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US importers and their logistics service providers have been warned that next year is likely to bring a wave of criminal tariff evasion cases.
In an exclusive interview with The Loadstar, Mark Bini and Daniel Ahn, partners at law firm Reed Smith’s Global Regulatory & Investigations Group, said there was likely to be “a huge ramp up in enforcement in the tariff evasion space, because there has been a significant investment in resources by the Department of Justice (DoJ) and the administration”.
Their comments came after acting attorney general Matt Galeotti listed trade fraud – including tariff evasion – among the DoJ’s highest ‘white-collar crime’ priorities.
While freight forwarders will continue to face criminal liability, the scope of scrutiny is expected to be expanded next year to brand-name companies with global supply chains, in the same way the US Foreign Corrupt Practices Act (FCPA) investigations expanded from local agents to multinational corporations.
In the freight sector, probably the most famous case involved Panalpina, which in 2010 paid $80m in penalties after pleading guilty to bribing officials in seven oil-producing nations, most notably Nigeria, to win contracts in oil & gas logistics services.
However, with the second Trump administration looking to water-down FCPA enforcements, more focus is being placed on tariff evasion, Mr Bini said.
“You have to look where the DoJ investing its resources – for example, the FCPA, which has been a traditional focus of DoJ’s fraud section, now has something like a half or a third of the attorneys they had at the end of Biden. Meanwhile, they’ve really beefed up the trade fraud section,” he explained.
And it would appear that drive has already begun, after Indonesian shipper UBS Gold was last month charged in a New Jersey court with “engaging in a scheme to illegally evade more than $86m in customs duties and tariffs on more than $1.2bn in jewelry imports into the United States”.
According to the charges against the UBS Gold owner and several of its employees, in an attempt to evade tariffs – on Indonesia imposed earlier this year – “the defendants and co-conspirators began shipping scrap gold from the United States to Jordan, which they falsely claimed was gold jewelry that simply needed to be assembled or finished in Jordan.
“Instead, the defendants and co-conspirators swapped the scrap gold for UBS Gold jewelry made in Indonesia, which they then shipped from Jordan to the United States. The defendants and co-conspirators falsely claimed the jewelry had been manufactured in the US, so they could avoid paying the tariffs that would otherwise apply,” prosecutors allege.
“One of the key ways people are evading tariffs is through transhipment routing – they’re laundering the ‘country of origin’,” Mr Ahn told The Loadstar.
“Another way is falsifying customs paperwork. And that means risk in this area tends to be very diffuse – it’s sprawling; it’s not just localised; it’s at ports or other throughways and far-flung countries, being handled by brokers or middlemen,” he added.
He also explained why the penalties – ranging from multi-million dollar fines to up to 10 years in prison in criminal fraud cases – could be so “astronomical”.
He said: “You can charge tariff evasion in the same way as a wire fraud or a money laundering scheme, and the way that the federal government can charge the unit of prosecution is that it can multiply the fees by charging each individual wire separately, and each individual money laundering transaction separately; and each separate count carries a separate penalty, and that multiplies the exposure,” he said.
And Mr Bini warned that, as with the FCPA and the Panalpina case, non-US firms needed to be particularly careful.
“They should fasten their seat belts and hold on to the bar on this ride, because, yeah, it’s about to get rough because the administration is putting US national interests first.”
he noted that UBS Gold had an Indonesian co -owner, so it involved conduct in Indonesia coming into the US, “and that’s where tariffs are going to be involved”.
“I just think that, unfortunately, foreign companies are probably going to get more scrutiny in the current environment,” he said, although he added that firms could mitigate risks through greater compliance programmes.
“On the positive side, you do have a DoJ that is more business-friendly.
“If you do end up in the crosshairs, there may be the opportunity to either negotiate a good outcome if you have a strong compliance policy – if you have good reasons for why you’re asking the DOJ to exercise discretion in order to have a better outcome,” he said.
Mr Ahn explained: “One thing companies can do is to assess their risk profile, and see just how diffuse the risks are for them and their supply chain – how localised are they, how broad are they, and so on.”
“Compliance can be tailored. It never is a ‘one size fits all’. But an ounce of prevention is worth a pound of cure,” he added.
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