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The $250 Million Shell Game

How Chinese exporters keep laundering tariffs through Mexico and Vietnam — and what the 2025 enforcement binge actually caught.

K3 Analytics · April 24, 2026

The Simplest Fraud in the World

There is a particular kind of trade fraud that is so simple and so lucrative that the U.S. government has a policeman's word for it: transshipment. You make something in China. You put it on a boat. The boat stops in Vietnam, or Malaysia, or Mexico, or the Dominican Republic. Somewhere between the first port and the U.S. port, the cardboard box acquires a new sticker, the paperwork acquires a new "country of origin," and the 25%–100% tariff that was supposed to attach to the goods simply… doesn't.

Customs forms, under U.S. law, are sworn statements. Lying on them is a crime. Doing it at scale is a business model.

The basic scheme has existed since the 1930 Tariff Act, but it has enjoyed something of a renaissance. In the seven and a half years since President Trump's first Section 301 tariffs on Chinese goods in 2018 — extended by Biden's 2024 hikes on EVs, solar, batteries, and semiconductors, then ratcheted again by the second Trump administration's 2025 IEEPA "reciprocal" regime — the tariff wall around Chinese exports has become one of the most lucrative arbitrage opportunities in international commerce. The U.S. Treasury collected roughly $166 billion in IEEPA tariffs alone in 2025 before the Supreme Court invalidated them on February 20, 2026. Every dollar was, in principle, a dollar someone would prefer not to pay.

This piece walks through what CBP, the Commerce Department, and DOJ actually caught doing in 2024, 2025, and the first months of 2026 — with dollar figures, HS codes, named defendants, and case numbers attached. It is not a theory about fraud. It is the enforcement record.

What the Government Says It Found

Start with the number that should make any importer's general counsel open a new compliance line-item. Between January 20 and August 8, 2025 — a period of roughly six months — CBP announced it had "uncovered more than $400 million in unpaid trade duties" through EAPA investigations and identified 89 cases with reasonable suspicion of duty evasion. That announcement included what CBP called "the largest EAPA case in its history": a May 29, 2025 consolidated investigation of 23 U.S. importers and a network of Chinese shell companies routing mattresses through Indonesia, South Korea, and Vietnam. The revenue at stake was $250 million. Every one of the 23 importers was ultimately found in violation.

For historical context: CBP's own EAPA dashboard, launched in March 2024, showed 228 investigations since the program's 2016 creation. Of those 228, China was the possible country of origin in 178. And transshipment — as opposed to misclassification or undervaluation — was the alleged evasion scheme in 207 of them.

CBP's own trade scorecard gives another sense of the machine. In FY2023, CBP collected approximately $3.2 billion in AD/CVD deposits and assessed more than $61 million in monetary penalties for AD/CVD violations. In FY2025, with three months still left in the fiscal year, CBP had already collected approximately $163 million from importer audits — up from $118 million in FY2024 — and recovered nearly $26 billion in net revenue from entry summary reviews, a sum that dwarfed the $667.5 million recovered in FY2024.

The Shape of the Trade Shift

The basic trade-flow pattern is what economists politely call "trade diversion" and what enforcement lawyers less politely call "suspicious."

On the Mexico side, U.S. goods imports from Mexico rose from $346 billion in 2018 to $506 billion in 2024, and Mexico's trade surplus with the U.S. more than doubled from $81 billion to $172 billion. Mexico's Finance Ministry estimates Mexico captured roughly 24% of the U.S. import market share that China lost between 2018 and 2024, during which time China's exports to the U.S. fell 18.5%, from $538.5 billion to $439 billion. Meanwhile, China's exports to Mexico grew from $74 billion in 2017 to nearly $130 billion in 2024.

Vietnam tells a similar story in louder colors. U.S. imports from Vietnam grew at an average of 21% per year from 2018 through 2024, reaching $123 billion, compared to roughly 6% annually in the preceding decade. Vietnam's imports from China surged 30.2% in 2024 alone, to $144 billion. Vietnam's trade deficit with China widened from $49.3 billion in 2023 to $82.8 billion in 2024.

Steel provides a cleaner data point. In the February 2025 presidential proclamation restoring the full Section 232 tariff on Mexico, the White House reported that imports of long reinforcing bars from Mexico had increased 1,678% since the 232 regime began — and 564% from Canada — "in excess of historical norms," while Mexico's own imports of Chinese steel were rising. Global steel excess capacity is now projected to reach 630 million metric tons by 2026, most of it sitting in China. Steel, like water, flows downhill through whatever hole it finds.

A Short, Plain-English Guide to the Dodges

The core legal concept is "substantial transformation." Under decades of U.S. customs precedent, the country of origin is the last country where a product underwent transformation into "a new and different article of commerce" — a different name, character, and use. Snap a Chinese handle onto a Vietnamese body and you have not transformed anything; you have just added a handle. But the line is fuzzy enough to drive a freight container through, and that is essentially what happens.

