How Avoiding Tariffs Becomes a False Claims Act Violation Instead of an IRS Tax Fraud Issue

When Taxes Turn Into Fraud

Many people think of the False Claims Act in terms of fraudulently receiving government money (like Medicare fraud or defense contract fraud or procurement fraud). However, the FCA also covers the flip side: fraudulently avoiding a payment to the government. This is known as a “reverse” false claim. In plain language, if a company owes money to the U.S. (for example, import taxes) and knowingly uses false information to avoid paying that money, it can be liable under the FCA

Unpaid customs duties fit that definition perfectly. Importers have a legal obligation to pay the correct duties on imported goods. By knowingly misreporting facts (value, classification, origin, etc.) to avoid paying some or all of those duties, an importer is effectively cheating the government out of money it is owed.

The FCA explicitly makes it unlawful to “knowingly conceal or knowingly and improperly avoid or decrease an obligation to pay or transmit money to the Government.” Under this provision, DOJ has pursued customs duty evasion as a form of false claim – often referred to as a false statement “material to an obligation” to pay the U.S. Treasury.

Treble Damages & Civil Fines

When a company cheats on customs duties, it’s not just a trade violation – it’s a form of financial fraud against the U.S. government. And the FCA packs a heavy punch for those who get caught. Companies found liable under the FCA face triple damages (three times the amount of money evaded) and hefty civil penalties for each violation. For a large importer evading millions in tariffs, those damages can add up fast, making FCA cases especially dangerous for perpetrators (1).

The government can recover far more than the unpaid duties alone, which serves as a powerful deterrent (1). With arguably up to a ten-year lookback, triple damages, penalties and attorney’s fees – $ 1 million of tariff evasion could quickly escalate to $3 million when trebled and with a per instance penalty can hit $4 million really quickly, plus the cheater is liable for the whistleblower’s attorney’s fees and costs on top of that. So, while crime may pay off in the short term, it becomes awfully expensive in the long run.

DOJ officials have noted that the FCA is a “powerful tool” to combat customs fraud. Unlike ordinary customs penalties, the FCA’s treble damages and whistleblower provisions significantly raise the stakes. We are already seeing this in action: as multiple settlements in the past couple of years have reached into the millions or even tens of millions of dollars, far exceeding the duties that were originally evaded. For companies, this means even a short-term “savings” gained by cheating customs can boomerang into a catastrophic liability.

Who Can Be Liable—Importers, Brokers, Buyers

It’s also worth noting that FCA enforcement can reach all parties involved in the scheme. This can include not just the foreign manufacturer or the customs broker, but the U.S. importer of record and even downstream companies that knowingly facilitated the fraud. In one case, DOJ pursued both an apparel importer and its customer that purchased the imported goods, alleging they conspired in the underpayment of duties. The message is out: if you participate in a plan to defraud U.S. customs, you could be on the hook under the False Claims Act.

Why So Many Cases Involve China

The United States knows that Chinese manufacturer are crafty not just with manufacturing, but with evading tariffs and accountability, by sometimes have no presence in the United States relying on Chinese courts to keep them safe and any judgment uncollectable. However, with downstream liability that’s potentially joint and several, the domestic conspirators that go along with the scheme may be hit with ALL the damages and that’s worse than any defect in their goods.

Recent False Claims Act Cases Involving Customs Fraud (Tariff Evasion on Chinese Goods)

Undervaluing Apparel Imports – High Life LLC (2023)

In January 2023, a New York-based apparel importer admitted to under-reporting the value of 67 shipments of clothing in order to underpay customs duties. The company, High Life LLC, entered a civil FCA settlement, paying $1.3 million to the United States (2). In the settlement, High Life acknowledged it had provided false invoices that significantly undervalued the apparel

Misclassifying Footwear – Samsung C&T America (2023)

In February 2023, Samsung C&T America, Inc. – a trading arm of the Samsung conglomerate – paid $1,000,000 to settle FCA claims that it misclassified imported footwear and thereby underpaid tariffs (4). According to admissions in the settlement, the company declared high-end leather shoes under incorrect categories (with lower duty rates) by misrepresenting the materials and construction of the shoes. Notably, this case involved a well-known multinational firm, signaling that even large corporate players are not immune from customs fraud scrutiny.

