The inauguration of the second Trump administration has ushered a new era of sweeping tariffs across sectors and entire countries, from steel to semiconductors, Canada to China. But as duties rise, so too does the cost/benefit analysis for businesses to engage in creative workarounds: misdeclaring goods, routing shipments through third countries, or playing fast and loose with pricing mechanisms.
Customs fraud, or even creative importing that seeks to avoid or reduce tariffs, can be prosecuted as tax evasion, with severe consequences for companies and individuals alike.
Compliance professionals should treat tariff evasion not as a technicality, but as a serious and escalating tax risk. There is no safe harbour in creative importing.
A new era of trade-based tax enforcement
With regulators viewing tariff evasion through the same lens as tax evasion, even routine importing practices can trigger international enforcement actions. Where trade barriers rise, companies will naturally respond with agility. The risk is if this crosses the line into deception. A business might declare Chinese-origin goods as being from Malaysia to avoid certain tariffs. Or they might undervalue products to shrink their customs bill. What seems like a clever accounting workaround can, in reality, be a fraudulent evasion of tax duties, exposing the company and its executives to investigation and prosecution.
In the United States, the Department of Justice (DOJ) and Customs and Border Protection (CBP) are increasingly treating customs fraud as a False Claims Act violation. Trump administration officials are promising aggressive enforcement.
From customs violation to criminal offence
$42 million in misclassification and undervaluation
Consider a company that imports consumer electronics from a high-tariff country. To reduce duties, it falsely declares the goods under a tariff code for “educational devices” or “components” that carry lower rates. Or perhaps it records the invoice at half the true value, with the rest paid informally to the supplier. These schemes may save millions, but if discovered, they become textbook cases of tax fraud.
In March 2025, a federal court sentenced a Florida couple to nearly five years in prison for defrauding the US government of over $42 million in tariffs by routing Chinese plywood through Malaysia and falsifying documentation. The case was prosecuted not just as a customs violation, but as tax evasion and criminal conspiracy.
$8.1 million settlement over false country-of-origin declarations
In March 2025, Evolutions Flooring Inc., based in San Francisco, agreed to pay $8.1 million to settle allegations that it falsely declared Chinese-manufactured multilayered wood flooring as originating from Malaysia. The scheme enabled the company to evade significant antidumping and countervailing duties, along with Section 301 tariffs, all of which apply to flooring products imported from China. The Department of Justice claimed that the mislabelled imports were part of a broader attempt to undercut legally required tariffs and gain an unfair advantage in the US market. The case originated from a whistleblower under the False Claims Act, who will receive approximately $1.2 million as part of the settlement. The DOJ emphasised that customs fraud of this nature is being treated as a serious form of tax evasion and will be aggressively prosecuted.
Tariff evasion charges in fentanyl-related smuggling scheme
In January 2025, US prosecutors brought criminal charges against two Indian chemical companies, Raxuter Chemicals and Athos Chemicals, for their alleged role in smuggling fentanyl precursor chemicals into the United States and Mexico. According to the Department of Justice, the companies used falsified customs declarations to conceal the true nature and origin of the chemicals in order to bypass regulatory scrutiny and evade tariffs. The smuggling operation not only violated customs law but also posed significant public health and national security risks due to its connection to the opioid crisis. The charges underscore the DOJ’s broader approach of linking tariff evasion to criminal conspiracy, particularly in cases involving high-risk goods or transnational trafficking.
£3.2 Million Settlement for Unlicensed Military Exports
In February 2025, a UK-based company agreed to pay over £3.2 million in a compound settlement with HMRC for exporting military-listed goods without the necessary licences. This settlement is the largest of three reached in the first quarter of 2025, collectively amounting to nearly £3.7 million. The violations pertained to breaches of The Export Control Order 2008 and The Customs and Excise Management Act 1979. HMRC’s use of compound settlements in such cases underscores its commitment to enforcing export controls and ensuring compliance with customs regulations.
