrongdoing but also result in a substantial financial reward for the relator.
If you have insider information about schemes like undervaluation of invoices, falsified shipping documents, misclassification of imports, or transshipment tactics to evade U.S. tariffs, consider speaking up. The False Claims Act’s whistleblower provisions offer a proven path to report the fraud confidentially and partner with the government in the investigation (2).
If you’re aware of a customs duty evasion scheme, you have the law, the incentives, and the momentum on your side to do something about it. Blowing the whistle on customs fraud not only upholds the law and protects legitimate businesses, but can also be both morally and economically rewarding. And as we’ve seen from the recent crackdowns, it will make a difference.