The dodges come in four flavors:

Pure transshipment. The goods never change. Only the paperwork does. A shipment of Chinese aluminum extrusions enters a warehouse in the Dominican Republic or a Mexican maquiladora, gets re-invoiced, and exits as "product of" the intermediary country. CBP catches it when the exporting country's production capacity is smaller than its exports — the smoking gun in the Kingtom Aluminio case.

Minor processing. Chinese solar cells are shipped to Vietnam, where workers glue them into modules using imported Chinese backsheets, glass, and frames. The goods look Vietnamese. Commerce, applying 19 U.S.C. § 1677j, said in 2023 that they weren't. In its August 2023 final determination, Commerce found that BYD Hong Kong, New East Solar, Canadian Solar, Trina Solar, and Vina Solar were circumventing the AD/CVD orders on Chinese solar cells by performing minor assembly in Thailand, Cambodia, and Vietnam. In April 2025, Commerce set country-wide rates of 238.95% anti-circumvention and 9.07% anti-dumping on imports from the four Southeast Asian countries.

USMCA "melt and pour" arbitrage. Steel melted in China but processed slightly in Mexico was, until 2024, being shipped to the U.S. with a Mexican stamp and zero Section 232 tariff. On July 10, 2024, Biden's Proclamations 10782 and 10783 closed this loophole. In February 2025, a new Trump proclamation reimposed the full 25% tariff on Mexican steel where "melt and pour" origin cannot be established.

Misclassification. The goods never move; only the HS code does. This was the core of Ceratizit, below. Misclassification is popular because the Harmonized Tariff Schedule has roughly 17,000 ten-digit codes and a lot of them are one-letter swaps apart.

Enforcement of all four flows through the same pipes: CBP's EAPA investigations; Commerce circumvention inquiries under § 1677j; Section 1592 civil penalties up to the domestic value of the merchandise; and, increasingly, the False Claims Act's reverse false claims provision, which imposes treble damages for knowingly withholding money owed to the government.

The Named Defendants

This is where lawyers get careful. The following entities and individuals are named here because they are the subjects of specific, publicly filed U.S. government enforcement actions. None of the civil settlements include admissions of liability.

Ceratizit USA LLC ($54.4 million, December 18, 2025). A Charlotte, North Carolina distributor of tungsten carbide cutting tools agreed to pay $54.4 million to resolve FCA allegations that from August 2020 through March 2024 it misrepresented Chinese-manufactured tungsten carbide products as originating in Taiwan after transshipment, to evade Section 301 tariffs. It is the largest customs-fraud FCA settlement on record. The case was brought by whistleblower Mark Stover (United States ex rel. Stover v. Ceratizit USA, et al., No. 2:22-cv-12291, E.D. Mich.); Stover received approximately $9.75 million.

Allied Stone Inc. and Jia "Jerry" Lim ($12.4 million, August 19, 2025). A Dallas-based cabinetry and countertop supplier and its president agreed to pay $12.4 million to resolve allegations that between September 29, 2018 and February 7, 2023 they misrepresented Chinese quartz surface products as marble or crystallized glass to evade AD/CVD duties. Relator Melinda Hemphill received approximately $2.17 million (U.S. ex rel. Hemphill v. Allied Stone Inc., No. 21-cv-2955, N.D. Tex.).

Grosfillex Inc. ($4.9 million, July 24, 2025). The Pennsylvania-based patio-furniture subsidiary of the French manufacturer agreed to pay $4.9 million to resolve allegations that it evaded AD/CVD duties on extruded aluminum parts from China — in part, according to the government, by packaging them "as sham furniture 'kits'" not subject to the duties. Whistleblower Edward Wisner, a former Grosfillex employee, received approximately $963,000.

MGI International LLC / Global Plastics / Marco Polo International. On July 23, 2025, two MGI subsidiaries paid $6.8 million to resolve FCA allegations that from May 2019 through March 2024 they failed to accurately report the country of origin and value of Chinese plastic resin imports — labeling them as originating in Taiwan, Saudi Arabia, or the U.S. — and underpaid at least $4,597,396 in duties. On December 18, 2025, DOJ declined criminal prosecution of the company based on self-disclosure and cooperation, but former COO David Guimond pleaded guilty to one count of conspiracy to smuggle goods, facing up to five years in prison.

Kingtom Aluminio S.R.L. The Chinese-owned Dominican Republic aluminum extruder has been the subject of at least three EAPA investigations since 2019. In February 2022, CBP found in EAPA Case 7550 that it had transshipped Chinese-origin extrusions through the Dominican Republic. On December 4, 2024, CBP issued a direct forced-labor Finding under 19 U.S.C. § 1307, seizing any Kingtom aluminum extrusions imported on or after that date. In September 2025 the Court of International Trade vacated the forced-labor Finding on procedural grounds; the case is under reconsideration. Kingtom has denied wrongdoing throughout.

