In April 2025, the Trump administration announced significant new tariffs aimed at addressing trade imbalances and promoting domestic manufacturing. These measures included a universal 10% tariff on all imports, with additional country-specific tariffs—such as a 34% tariff on Chinese goods, escalating to 54% with fentanyl-related duties, and a 46% tariff on Vietnamese imports.
While these tariffs are designed to protect and build American industries, they have inadvertently incentivized some businesses to engage in illegal practices to avoid paying these duties. Notably, schemes involving false country-of-origin claims, transshipment, misclassification of goods, and undervaluation are expected to be prevalent methods of tariff evasion – especially where tariffs on some countries are significantly higher than tariffs on others. These deceptive practices not only undermine fair trade but also defraud the U.S. government of rightful revenue.
Common Schemes to Evade Tariffs
Tactics that unscrupulous businesses use to avoid paying tariffs:
- False Country of Origin Claims: Misrepresenting the origin of products to exploit favorable trade agreements or to avoid country-specific tariffs.
Example: A textile manufacturer produces garments in Country A, subject to high tariffs, but labels them as made in Country B, which has a free trade agreement with the U.S., to avoid duties.
- Transshipment: Routing goods through third countries to disguise their true origin, effectively evading tariffs imposed on specific nations.
Example: Electronics manufactured in Country C, facing steep U.S. tariffs, are first shipped to Country D, relabeled, and then exported to the U.S. as products of Country D.
- Misclassification of Goods: Assigning incorrect Harmonized Tariff Schedule (HTS) codes to products to benefit from lower duty rates. For instance, labeling high-end electronics as basic household items to reduce tariff obligations.
Example: A company imports luxury wristwatches but declares them as plastic timepieces, which carry a significantly lower tariff rate.
- Undervaluation: Declaring a lower value for imported goods than their actual worth, thereby decreasing the calculated duties.
Example: An importer purchases designer handbags for $500 each but reports their value as $100 on customs documents to reduce duty payments.
Role of the False Claims Act
The False Claims Act (FCA) serves as a powerful tool to combat customs fraud. Enacted to deter and penalize fraudulent activities against the federal government, the FCA allows private individuals, known as whistleblowers or “relators,” to file lawsuits on behalf of the government against entities that have knowingly submitted false claims or engaged in fraudulent conduct to avoid paying owed amounts, such as tariffs or customs duties. Successful cases under the FCA can result in the recovery of triple damages and civil penalties, with whistleblowers entitled to receive between 15% to 30% of the recovered funds.
The Importance of Imports and Manufacturing to Huntsville
Huntsville, Alabama, with its robust aerospace, defense, automotive, and other manufacturing sectors, relies on a variety of imports to support its industries. Key imports include:
- Automotive Components: The automotive industry in Huntsville, including facilities like Toyota Motor Manufacturing Alabama and Mazda Toyota Manufacturing USA, depends on imported parts such as engines and transmissions. Notably, the Mazda CX-50, produced in North Alabama, sources approximately 25% of its components from Mexico.
- Aerospace Materials and Components: Given Huntsville’s significant role in aerospace and defense, with entities like NASA’s Marshall Space Flight Center and Redstone Arsenal, the city imports specialized materials and components essential for research, development, and manufacturing in these sectors.
- Electronics and Telecommunications Equipment: Companies like ADTRAN, Inc., a leading provider of networking and communications equipment, import various electronic components to support their manufacturing processes.
- Biomedical Sector Components: Huntsville has emerged as a significant hub for the biomedical industry, with a focus on medical device manufacturing and biotechnology. The city’s biomedical industry relies on imported materials and components to support local manufacturing. These imports include specialized medical-grade materials, electronic components for medical devices, and advanced biotechnology equipment.
This community’s commitment to ethical practices makes it imperative to address and remedy fraudulent activities that threaten economic stability and national security.
By coming forward with information about customs fraud, Huntsvillians can play a pivotal role in upholding these values. Whistleblowers not only contribute to maintaining fair trade practices but also support the local and national economy by ensuring that all businesses operate on a level playing field.
Hypothetical Illustrating “Transshipment Fraud”
Consider a Huntsville-based electronics company that sources components from various international suppliers. An employee in the logistics department notices that shipments labeled as originating South Korea contain products identical to those previously imported directly from China. Upon further investigation, the employee discovers that the supplier is routing Chinese-made components through South Korea, falsifying documents to claim South Korean origin, thereby evading the higher tariffs imposed on Chinese imports.
In this scenario, the employee possesses firsthand knowledge of a transshipment scheme designed to defraud the U.S. government. By consulting with legal counsel experienced in FCA litigation, the employee can initiate a qui tam lawsuit, potentially leading to significant financial recovery for the government and a whistleblower reward for themselves.
Steps to Take if You Suspect Customs Fraud
- Document Evidence: Collect all relevant information, including shipping records, correspondence, and any other documentation that substantiates the fraudulent activity.
- Consult with Legal Counsel: Engage with an attorney experienced in FCA and whistleblower cases to assess the validity of your claims and guide you through the legal process
- File a Qui Tam Lawsuit: With legal assistance, file a lawsuit under the FCA. The case will initially be under seal, meaning it remains confidential while the government investigates
- Cooperate with Authorities: Assist the government’s investigation by providing additional information and support as required.
Conclusion
The Trump administration’s recent tariffs are designed to strengthen domestic manufacturing in communities like ours. These tariffs also heighten the risk of customs fraud through schemes like false country-of-origin claims, transshipment, misclassification of goods, and undervaluation. People in Huntsville, and across the nation, have a unique opportunity to uphold the principles of fair trade and integrity by reporting such fraudulent activities. The False Claims Act not only provides a mechanism to address these wrongs but also offers substantial incentives and protections for whistleblowers. By stepping forward, you contribute to safeguarding the economic interests of the United States and ensuring that businesses compete fairly and lawfully.
If you have firsthand knowledge of customs fraud, contact the law firm of Mastando & Artrip for a free consultation about your rights and protections.
