On February 1, 2025, President Trump announced the imposition of substantial tariffs on goods imported from Canada, Mexico, and China.  These tariffs are likely to come with an increase in customs enforcement, with customs officials ensuring that incoming goods are properly classified and taxed.

Accordingly, this is a good time for a reminder that misclassifying goods could result in significant legal repercussions, both criminal and civil.

In addition to smuggling contraband, customs fraud typically takes one of two forms, or both simultaneously: misclassifying the nature (including type and value) of the imported goods and/or misstating the goods’ origin. Both are unlawful, and both can lead to monetary fines and penalties and even jail time.

One example of a recent criminal enforcement action was from early 2024, when a California-based clothing wholesale company executive was sentenced to 48 months in federal prison after pleading guilty to one count of conspiracy to pass false and fraudulent papers through a customshouse.  According to the DOJ’s press release, the defendant imported clothing from China and submitted fraudulent invoices to Customs that undervalued the shipments, thereby allowing the company to avoid paying the full amounts of tariffs owed on the imports.  The defendant was charged with violating 18 U.S.C. § 545, which prohibits smuggling merchandise into the United States, as well as “making out or passing through the customhouse any false, forged, or fraudulent invoice, or other document or paper.”  The maximum penalty under the statute is 20 years in prison.

Even in cases that do not result in criminal prosecution, the government has succeeded in obtaining large civil settlements and judgments under the federal False Claims Act (FCA).  For example, in 2018, the United States Attorney’s Office for the Southern District of Georgia announced that Bassett Mirror Company agreed to pay $10.5 million to settle allegations that it violated the FCA by misclassifying goods to avoid antidumping duties placed on wooden bedroom furniture imported from China.  That case was the result of a whistleblower lawsuit, with the whistleblower receiving nearly $2 million under the FCA’s qui tam provisions.

While it may be tempting to misclassify imported goods to avoid tariffs and other import duties, these matters demonstrate that such schemes aren’t worth it; as they can lead to significant fines, penalties, and prison sentences.

The attorneys at Chilivis Grubman represent companies and individuals in connection with government investigations and False Claims Act litigation.  If you need assistance with such a matter, please feel free to contact us.