Transshipment Customs Fraud: How CBP Catches It and What It Costs

Key Points

• Illegal transshipment, routing goods through a third country to disguise their true origin, is a federal offense that can trigger antidumping, countervailing duty, and Section 301 liability for importers even when they had no knowledge of the scheme.
• CBP's primary enforcement tool is the Enforce and Protect Act, codified at 19 U.S.C. 1517, which allows CBP to open an Evasion investigation within 15 business days of receiving an allegation and to issue interim measures, such as enhanced bonding or suspension of liquidation, quickly thereafter.
• An EAPA determination of evasion triggers retroactive duty assessment on all unliquidated entries covered by the investigation, plus potential penalties under separate fraud and marking statutes.
• Unwitting importers are not automatically excused: the importer of record bears legal responsibility for accurate entry data, and "I didn't know" is a mitigating factor in penalties, not a complete defense.
• Proactive supply-chain due diligence, including factory audits, production records, and country-of-origin analysis, is the most effective way to reduce exposure before a shipment arrives.

On this page

1. What transshipment customs fraud is and why it happens
2. How CBP detects origin fraud: targeting, data, and investigation tools
3. The EAPA process under 19 U.S.C. 1517
4. Exposure for importers, including unwitting ones
5. How origin and substantial transformation intersect with evasion claims
6. What importers should do
7. Key references

Illegal transshipment customs fraud occurs when goods manufactured in a high-tariff country are routed through a second country, often with minimal or cosmetic processing, so that the entry documents declare a false, lower-duty country of origin. CBP detects it through a combination of trade data analytics, confidential allegations, foreign factory verifications, and inter-agency information sharing. Importers found to have entered goods through transshipment face retroactive duty bills, potential civil penalties, and, in the most serious cases, criminal referral.

The links in this article go to primary documents: the statutes, Federal Register notices, and official CBP guidance pages themselves. Read the source.

What transshipment customs fraud is and why it happens

Transshipment, in the neutral sense, simply means goods that pass through an intermediate port or country on their way to the final destination. That is entirely legal. Illegal transshipment occurs when the intermediate stop is used to obscure the true country of origin, usually to evade antidumping (AD) or countervailing duties (CVD), Section 301 tariffs on goods from China, or Section 232 tariffs on steel and aluminum.

The economic incentive is straightforward. When AD/CVD orders or Section 301 tariffs add 25 percent or more to the cost of goods, routing a shipment through a country not subject to those duties, and declaring that country as origin, can eliminate the additional duty burden entirely. Common transshipment hubs have shifted over time as enforcement has intensified in different corridors, but the underlying logic remains the same.

Common patterns CBP has identified

• Minimal processing: Goods are shipped to a third country, repackaged or relabeled, and re-exported with new documentation claiming origin in that country.
• Incomplete assembly: Component kits are assembled in the transshipment country with labor inputs too small to constitute a substantial transformation, yet origin documents claim the assembly country.
• Fraudulent certificates: Bills of lading, certificates of origin, and supplier declarations are fabricated or altered to reflect the intermediate country.
• Shell companies: Layers of intermediary trading companies obscure the actual manufacturer and country of production.

How CBP detects origin fraud: targeting, data, and investigation tools

CBP uses multiple overlapping mechanisms to identify suspicious shipments before and after they enter U.S. commerce.

Automated targeting and trade data analytics

CBP's Automated Targeting System (ATS) scores every entry for risk before release. Factors that elevate risk scores include anomalous price-per-unit data, routing patterns inconsistent with declared origin, importer histories, and supplier relationships flagged in prior enforcement actions. Trade data from the Census Bureau and foreign trade partners is layered in to identify statistical outliers, for example, a country suddenly exporting large volumes of a product it has little manufacturing capacity to produce.

Allegations and the EAPA intake process

Any U.S. manufacturer or interested party can file a confidential allegation with CBP alleging evasion of AD/CVD orders. Under 19 U.S.C. 1517, CBP must determine within 15 business days whether the allegation contains sufficient information to open an investigation. This low threshold means a well-documented allegation by a domestic competitor can trigger scrutiny of an importer's entire entry history.

Inter-agency intelligence sharing

CBP works closely with Immigration and Customs Enforcement Homeland Security Investigations (HSI), the Commerce Department's International Trade Administration, and foreign customs administrations. Information from AD/CVD verification audits conducted by Commerce is routinely shared with CBP. Foreign government certifications of origin can be, and are, verified against factory production records.

Foreign factory verifications

CBP has authority to conduct or request verifications at foreign manufacturing facilities. If a foreign government or producer refuses to cooperate, CBP may treat that refusal as adverse evidence and apply adverse inferences, which typically results in a finding of evasion.

