United States v. Esquijerosa, a recent guilty plea to federal smuggling charges in the Southern District of Florida, is a reminder of the tools available to the incoming administration to aggressively enforce tariffs and other key elements of trade policy. In light of the administration's commitment to increased use of tariffs, importers and related companies are advised to start thinking carefully about how to minimize any potential risks of civil and criminal exposure for tariff evasion.

In Esquijerosa, the U.S. Department of Justice (DOJ) brought criminal smuggling charges against a Miami businessman who evaded tariffs on Chinese truck tires by shipping them through countries such as Canada and Malaysia and representing to U.S. Customs and Border Protection (CBP) that the tires originated in those countries. The defendant was able to avoid paying CBP nearly $2 million through the scheme. After an investigation by Homeland Security Investigations (HSI), supported by CBP's Automotive and Aerospace Center of Excellence and Expertise, the defendant pleaded guilty to conspiracy to smuggle by presentation of fraudulent invoices to CBP, in violation of 18 U.S.C. § 371, and is facing up to five years in prison. 

Criminal enforcement actions like Esquijerosa are part of a broader trend of increased scrutiny on importers by regulatory and law enforcement officials. In September 2023, members of the House of Representatives Select Committee on the Chinese Communist Party wrote a letter to Department of Homeland Security (DHS) Secretary Alejandro Mayorkas expressing concerns that certain importers of Chinese-made goods were moving production to Thailand to avoid U.S. tariffs. A few months later, DHS executed a search warrant at the Ohio-based U.S. subsidiary of Chinese auto parts manufacturer Qingdao Sunsong, apparently seeking evidence of efforts to evade U.S. tariffs.

As these cases show, where the facts and circumstances warrant, DOJ will pursue criminal investigations against importers who intentionally smuggle material into the U.S. in violation of governing trade restrictions, including for smuggling (18 U.S.C. § 545), criminal False Claims Act (FCA) violations (18 USC § 287), or false statements made in connection with representations to federal agencies (18 USC § 1001). Such cases can originate from whistleblower claims, including whistleblower suits filed under seal under the FCA, as well as information that DOJ obtains in investigations of other companies that may be cooperating with authorities in an effort to obtaining leniency. Criminal investigations can also be triggered by disclosures to CBP. In particular, DOJ may become involved if a company voluntarily discloses customs violations that result in the underpayment of customs duties and fees in violation of 19 USC § 1592. Although a voluntary disclosure can be the basis for reduced penalties, CBP guidance also confirms that if a prior disclosure "gives CBP reason to believe that a criminal violation has occurred," CBP is "legally obligated" to refer that information to the appropriate U.S. Attorney's Office for investigation and possible prosecution. Importantly, target companies may not be aware when a criminal investigation is underway – DOJ will often begin an investigation by gathering evidence covertly before ultimately determining whether to proceed with a request letter, subpoena for documents, a search warrant or other measures. 

The last several years have likewise seen a notable increase in civil customs fraud enforcement under the FCA, with a corresponding increase in settlement amounts. These settlements include "reverse false claims" cases in which the defendants were alleged to have knowingly prevented the government from receiving money it was owed, including through evasion of tariffs by underreporting the value of imports, misclassifying goods, or misrepresenting the country of origin. In January 2023, an underreporting case settled for $22 million, a record high. More recently, in August 2024, DOJ announced two more FCA settlements, of $7.6 and $10 million dollars, both of which concerned undervaluation of imported goods in order to avoid customs duties and tariffs. 

As tariff enforcement continues to increase, companies should assess their risk profile and consider proactively taking steps to prepare, including reviewing their trade compliance programs, document retention and communication policies, and protocols for response to a subpoena or search warrant. Companies that are subject to enforcement activity should conduct an internal investigation to ascertain the scope of potential exposure and evaluate remedial measures, including the possible benefits of making voluntary disclosures to authorities.

Miller and Chevalier advises clients on their needs related to trade compliance, trade policy, and criminal defense. We regularly defend companies in civil and criminal customs enforcement proceedings, and import/export seizures. Similarly, when a company independently discovers an error in its import transactions, we have experience providing assistance in evaluating the matter and preparing voluntary disclosures to CBP. To learn more about our Customs & Import Trade practice, click here.

For more information, please contact:

Joshua Drew, jdrew@milchev.com, 202-626-5811

Richard A. Mojica, rmojica@milchev.com, 202-626-1571

Bradley E. Markano, bmarkano@milchev.com, 202-626-6061

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