Transshipment Warning: Why Evasion Through Third Countries is Triggering 100% Penalties.

1. INTRODUCTION

Transshipment is a normal logistics practice when it is used to move cargo efficiently through intermediate ports. The compliance risk begins when a third country is used as a disguise, meaning the routing is paired with false country of origin claims, altered documents, or minimal processing that does not change origin under U.S. rules.

For importers and brokers, the issue matters now because CBP has publicly emphasized illegal transshipping as a duty evasion tactic, particularly to circumvent trade remedies such as antidumping and countervailing duties.

Once CBP suspects origin falsification or evasion, the exposure can expand quickly, including intensive document requests, supply chain verification, enforcement holds, and substantial civil penalties. 

2. REGULATORY OR POLICY CONTEXT

CBP treats deceptive transshipment and origin falsification as customs fraud and trade evasion risks that can trigger multiple enforcement pathways, depending on the fact pattern.

Key authorities and frameworks commonly implicated include:

• Commercial fraud and negligence penalties, including 19 U.S.C. 1592, which CBP explains in its informed compliance guidance on fines, penalties, forfeitures, and liquidated damages. In cases involving fraud, the maximum civil penalty can be up to the domestic value of the merchandise, commonly described as up to 100 percent of domestic value.
• Evasion of antidumping and countervailing duty orders under the Enforce and Protect Act, often referenced as EAPA. CBP describes EAPA as an investigative process focused on whether evasion occurred for covered merchandise subject to AD CVD orders.
• Country of origin and marking expectations. CBP’s informed compliance materials explain that origin determinations are fact specific and often hinge on whether a substantial transformation occurred, meaning a new article with a different name, character, and use was created.

In addition, CBP and USTR have both published materials describing duty evasion and illicit trade risks, including the use of third country routing to disguise origin.

3. WHAT CBP OR REGULATORS EXPECT

CBP expectations are practical and evidence based. In an exam, investigation, or validation, the question is usually simple: can you prove what you claimed at entry.

From an audit focused standpoint, importers should be prepared to demonstrate:

• End to end traceability from raw materials, to production, to finished goods, to shipment, to entry

• Country of origin support that matches the legal standard applicable to the product and program, including documentation consistent with CBP origin guidance on substantial transformation when relevant

• Consistency across commercial documents, including purchase orders, invoices, packing lists, bills of lading, and origin statements, with no unexplained document substitutions or “re issued” paperwork during third country routing

• Manufacturing evidence, not just trading evidence, meaning production records, bills of materials, production orders, labor steps, and factory capability aligned to the goods shipped

• For AD CVD risk products, readiness to respond to CBP trade enforcement inquiries and, when applicable, EAPA information requests and verification steps

CBP has also highlighted red flags associated with illegal transshipping, emphasizing that the concern is not the transshipment movement itself, but the deceptive use of third countries to mask true origin and evade trade measures.

4. COMMON COMPLIANCE GAPS

The following issues are realistic and commonly arise when CBP scrutinizes third country routing and origin claims. The specifics vary by industry, but the patterns are consistent.

• Documentation that shows routing through a third country with no supporting production narrative, or no proof of meaningful processing consistent with CBP origin standards

• Conflicts between documents, such as factory names that do not appear on production records, mismatched addresses, or invoices that shift sellers and shippers without a clear commercial explanation

• Reliance on unsupported origin statements, including origin claims that are not backed by manufacturing records or are inconsistent with the known production footprint of the supplier

• For trade remedy goods, failure to treat AD CVD exposure as a distinct risk category, meaning no enhanced supplier diligence, no escalation process for routing changes, and no readiness for CBP trade enforcement scrutiny under EAPA processes

• Underestimating penalty exposure. CBP’s own penalty guidance explains that, depending on culpability, civil penalties can be severe, including up to domestic value in fraud cases under 19 U.S.C. 1592, and CBP also describes seizure, forfeiture, and penalty in lieu of seizure concepts in its informed compliance materials and importer guidance

5. HOW S. J. STILE ASSOCIATES HELPS

S. J. Stile Associates supports importers by aligning entry practices to CBP’s documentary expectations and enforcement posture. The objective is preparedness and defensibility, particularly when supply chains include third country routing.

