Customs Undervaluation Fraud: Two Prices for the Same Shipment

Customs undervaluation fraud hides part of an import’s value to evade customs duties. In a double-invoice scheme, the importer pays the higher invoice and sends the lower one to its customs broker for the entry. The business pays what it owes the supplier while trying to shortchange the government. Someone in purchasing sees one price. Someone preparing the customs entry sees another.

Barco Uniforms sells apparel to restaurants and healthcare providers. In April 2025, the Justice Department joined a case started by a former employee, alleging double invoices and false entry summaries that undervalued imported garments. The government’s complaint puts the calculation plainly:

The government alleged that Barco kept underpaying even after an outside auditor flagged the duty calculations. The apparel customs undervaluation cases put both the invoices and the warnings inside the business in view.

What Is Customs Undervaluation Fraud?

Undervaluing a customs declaration reduces duty when the duty is a percentage of the goods’ value. This is an ad valorem duty. Undervaluing imported goods cuts that bill even when the tariff classification is correct.

The government loses money it was owed. A False Claims Act case can pursue that knowing underpayment. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

An honest importer pays duty on the full value while the business using a false declaration keeps the saving. The price advantage comes out of money owed to taxpayers.

How Is the Customs Value Calculated?

The starting point is transaction value: the price actually paid or payable for goods sold for export to the United States, with required additions and exclusions. The customs valuation law sets the order of methods when that value cannot be determined.

For an insider, the useful starting question is what the buyer gave the seller for these goods, including payments outside the invoice.

What Is Included in Customs Value?

Required additions include packing costs and selling commissions incurred by the buyer, assists, qualifying royalties and license fees, and proceeds from later resale, disposal or use that return to the seller. They are added only to the extent they are not already in the price and their amounts can be accurately established.

The missing value may sit in a tooling agreement or royalty contract, or a payment made for the seller’s benefit. Royalties for the imported goods that the buyer must pay as a condition of the sale belong in customs value. The invoice and the contract answer different parts of the same question.

U.S. Customs and Border Protection gives a useful example in its valuation guidance. A seller owes money to the buyer and cuts the merchandise invoice to settle that debt. The amount offset still counts toward the price of the goods. The seller has received value by clearing its debt, even though that part of the price never arrived as cash.

What Is an Assist in Customs?

An assist is something the buyer supplies free or at reduced cost for production of the imported goods. It can be a component, a mold, a die, a tool, material consumed in production, or qualifying engineering and design work performed outside the United States. Its value is allocated to the imported merchandise.

A factory that receives components free has less to charge on its own invoice. The buyer’s purchase of those components still belongs in the valuation picture. The same problem reaches the product team paying for tooling and the purchasing team supplying a foreign assembler. The customs invoice may capture only what the assembler charged.

Does Customs Value Include Freight?

International freight and insurance are excluded from U.S. customs value. That makes the amount assigned to transportation consequential: inflating it shrinks the amount declared for the goods.

Related-Party Prices and Later Adjustments

Related-party customs valuation asks whether the buyer’s relationship with the seller changed the price, or whether that price closely matches accepted values for comparable goods. The commercial relationship, comparable transactions and accounting records matter together.

A 2020 paper in the Gazi Journal of Economics and Business explains the competing incentives in related-party trade. A lower import value reduces customs duty, while a higher purchase cost can reduce taxable profit.

A price accepted for tax purposes can still leave Customs short. The paper also describes how customs and income-tax valuations can occur at different times. An accounting adjustment after importation therefore belongs beside the original entry when we examine how the company arrived at its declared value.

A first-sale valuation claim uses the factory’s price to a middleman. In its complaint against apparel seller High Life, the government alleged that the company worked backward from its desired margins and duties to dictate that price. Vendors returned revised Excel spreadsheets and factory invoices reflecting the dictated figures. The alleged problem was concrete: the declared price came from High Life’s calculation, rather than a sale negotiated between the factory and vendor.

Why Did the Broker Receive a Lower Invoice?

In a double-invoice scheme, the broker receives a lower invoice than the importer’s accounts payable department because the entry uses a different price from the one the company pays. Accounts payable pays the supplier. The broker’s invoice supplies the lower number for Customs. When the supplier payment ledger exceeds the declared customs invoice, the payments and the goods they bought are the connection that matters.

