Why Following Your Chinese Supplier’s Tariff Advice Could Land YOU in Jail

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Chinese Supplier Tariff Advice Leads to Customs Fraud and Jail Time

This is part one of a two-part series on the growing legal risks U.S. companies face when importing from China.

Today, we focus on a mistake we see far too often: U.S. companies taking tariff compliance advice from their Chinese suppliers. What may sound like a harmless logistical suggestion from your Chinese supplier is frequently—under U.S. law—a federal crime.

Tomorrow, we’ll walk through the widespread but dangerous myth that you’re safe from civil or criminal penalties so long as you’re not the Importer of Record. Spoiler alert: you’re not.

The Rising Cost of Chinese Supplier-Driven “Solutions” for Reducing Your China Tariffs

U.S. companies importing goods from China face unprecedented legal risk when they follow their suppliers’ “creative” suggestions for avoiding tariffs. What might sound like a logistical workaround is often — in the eyes of U.S. Customs and the Department of Justice — a federal crime.

Today’s enforcement environment is more aggressive than ever. U.S. Customs and Border Protection (CBP) and the Department of Justice (DOJ) are pursuing record-level enforcement against tariff evasion schemes. That means fines, cargo seizures, civil penalties, and prison time — often aimed not just at companies, but at their executives.

If your Chinese supplier is offering unsolicited advice on how to reduce tariffs, consider it a major red flag and seek independent legal counsel immediately.

1. You’re Not the Importer of Record? You’re Still at Risk.

A common misconception is that only the Importer of Record (IOR) bears responsibility for customs violations. That’s dangerously wrong. Even if you’re not the IOR, you and your company can be held civilly and criminally liable if you play any role in the submission of false information — or knowingly benefit from it.

This is especially true when it comes to schemes involving:

Routing goods through third countries to disguise their true origin, a tactic often linked to customs fraud.
Falsifying country-of-origin documents to evade the China tariffs.
Understating product value or misclassifying goods to reduce your China tariffs.
Accepting suspicious DDP (Delivered Duty Paid) shipping arrangements without due diligence, which would mask underlying China tariff evasion schemes.

These tactics may be framed by your Chinese supplier as “simple” or “common industry practices.” But in reality, they typically violate U.S. law — and expose your business, your reputation, and your personal freedom to serious consequences.

2. The Two-Word Legal Strategy: Don’t Listen

If your company is importing goods from China — or even indirectly sourcing China-origin products through Southeast Asia or Mexico — and your supplier offers a China tariff reduction method that seems too smooth, too cheap, or too easy, here’s your essential two-word legal strategy:

DON’T LISTEN.

We are constantly hearing from U.S. businesses that made this exact mistake: trusting their Chinese supplier’s “guidance” on customs paperwork, valuation, or routing. Almost invariably, these companies are now facing:

Civil enforcement actions
Customs seizures of high-value cargo
Multi-million-dollar penalties
And in the most severe cases, criminal prosecution of their executives

3. Your Supplier’s Incentives Are Not Yours

Your Chinese supplier may be an important part of your supply chain — but they operate under entirely different incentives. Their priority is preserving your business and maximizing their margins. They do not care whether you comply with U.S. law. If they care at all about whether you go to jail, it’s only because you’ll stop sending purchase orders once you’re incarcerated. Therefore, to protect your business and yourself, it is crucial that you conduct your own thorough due diligence on all customs and compliance matters, rather than solely relying on your supplier’s guidance.

This dynamic of misaligned incentives is a common pitfall in international business, and the risks are starkly illustrated in situations like U.S. companies entering joint ventures with Chinese entities without independent legal counsel, which we explained in China Joint Ventures: Everything You Should Know:

Here’s another joint venture failure example that’s more common than you might expect. We have seen U.S. companies that have put tens of millions of dollars into a Chinese joint venture following the legal counsel of either:

1. Their joint venture partner
2. A local Chinese lawyer with little or no experience in foreign joint ventures

These parties have no real incentive to protect their foreign clients, and they’re likely to charge low prices for poor work. We once had a client who came to us boasting of the great job his Chinese lawyer had done for only $600. His pride quickly faded when we pointed out how his joint venture had a loophole that would allow his joint venture partner to pocket every penny. You should always use your own attorney to help you with your joint venture agreement.

