Origin-Laundering and Misclassification Schemes Test Firms’ Procurement Resilience

Trade tariffs are only as effective as the oversight backing them.

The tariff-heavy environment is fueling a surge in creative and illicit duty-evasion strategies.

Last month, for example, the owner of an Indonesian jewelry company, USB Gold, and two employees were charged with taking part in a $1.2 billion scheme to evade over $86 million in duties on jewelry imports into the United States. The news shows that procurement leaders now operate in an environment where tariff missteps can carry consequences as severe as any operational disruption.

The jewelry company reportedly shipped scrap gold from the U.S. to Jordan under the pretense that the material would be “assembled” or “finished” into jewelry there. In reality, those shipments were used as a cover to move fully finished Indonesian-made jewelry, which was then exported back to the U.S. under false claims that it was made in the U.S.

The case, which centered on deceptive transshipment and false country-of-origin claims, signals an intensifying crackdown by the U.S. Department of Justice and U.S. Customs and Border Protection on trade fraud.

It also highlights the fact that organizations can no longer treat trade compliance as a back-office task. Tariff evasion investigations can often extend deep into vendor ecosystems, ensnaring importers who may not have been directly involved in fraud but failed to exercise what customs authorities call “reasonable care.”

Read also: Cargo Theft Goes Digital as Cybercrime Invades the Supply Chain

The Global Supply Chain’s Compliance Reckoning

Across many markets, importers can face penalties not only for intentional fraud but also for negligence, such as failing to validate supplier documentation or detect anomalies in classification codes.

This regulatory momentum has collided with increasingly complex and dynamic supply chains as companies scramble to maintain operational continuity in the face of unpredictable global tariffs. The combination has created a perfect storm for procurement teams already stretched by pandemic-era disruptions, labor shortages and digital transformation initiatives.

The latest findings in the October edition of the PYMNTS Intelligence 2025 Certainty Project lay bare a widening resilience gap across the U.S. middle market. For many businesses, the shock of sudden tariff costs has exposed the fragility of globalized supply chains that have traditionally been built and optimized with efficiency as the North Star.

Rising tariffs have created incentives for fraudsters to manipulate trade data. Fraudulent tariff engineering schemes typically fall into one of a few categories: misclassification of products to avoid higher duty categories; altering or obscuring the true country of origin; manipulating bill-of-material representations to shift a product into a more favorable tariff bracket; or conducting minimal processing in third countries to launder origin.

These practices may be initiated by vendors without the importer’s knowledge, but the importer ultimately may hold the legal responsibility.

See also: Tariffs Test the Myth of Supply Chain Control

Why Tariff Engineering Schemes Are Surging

Tariff engineering, in its lawful form, is the practice of designing products or adjusting supply chains to qualify for favorable duty treatment. Historically, these changes were relatively modest and transparent, including adding a component that altered classification or shifting assembly to a country with preferential trade status. However, recent tariff regimes have raised the stakes, making the financial incentive for manipulation higher.

Fragmented global supply chains often obscure visibility. Importers may not know the true sub-tier suppliers or raw material sources, creating opportunities for fraudulent substitutions or misrepresentations that remain undetected unless independently verified.

For procurement teams, these schemes are difficult to detect precisely because they exploit gaps in documentation and trust-based workflows. Many fraudulent practices appear credible on paper, and suppliers often insist they are following local norms or that everyone in the industry uses similar classification logic. Without data-backed verification, importers risk accepting these claims at face value.

The PYMNTS Intelligence report “Vendors and Vulnerabilities: The Cyberattack Squeeze on Mid-Market Firms” found that vendors and supply chains are the soft underbelly of mid-market defenses, with 38% of invoice fraud cases and 43% of phishing attacks stemming from compromised vendors.

Ultimately, just as cybersecurity evolved from an IT concern to a board-level priority, trade compliance is becoming a strategic issue that can influence market access, brand trust and financial performance.

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