Former US federal prosecutors tell Canadian Lawyer they expect a drastic uptick in investigations
In the wake of the US Department of Justice announcing that it has rebranded one of its Criminal Division units to target trade fraud and tariff evasion – and has significantly bolstered the unit’s ranks – many Canadian companies can expect heightened scrutiny from US customs officials and prosecutors, and should take steps to safeguard themselves from potential civil or criminal penalties.
That’s according to two former US federal prosecutors and an American lawyer, now in Canada, who has experience defending clients in US criminal and civil investigations. The lawyers say they expect US enforcement on trade to significantly ramp up in the coming months.
“I think we’re just going to see a huge increase in the number of investigations,” says Ashley Akers, a litigation attorney at international firm Holland & Knight who served as senior trial counsel in the DOJ’s Civil Division until January.
“Companies might be getting alerted [because] their products are being held up at the port of entry,” Akers says. “Or maybe they’re getting questions from [US Customs and Border Protection]. Maybe their brokers are giving them more questions because they’re getting reached out to by the government.”
Jason Manning, a partner at Washington DC firm Levy Firestone Muse LLP who worked in a fraud unit in the DOJ’s Criminal Division until last year, says now that the DOJ has the resources in place, he expects enforcement to substantially increase this quarter.
While both Akers and Manning note that cases take time to develop, Manning anticipates seeing “the early precursors of criminal investigations” soon.
“You’ll hear about people getting subpoenaed,” he says. “You’ll hear about companies disclosing that they're the subject of these investigations. You might hear about Customs and Border [Protection] seizing imports.”
On July 10th, the DOJ announced that it would rebrand one of the fraud units in its Criminal Division as the Market, Government, and Consumer Fraud Unit. In addition to the name change, the rebrand involves expanding the unit’s mandate to include investigating trade fraud and companies dodging US tariffs. It also involves a substantial boost in resources, with the DOJ reassigning prosecutors who previously worked on consumer protection matters to the new unit.
The announcement followed a May 12th memo issued by Criminal Division head Matthew Galeotti, which identified trade and customs fraud – including tariff evasion – as an issue that the Criminal Division will prioritize investigating and prosecuting moving forward.
The DOJ’s investigation of trade fraud and tariff evasion is not new. While the DOJ was more likely to pursue civil investigations of these issues in the past, federal prosecutors have also pursued criminal charges. Manning points to a recent example in Florida, where federal prosecutors charged a husband and wife with conspiracy for hiding the Chinese origin of plywood products they imported and sold. Last year, the couple was sentenced to five years in prison for evading more than $42 million in duties through their scheme.
What’s new is the DOJ’s prioritization of trade fraud and tariff evasion matters, its focus on pursuing criminal – versus largely civil – penalties, and its reallocation of significant resources to support these new mandates. Akers previously led a DOJ task force focused on international trade fraud, which worked with other federal agents like the Federal Bureau of Investigation and the Department of Homeland Security to pursue both civil and criminal investigations. However, Akers says that task force was “woefully underfunded for many years” and lacked a sufficient number of prosecutors.
“There were always hundreds of more cases available to investigate than we had resources to actually do,” Akers says. “We knew there was significant trade fraud all over all over the place coming into the country – billions of dollars worth – but we never really had sufficient resources to actually go after these companies civilly and criminally.”
The new Market, Government, and Consumer Fraud Unit signals “a greater emphasis on providing resources to these already existing investigations that perhaps moved much, much slower because of the lack of resources,” she adds.
Akers and Manning both emphasize that the rebranded unit is well-equipped to pursue trade fraud and tariff evasion cases. The unit is part of a larger section devoted to fraud within the Criminal Division. That fraud section is equipped with prosecutors who have extensive expertise in investigating corporate crime, including lawyers who are accustomed to gathering evidence outside of the US – a critical component of prosecuting tariff evasion, Manning says.
The fact that the DOJ has repeatedly emphasized that it will aggressively pursue tariff evasion cases is also a good sign that it will follow through. Jennifer Brevorka, a partner at Hodgson Russ’s Toronto office who has represented companies and individuals facing investigation and prosecution by the DOJ, says this was the case when the DOJ turned its focus to healthcare fraud under the Obama and Biden administrations. Manning agreed that investigations and prosecutions typically follow in an area after the DOJ “make a public splash” about that area, pointing to the DOJ’s past efforts with respect to opioids and COVID-19 relief fraud.
“What Canadian businesses that involve themselves in cross border trade – and that regularly have to maintain customs records or deal with customs officials – can understand and should understand, is that their actions will be more under a microscope at this point,” Brevorka says.
“It doesn't necessarily mean that one is going to see a higher level of prosecutions immediately,” she says. “I have no doubt, however, you'll see a higher number of investigations.”
Canadian companies can prepare for more scrutiny by making sure they have counsel with expertise in trade matters, and taking proactive compliance steps like reviewing their supply chains and providing customs compliance training, Akers says.
Brevorka adds that companies should review their record maintenance policies, too. DOJ investigations into white collar crimes are “very heavy on the electronic footprint – the emails, the text, the invoices,” she says. “If your company was one that did not have a great standard operating procedure for maintenance of records, you may want to rethink that.”
Companies should make sure that records that help prove compliance “are really being kept and maintained well for a certain period,” she says.
In the near future, Manning says he anticipates many Canadian companies will “proactively invest in compliance around their importing policies, just like in years past companies invested a lot in compliance around foreign bribery and compliance around anti-money laundering laws.”
However, he also expects that despite these efforts, “this wave of investigations and prosecutions will come, because history shows that when [the] DOJ makes promises… it follows with action.
“You’ll see Canadian individuals and companies who have to defend themselves in these investigations,” Manning says.
Editor's Note: This story has been updated to clarify that Jennifer Brevorka is an American lawyer.