The stakes in tariff compliance are even higher. Because now, it’s not just money on the line — it’s your freedom.

4. A Quick Snapshot: 4 Schemes, 4 Violations, 4 Penalties

Below is a quick reference guide to the four most common schemes suggested by Chinese suppliers, the U.S. laws they typically violate, and the penalties you may face if caught:

Chinese Supplier Scheme	U.S. Law Violated	Your Likely Penalty
Labeling China-made goods as “Made in Vietnam”	18 U.S.C. § 542 (False Statement)	Fines and imprisonment (up to 2 years per violation)
Routing shipments through third countries	18 U.S.C. § 545 (Smuggling)	Criminal prosecution and cargo forfeiture
Misclassifying goods to reduce duties	19 U.S.C. § 1592	Civil penalties and possible criminal charges
Undervaluing goods on commercial invoices	18 U.S.C. §§ 541–542	Seizure of goods and federal fraud charges

The Criminal Charges YOU Could Face — Before We Go Any Further

If a “solution” offered by your Chinese supplier sounds too easy, it probably violates U.S. law — and the consequences for you, not them, could be severe.

1. It Always Starts Small

It usually begins with a suggestion that sounds simple — maybe even clever:

“Don’t worry, we’ll just ship through Vietnam.”
“We’ll label it as ‘Made in Thailand’ — no one checks.”
“Just declare a lower value on the commercial invoice.”
“Use our freight forwarder. They handle this all the time.”

These aren’t presented as illegal maneuvers. They’re pitched as practical shortcuts — well-worn industry tactics. And they might feel like solutions, right up until U.S. Customs and Border Protection (CBP) starts asking questions.

That’s when companies suddenly face hundreds of thousands — or even millions — in penalties, and the very real prospect of criminal prosecution.

Your supplier may genuinely believe what they’re saying. Or they may know exactly what they’re doing and are simply offloading the legal risk onto you. But in a U.S. courtroom, that distinction is irrelevant. You are the one held responsible. Their advice becomes your liability.

So, ask yourself: What are you doing taking legal advice on U.S. trade compliance from someone in another country — someone with no legal training, limited English, and a financial interest directly at odds with your legal exposure?

2. The Legal Landscape You’re Stepping Into

Importers who follow supplier-driven schemes aren’t just taking business risks — they’re walking into a legal minefield. Here are some of the federal charges you may face:

a. Conspiracy to Defraud the United States (18 U.S.C. § 371)

Applies when two or more people agree to violate U.S. law — such as customs or tariff regulations — and take any step to carry out the scheme. Frequently charged when companies coordinate with suppliers or freight forwarders.

b. Customs Fraud (18 U.S.C. §§ 541, 542)

Covers false statements or documents used to mislead CBP. Common examples include falsifying country of origin, misclassifying goods, or undervaluing shipments.

c. Smuggling (18 U.S.C. § 545)

Applies when goods are imported through deception or in violation of customs laws. Transshipping through third countries and using false declarations often fall under this statute.

d. Wire Fraud (18 U.S.C. § 1343)

Using email, electronic invoices, or other communications to support a fraudulent import scheme can trigger this charge.

e. False Statements (18 U.S.C. § 1001)

Knowingly making false or misleading statements to any federal agency — including CBP — is a felony, even if no goods actually cross the border.

f. False Claims (31 U.S.C. §§ 3729–3733)

Covers efforts to avoid paying money owed to the U.S. government, such as duties or tariffs. Often used in “reverse false claims” cases involving underpayment.

g. Criminal Forfeiture

The government may seize goods, bank accounts, and even business assets linked to the violation — often freezing a company’s operations entirely.

h. Obstruction of Justice

Destroying documents, lying to investigators, or interfering with a CBP audit or DOJ investigation can result in separate felony charges.

i. Trafficking in Counterfeit Goods (18 U.S.C. § 2320)

Importing goods that infringe U.S. trademarks or copyrights — even indirectly — can trigger prosecution and seizure.

