Key Takeaways
- The U.S. has lost hundreds of billions of dollars in revenue due to tariff evasion in recent years. Much of this conduct is still criminally and civilly actionable.
- Considering the Trump administration’s focus on tariffs, the government may initiate enforcement actions to recoup these losses and deter future wrongdoing.
- Should companies become aware of prior incidents of tariff evasion, civil and criminal Voluntary Self-Disclosure (VSD) programs may offer several benefits.
Tariff Evasion in Recent Years – The Enforcement Risk
Tariff evasion techniques such as transshipping goods through third countries, underreporting the value of goods, and mislabeling goods as other items subject to lower tariff rates have resulted in hundreds of billions of dollars in lost revenue to the U.S. in recent years. Indeed, in 2023 alone, transshipping of Chinese-origin goods through third countries such as Malaysia, Oman, Vietnam, Mexico and the United Arab Emirates is estimated to have resulted in at least $110 billion in lost revenue.[1]
Last week, at an event with lawmakers on Capitol Hill, executives from several companies said that, in addition to this lost revenue, American companies had been forced out of business by Chinese firms that skirted tariffs and other trade rules.[2] The executives were lobbying in support of a bipartisan bill, the Protecting American Industry and Labor from International Trade Crimes Act, that would ramp up prosecution of tariff crimes and other trade fee and duty evasion. One executive said the U.S. needed an enforcement system involving “[n]ot just fines, but prison.”
As the new Trump tariffs take effect, prior tariff evasion need not go unaddressed by the administration, as such instances are potentially actionable for at least five years after they occur. Civil and criminal enforcement regarding prior years’ tariff evasion could not only potentially recoup some of this lost revenue, but also provide for a powerful general deterrent as new tariffs go into effect.
VSDs and Their Potential Benefits
Should a company become aware that it has underpaid tariffs as it manages ongoing supply chain issues, it can take several actions to help reduce the risk of an enforcement action or penalty. For errors discovered less than a year after an import has been made, companies may be able to instruct their customs brokers to amend their customs declaration. For other errors, a company may submit a Voluntary Self-Disclosure (VSD). A VSD is a proactive disclosure of false or misleading statements, acts or omissions that have resulted in tariff evasion and related violations of U.S. law.
Depending on the nature of the conduct, a VSD may be made to either civil authorities or law enforcement and, in some cases, to both simultaneously. Doing so can dramatically reduce potential penalties, and possibly help avoid enforcement action altogether, against both companies and their executives.
Civil VSDs
Any business involved in the importation of merchandise into the U.S. – including importers, customs brokers, exporters, shippers, and foreign suppliers and manufacturers – can file a VSD with Customs and Border Protection (CBP), also known as a Prior Disclosure (PD), to report underpayment of tariffs. The level of culpability for a violation can include negligence, defined by CBP as “failure to exercise reasonable care,” gross negligence, or “actual knowledge or wanton disregard,” and “fraud,” meaning actions taken “voluntary and intentionally.” PDs are commonly used to correct good faith errors in the payment of customs duties to CBP. A detailed checklist of required information for a PD is available on CBP’s website.[3]
Companies often file an initial “blanket” submission as soon as the violation is identified, even if additional internal fact-finding is required. This is because once the government becomes aware of the violation, initiates an investigation, and makes the company aware of such, a subsequent PD will not be entertained.
One factor for a company to consider when debating whether to file a PD with CBP is the potential for whistleblowers, known as qui tam relators, to report the same misconduct as a violation of the False Claims Act (FCA). Under the FCA, a relator can file and litigate a tariff violation on behalf of the U.S. and receive a portion of any recovered funds. Because civil liability for tariff violations under the FCA has resulted in multimillion-dollar settlements by importers, there is a powerful financial incentive for relators – including disgruntled insiders, competitors and those who troll for possible violations through publicly available trade data – to initiate a qui tam action.
Given the government’s renewed focus on tariffs, there may be a corresponding increase in qui tam litigation with an expectation of larger possible settlements and relator rewards. A timely PD can neutralize this risk.
Criminal VSDs
For violations that are arguably criminal in nature, a VSD to law enforcement may be advisable. A variety of statutes allow the Department of Justice (DOJ) to criminally prosecute a company’s intentional and willful tariff evasion, and executives or managers can face personal criminal liability as well. Not surprisingly, a criminal prosecution of tariff evasion can mean significantly higher financial penalties, more reputational harm and, in the case of an individual actor, a potential prison sentence. A VSD can help mitigate these risks.
