Customs violations are a major risk for businesses of all sizes. From multinational corporations to mid-sized manufacturers, errors in classification, valuation, and documentation can lead to significant fines. It doesn’t matter whether these errors are intentional – or not.
In this article, we illustrate where companies often go wrong, and how proper management of your trade documents can help you avoid similar mistakes.
What are the common customs compliance errors that lead to a violation?
Whether errors are intentional or not, they tend to fall into the following 5 categories of customs violations:
- Incorrect classification: Assigning the wrong HS code or description to goods to pay lower duty rates.
- Undervaluation: Intentionally or unintentionally declaring a value lower than the actual price paid, or failing to declare “assists” (like raw materials provided for free).
- Sanctions violations: Shipping goods to restricted countries or denied parties, direct or through a middleman.
- Inaccurate documentation: Discrepancies between commercial invoices and customs declarations, missing certificates of origin, or incorrect international trade documents.
- Tariff engineering: Modifying a product temporarily (like adding seats) specifically to bypass duties, without a
Ultimately, avoiding customs penalties comes down to transparency and management across your documentation efforts. However, as we’ll see, this is easier said than done.
5 examples of multi-million dollar fines for customs violations
The high stakes of global trade compliance come into focus when we look at real-world cases. From technical misclassifications and missing certificates and approvals, to strategic tariff engineering, the following five cases highlight just how vigilant customs authorities are:
- Ford Motor Company — US: In one of the largest customs penalties in recent history, Ford agreed to pay $365 million to settle allegations that it misclassified its “Transit Connect” cargo vans. The vans were imported from Turkey with temporary rear seats to classify them as “passenger vehicles” (subject to a 2.5% duty). After importation, the seats were immediately removed to sell them as cargo vans.
- Satisloh — US: A fine of $3,320,425 was collected by U.S. Customs and Border Protection (CBP) for entry violations. It was to resolve alleged customs entry violations under 19 U.S.C. §1592, which refers to false or misleading customs entries, such as incorrect descriptions or classifications. Even if not fraudulent, incorrect entries can trigger very large §1592 penalties; so strong invoice and declaration controls and post-entry reviews matter.
- Access USA Shipping, LLC — US: The company faced making a $27 million settlement for export-control evasion charges. It covered numerous charges including evasion and unlicensed exports. It highlights how package-forwarding, consolidation, and re-export activity carry heavy risk for EAR violations and “evasion” allegations.
- Samsung — India: The Indian branch of Samsung faced a large tax demand for dodging import duties, totalling $601 million in back taxes covering tariff evasion on imports of telecom equipment. It shows how local structuring or valuation that reduces duties can provoke very large retrospective assessments.
- Roseline Logistics — United Kingdom: UK tribunal cases and First-tier Tribunal decisions highlight that customs service providers or declarants can be held jointly and severally liable for import VAT and customs debts and that HMRC post-clearance C18 demands have been upheld in significant sums (examples show demands exceeding £1m in aggregate).
Collectively, these cases are a reminder that organizations must prioritize accurate classification, valuation, and end-user screening before goods ever cross a border.
Smaller companies commonly get hit with fines too
While the billion-dollar fines against multinational giants make the front page, small and mid-sized businesses are arguably the most frequent targets of customs enforcement, often due to getting items such as a certificate of origin wrong. Consider the following examples:
- Alexis: A popular womenswear brand paid $7.6 million to settle False Claims Act allegations that it failed to declare the value of “assists”. These were things like fabric, beads, and trim that were provided free of charge to their foreign manufacturers. The company attempted to reduce its unit costs to sidestep customs charges, but it triggered a multi-million dollar audit.
- Córdoba Music Group: Falling foul of a “Distributor Loophole” myth, this guitar and ukulele manufacturer paid over $41,000 for shipping its instruments to a distributor in the UAE. The problem? The company knew the goods were ultimately destined for retailers in Iran. In this instance, the company tried to insulate itself from sanctions by using a middleman, but companies that know their goods will end up in a sanctioned country are still liable for a violation.