3. The Reality Importers Must Face

Executives and business owners are increasingly being prosecuted personally. Everything we’re seeing suggests these prosecutions will continue to ramp up.

“I thought it was okay.”
“That’s what the supplier told me.”

These aren’t legal defenses. They’re admissions.

Before you go along with what your supplier is suggesting, consider the real cost.
Is it worth spending two years in federal prison?

Common Tariff Evasion Schemes Suggested by Chinese Suppliers and Their Potential Costs

Chinese suppliers often offer what they call “creative solutions” to help you avoid tariffs. These are rarely innocent workarounds—they’re usually clear violations of U.S. law that create direct and serious liability for YOU.

Here’s a detailed breakdown of the four most common schemes and their consequences:

1. False Country of Origin Declarations to Avoid China Tariffs

a. The Scheme

Your Chinese supplier offers to label products as “Made in Vietnam,” “Made in Thailand,” or another country with lower or no tariffs applicable to the U.S. market.

b. What Your Chinese Supplier Says

“We have a factory in Vietnam that can handle the paperwork.”
“We’ll just change the labels and ship through our Cambodian facility.”
“Everyone is doing this—it’s just how business works now.”

c. The Violations

19 U.S.C. § 1304 (False Country of Origin Marking)
18 U.S.C. § 542 (Entry by Means of False Statements)
19 U.S.C. § 1592 (Penalties for Fraud, Gross Negligence, or Negligence)

d. Your Potential Costs

Civil penalties up to the domestic value of the merchandise
Criminal fines up to $250,000 for individuals
Imprisonment for up to 2 years per violation
Forfeiture of the entire shipment
Blacklisting from future imports (through CBP’s Customs-Trade Partnership Against Terrorism program)

e. Real-World Example (anonymized)

A California clothing importer accepted their Chinese supplier’s suggestion to route garments through Vietnam with falsified certificates of origin. After CBP conducted a factory visit in Vietnam and found minimal production capability, they launched a full investigation. The U.S. company ultimately paid $3.1 million in penalties and back duties, while the CEO narrowly avoided criminal charges by cooperating with authorities.

2. Transshipment Through Third Countries:A Common Tariff Evasion Scheme with Severe Consequences

a. The Scheme

Your supplier suggests shipping complete Chinese-made products to a third country, then re-exporting them to the U.S. with new documentation suggesting they originated in that third country.

b. What Your Chinese Supplier Says

“We’ll ship through our Mexico facility—it’s a USMCA country!”
“Our warehouse in Cambodia can re-export to you with new paperwork.”
“This is just supply chain optimization, not illegal.”

c. The Violations

18 U.S.C. § 545 (Smuggling)
18 U.S.C. § 371 (Conspiracy to Defraud the United States)
19 U.S.C. § 1304 (False Country of Origin Marking)

d. Your Potential Costs

Civil penalties up to the domestic value of the merchandise
Criminal fines up to $250,000 for individuals and $500,000 for organizations
Imprisonment for up to 20 years for smuggling
Forfeiture of the merchandise and all facilitating assets
Loss of import privileges

e. Real-World Example

Univar USA Inc., a major chemical distributor, was found to have imported Chinese-made saccharin that had been routed through Taiwan and falsely declared as Taiwanese in origin — a case of illegal transshipment designed to evade a 329% antidumping duty on Chinese saccharin.

Between 2007 and 2012, Univar brought in 36 such shipments, ultimately avoiding more than $36 million in duties. When the violations came to light, the company agreed to pay $62.5 million to settle the allegations — the largest recovery under 19 U.S.C. § 1592 ever reached in the Court of International Trade.

