Key Notes:
- Tariff undervaluation may result in criminal charges.
- False country of origin may result in government procurement-related fraud charges, not only tariff-related fraud charges.
The Department of Justice (DOJ) in September announced the unsealing of an indictment charging two Colorado companies and three executives with a multiyear scheme to sell Chinese‑made forklifts to the U.S. government while falsely representing that the equipment was manufactured in the U.S. and compliant with the Buy American Act (BAA) and the Trade Agreements Act (TAA). The charges span 27 counts, including conspiracy to commit wire fraud, wire fraud, making materially false statements, and conspiracy to defraud the United States. The investigation was led by the DOJ Antitrust Division’s Procurement Collusion Strike Force in coordination with a cross-agency team including the U.S. Army Criminal Investigative Division, Defense Criminal Investigative Service, U.S. Air Force Office of Special Investigations, U.S. General Services Administration Office of Inspector General, U.S. Department of Homeland Security Office of Inspector General, Department of Veterans Affairs Office of Inspector General, and Defense Contract Audit Agency.
According to the indictment, the defendants imported forklifts from a Chinese manufacturer, rebranded them as a U.S. product line, removed markings indicating Chinese origin, and affixed data plates with American flags and a Denver “final assembly” claim. They then furnished fraudulent Manufacturer’s Certificates of Origin. The defendants allegedly also certified in the federal System for Award Management (SAM) that the forklifts were BAA/TAA compliant and submitted electronic invoices, falsified through the government’s Wide Area Workflow system.
The indictment further alleges that the defendants executed an undervaluation scheme at the border to evade customs duties, fees, and tariffs by means of falsified commercial invoices reflecting approximately 70% of actual value, resulting in over $1 million in unpaid assessments.
This case highlights that companies face criminal exposure for inaccurate customs valuations. For federal contractors, the case also demonstrates that criminal exposure for procurement fraud can flow from country-of-origin misrepresentations.
Key Takeaways
Customs valuations are material facts and the government has become increasingly focused on representations in this area that may impact tariff collection. Knowingly misdescribing goods or using incomplete or inaccurate commercial invoices to reduce tariff responsibility is a basis for criminal sanction. Companies should train personnel to assess valuation information obtained from third parties to ensure it completely incorporates required elements of customs valuation and establish monitoring tools to identify red flags such as inconsistent valuations across a category of goods or outlier valuations that cannot be reconciled with underlying data.
Country‑of‑origin representations are material, enforceable, and traceable for both customs purposes and government procurement certifications. The BAA and TAA are not mere marketing labels; they are statutory and regulatory preconditions for awards, as provided in FAR Part 25 and the DFARS, making truth and accuracy in identifying country of origin paramount. Assertions about “place of manufacture,” “final assembly,” and designated country status must be backed by auditable records and evidence. Removing foreign markings, re‑plating equipment, or relying on superficial assembly that does not “substantially transform” an article to imply U.S. origin violates these requirements and, as this indictment shows, carries criminal penalties when such assertions are knowingly false or misleading. Automating processes around country-of-origin determinations and avoiding manual data entry can minimize the risk of mismarking and remove the potential for more serious knowing violations.
Companies should also be careful to ensure SAM certifications and invoices accurately reflect the subject goods. While inadvertent errors likely would not result in criminal liability, knowing misrepresentations in invoices, proposals, or certifications can carry criminal penalties, including under 18 U.S.C. § 1001 (making materially false statements) and 18 U.S.C. § 1343 (wire fraud). In fact, this indictment demonstrates that each electronic invoice or email containing a misrepresentation can constitute a separate criminal violation as either, or both, wire fraud or a materially false statement. Training personnel and monitoring documentation to identify and prevent inaccurate certifications or incorrect invoices are essential pieces of a strong compliance program.
It is critical for companies to carefully analyze entry data and government representations and certifications for accuracy and completeness. Missteps along the way or at the border can taint downstream contracts and lead to forfeiture, suspension, debarment, and parallel civil and criminal liability.
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