This year has not been for the faint of heart. In fact, the past few years have been punishing for retailers, and with no end in sight, confusion and uncertainty continue to wreak havoc on executives. Tariffs have sucked the air out of the room and rightly so and there’s another headline about to cause even greater disruption for many wholesalers and retailers…
Last week, HGI reported “The Trade Enforcement that Could Crush Your Business,” which I’m sure will be just the first in a long conversation about trade enforcement. If you missed that article, I highly suggest you go back and read about the changes coming to customs regulations and why things are heating up.
For me, this really is nothing new. I have voiced my concerns over the gross negligence and carefree way companies have utilized DDP and foreign brokers to circumvent and reduce duty liability many times in the past. And now it appears the game may be up and the consequences just starting.
Increased tariffs and rising business costs have tempted many executives to offset skyrocketing expenses by any means necessary. While much of it may be legal, there’s no doubt that there’s been a surge in fraudulent behavior—and much of it is hiding in DDP transactions.
If you’ve been in this business long enough, you’ve heard the offer from a foreign supplier, often in China, and it sounds harmless: “Don’t worry, we’ll handle the duties.” On the surface, Delivered Duty Paid (DDP) is a convenience to spare you the hassle of customs paperwork. But too often, those offers really mean: “We’ll underdeclare the value, misclassify the goods, falsify the origin, and hope Customs doesn’t notice.”
“The hard truth is that a significant portion of this industry was built on a business model that relied, quietly but consistently, on cutting corners in customs compliance.”
—Edward Hertzman, Hertzman Global Intelligence
That’s not efficiency. That’s fraud. And when the goods land, CBP’s easiest target isn’t the supplier overseas, it’s you. Whether or not you’re the importer of record, you can be held liable for false customs declarations. Everyone in this industry knows the “creative” tactics I’m referencing. If you allow them on your watch, you’re not just complicit, you’re guilty….
Courts and CBP have been clear: liability attaches to conduct, not paperwork. If you benefit from undervaluation, misclassification or false country-of-origin claims, even through willful blindness, you can face civil penalties under 19 U.S.C. § 1592, and in serious cases, criminal charges under 18 U.S.C. §§ 541, 542, or 545.
Unfortunately, “Everybody does it” is not a legal defense. “I didn’t know” won’t protect you from liability. And “The supplier said it was fine” won’t impress a customs investigator.
The Potential Fallout
If domestic companies are all now forced to pay the legitimate duties on their goods plus the higher tariffs, the question becomes whether they can survive in this new world order. We’re not talking about a modest bump in expenses. A 20 percent increase in duty, combined with paying the real, all-in landed cost, will push many businesses underwater.
The hard truth is that a significant portion of this industry was built on a business model that relied, quietly but consistently, on cutting corners in customs compliance. Entire pricing structures, margin expectations, and competitive strategies were designed around artificially low declared values.
Some may accuse me of exaggerating, but I’ve lived these conversations. I’ve been in the room when a buyer set a wholesale target of $8.50 for a sherpa-lined hoodie or $7.50 for a pair of jeans. When I told my buyers I wasn’t going to jail over jeans, the answer was always the same: “Others are able to get them for me. Can’t you?.” That phrase “others are able” is the unspoken admission that the market price is built on corruption.
If that framework collapses and the only prices available are the honest ones, a lot of companies will face a reckoning. Not just in their profit margins, but in their ability to compete at all. This isn’t just about paying more; it’s about unwinding an entire industry mindset that’s been calcified over decades. The shift will be seismic.
The Lance Armstrong Paradox
Now, don’t mistake this for moral grandstanding. I understand exactly how we got here. I call it the Lance Armstrong Paradox. When Armstrong was publicly disgraced and stripped of his titles for using performance-enhancing drugs, the world gasped. But what was really exposed wasn’t one rogue cheater, it was the systemic, rampant doping across the cycling world. Armstrong’s “edge” didn’t make him extraordinary so much as it made him competitive in a field where almost everyone was breaking the rules.
“Someone will be made the industry’s poster child, the Lance Armstrong or Martha Stewart of customs fraud.”
—Edward Hertzman, Hertzman Global Intelligence
Customs fraud works the same way. When everyone is engaged in illegal activities—under-invoicing, misclassification, false declarations—the baseline changes. The rules shift from “play fair” to “play the same game as everyone else if you want to survive.” That creates a market where legitimate operators are penalized for following the law, while bad actors thrive. It breeds an entire class of businesses whose competitive advantage is rooted in deception, and whose cost structures are impossible to match legally.
Here’s the difference: in sports, the penalty for cheating is the loss of medals and reputation. In customs fraud, the consequences are far more severe, including multimillion-dollar fines, criminal charges, and in some cases, prison sentences. You don’t just get disqualified; you get dismantled.
And make no mistake this isn’t uncharted territory for prosecutors. Customs fraud cases have been brought forward before, but with the Administration adding more human capital to enforcement, the volume will rise sharply. Someone will be made the industry’s poster child, the Lance Armstrong or Martha Stewart of customs fraud. The only question is who will be the example that sends the rest of the industry scrambling to clean up their act.
It is a difficult but necessary conversation, one that will continue as the Administration hands down further guidance on the trade deal terms and the industry adjusts to this challenging new normal.
Stay informed on the latest. Join me and Nicole Bivens Collinson, managing principal, Sandler, Travis & Rosenberg, P.A., and Vincent Iacopella, president of government and trade relations, Alba Wheels Up, for our next HGI call on September 11 to discuss these topics and more. Register here.