This case was not uncovered by accident. Our law firm brought the matter to the attention of the U.S. Department of Justice. We identified the violations, advised our clients throughout the process, and in the end, both our clients — and our firm — were rewarded by the federal government for doing the right thing. For more on this case and the $62.5 million settlement, check out Univar USA Inc. to Pay U.S. $62.5 Million to Resolve Allegations that it Evaded $36 Million in Duties on Imported Chinese Saccharin.

The message is clear: illegal transshipment is not a clever tactic — it’s a multi-million-dollar risk. And yes, your competitors are watching.

If they’re not already talking to us or to some other law firm that would love to get a cut of the government’s recovery, there’s a good chance they will be soon.

3. Product Misclassification: Illegally Reducing Your China Tariffs

a. The Scheme

Your supplier encourages classifying your products under incorrect Harmonized Tariff Schedule (HTS) codes to reduce your duty exposure.

b. What Your Chinese Supplier Says

“This could be classified as a part instead of a finished product.”
“Let’s use this similar HTS code—it’s only 5% duty instead of 25%.”
“The HTS is confusing—no one will notice this small change.”

c. The Violation

19 U.S.C. § 1592 (Penalties for Fraud, Gross Negligence, or Negligence)
18 U.S.C. § 541 (Entry of Goods Falsely Classified)
18 U.S.C. § 1001 (False Statements)

d. Your Potential Costs

For fraud: Penalties of up to the domestic value of the merchandise
For gross negligence: Penalties up to 4x the duties owed
For negligence: Penalties up to 2x the duties owed
Potential criminal prosecution with fines and imprisonment
Recovery of all unpaid duties plus interest

e. Real-World Example

A furniture importer accepted their supplier’s suggestion to classify fully assembled wooden dining chairs as “wooden parts” to benefit from a significantly lower duty rate. During a routine audit, CBP identified the misclassification. Even though the importer claimed it was an innocent mistake, they were assessed penalties of $1.2 million for gross negligence, plus $450,000 in unpaid duties and interest.

4. Invoice Undervaluation: A Form of Customs Fraud When Importing from China

a. The Scheme

Your supplier proposes declaring a lower price on customs invoices than what you’re actually paying—often through dual invoicing or side payments.

b. What Your Chinese Supplier Says

“We’ll show $10,000 on the invoice but you can transfer the other $15,000 separately.”
“Let’s create two invoices—one for customs and one for our records.”
“We’ll mark this as a sample shipment with minimal value.”

c. The Violations

19 U.S.C. § 1484 (Entry of Merchandise)
18 U.S.C. §§ 541-542 (Entry of Goods Falsely Classified/False Statements)
31 U.S.C. §§ 3729-3733 (False Claims Act)

d. The Cost

Civil penalties up to the domestic value of the merchandise
Criminal fines up to $250,000 for individuals
Imprisonment for up to 2 years per violation
Treble damages under the False Claims Act
Per-claim penalties that increase annually with inflation

e. Real-World Example

Our firm represented a company that was caught by U.S. Customs and Border Protection (CBP) for undervaluing its imported equipment—a case where the Chinese supplier had “handled everything” but withheld critical information. The supplier never disclosed that it had been systematically undervaluing the goods for years, and our client was unaware of the ongoing misrepresentation.

When CBP initiated its investigation, it came in aggressively—threatening every penalty in the book and raising the specter of criminal charges. It was a full-court press, and it was clear the government meant business.

We focused our efforts on demonstrating that the issue stemmed from our client’s lack of sophistication, not from any intent to deceive. We also explored the possibility of suing the Chinese supplier for fraud and breach of contract but ultimately determined that recovering against a network of low-value offshore entities would be futile.

In the end, the company settled with CBP by paying several million dollars in back duties and a relatively modest penalty. Including our legal fees, the total cost remained under $1 million. No criminal charges were filed, and no personal liability was pursued.