The records for the purchase and the customs entry connect the purchase order, commercial invoice, customs invoice, payment and entry summary. Separate payments for components, design or royalties can explain where additional value went. Who prepared the lower invoice, who sent it to the broker and what finance actually paid are the questions we work through with you.

The broker files the entry, but the importer of record remains responsible for the duty. Hiring a broker also leaves the importer responsible for giving that broker complete and accurate information. A royalty contract kept in purchasing or a tooling payment kept in another account can be exactly what the broker never saw.

What Evidence Is Needed to Prove Fraud?

The strongest evidence connects the price, the shipment, the declaration and the company’s knowledge. Payment records show what the business paid. The invoice and entry summary show what it declared. Instructions and warnings show who understood the difference.

The shipping documents add an independent comparison. The manifest, bill of lading, commercial invoice and entry summary come from different participants. For ocean cargo, the Importer Security Filing records the seller, buyer, manufacturer, origin, tariff number, stuffing location and consolidator before formal entry. These records can expose a product or origin contradiction alongside the valuation problem.

The commercial trail also extends beyond release from the port: customs recordkeeping reaches ordinary business documents and electronic data held by importers, filers and other participants.

External trade data can help identify transactions worth examining. Open-source information in combatting undervaluation and tax non-compliance, published in Customs Scientific Journal in 2024, examines price comparisons and mirror analysis, which compares a country’s import figures with its trading partner’s export figures.

We put the payment trail, shipment documents and outside comparisons together with you. The company’s own records show how the number was chosen and where the money went.

Customs Undervaluation Cases Show Where the Value Went

Luchiano Visconti settled for $3,641,157 in August 2022 and admitted significantly underreporting the value of imported menswear. Its practices included changing invoices and giving brokers documents that omitted part of the value. The case also described payments labeled design, preproduction, patent or service charges that formed part of the apparel price.

Eos Energy Storage agreed to a $1.02 million settlement in August 2022 and admitted undervaluation and omitted costs. The case involved components supplied for battery production, packing and transportation costs. The government’s account covered more than 60 occasions. A foreign assembler’s invoice could leave out value that the buyer had already supplied to production.

The warning in the Barco allegations has a parallel in Grosfillex. The furniture company allegedly declared Chinese aluminum furniture components as finished furniture kits to avoid antidumping and countervailing duties. DOJ alleged that the company left earlier declarations uncorrected after learning they were false. The response to the warning matters alongside the original entry.

Under the False Claims Act, the question is whether the company knew it was underpaying or acted with deliberate ignorance or reckless disregard. The examination includes earlier entries and duties left unpaid. Changing the invoice used for future shipments does not settle the earlier bill.

A customs undervaluation penalty for fraud can reach the full U.S. value of the merchandise. A False Claims Act recovery can include three times the government’s loss and additional civil penalties. The unpaid duty is the beginning of the financial consequence.

Who Can File a Qui Tam Lawsuit?

An employee, a broker or a competitor with knowledge of the scheme can file a qui tam lawsuit. Different participants see different parts of the transaction. The foreign supplier may hold the original invoice and production records. The broker may hold the instructions. A competitor knows the product and the price it keeps losing to.

In the case against Sigma, a competitor investigated after repeated price undercutting. A jury found Sigma liable for customs fraud. It sold welded outlets while describing them as steel couplings on customs forms. That classification case shows how industry knowledge can expose a contradiction in the importer’s own descriptions. For a valuation case, we connect that commercial knowledge to the prices, payments and entries.

Sources

• Justice Department: Barco Uniforms complaint announcement, April 18, 2025
• United States: intervenor complaint against Barco Uniforms
• U.S. Customs and Border Protection: Customs Value, July 2006
• Justice Department: Luchiano Visconti menswear settlement, August 11, 2022
• Justice Department: Eos Energy Storage undervaluation settlement, August 11, 2022
• Gazi Journal of Economics and Business: Transfer Pricing and Customs Valuation Overlap: Is It Possible to Bridge Two Worlds?, 2020
• Customs Scientific Journal: Open-source information in combatting undervaluation and tax non-compliance, 2024

When You Know Both Prices

If you work in finance, purchasing or logistics and know why the price paid exceeds the price declared, talk to our whistleblower experts about those two prices. We trace the missing value and work with you to build a case around what the business paid, what it declared and who chose the difference. We bring in customs fraud whistleblower lawyers who understand valuation disputes and stay beside you through the case.