There are three primary avenues for submitting a VSD for tariff evasion to federal law enforcement:
- First, a VSD may be made to the DOJ’s Criminal Division.[4] A VSD that is timely, complete and voluntary per the DOJ’s guidance will result in a presumption that the company will not be prosecuted and will face a substantial reduction in possible civil penalties. Aggravating factors that could override this presumption include circumstances where the conduct “poses a grave threat to national security, public health, or the environment,” is “deeply pervasive throughout the company” or involves “current executive management.”
- Second, a VSD may be made to the DOJ’s National Security Division (NSD).[5] While the NSD VSD policy largely applies to sanctions and export control violations, it also covers criminal conduct related to “smuggling, fraudulent importation, and false statement offenses,” such as tariff evasion. While the Attorney General recently disbanded the NSD’s corporate enforcement program, the VSD program remains in place.
- Third, a VSD can be made to one of the United States Attorney’s Offices (USAOs) with jurisdiction and venue over the conduct.[6] The parameters for the USAOs’ program largely track those of the Criminal Division. Also of note is that in 2024, eight USAOs launched pilot whistleblower programs to self-report individual conduct on a range of white-collar matters, which could include import offenses such as tariff evasion.[7] Potential benefits for individuals under these programs include a non-prosecution agreement.
Joint Criminal and Civil VSDs
It is notable that a company submitting a PD to CBP for conduct that is arguably criminal in nature may result in the matter being referred to the DOJ for investigation and possible prosecution. Given the difficulty in distinguishing between negligent, intentional and willful violations of tariffs, the best practice for a company considering a VSD may be to make simultaneous, parallel disclosures to CBP and the relevant DOJ entity.
Such a strategy recognizes that prior complex customs and import fraud investigations have resulted in joint civil and criminal resolutions. For example, in United States v. Iloulian, the CEO of a clothing company was criminally charged in the Southern District of New York with falsely valuing imports.[8] The defendant ultimately pled guilty to conspiracy to commit wire fraud, in violation of 18 U.S.C. Section 1349. The criminal case was prosecuted in parallel with a civil fraud action against the company for violating the FCA for misrepresenting the true value and nature of the goods imported on documents submitted to CBP.[9] Notably, the matter was first brought to the attention of federal law enforcement by a qui tam relator who filed a lawsuit under the FCA.
Conclusion
As both U.S. and foreign companies struggle to keep up with the frenetic pace of the Trump administration’s tariff pronouncements, the focus is rightly on ensuring continuity of operations with minimal cost or negative impact to business. However, as companies examine their supply chain resiliency, they should be mindful of potential civil and criminal exposure for past tariff evasion that may be uncovered, which may now receive renewed interest from both the government and potential qui tam relators.
VSDs for both civil and criminal tariff evasion may be beneficial in minimizing potential penalties or avoiding enforcement actions altogether. But the decision to file a VSD requires an individualized analysis of the prior conduct, its significance, the risk for nondisclosure, and a careful, accurate submission. Businesses operating in sectors that impact national security or with exposure to the Chinese market should be especially mindful of possible government investigations. Company executives and managers should consider consulting with outside counsel to decide whether to self-report misconduct in order to qualify for their own non-prosecution agreement or cooperation credit.
[1] https://www.barrons.com/articles/trump-tariffs-china-mexico-canada-69c66a3e
[2] https://www.reuters.com/markets/us/us-firms-demand-crackdown-tariff-evading-chinese-importers-2025-03-05/
[3] https://www.cbp.gov/sites/default/files/assets/documents/2020-Feb/Prior%20Disclosure%20FINAL.pdf
[4] https://www.justice.gov/criminal/criminal-fraud/file/1562831/dl?inline
[5] https://www.justice.gov/nsd/media/1285121/dl?inline
[6] https://www.justice.gov/usao/page/file/1569586/dl?inline
[7] The USAOs include the Southern District of New York (SDNY), the Eastern District of New York (EDNY), the District of New Jersey (DNJ), the Southern District of Florida (SDFL), the Eastern District of Virginia (EDVA), the District of Columbia (DDC), the Southern District of Texas (SDTX), and the Northern District of Illinois (NDIL).
[8] https://www.justice.gov/usao-sdny/press-release/file/1436161/dl
[9] https://www.justice.gov/usao-sdny/press-release/file/1436166/dl
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