But the collateral damage was real. Two senior executives left the company, plans to sell the business were shelved indefinitely, and the company’s bank froze its credit lines. These are the kinds of hidden consequences few consider—until it’s too late.

5. “Assembly” Operations That Aren’t Really Manufacturing

a. The Scheme

Your supplier proposes minor assembly steps in a third country while claiming they meet the “substantial transformation” standard required to change origin.

b. What Your China Supplier Says

“We’ll assemble the final product in Vietnam—that makes it Vietnamese!”
“Final packaging and testing in Mexico qualify it as Mexican-made.”
“Adding these two components in Malaysia changes the origin.”

c. The Violations

19 U.S.C. § 1304 (False Country of Origin Marking)
19 U.S.C. § 1592 (Penalties for Fraud, Gross Negligence, or Negligence)
18 U.S.C. § 542 (Entry by Means of False Statements)

d. Your Potential Costs

Civil penalties up to the domestic value of the merchandise
Criminal fines up to $250,000 for individuals
Imprisonment for up to 2 years per violation
Mandatory duty payments with interest
Product seizures and import restrictions

e. Real-World Example

A U.S. flooring company agreed to a supplier’s plan to ship Chinese-made components to the Philippines, where workers would perform minimal assembly—attaching two parts—before labeling the finished products as “Made in Philippines.” The goal was to claim a new country of origin and avoid applicable tariffs on Chinese goods.

However, when CBP determined that the limited operations did not meet the legal threshold for substantial transformation. As a result, the company was required to pay all back duties, was assessed nearly $2 million in penalties, and was placed under a customs monitoring program that mandated enhanced documentation and oversight for all future imports.

DDP Shipping Risks: How “We’ll Pay the Duties” Leads to Customs Fraud and Legal Trouble

1. DDP Is Spreading and So Are Its Risks

One of the most common—and dangerous—new tricks is when Chinese suppliers offer to ship under “DDP” terms: Delivered Duty Paid. This is the customs fraud du jour. See Buyer Beware: The Hidden Risks of Unpaid Tariffs Under DDP.

A recent Financial Times investigatory article confirms what our international trade lawyers are seeing/hearing every day: DDP shipping has exploded in popularity, especially among small and mid-sized U.S. companies looking for any way to stay afloat in the face of high tariffs.

The article details how Chinese manufacturers are pitching DDP deals that involve underdeclared values, false descriptions, and paperwork manipulation — all in an effort to skirt U.S. tariff law. As I told the Financial Times:

“This is nothing but a tariff dodge,”
— Dan Harris, U.S. lawyer representing companies that source from China

I also warned that while U.S. companies engaging in this conduct can face federal prosecution, there’s “not much that [the U.S. government] can do” to go after the foreign suppliers orchestrating these schemes.

The problem is widespread. According to the article:

Chinese suppliers are offering to cover 100% of U.S. tariffs through DDP, often by undervaluing goods or misrepresenting product details.
In some cases, they offer to act as a “foreign importer of record”, a legal gray area that makes enforcement nearly impossible if things go wrong.
U.S. businesses are caught in a bind: compete by complying with the law and pay full tariffs, or risk legal exposure by accepting the “DDP deal” their competitors may already be using.

As one U.S. business owner put it:

“My option is to lay off my team or join in the fraud.”
— Unnamed food manufacturer quoted by the Financial Times

Another importer said that her suppliers told her not to worry about price increases due to tariffs: “We’re going to use DDP shipping and essentially under-declare the shipment.”

The article points to a systemic issue that Congress and CBP are now actively working to address, with lawmakers calling for tighter rules and more robust tools to stop abuse of the foreign importer loophole.

2. Don’t Fall for DDP (Don’t Do Prison!)

DDP may look like a lifeline, but if it’s built on fraud, it’s a legal noose.

It sounds convenient: “Don’t worry, we’ll take care of the duties.”

But in reality, what they often mean is: “We’ll falsify customs documents, underdeclare the value, misclassify the goods—and hope CBP doesn’t catch it.”