Misclassifying Chinese Products as Duty-Free – International Vitamin Corp (2023)

One of the largest FCA recoveries in this area came in January 2023, when International Vitamins Corporation (IVC) agreed to pay $22.8 million to settle allegations that it defrauded the U.S. by misclassifying vitamins and supplements from China. For years, IVC had been classifying over 30 imported products under duty-free tariff codes, even though the products should have incurred duties. After being warned by a consultant of the misclassification in 2018, the company still failed to correct its entries or pay what it owed (3).

Undervaluation Scheme via Double Invoicing – Barco Uniforms (DOJ Complaint 2025)

In April 2025, the DOJ intervened in a whistleblower case against Barco Uniforms, a California company that imports medical scrubs and uniforms from China. The DOJ’s complaint alleges a classic double-invoice scheme: Barco and its Chinese suppliers created one invoice with the real (higher) prices for their records, and a second invoice with falsely low prices to present to U.S. Customs. By using the fake low-priced invoices, they systematically under-declared the value of the imports and paid far less duty than was actually owed. The government contends this scheme let Barco save millions in duties – money that helped it undercut competitors in the U.S. market while cheating the public.

Transshipment Tariff Evasion – Evolutions Flooring (2025)

Evolutions Flooring Inc. was a San Francisco-based importer of Chinese-made wood flooring. According to the allegations, from 2019 to 2022 they falsely declared China-made flooring as products of Malaysia to evade anti-dumping and 25% Section 301 tariffs. CBP investigators even traveled overseas, uncovering that the supposed Malaysian manufacturers were largely a front. In March 2025, Evolutions and its owners agreed to an $8.1 million FCA settlement. Importantly, this case involved Section 301 China tariffs, illustrating the DOJ’s focus on enforcing those trade measures through civil fraud actions. The competitor who blew the whistle received over $1.2 million from the settlement (4).

Undervaluing Fashion Imports – Alexis Imports (2024)

In August 2024, a women’s fashion company, Alexis, LLC, paid about $7.6 million to settle FCA claims that it materially underreported the value of women’s apparel imports over a seven-year period. The company allegedly omitted certain costs (like “assists” – design and fabric contributions) from the values declared to customs, thus avoiding paying the full duties owed. This case was notable because the company cooperated once under investigation and implemented compliance reforms (5). It still had to pay nearly $8 million and admit to its past omissions. The whistleblower in this case filed in 2022, and the government intervened to reach the settlement (5).

These examples represent just a slice of the enforcement landscape, but they demonstrate a pattern of vigorous action against customs fraud. Companies large and small, across industries (apparel, footwear, flooring, vitamins, etc.), have been caught in the dragnet. Many of the schemes involved imports from China – aligning with the trade war tariffs era – but the principle applies universally: if you cheat on duties, you risk severe FCA consequences.

Customs-duty evasion isn’t a harmless line-item mistake, it’s a fraud multiplier. The False Claims Act turns every underpaid dollar into triple damages, tacks on five-figure civil penalties, and invites whistleblowers to surface evidence the government might otherwise miss.

Recent multi-million-dollar settlements show that importers, brokers, and even downstream buyers can all be pulled into the liability net, especially when China-origin goods and Section 301 tariffs are involved. In short, the “savings” from shaving tariffs today can metastasize into catastrophic exposure tomorrow. Robust classification, valuation, and country-of-origin controls—plus a culture that rewards internal reporting—are no longer optional; they are the cheapest insurance an importer can buy.

https://natlawreview.com/article/false-claims-act-whistleblowers-poised-combat-customs-and-tariff-fraud

https://www.justice.gov/usao-sdny/pr/us-attorney-announces-13-million-settlement-civil-fraud-lawsuit-against-apparel

https://www.justice.gov/usao-sdny/pr/us-attorney-announces-228-million-settlement-civil-fraud-lawsuit-against-vitamin

https://www.justice.gov/opa/pr/evolutions-flooring-inc-and-its-owners-pay-81-million-settle-false-claims-act-allegations

https://www.justice.gov/usao-sdfl/pr/us-attorney-lapointe-announces-76-million-settlement-civil-false-claims-act-lawsuit