Tariff fraud committed through shell companies

Trade fraud is a widespread issue in global trade, potentially costing governments billions in lost revenue annually. A prominent form of trade fraud, tariff fraud refers to the use of deceptive practices to evade tariffs levied during the import of goods to another country. Closely related, customs fraud involves evading import and export duties at borders, ports, and airports.  

 

Tariff and customs fraud in the United States 

In 2025 alone, US Customs and Border Protection has uncovered dozens of tariff and customs evasion cases, including US government charges under the False Claims Act against a jewelry company accused of evading $86 million in customs duties and tariffs. 

In August 2025, the US formally launched the Trade Fraud Task Force—a collaboration between the Departments of Justice and Homeland Security. The task force’s goal is to pursue enforcement actions against those who seek to avoid tariffs and other duties. The False Claims Act also allows private citizens to file qui tam whistleblower suits against businesses alleged to have defrauded the government.  

Tariff rates can change in both the short and long term. For example, many businesses with a multinational footprint and foreign exporters were impacted by tariffs in 2025. These broad, unilateral tariffs, targeting global imports and imposed under the authority of the International Emergency Economic Powers Act, were recently struck down by a US Supreme Court ruling. Longer-term changes to US trade policy—potentially influenced by domestic policy shifts and free trade agreement renegotiations—may create certain exposure to tariff and customs fraud.   

 

How shell companies can be used in tariff and customs fraud 

Shell companies are legal entities that often exist primarily on paper, with little or no physical presence, identifiable employees, operational history, or tangible assets. While shell companies can have legitimate purposes, they can also be used to obscure the true parties in a trade transaction, making it harder for customs authorities and law enforcement to determine the actual origin of goods and assess the appropriate tariff rate. 

Fraud typologies involving shell companies might include the following hypothetical scenarios: 

 

Falsifying country of origin  

Shell companies may be incorporated in countries with preferential tariff rates under trade agreements to transship goods and falsify certificates of origin. Consider the following: goods produced in a country subject to high tariffs are shipped to a shell company in a country subject to low tariffs. The shell company in this scenario documents the goods as originating from its jurisdiction, falsifying the certificates of origin and altering the shipping documentation. It then re-exports the goods, which have been falsely qualified to receive a lower tariff rate. Re-exports may be in the form of route diversions or round trips. 

 

Undervaluing or misclassifying shipments 

Shell companies may issue commercial invoices that misstate the value or classification of goods to qualify for Harmonized System tariff codes with lower duty rates. 

For example, say a shell company set up in the import country acts as a customs broker and importer of record. It alters the original invoice from the foreign seller to show artificially low prices or may declare one type of good as another. When the true, higher value and/or classification is recorded elsewhere, this is known as “dual invoicing.” 

In transactions between related parties, a shell company owned by the same party as the buyer could potentially act as the “seller,” charging below-market prices to reduce customs duties. 

 

False end-use or special program claims 

Shell companies may be set up to present themselves as qualifying entities for tariff exemptions based on goods’ intended use. In an example scenario, goods could be claimed for tariff exemptions if they are for government contractor use; manufacturing inputs; educational, scientific, and cultural enrichment; or national emergency. Through these exemptions, shell companies could be used in an attempt to smuggle goods that may appear to but do not truly meet the exemption criteria.  

 

In-bond payment evasion 

Bad actors might use shell companies to evade a larger portion of tariff and customs duties. Consider an instance where, for shipments undergoing transshipment, either between ports or modes of transportation, a carrier might obtain a customs bond to secure goods while they are in transit to their final destination. The bond may represent less than the full tariff amount and be issued before customs authorities appraise goods and collect duties. In some schemes, the carrier shell company could deactivate or fold before paying the duties, leaving the tariffs unpaid.  

 

Red flags for tariff fraud through shell companies 

 

When conducting due diligence or trade reviews, potential indicators of shell company involvement could include:  

 

• No verifiable physical address  
• No active operations nor significant assets 
• Recent incorporation with limited operational history 
• Frequent changes in corporate structure or ownership 
• Trade routes that that do not align with logical or efficient paths 
• Discrepancies in documentation, such as inconsistent invoices or certificates of origin  
• Registration in jurisdictions known for weak regulatory oversight or tax haven status 
• Presence of unnecessary intermediaries that contribute no clear value to the transaction, potentially serving only to obscure the true flow of goods or funds 

 

Although shell companies may serve legitimate functions, they have been used—and will likely continue to be used—in trade fraud. 

 

Tools to Spot Tariff and Customs Evasion 

US customs and border authorities, their counterparts in other jurisdictions, as well as international trade organizations, can work to strengthen detection of shell company-based trade fraud through enhanced due diligence. Verifying a company’s identity, ownership, operational activity, and trade behavior can help identify entities that may be involved in fraudulent tariff and customs duties evasion schemes. Relevant data points that can help build evidence of such shell companies include corporate registration details, ownership structures, beneficial owner information, trade patterns, and financial and operational records.   

 

Moody’s Data-Driven Solutions 

Moody’s offers entity verification and shell company indicator tools that can help investigators identify potential risks in trade transactions. These data-driven solutions can support government law enforcement and national security agencies in closing information gaps and supporting compliance with trade regulations.  

For more information about Moody’s solutions for identifying potential shell companies involved in trade or other fraudulent schemes, please get in touch with the team at any time. 

This content is for informational purposes only and does not constitute legal, financial, compliance, or other professional advice. Please consult with a qualified professional for specific legal, financial, compliance, or other professional advice. For more terms and conditions pertaining to Moody’s products and services, refer to the disclaimer on Moody’s website. 

This blog was updated on Feb 20, 2025, to reflect the US Supreme Court ruling on the imposition of tariffs under the International Emergency Economic Powers Act.