- A New Trade Environment
As the Trump administration rolls out its rapidly evolving tariff strategy, companies will need to respond to an increasingly challenging legal and compliance environment. While tariffs and efforts to avoid their impact have long been features of international trade, what distinguishes the current environment is the unprecedented scale of the Trump administration’s approach, both in the breadth of the tariffs themselves and the administration’s stated willingness to prosecute violations.
In the strongest signal of the administration’s position on enforcing its tariff strategy, the head of the Criminal Division of the Department of Justice, Matthew R. Galeotti, issued a memorandum on May 12, 2025 naming “trade and customs fraud, including tariff evasion” as the second of ten high-impact white-collar crime enforcement priorities. The Galeotti memorandum instructs federal prosecutors to prioritize cases involving deliberate misclassification of goods, undervaluation, and false country-of-origin claims. It also signals plans to leverage data analytics, interagency coordination, and the Corporate Whistleblower Pilot Program to detect patterns of evasion and provide an incentive for internal reporting.
It is clear the administration intends to use all available tools to ensure compliance, which will create challenges for good and bad actors alike. And, as tariffs expand rapidly across multiple countries and sectors, they promise a similarly broad-based expansion in circumvention attempts. In combination, these factors present a new dynamic for US importers reliant on global supply chains: improve compliance monitoring and internal investigations to avoid costly and disruptive government prosecution.
While the trade landscape remains challenging, the June 2025 US-China trade deal has created some stability by locking Chinese tariffs at 55%. However, this stabilization does not diminish enforcement intensity, as high tariff rates create strong incentives for circumvention. Importers will need vigilance in monitoring compliance.
Aside from government enforcement risk, companies also face increased litigation risk, especially in slim-margin sectors where the successful evasion of import duties brings a substantial competitive advantage. Most observers of the relator’s bar expect a dramatic increase in qui tam litigation as companies attempt to level the playing field by using the False Claims Act to blow the whistle on non-compliant competitors. As such cases allow for treble damages and whistleblower rewards, they promise to be a significant enforcement multiplier.
- The Tariff Evasion Risk Landscape
Both regulators and shareholders must monitor a broad range of compliance risks, ranging from legitimate tariff avoidance efforts – for example, re-orienting supply chains to more favorable jurisdictions – to outright fraudulent tariff evasion schemes.
Strategic Nearshoring and Reshoring
Just as there is a difference between tax evasion and tax avoidance, not all tariff circumvention is illegal. Many companies have pursued legitimate strategies like reshoring operations to the US or “nearshoring” production to Mexico or Central America to take advantage of the United States-Mexico-Canada Agreement (“USMCA”). Nearshoring strategies, while legal, can introduce gray-area practices that may test the bounds of trade agreement requirements. For instance, some companies establish minimal manufacturing operations in Mexico, primarily to qualify for USMCA benefits, while producing the majority of goods elsewhere. These arrangements often attract scrutiny from trade enforcement authorities seeking to ensure compliance with content and processing requirements.
Moreover, nearshoring is also under pressure as the administration attempts to make reshoring the most, or only, viable commercial option. In 2025, the US sharply increased tariffs on Mexican steel, aluminum, and auto parts—doubling some rates to 50%—effectively ending previous exemptions under the USMCA. This has confounded nearshoring strategies, as companies that shifted production to Mexico to avoid China tariffs now face comparable trade barriers.
Transshipment and Country of Origin Manipulation
One of the most prevalent illegal circumvention methods involves transshipment – routing goods through third countries to obfuscate their origin. Chinese manufacturers, for example, have been found to ship products to Vietnam, Malaysia, or Mexico for minimal processing before export to the United States, allowing them to avoid China-specific tariffs.