Let’s be clear: this is not a gray area. This is fraud.

And the moment your company accepts the goods, you, not your Chinese supplier, become CBP’s and DOJ’s easiest target. Whether you are the importer of record or not, you can be held legally responsible for the accuracy of the customs declarations—including whether the full and correct duties were paid.

3. The Cross-Examination No Executive Wants to Face

People will be going to prison over this.

Picture the Department of Justice cross-examining a defendant on the stand:

Federal Prosecutor: You were paying $20 per widget before the tariffs, is that correct? Defendant: Yes.

Federal Prosecutor: And after the tariffs, you started paying $22 per widget? Defendant: Yes.

Federal Prosecutor: So, your costs went up by 10%, correct? Defendant: Yes.

Federal Prosecutor: But the tariff rate on your product increased by 145%, didn’t it? Defendant: Yes.

Federal Prosecutor: 145% is more than 14 times greater than your 10% price increase, is it not? Defendant: Yes.

Federal Prosecutor: Therefore, someone—either you or your supplier—wasn’t paying the full tariff, correct? Defendant: Well, I guess so.

Federal Prosecutor: And you knew this when the goods were imported, didn’t you? Defendant: I sort of figured this, but my Chinese supplier kept telling me that this really didn’t involve me and that I had nothing to worry about.

Federal Prosecutor: You never made any effort to confirm this with a lawyer, did you? Defendant: No.

If the above makes you squirm, you have a problem, and your best solution is to speak with a lawyer now and self-report to CBP and pay what you owe. If you self-report, your penalties and criminal liability risks will likely be substantially lower than if CBP catches you months or years from now. The sooner you self-report, the lower the chances of you getting caught first.

If someone offers you a DDP shipment, it might be best to think of it as standing for one thing: Don’t Do Prison.

Your Chinese supplier having offered to “handle customs” gives no legal sanctuary in the United States. As the ultimate beneficiary of the imported goods, the burden of ensuring legal compliance rests squarely on you. CBP and the DOJ will not be lenient toward companies that passively accept suspiciously favorable DDP terms without exercising proper due diligence.

4. How to Protect Your Company from the DDP Minefield

a. Treat Unusually Low DDP Offers as Red Flags:

If the DDP price doesn’t logically reflect post-tariff cost realities, assume it’s concealing a compliance issue.

b. Demand Transparency and Control

Insist on being the importer of record or, at minimum, require full access to all customs documentation filed on your behalf—even under DDP. Engage your own U.S. customs broker. Do not rely solely on a forwarder selected by your supplier. A reputable U.S.-based broker will act in your best interests. Verify the declared value, tariff classification, and origin independently. Never blindly trust the supplier’s assertions. Audit Your Supply Chain Ruthlessly: Even under DDP, understand where your goods originate and how they are routed.

c. Seek Proactive Legal Counsel

Engage a U.S. trade attorney before problems arise with your DDP shipments. And again, if you suspect your company may have been involved in problematic DDP transactions, consult legal counsel about a voluntary disclosure to CBP, and do that now because disclosure only helps if it comes before you get caught.

Most of the time, you will be better off and spend less money in the long run, by not using DDP with your Chinese imports.

Ultimately, the responsibility for legal compliance rests with you. Therefore, recognizing the full scope of importer of record liability and resisting the deceptive shortcuts offered in Chinese supplier tariff advice related to tariff evasion schemes is not just advisable—it’s essential for your business’s survival and your personal freedom.

The bottom line: when it comes to tariffs, trust but verify—with your own U.S. legal counsel

Tomorrow’s Post — Part 2, YOU Are Legally Responsible.

In tomorrow’s post, I’ll explain in excruciating detail why you don’t need to be the Importer of Record to end up in serious trouble with CBP or the Department of Justice. We’ll look at the law, the cases, and the common misconceptions that continue to expose U.S. companies—and their executives—to penalties, seizures, and even prison.