The EAPA process under 19 U.S.C. 1517

The Enforce and Protect Act, enacted as part of the Trade Facilitation and Trade Enforcement Act of 2015 and codified at 19 U.S.C. 1517, created a formal, time-bound process for investigating evasion of AD/CVD orders. The key milestones are:

• Allegation intake: CBP decides within 15 business days whether to open a formal investigation.
• Interim measures: Once an investigation opens, CBP may impose interim measures, including requiring a single-entry bond or continuous bond at elevated rates, suspending liquidation of entries, or requiring the importer to provide additional information. These measures can be put in place within 90 days of initiation.
• Initial determination: CBP must issue an initial determination of evasion or no evasion within 300 days of the investigation start date, with a possible 60-day extension for complex cases.
• Administrative review: The importer and the alleging party may request administrative review of the determination within CBP's Office of Trade.
• Judicial review: Final determinations are reviewable by the U.S. Court of International Trade.

A finding of evasion means CBP will instruct Commerce to determine the applicable AD/CVD rate for all unliquidated entries within the investigation scope, and CBP will then liquidate those entries at that rate. The retroactive bill can cover months or years of entries and can be financially devastating.

It is important to note that EAPA covers AD/CVD evasion specifically. Origin fraud targeting Section 301 tariffs is pursued through different enforcement channels, including penalty cases under the customs fraud statute and seizure authority, but the investigative tools, trade data targeting and foreign verifications, are essentially the same.

Exposure for importers, including unwitting ones

Perhaps the most important practical point for compliance teams: ignorance is not a complete defense.

The importer of record is legally responsible for the accuracy of every data element in the entry, including the declared country of origin. If a supplier or freight forwarder provides fraudulent origin documentation and the importer files that documentation with CBP without adequate verification, the importer can face:

• Retroactive duty assessment: All back duties on unliquidated entries, plus interest.
• Civil penalties: Penalties for fraud, gross negligence, or negligence in connection with entry, depending on the importer's level of culpability. Penalty amounts vary by culpability tier.
• Marking duties: If goods are also improperly marked as to country of origin, a 10 percent ad valorem marking duty may be assessed under 19 U.S.C. 1304.
• Loss of prior disclosure benefits: An importer who discovers a transshipment issue and self-discloses before CBP initiates a formal inquiry may receive substantially reduced penalties. Waiting until after CBP acts forfeits this benefit.

Unwitting importers who exercised genuine due diligence and were deceived by sophisticated fraud schemes will generally receive more favorable treatment in penalty mitigation. The key is documented due diligence, not a verbal assurance from a supplier.

How origin and substantial transformation intersect with evasion claims

Many transshipment disputes turn on whether the processing performed in the intermediate country was sufficient to constitute a substantial transformation, meaning the creation of a new and different article of commerce with a distinctive name, character, and use. If it was, the intermediate country is the legitimate country of origin. If it was not, the goods retain the origin of the source country and any applicable duties apply.

For a deeper explanation of how CBP applies the substantial transformation test, see our guide: Substantial Transformation Test: Country of Origin Explained. Similarly, importers claiming free-trade-agreement treatment, such as USMCA, must ensure their certification of origin is supported by accurate production data, as described in USMCA Certification of Origin: Data Elements and the One-Year Refund Window.

CBP's analysis in an EAPA or penalty case will examine production records, bills of materials, labor inputs, value-added calculations, and physical characteristics of the goods before and after processing in the intermediate country. Importers whose suppliers cannot produce these records are at serious risk of an adverse determination.

What importers should do

• Conduct supply-chain due diligence before the first shipment. Request and review factory profiles, production capacity data, bills of materials, and prior audit results from every new supplier. Document your review. A supplier unwilling to provide basic production information is a significant red flag.
• Build origin verification into your contracts. Require suppliers to warrant the country of origin in writing, to allow CBP or your agent to conduct factory visits, and to indemnify you for costs arising from origin misrepresentation. These provisions do not eliminate legal exposure but they create a paper trail demonstrating good-faith conduct and may support mitigation claims.
• Monitor your entry data for anomalies. Unusual routing, pricing that does not reflect the declared country's production costs, and documentation inconsistencies are warning signs. Catch them before CBP does and consider whether prior disclosure is appropriate.
• Act promptly if you discover a problem. If internal review reveals possible transshipment in past entries, consult qualified counsel and evaluate prior disclosure to CBP before the agency initiates its own inquiry. Early disclosure is the single most effective way to reduce penalty exposure.

Key references

• 19 U.S.C. 1517: The Enforce and Protect Act, CBP's statutory authority to investigate and determine AD/CVD evasion.
• CBP EAPA program page: CBP's official overview of the EAPA investigation process, interim measures, and how to file an allegation.
• 19 U.S.C. 1592: The customs fraud and penalty statute governing negligence, gross negligence, and fraud in connection with entry.
• 19 U.S.C. 1304: Country-of-origin marking requirements and the 10 percent marking duty for non-compliant goods.
• Federal Register: Search for EAPA determination notices and AD/CVD order publications.
• Harmonized Tariff Schedule of the United States: Official HTS, including applicable Chapter 99 provisions for Section 301 and Section 232 tariffs.
• CBP.gov: CBP trade enforcement guidance, CSMS messages, and importer resources.