Too Good to Be True – A Detailed Look at When DDP Becomes a Compliance Risk

What logistics teams need to know when suppliers promise “DDP” delivery

As DDP (Delivered Duty Paid) shipping becomes more common—especially in supplier quotes from China—many U.S. importers are being encouraged to shift away from traditional FOB terms. The pitch? Fewer headaches, simplified delivery, and sometimes even a claim to eliminate tariffs altogether.

While DDP can be a legitimate and efficient shipping method, it’s important to be mindful of how the arrangement is structured. Some vendors are using DDP terms to obscure non-compliant practices—such as invoice undervaluation, questionable routing, or the use of shell importers of record. These setups can expose your business to audits, duty reassessments, or penalties down the line.

This guide breaks down:

• What FOB vs. DDP really means in a compliance context
• Common red flags to look out for in underpriced DDP quotes
• How to evaluate supplier promises and protect your import program
• Lessons from real-world examples and enforcement actions
  

FOB vs. DDP: Clarifying Roles and Responsibilities

FOB (Free on Board): The supplier is responsible for getting the goods loaded at the port of origin. Once they’re on board, responsibility shifts to the buyer, who handles the ocean freight, customs clearance, duties, and final delivery. In this model, the importer retains visibility and control over how goods are brought into the U.S.

DDP (Delivered Duty Paid): The supplier takes care of the full journey, including duties and import formalities, all the way to the buyer’s door. For the importer, this sounds simple—but it also means giving up control over what is declared to U.S. Customs, how duties are calculated, and who is actually listed as the importer of record.

Why Some DDP Offers Raise Red Flags

Not all DDP arrangements are cause for concern—but underpriced or unusually convenient ones often rely on questionable practices to unlawfully reduce costs:

Undervaluing Invoices

• Some suppliers deliberately misdeclare the value of goods on customs documentation, drastically understating their true worth in order to reduce the duties assessed at entry. For example, certain Chinese manufacturers have advised U.S. importers to declare container values as low as $5,000–$10,000—amounts that represent only a fraction of the goods’ actual commercial value. This practice of undervaluation is unlawful and constitutes a direct violation of U.S. customs law.

Improper Use of the “First Sale” Rule

• Some suppliers attempt to manipulate the “First Sale” rule by inserting a non-substantive intermediary into the transaction and declaring the price from the manufacturer to that intermediary as the dutiable value. In these cases, the middleman may be a questionable trading company set up to simulate a legitimate multi-tiered transaction.
• While the First Sale rule is legal when applied correctly—i.e., when the transaction is arm’s length, commercially viable, and well documented—CBP scrutinizes these structures carefully. If the intermediary is not truly independent or the arrangement lacks commercial substance, importers may face revaluation, penalties, or formal audits. The First Sale rule should only be used with appropriate documentation and legal oversight.

Shell Importers of Record

• In many fraudulent DDP arrangements, the foreign supplier avoids declaring the actual buyer as the importer of record. Instead, they establish a shell entity—often a U.S.-based company or a non-resident importer—to assume responsibility for customs entry. This shell serves as a legal buffer and is often designed to disappear if complications arise. CBP has observed this tactic being used to shift liability away from the actual importer. Although this may appear to insulate the buyer, U.S. authorities can still pursue the true beneficiary of the transaction for duties, penalties, or enforcement actions.

Misclassification and Transshipment

• To further reduce duties, some parties misclassify goods using incorrect HTS (Harmonized Tariff Schedule) codes or misrepresent the country of origin. In more elaborate schemes, products are routed through third countries—such as Mexico or Southeast Asian nations—then relabeled as originating there to avoid Section 301 tariffs on Chinese goods. This transshipment fraud has been widely documented across multiple product categories, including steel and solar panels. U.S. Customs has increased its focus on tracing suspicious trade routes and verifying country-of-origin claims.

“Duty-Free” Guarantees and Hidden Costs

• Some suppliers or their agents promise duty-free entry by claiming they will pay the required tariffs—but they often offset those costs through undisclosed methods. In some cases, duties are secretly embedded in the invoice, inflated elsewhere, or recovered via illicit rebates. In others, no duties are paid at all, and the shipment is concealed among larger bulk freight, manipulated using de minimis thresholds, or misrepresented through smuggling techniques. These schemes not only violate U.S. trade laws but can expose the importer to significant financial and legal risk if uncovered.

These tactics can expose your company to compliance risks, even if you’re not the one pulling the strings—especially if you benefit from the cost savings without asking questions.