Our compliance support commonly includes:

• Origin claim readiness reviews, focused on whether the importer’s origin position is supported by records that align with CBP’s published origin and marking principles

• Transaction and document mapping, to confirm that commercial documents tell one consistent story across purchase, production, logistics, and entry

• Supplier due diligence structure, including practical checklists and evidence requests that help importers collect manufacturing proof, not just trading paperwork

• Enhanced controls for trade remedy risk products, including workflows designed to support rapid response to CBP trade enforcement inquiries and EAPA related information requests when applicable

• Recordkeeping discipline and escalation triggers, so that routing changes, supplier substitutions, or unusual intermediaries are treated as compliance events, not routine logistics updates

6. FREQUENTLY ASKED QUESTIONS

Q1. Is transshipment itself illegal?

No. Transshipment is a common logistics practice. The compliance problem is illegal transshipping, meaning deceptive use of a third country to disguise origin or evade trade measures. CBP has specifically addressed illegal transshipping as a trade enforcement threat.

Q2. What does “100 percent penalties” mean in this context?

CBP’s penalty framework explains that for a fraudulent violation under 19 U.S.C. 1592, the maximum civil penalty can be up to the domestic value of the merchandise. That exposure is often described as up to 100 percent of domestic value. Actual penalty outcomes are case specific and depend on facts and culpability, but the maximum authority is clear in CBP guidance.

Q3. What kind of proof does CBP expect for country of origin?

CBP’s informed compliance materials emphasize that origin and marking determinations are fact specific. Where substantial transformation is the relevant standard, CBP describes it as creating a new article with a different name, character, and use. Importers should retain manufacturing and production records that support the origin claim.

Q4. How does EAPA relate to transshipment and third country routing?

EAPA is a CBP investigative process focused on evasion of AD CVD orders for covered merchandise. If CBP suspects goods subject to AD CVD are being entered with false origin claims or other evasive conduct, EAPA is one pathway CBP may use to investigate and determine whether evasion occurred.

Q5. Can minimal processing in a third country change origin?

Sometimes, but not automatically. CBP’s guidance indicates that the analysis depends on the facts and the applicable origin rules. For substantial transformation analysis, the processing generally must create a new article with a different name, character, and use. Simple relabeling, repacking, or minor finishing often does not meet that standard, but each case must be evaluated on its facts.

Q6. What is the best practical step importers can take now?

Build an “entry ready” evidence file for high risk products and lanes. That means you can produce, quickly, the documents that tie the goods to the true manufacturing site, and explain any third country routing without gaps or contradictions, consistent with CBP’s published focus on illegal transshipping risk indicators.

7. References

U.S. Customs and Border Protection (CBP)
Illegal Transshipment Alert and Risk Indicators
https://www.cbp.gov/trade/programs-administration/ctpat/security-criteria/alerts/illegal-transshipment

CBP Press Release
CBP uncovers over $400 million in duty evasion by bad actors
https://www.cbp.gov/newsroom/national-media-release/cbp-uncovers-more-400-million-duty-evasion

CBP Informed Compliance Publication
Fines, Penalties, Forfeitures, and Liquidated Damages
https://www.cbp.gov/sites/default/files/assets/documents/2020-Aug/icp-fines-penalties-forfeitures-liquidated-damages.pdf

19 U.S. Code § 1592
Penalties for fraud, gross negligence, and negligence
https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title19-section1592

CBP Enforce and Protect Act (EAPA) Program Overview
https://www.cbp.gov/trade/enforce-and-protect-act-eapa

CBP EAPA Frequently Asked Questions
https://www.cbp.gov/trade/enforce-and-protect-act-eapa/eapa-faqs

CBP Informed Compliance Publication
Marking of Country of Origin on U.S. Imports
https://www.cbp.gov/sites/default/files/assets/documents/2020-Aug/icp-marking-country-origin-us-imports.pdf

CBP Rules of Origin Resource Page
https://www.cbp.gov/trade/rules-origin

Office of the United States Trade Representative (USTR)
Trade Enforcement and Illicit Trade Overview
https://ustr.gov/issue-areas/enforcement

8. Final Thoughts

Third country routing can be completely legitimate, but when it becomes a mechanism to disguise origin or evade duties, it moves into a high consequence enforcement category. CBP has been explicit that illegal transshipping is a priority threat, and CBP’s published penalty framework confirms that fraud level exposure can reach up to domestic value, commonly understood as up to 100 percent. The most defensible posture for importers is simple, build traceability that proves the origin claim, and treat unusual routing and intermediary structures as compliance triggers, not routine logistics changes. 

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Choosing S.J. Stile Associates means partnering with a customs broker that understands the realities of today’s trade environment and is fully invested in protecting your business.

Contact S.J. Stile Associates today to learn how we can strengthen your compliance posture and streamline your supply chain.

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