Island Industries v. Sigma Corp. On June 23, 2025, the Ninth Circuit affirmed a $26 million FCA judgment against Sigma Corp., a California-based pipe-fittings importer, for using false customs descriptions to avoid antidumping duties on Chinese welded outlets. The decision resolved a long-open question: private relators can bring customs-based FCA claims in federal district court, even though the Court of International Trade has exclusive jurisdiction over government-initiated duty-recovery suits.

China Zhongwang / Perfectus Aluminum / Zhongtian Liu. The largest pre-EAPA criminal case remains useful reference. In April 2022, six California-operating companies affiliated with China Zhongwang Holdings and former chairman Zhongtian Liu were ordered to pay $1.83 billion in restitution for disguising Chinese aluminum extrusions as "pallets" and importing 2.2 million of them through Los Angeles and Long Beach between 2011 and 2014. "There were no customers for the 2.2 million pallets," the DOJ wrote, "and no pallets were ever sold." The merchandise was stockpiled in four California warehouses.

The Tariff Wall That Makes It All Worth It

Why does this keep happening? Because the math is spectacular. Consider the tariff stack a Chinese solar cell now faces at the U.S. border.

A Chinese solar cell that would have crossed at near-zero duty in 2017 now faces roughly a 298% markup if correctly declared and caught. Which is to say: the incentive to mislabel it is not subtle.

The Policy Whiplash

A short timeline, because the past two years have been a blur:

Result, as of April 2026: Section 301 tariffs on China, Section 232 on steel, aluminum, and copper, AD/CVD duties, and new Section 122 tariffs (capped at 15%, time-limited to 150 days) all stack. So does the enforcement.

The FraudGraph Angle: What Else Are These Importers In?

The general lesson from 2024–2025 is that customs-fraud defendants are rarely one-trick operators. The MGI case paired a civil FCA settlement with a criminal guilty plea from a corporate officer. The Ceratizit case combined transshipment, misclassification, and marking violations across nearly a decade. The Kingtom matter layered AD/CVD evasion with a forced-labor determination. The China Zhongwang indictment involved IRS tax charges and securities-market manipulation alongside the $1.8 billion tariff fraud.

The pattern is that the schemes touch multiple federal regulators at once — CBP, Commerce's Enforcement and Compliance unit, ICE Homeland Security Investigations, the IRS Criminal Investigation Division, the SEC where public issuers are involved, and OFAC where sanctioned-country inputs appear. DOJ's May 2025 "Focus, Fairness, and Efficiency" memo explicitly named trade fraud as a "high-impact area" ranked second only to cyber-enabled financial crime.

What to Watch in 2026

The USMCA joint review. The first formal review begins July 1, 2026. If the three parties don't agree to extend, annual joint reviews continue until the agreement's 2036 termination clause triggers. Expect rules-of-origin fights on autos, steel "melt and pour," and whatever the U.S. decides to call "non-market economy content." Chinese FDI into Mexico — roughly $2–2.5 billion per year in 2023 and 2024 per the Dallas Fed and Rhodium Group — is on the table as a non-market investment issue.

The qui tam customs wave. Island Industries v. Sigma opened the Ninth Circuit to whistleblower-initiated customs FCA cases. FY2025 set a record $6.8 billion in total FCA recoveries, with 1,297 qui tam actions filed — the highest ever. DOJ has publicly encouraged competitors to file qui tam suits against rival importers. Customs FCA settlements in 2024–2025 paid relators between $962,000 (Grosfillex) and $9.75 million (Ceratizit). Expect plaintiffs' firms to build customs-fraud practices the way they once built health-care FCA practices.

Sectoral exposure. EAPA's public docket suggests the next round will hit the sectors where the 2018–2024 trade-flow distortions are worst: aluminum extrusions (Mexico, Dominican Republic, Vietnam), steel derivatives (Mexico), cabinets and hardwood plywood (Vietnam), solar cells (Cambodia, Malaysia, Thailand, Vietnam), quartz and stone (China via various intermediaries), and mattresses (Indonesia, South Korea, Vietnam). Textiles and electronics, Vietnam's two largest U.S. export categories, are the wild cards.

Post-IEEPA enforcement bite. The Supreme Court's invalidation of IEEPA tariffs does not touch AD/CVD, Section 232, Section 301, or EAPA enforcement. Those remain, and are now the primary legal channels through which tariffs on Chinese-origin goods reach U.S. importers. Section 122 tariffs announced February 20, 2026 are capped at 15% and time-limited to 150 days. AD/CVD on Chinese solar modules, by contrast, runs to 238.95%. The arithmetic of circumvention is, if anything, more favorable post-Learning Resources than it was before.