Real-World Enforcement: What Happens When Things Go Wrong

U.S. Customs (CBP) and Homeland Security Investigations (HSI) have taken an increasingly active role in targeting schemes that exploit Incoterms like DDP to conceal fraud. Examples include:

Customs Audits and CF-28 Requests

• If U.S. Customs and Border Protection (CBP) detects potential irregularities—often flagged through advanced data analytics and risk-based targeting—they may initiate a review of your import activity. One of the most common tools used in such investigations is the Customs Form 28 (CF-28), a formal Request for Information. This notice requires the importer to provide supporting documentation such as commercial invoices, payment records, and bills of lading to verify the accuracy of declared values.
• Undervalued shipments are a frequent trigger for CF-28 scrutiny. For instance, if a container is declared at $5,000 but was in fact worth $50,000, the importer may struggle to substantiate the discrepancy. Failure to adequately respond can result in duty adjustments and the imposition of penalties.

Supplemental Duty Assessments

• When CBP determines that duties have been underpaid, they will issue a supplemental duty bill to collect the shortfall—along with applicable interest. In FY2021 alone, CBP conducted 442 audits and recovered $132 million in previously unpaid duties.
• Importers should not assume that liability ends with a shell importer. If the listed importer of record cannot satisfy the obligation (as is often the case with paper entities), CBP may seek recovery from the customs bond or even pursue the actual purchaser who benefited from the import. These assessments can be applied retroactively across multiple entries if a pattern of undervaluation is identified.

Civil Penalties and False Claims Act Liability

• Violations of U.S. customs law can result in significant financial penalties. Under 19 U.S.C. § 1592, fraudulent conduct may trigger penalties equal to the full value of the merchandise, while negligence can result in fines of up to two times the underpaid duty.
• Additionally, violations may fall under the scope of the False Claims Act (FCA). In a notable case, the U.S. apparel company Byer California paid $325,000 to settle FCA allegations after knowingly sourcing DDP shipments that were undervalued by the supplier. Even though the importer was not directly responsible for the misstatements, their failure to question obvious red flags led to liability. This case illustrates that knowingly benefiting from customs fraud—or turning a blind eye—can result in enforcement action.

Shipment Seizures and Supply Chain Disruptions

• If CBP identifies an active fraudulent scheme, affected shipments may be seized, detained, or destroyed. This can cause severe operational disruption—particularly if payment to the supplier has already been made. In some cases, CBP may also suspend the import privileges of associated parties.
• If your supplier or their freight forwarder is flagged for compliance violations, future shipments—even those from unrelated buyers—may face heightened scrutiny. Your business may also be added to a risk monitoring list.

Criminal Prosecution                

• In severe cases, customs fraud can lead to criminal charges. The Department of Justice (DOJ), in coordination with Homeland Security Investigations (HSI), has prosecuted numerous importers for systematic fraud. In one recent case, a California fashion importer and its executives were convicted of undervaluing more than $50 million in apparel imports to evade $8.4 million in tariffs.
• Another case involved six companies linked to a Chinese billionaire, who attempted to disguise aluminum as “pallets” in a $1.8 billion evasion scheme. U.S. authorities have made clear that they will seek criminal penalties, including imprisonment, against individuals and entities engaged in intentional fraud.
• Even if no criminal charges are filed, being subject to a federal fraud investigation can cause reputational harm, legal fees, and long-term disruption to business operations.

How U.S. Customs Is Cracking Down    

One common question importers raise is: “If the fraudulent activity is happening overseas, will U.S. Customs even notice?” Increasingly, the answer is yes.

U.S. Customs and Border Protection (CBP) has made trade fraud detection a top enforcement priority and is investing heavily in the tools, personnel, and partnerships needed to uncover illicit DDP practices. Key areas of focus include:

Advanced Data Analytics and Artificial Intelligence

• CBP now leverages AI and machine learning to identify anomalies in customs filings that might otherwise go undetected. Senate oversight committees have noted that these tools can spot unusual patterns in cargo valuation, volume, routing, or importer behavior that raise red flags.
• For example, a shipper consistently undervaluing electronics or a new consignee suddenly importing in large quantities may trigger algorithmic alerts. CBP also uses machine learning to detect improbable trade routes—such as sensitive technology goods claiming to originate from countries that don’t manufacture them—and repeated low-value declarations. These automated systems are designed to continuously monitor for compliance risks across all ports of entry.

