DOJ Frauds Unit Tasked With Pursuing Evasion of Trump Tariffs (1)

The Justice Department is enlisting a unit versed in investigating financial fraud schemes to prosecute companies evading US tariffs, as President Donald Trump looks to cement an agenda using foreign duties to help revive domestic manufacturing.

The effort spotlights what could be a critical component in Trump’s push to overhaul global trade. As taxes on imports from China and other nations balloon, so do the incentives to skirt the law.

Several agencies help enforce US tariffs, with US Customs and Border Protection playing a key role in assessing shipments at US ports. The DOJ wants to play a bigger part, with its criminal division identifying trade fraud as a top priority and now assigning its market integrity and major frauds unit to pursue such cases.

Tariff evasion was responsible for as much as $90 billion of the estimated $240 billion pullback in US imports from China following the first Trump trade war with China in 2018, a Goldman Sachs report found. The latest escalations are expected to accelerate illicit schemes, testing enforcers’ ability to adequately police Trump’s tariff regime.

“It’s like stopping a tidal wave rather than putting out a dam in one river,” said Caroline Freund, a dean of the school of global policy and strategy at the University of California, San Diego.

The major frauds unit—known for its work on procurement fraud and market manipulation—is shifting resources to trade, according to a DOJ official, who noted the unit is eyeing cases involving long-running frauds, senior executives, and large volumes of alleged losses from unlawful tariff evasion schemes.

The unit, which had roughly 35 lawyers in 2024 and is led by Lucy Jennings, a former prosecutor in Los Angeles, is also expected to add “significant personnel” from a consumer protection branch that will be transferred to the criminal division as part of a reorganization, Matt Galeotti, head of the Justice Department’s criminal division, said.

That larger group, which will be renamed the market, government, consumer fraud unit, will focus on trade fraud and other white-collar crimes affecting investors and consumers, Galeotti noted.

“We’re responding to the call of law-abiding businesses that don’t want to—and should not—be put at a competitive disadvantage for paying their lawful share,” Galeotti said. “The criminal code provides tools for prosecutors tailored specifically to this problem.”

China Transshipment

Tariffs are applied based on factors including the item and their country of origin. Evasion techniques often involve misclassifying or undervaluing goods.

Other common tactics include firms transshipping—rerouting—goods to a new country and relabeling the country of origin to take advantage of lower tariffs. Estimates published by the Centre for Economic Policy Research say $27 billion worth of Chinese goods were transshipped to the US in 2023.

Trade lawyers say they’re getting questions from clients more frequently about delivered-duty-paid, a scheme where exporters takes responsibility for shipment costs. Unlike other methods, they said, it isn’t inherently unlawful but can be easily manipulated.

Responding to those trends could take significant resources in an environment where tariffs on Chinese imports are over 50% even after a truce lowered them from their peak of 145%.

Trump also in recent days announced new tariffs on several trading partners, including a 40% levy on goods deemed to be transshipped through Vietnam, although he again delayed the increased duties’ start date to Aug. 1.

Even so, the DOJ will face some limitations in its ability to deter and prosecute such unlawful schemes.

“How are you going to go after the Chinese company?” said Dan Harris, a partner at Harris Sliwoski LLP who represents US importers. “China’s not going to help you. They can very much get away with it. That’s why the DOJ needs to go after the Americans colluding.”

‘Why Can’t We Move Faster?’

Tipsters could prove decisive, as well as a new DOJ voluntary disclosure policy designed to offer more benefits for companies that disclose their wrongdoing.

The department has already started to receive whistleblower tips and voluntary disclosures linked to trade fraud, the DOJ official said.

Jason Kenner, the leader of Sandler, Travis & Rosenberg PA’s litigation practice, said he’s also seeing an uptick in civil investigative notices from the DOJ on trade, signaling a departmentwide focus on the issue.

Kenner, who worked in the DOJ’s international trade office during the first Trump administration, said the new efforts inside the criminal division build on a trade fraud task force created during Trump’s first term designed to better streamline investigations and partnerships with customs officials.

That task force, which remains housed in the DOJ’s civil division, helped initiate 70-plus investigations, former Attorney General Merrick Garland told Congress last year.

But critics, including members of the House Select Committee on China, argue that US enforcement is falling short, hurting US companies that follow the law as well as broader efforts to decouple from China.

“The question is, why can’t we move faster on this,” said David Rashid, the executive chairman of the US autoparts maker Plews & Edelmann, who began pressing Washington for stronger enforcement after accusing a Chinese rival of skirting tariffs implemented in 2019.

“There isn’t a week that goes by where I don’t take a phone call from someone who’s going through some sort of trade fraud situation and asking me what they should do,” he said.

Insufficient enforcement contributed to a culture of “trade negligence,” Cameron Roberts, a trade lawyer at Roberts & Kehagiaras LLP, said. “It’s like speeding on the 405.”

But he also argued the drumbeat of tariff announcements sows chaos in a complex area of law.

Questions remain over how effective enforcement alone can be, as well as how planned budget cuts and the redirection of law enforcement resources to immigration will affect other initiatives. Success, Kenner noted, is also dependent on customs officers’ “ability to spot” new trends tied to rising duties.

But prosecutors will want to make someone “the poster boy for bad behavior,” Roberts said. “And we’ll see what happens.”