As importers await outcomes from the Trump Administration's trade negotiations, a series of newly imposed tariffs continues to impact a broad spectrum of imported products and related supply chains. Businesses are currently evaluating and, where appropriate, seeking strategies to mitigate these tariff effects. Notably, developments in the first half of 2025 – including initiatives by the U.S. Department of Justice (DOJ), U.S. Customs and Border Protection (CBP) and a recent decision from the U.S. Court of Appeals for the Ninth Circuit – indicate a substantially increased enforcement risk for companies attempting to evade U.S. tariff regulations. This Holland & Knight alert highlights several developments that importers and certain third parties should be aware of as they navigate the tumultuous customs landscape.
Key Developments
DOJ Announces Trade and Customs Fraud as a Top Focus Area for Prosecution
As noted in a recent Holland & Knight alert, on May 12, 2025, Matt Galeotti, head of the DOJ's Criminal Division, released an internal memorandum outlining the Division's enforcement priorities (Memo). The Memo listed "trade and customs fraud, including tariff evasion" among the DOJ's "high-impact" areas that it plans to prioritize for white collar criminal investigations and prosecutions. Relatedly, the Memo also directed that "trade, tariff, and customs fraud by corporations" be added to the subject areas covered by the Criminal Division's Corporate Whistleblower Awards Pilot Program, offering rewards to whistleblowers who provide original information leading to successful forfeiture. Both of these measures demonstrate the DOJ's explicit focus on investigating and prosecuting tariff evasion by corporate actors and incentivizing potential whistleblowers to assist the DOJ in these efforts.
DOJ Reorganizes and Bolsters Resources for Unit Targeting Customs Fraud
According to media reports, the DOJ has directed its Market Integrity and Major Frauds Unit to pursue customs fraud cases and is reassigning significant personnel resources from the department's Consumer Protection Branch to aid in these efforts. These moves are reportedly part of an ongoing reorganization and expansion of the unit, which will be renamed the Market, Government, and Consumer Fraud Unit. According to the report, the cases of particular interest involve long-running frauds, senior executives and cases where tariff evasion schemes result in large losses of tariff revenue. A larger, more empowered unit tasked with combatting customs fraud likely means increased enforcement risk and scrutiny for importers, not only from CBP – which has historically been the key agency investigating customs fraud – but also from the DOJ.
CBP Statistics Indicate Increased Enforcement Action on Track to Surpass Previous Years
Statistics concerning CBP trade-related enforcement broadly suggest an uptick in enforcement and penalties as well. Likewise, the scale and scope of new tariffs mean CBP (and the DOJ) will closely scrutinize tariff evasion tactics, which can include misclassifying or undervaluing goods, as well as transshipping, which involves rerouting goods to a different country and relabeling the country of origin in order to qualify for lower tariffs.
According to CBP's website, the agency has issued 1,400 trade enforcement penalties in the first half of 2025 and is on pace to issue more penalties this year than it did in each of the last five years. These statistics do not clarify what share of these enforcement actions relate specifically to import entry-related issues or tariff evasion actions brought under 19 U.S.C. § 1592 (the Tariff Act). Still, it is likely that significant changes to tariff rates are driving some portion of this increase, given CBP's role in administering and enforcing new tariff policies and the impact that misclassifications or other evasion tactics can have.
Ninth Circuit Decision and DOJ Comments Signal Increased Use of FCA Claims to Target Customs Fraud
In addition to activities and announcements by federal customs enforcement agencies, a decision issued by the Ninth Circuit further confirms an avenue for private litigants to file claims against companies engaged in tariff evasion through the False Claims Act (FCA). The FCA enables private citizens to file suit on behalf of the government and seek treble damages and extensive per-claim penalties.
Specifically, in Island Industries v. Sigma Corporation,1 the Ninth Circuit upheld a $26 million jury award issued against Sigma Corp., a pipe importer, in an FCA qui tam case brought by the company's competitor. The competitor alleged that the company had engaged in tariff evasion by claiming that antidumping duties applicable to certain Chinese-origin goods did not apply to its products and using false descriptions of its products on import entry forms. The defendant challenged the whistleblower's ability to use the FCA to address tariff fraud. The Ninth Circuit ultimately held, inter alia, that:
- Federal district courts do have subject matter jurisdiction over FCA qui tam claims brought by private relators related to customs duties, with the court noting that when a relator brings an FCA suit to recover customs duties, the claim is not "commenced by the United States" and, thus, 19 U.S.C. § 1582(3) poses no limitation to federal district courts asserting jurisdiction over the matter.
- The government seeking recovery under the Tariff Act does not foreclose liability under the FCA, with the court stating that the FCA "expressly contemplates that FCA cases can proceed in parallel with the government's pursuit" of other remedies.
- The FCA's scienter element is based on the defendant's "knowledge and subjective beliefs" rather than what an objectively reasonable person may have known or believed, essentially reaffirming U.S. Supreme Court precedent. Accordingly, the Ninth Circuit rejected the defendant's argument that an "objectively reasonable" person could have believed that no duties were owed. The court cited the defendant's lack of reasonable effort to become informed about applicable tariffs, claiming a simple internet search would have alerted them to the applicable information.
Notably, this ruling follows comments reportedly made by the DOJ's Deputy Assistant Attorney General for the Commercial Litigation Branch, which handles FCA cases. In a presentation to the Federal Bar Association's annual qui tam conference in February 2025, DOJ officials stated that the department planned to "aggressively" enforce the FCA to address the Trump Administration's priorities, including customs fraud. FCA cases in this area could be based on importers' misreporting countries of origin, misclassifying imported products, attempts to obtain duty-free treatment under certain trade agreements and misvaluing imported items.
Takeaways and Recommended Actions
The developments discussed above paint a stark picture of the increased enforcement risks for U.S. importers and other third parties under both the Tariff Act and FCA. In sum, importers who file false information in submitting import entries face the potential of having to address litigation with government or private actors (who may be competitors, whistleblowers or former employees) and inquiries, investigations and prosecutions led by the DOJ and CBP, who will be 1) more well-resourced, 2) explicitly tasked with investigating and prosecuting customs fraud, 3) able to use multiple legal authorities to obtain significant damages from parties, 4) closely scrutinizing transshipment practices and 5) increasing incentives to obtain information from whistleblowers.
With this in mind, companies whose operations and supply chains are impacted by tariffs should:
- ensure that any strategies for addressing or mitigating the impact of tariffs are compliant
- keep records of efforts to remain compliant and informed about product classifications and applicable tariffs
- review, test and update as necessary company procedures, policies and other mechanisms to ensure they can effectively prevent, detect and mitigate potential customs violations; these are all the more important as companies are increasingly motivated to mitigate the impact of tariffs and as there are more incentives for whistleblowers and competitors to report violations
Likewise, companies who believe their competitors are evading tariffs should determine whether utilizing reporting channels offered by the DOJ or CBP may be worthwhile and effective tools to maintain a level playing field.
Notes
1 Island Indus., Inc. v. Sigma Corp., No. 22-55063, 2025 WL 1730271 (9th Cir. June 23, 2025).