FIST Teams (Fraud Investigative Strike Teams)

• CBP has deployed specialized enforcement units known as FIST (Fraud Investigative Strike Teams) to conduct unannounced inspections and disrupt commercial fraud operations. These teams, operating in coordination with Homeland Security Investigations (HSI) and Immigration and Customs Enforcement (ICE), conduct surprise audits at bonded warehouses, foreign trade zones, and import facilities.
• In one recent inspection at the Port of New York/Newark, FIST agents uncovered evidence of tampered goods and unauthorized labor within a bonded warehouse—demonstrating the depth of these investigations. Their presence reflects a zero-tolerance posture toward import fraud and the strategic use of “SWAT-style” tactics in trade enforcement.

Interagency Task Forces

• CBP doesn’t work alone. HSI and ICE are fully integrated into the fight against trade fraud and operate alongside CBP to dismantle smuggling networks and prosecute offenders.
• For example, in early 2025, a multi-agency task force in Los Angeles arrested eight individuals—including warehouse owners, freight forwarders, and truckers—who were involved in a scheme to illegally remove goods from flagged containers before they could be inspected. This case illustrates that U.S. enforcement authorities are not just targeting overseas actors, but also pursuing domestic participants who knowingly facilitate or benefit from illegal import practices.

International Cooperation

• CBP has also deepened collaboration with foreign customs authorities and industry partners to combat transshipment fraud. Through agreements such as the U.S.-Mexico-Canada Agreement (USMCA), and data-sharing initiatives, U.S. authorities are working to verify origin claims and target shipments routed through common intermediary countries.
• In parallel, whistleblower protections under the False Claims Act have encouraged insiders—including overseas employees—to alert U.S. regulators about fraudulent schemes.
• One notable case involved the aluminum industry, which exposed a vast stockpile of Chinese-origin aluminum being disguised as Mexican exports. This tip helped authorities trace and prosecute a major transshipment operation, reinforcing how international partnerships and industry intelligence are enhancing CBP’s enforcement reach.

Real-World Examples: Scams and Scandals

The following real-world enforcement actions illustrate the serious consequences that can arise from DDP-related customs fraud schemes:

C’est Toi Jeans USA – The Apparel Importer Sting

• C’est Toi Jeans USA, a Los Angeles-based importer, systematically underreported the value of apparel shipments from Chinese suppliers by paying off the books and submitting falsified invoices to CBP. The discrepancy between actual payments—totaling over $100 million—and the declared import values eventually led to federal prosecution.
• In October 2024, a jury convicted the company and two executives of customs fraud. The case, known as Operation Fashion Police, resulted in millions in fines and potential prison sentences. The investigation involved dozens of coordinated search warrants executed across the Los Angeles fashion district, underscoring the scale and visibility of enforcement efforts.

The Aluminum Fraud Scheme – False “Made in Mexico” Claims

• In one of the most significant tariff evasion cases to date, a Chinese metals conglomerate attempted to circumvent U.S. aluminum tariffs by routing goods through Mexico. The company shipped massive quantities of Chinese aluminum to a remote site in Mexico, where the material was remelted into falsified “pallets” and re-exported as Mexican-origin goods.
• This $2 billion fraud relied on origin misrepresentation and transshipment. It was ultimately exposed by whistleblowers—who even hired aircraft to document the site—leading to indictments in the United States. The case serves as a striking example of the lengths bad actors will go to in avoiding duties, and the critical role that insider reporting can play in enforcement.

Byer California – DDP Gone Wrong

• Byer California, a U.S.-based apparel importer, sourced goods on DDP terms from an overseas vendor that significantly undervalued the shipments. Although the company was not the declarant, it ignored warning signs suggesting that the duties paid were unreasonably low.
• Following a federal investigation, Byer California settled with the Department of Justice in 2023 for $325,000 under the False Claims Act. The case underscores a key compliance principle: even when not directly responsible for filing entry paperwork, U.S. importers can still be held liable if they knowingly benefit from fraudulent practices. As the DOJ emphasized, DDP does not mean “Don’t Detect Problems.”

Xanthan Gum Transshipment via India and Indonesia

• In late 2024, CBP uncovered a scheme involving Chinese-origin xanthan gum being rerouted through India and Indonesia in an attempt to avoid antidumping duties. The country-of-origin documents were falsified to obscure the Chinese source of the product.
• CBP identified and penalized the parties involved, reinforcing the agency’s focus on analyzing trade routes for inconsistencies. For instance, if an importer of record in Indonesia suddenly begins shipping large volumes of a product not commonly manufactured there, it raises immediate red flags. This case illustrates CBP’s growing reliance on trade pattern analytics to detect evasive conduct.
  