While enforcement is anticipated to skyrocket, US Customs and Border Protection has been tracking such schemes for many years. For example, in 2019, the agency discovered that, to circumvent anti-dumping duties, Chinese solar panel manufacturers were shipping components for final assembly to Malaysia and Taiwan, then exporting finished products to the US. Similar patterns have emerged across industries, from steel and aluminum to consumer electronics and textiles. Since the announcement of the most recent raft of tariffs, this practice has reportedly spiked, with Chinese social media sites reportedly flooded with advertisements offering Chinese exporters origin “transformation” services. Substantial tariff differences between countries, particularly in East and Southeast Asia, have created a game of “whack-a-mole,” where the US struggles to stay abreast of transshipment schemes.
Fraudulent Documentation
More brazen than these efforts to launder the country of origin are schemes involving outright fraudulent customs documents. Companies have been caught submitting fake certificates of origin, manipulating commercial invoices to understate values, or misclassifying products to qualify for lower tariff rates. These schemes, which often rely on sophisticated networks operating in multiple countries, can be difficult to detect without specialized investigative techniques.
The complexity of the modern supply chain makes such fraud easier to conceal. A single product might contain components from multiple countries, making it challenging for customs officials to verify origin without extensive investigation. Some companies exploit this complexity by creating elaborate paper trails that appear legitimate on surface inspection. As such cases are vulnerable to the False Claims Act, major cases have been brought, mostly related to Chinese imports, in multiple sectors, including plywood, aluminum, and food products.
- Calibrating the Response
In response to a rapidly shifting enforcement environment, companies must re-evaluate their strategies and systems for managing international trade compliance risk. At the highest level, they should focus on: (i) monitoring operations for compliance and reporting risk; and (ii) vigorously responding to all potential violations, whether discovered internally or via government enforcement.
Prospective Monitoring
To monitor trade compliance risk, companies should employ the techniques used by regulators to catch violators – data analytics, internal coordination and information sharing, and whistleblower programs. Companies can significantly enhance tariff compliance by conducting regular compliance audits, fostering a culture of vigilance and transparency, and encouraging whistleblower reporting.
Technology such as trade management automation platforms plays a pivotal role in streamlining tariff classification, automating documentation, and ensuring real-time updates on trade regulations. These systems can integrate with enterprise resource planning platforms to ensure the consistent reporting of data across departments and to gather a pool of data upon which evasion risk analytics exercises can be performed. By analyzing large volumes of shipping data, companies can flag inconsistencies such as sudden shifts in tariff codes, unusual pricing trends, or mismatches between declared and market values—helping compliance teams and their advisors investigate and address potential problems before they escalate.
Regular compliance risk assessments are also essential for identifying procedural gaps and ensuring adherence to international trade laws. These audits help companies gauge the effectiveness of internal controls, detect misclassifications or underpayments, and implement corrective actions before regulators intervene. Additionally, a strong whistleblower reporting program empowers employees to anonymously report unethical or non-compliant practices, which helps uncover emerging problems while reinforcing a culture of compliance.
Investigation and Incident Response
Regardless of the strength of a company’s preventative measures, potential violations will be identified, and when they are, management must transcend surface-level risk detection techniques and employ a multidisciplinary approach – one that combines open source research, human source inquiries, data analysis, and forensic accounting – to get to the facts. This synoptic approach is essential because circumvention schemes often involve complex networks of related entities operating in multiple jurisdictions. Data analysis alone may identify suspicious patterns, but human intelligence is often required to understand the actual business relationships and operational realities behind those patterns. Similarly, document review may reveal inconsistencies, but physical verification at manufacturing sites or key ports of exit or entry may be necessary to confirm actual circumvention activities. These investigations enable companies to resolve problems identified in the compliance monitoring process, respond to government inquiries, and gather evidence for remedy petitions and/or litigation.
Given the increasing enforcement focus, companies should also establish an incident response plan tailored to trade compliance; one that ensures that when potential violations or suspicious activities are detected—whether through internal audits, whistleblower reports, or external investigations—there is a clear, coordinated process to escalate, investigate, and remediate the situation. Management must designate response teams, outline communication protocols, preserve evidence, and engage legal counsel and other skilled contractors early. A well-structured response plan not only helps contain potential damage but also demonstrates to regulators a serious commitment to compliance, which is often critical in mitigating penalties or reputational harm.