- Precision Cable Assemblies: This mid-sized manufacturer agreed to a $10 million settlement for an alleged scheme where their Chinese suppliers provided two sets of invoices. No surprise here, one had a lower-value, essentially a fake invoice for US Customs (to lower taxes) and a higher-value real invoice for payment.
It didn’t work – after all, customs are on to the oldest trick in the book – and this is the easiest form of fraud for auditors to detect.
This shows how trying to skirt customs rules just won’t work, and that skipping intensive due diligence is unwise.
How your business can avoid paying customs penalties
The most effective way to avoid penalties is to treat your documentation as your primary line of defence. In international trade, accurate records facilitate shipping and serve as the legal evidence of your compliance.
This content is an excerpt reproduced from the FITTskills Global Value Chain course.
Document management is a supporting function of global value chains and helps avoid customs charges. Your documents are evidence and proof of your organizations’ business activities from when they are formed to when they close their doors, and sometimes beyond.
An organization’s ownership, decisions, transactions, personnel, finances, taxes, and compliance to regulations are all documented, filed and stored.
In international trade, documents are critically important as proof of compliance and due diligence.
Exporters and importers need to ensure the laws and regulatory requirements of two or more countries are met and that the increased exposure to risk (e.g. financial, political, logistical risk) resulting from complexities of international trade transactions is mitigated.
Certificates and approvals
Besides commercial and transport documents, exporters must organize certificates, documents and approvals that will satisfy foreign customs as to the value, country of origin, weight, quality, and safety of the goods being shipped and demonstrate approval to trade controlled goods.
These certificates and approvals required by customs are dependent on the type of goods being shipped (e.g. food, plant material, electrical tools, used clothing), and the regulations of the country accepting the goods.
It is important to ensure that all the certificates and approvals are in place prior to reaching the border to prevent delays or extra costs, e.g. storage.
Provision of such documents should be specified as one of the terms of a sales agreement/contract. Importers need to ensure they inform exporters of the importing requirements so that goods can meet the standards and proper certificates can be obtained.
The certificates and approvals include:
- Certificates of origin
- Importer/exporter licences and permits
- Packing declarations
- Consular invoices
- Certificates of quality and safety
- Importer/exporter declaration
Learn everything you need to manage your supply chain including customs compliance, inventory management, procurement, and international distribution. Explore the Global Value Chain online course.
Actionable steps to expand your compliance toolkit
Robust documentation is the foundation of compliance, but external expertise and specialized tools can help mitigate risks.
Consulting a licensed customs broker or freight forwarder is a good start. These professionals are authorized by customs authorities to manage the classification, valuation, and entry process on your behalf – and can make sure your commercial invoices and declarations are fully compliant. On an ongoing basis, you could also consider:
- Using classification resources: Consider both the World Customs Organization (WCO) provides the global Harmonized System (HS) framework.
- Binding rulings: Where uncertainty prevails, consider applying for Binding Rulings from customs authorities, which provide a legally binding determination of the correct HS code for a specific product.
- Implement global trade management software: GTM software centralizes trade data and automatically screens your customers and partners. It reduces manual error in sanctions compliance and ensures all required documentation is generated correctly for each shipment.
Do not assume compliance ends at the border.
Regularly audit a sample of your import and export entries to proactively catch internal errors in classification or valuation before an official audit by customs or a retrospective tax assessment is issued.
Finally, consider consulting with a trade attorney for high-stakes or complex legal issues like tariff engineering, sanctions evasion concerns, valuation disputes (e.g., correctly declaring “assists”), or setting up your internal compliance program.
The bottom line: documentation is your best defence
Our examples demonstrate that customs authorities are vigilant and that the costs of non-compliance are high, regardless of your company’s size.
Certainly, don’t attempt to circumvent customs rules. The authorities have seen it all, and they’ll likely catch any attempts to go around cross-border trade rules.
Pleading ignorance of misunderstood rules or a lack of due diligence won’t work either. Ultimately, a strong compliance strategy relies on strong internal organization and documentation.
By treating your commercial invoices, proofs of origin, and safety approvals as critical business assets rather than just paperwork, you significantly reduce the risk of audits.
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