Adidas investigated for €1.1 billion in customs and VAT evasion
In December 2024, Adidas’s headquarters in Germany were raided by criminal prosecutors and customs investigators as part of a probe into suspected tax evasion exceeding €1.1 billion. The European Public Prosecutor’s Office (EPPO) is leading the investigation, which focuses on alleged failures to pay customs duties and import sales tax between October 2019 and August 2024. The EPPO stated that the potential offences occurred in Germany and Austria, impacting the EU budget. Adidas has acknowledged the investigation, attributing the issue to differing interpretations of German and European law, and has been cooperating with authorities.
Regulatory frameworks catching up to tariff evasion
Compliance teams must now understand that international tax enforcement is taking account of tariffs. Whether through existing legislation or more aggressive enforcement, the trade wars sparked by massive tariffs could certainly be a windfall for the tax man.
DAC6: The EU’s transparency tool
The EU’s Directive on Administrative Cooperation (DAC6) requires intermediaries (including in-house legal and compliance teams) to report certain cross-border arrangements. While DAC6 was designed to address aggressive tax avoidance, it also applies where arrangements obscure the jurisdiction, value, or nature of transactions, including customs schemes.
A false country-of-origin declaration or re-routing scheme could trigger DAC6’s “generic hallmarks” around tax advantage and opacity. Non-disclosure could mean reputational risk and monetary penalties across the EU.
Criminal Finances Act 2017: Corporate failure to prevent
In the UK, the Criminal Finances Act introduces two offences for companies: failing to prevent the facilitation of domestic tax evasion, and failing to prevent the facilitation of foreign tax evasion. These offences have strict liability, meaning if a person associated with your business facilitates tax evasion, your business is guilty unless you can prove you had “reasonable procedures”.
That makes supply chain diligence more than a procurement concern. If a freight forwarder or import partner helps disguise the true value or origin of goods to avoid tariffs, the UK entity may face criminal exposure, even if unaware.
How the US is cracking down on corporate tax and tariff evasion
The United States has significantly ramped up enforcement against corporate tax and customs evasion, treating tariff avoidance as a form of tax fraud. The Department of Justice now frequently uses the False Claims Act (FCA) to prosecute businesses and individuals who knowingly submit false import declarations to avoid duties, with cases often involving millions in underpaid tariffs. Customs and Border Protection (CBP) is also increasing audits and inspections, particularly on goods routed through third countries to evade anti-dumping tariffs. In addition, the Internal Revenue Service (IRS) continues to target multinational tax avoidance schemes, particularly those involving base erosion, profit shifting, and mispricing of intercompany transactions.
A wake-up call for compliance professionals
Compliance teams should seriously consider expanding their remit to cover trade practices, especially those that cross international borders or rely on intermediaries.
Reputational risk: Being publicly associated with a customs fraud case can be devastating for public trust, particularly in regulated industries like finance or pharmaceuticals.
Cross-border exposure: Schemes that touch multiple jurisdictions: shipping routes, shell entities, price manipulation, can attract the attention of multiple tax authorities at once.
Criminal liability: Executives may be personally liable under UK, US, and EU law for failing to prevent tax evasion, even if the original scheme focused solely on tariffs.
Disclosure obligations: Failing to report certain arrangements under DAC6, or to self-report under the UK’s HMRC disclosure regimes, can lead to enforcement action and regulatory scrutiny.
What compliance teams should prioritise
Audit trade practices and supply chains
Map your import/export activity including the full chain of custody. Verify declared values, tariff codes, and country-of-origin statements. Where possible, obtain third-party verification of customs declarations.
Train staff on trade risks
Educate your procurement, legal, and finance teams on the compliance risks associated with customs misdeclarations. Make clear that tariff evasion is not a ‘grey area,’ it is tax fraud.
Review third-party contracts and intermediaries
Reassess due diligence for freight forwarders, customs brokers, and logistics providers. Look for red flags such as unexplained trans-shipping routes, sudden price shifts, or requests to under-invoice.
Implement and monitor reasonable procedures
Under the Criminal Finances Act, having reasonable procedures to prevent tax evasion including training, oversight, whistleblowing channels, and escalation processes, is the only defence. These must be actively monitored and updated.
Assess and report under DAC6
If your group operates in the EU, assess whether any cross-border trade practices might trigger DAC6 hallmarks.