How to Protect Your Business: Smart Importing Practices                                                 

For importers sourcing goods from China or other international markets, it is critical to establish practices that safeguard against customs fraud—particularly when evaluating Delivered Duty Paid (DDP) offers. Below are key steps to strengthen compliance and reduce exposure:

1. Scrutinize Offers That Appear Too Good to Be True

• Approach any promise of “duty-free” delivery or dramatically reduced shipping costs with caution. If a supplier claims they can eliminate tariff obligations, ask for a detailed explanation. Vague justifications such as “special arrangements” or “everyone does this” are red flags. When in doubt, it is far safer to pay proper duties than to risk exposure to fraud investigations or penalties.

2. Know Your Incoterms—and the Risks They Imply

• Ensure that you and your logistics team fully understand the obligations associated with each Incoterm—especially DDP and FOB. When agreeing to DDP, you're placing significant trust in the seller’s handling of customs declarations and duty payments.
• You should request full visibility into the import process, including access to CBP entry documentation and proof of duty payments. If a seller resists sharing this information, that’s cause for concern. In contrast, managing imports under FOB terms gives your team direct control over compliance—an approach that minimizes risk.
  

3. Conduct Thorough Due Diligence on Brokers and Agents

• If your supplier recommends a freight forwarder or broker, do your own research before proceeding. Confirm whether the party is a licensed U.S. customs broker and request references or compliance credentials. Shell companies and unlicensed operators are major warning signs.
• Whenever possible, use independently vetted or globally recognized logistics providers. Avoid relying solely on a supplier’s preferred agent, as this relationship may be part of a coordinated scheme.

4. Seek Guidance from Compliance Professionals

• If you suspect a DDP quote may involve improper practices—or are unsure about the risks involved—consult a trade compliance attorney. A brief consultation can help you evaluate legal exposure and incorporate protective terms into your contracts, such as indemnity clauses or proof-of-duty conditions.
• If fraud is uncovered, legal counsel can guide you in making a prior disclosure to CBP—a voluntary correction that may reduce penalties and demonstrate good faith.

5. Establish Internal Compliance Controls

• Develop an internal protocol for reviewing all import documentation—even for shipments under DDP terms. Train your team to flag irregularities in origin markings, shipping routes, or invoice values.
• Cross-check invoices and payment records for consistency. Some importers also engage third-party inspectors at origin to verify product descriptions and declared values. In all cases, robust recordkeeping is essential—it can serve as proof of diligence and protect your business during an audit.
  

6. Stay Current with Trade Rules and Tariff Updates

• Keep your team informed of relevant U.S. trade regulations, including Section 301 tariffs, anti-dumping duties, and enforcement initiatives. Regulatory landscapes change frequently, and staying ahead of updates will help you identify suspicious activity tied to specific commodity codes or origin claims.
• Use official CBP channels, trade compliance publications, and industry associations to monitor developments.
  

7. Promote a Culture of Compliance Across Your Supply Chain

• Set clear expectations with suppliers regarding legal compliance. Proactively communicate that your company does not tolerate misdeclaration, transshipment fraud, or evasion of duties.
• If a vendor continues to propose questionable tactics, be prepared to terminate the relationship. Partnering with ethical suppliers isn’t just a best practice—it’s a strategic necessity in today’s enforcement-driven trade environment.
  

Final Thoughts

DDP isn’t inherently risky—but like any trade tool, it depends on how it’s used. As logistics professionals, maintaining transparency and control over your supply chain is key. The more visibility you have into how goods are declared and delivered, the more protected your business will be.

Put simply, compliance is almost always cheaper than non-compliance. A lowball DDP quote might look appealing in the short term, but it could carry significant risk if the underlying practices don’t hold up to scrutiny. As a logistics leader, reinforcing ethical and transparent processes isn’t just smart policy—it’s a safeguard for your reputation and bottom line.

Trust your instincts. Stay informed. And if a supplier suggests there’s a way around tariffs, take the time to understand exactly how they plan to do it. When it comes to Customs, it’s far better to get things right on the front end than face a costly correction later.

If you'd like a quick review of your current shipping terms or want a second opinion on a DDP quote you've received, we're happy to help.

The team at Transmodal