Trade Agreement Fraud

Trade agreement fraud can take many forms, often involving deception and misrepresentation to win lucrative government contracts. Some of the most common schemes include:

Falsifying country-of-origin certifications is a common form of fraud under both the Trade Agreements Act (TAA) and the Buy American Act (BAA). Contractors are required to certify the origin of goods they provide to the government, but some companies mislabel products to make them appear compliant with country-of-origin requirements, when in fact they are not. This type of fraud includes falsely certifying compliance by providing false documentation about the origin of materials or goods or using components from non-compliant countries like China or Russia.

Another fraudulent practice involves transshipping goods to evade trade restrictions. Transshipping occurs when companies send goods through an intermediary country to hide their true origin. For instance, a company might import products from a non-compliant country like China, ship them to a second country like Vietnam, and then falsely claim the second country as the product’s origin to meet TAA or BAA requirements. This tactic enables companies to bypass trade restrictions and unfairly compete for government contracts.

Misrepresenting manufacturing processes is another way companies commit fraud under the Buy American Act. To comply with the law, goods often need to be “substantially transformed” in the United States. However, some companies perform minimal assembly or make superficial changes to goods in the U.S. and then falsely claim that the product is American-made. Others misrepresent the extent of domestic manufacturing or labor involved in production, undermining the intent of the law to support American industry and workers.

Trade agreement fraud has far-reaching consequences, affecting taxpayers, businesses, and the integrity of government procurement systems. Fraudulent companies gain an unfair advantage over honest businesses by cutting corners and violating trade laws. This undermines fair competition and penalizes companies that follow the rules, discouraging ethical practices in the marketplace.

Fraud also causes significant economic harm to U.S. industries. Laws like the Buy American Act and Trade Agreements Act are designed to protect American manufacturing and labor. However, fraudulent practices often result in government contracts being awarded to companies that use foreign goods, depriving U.S. industries of economic opportunities and weakening domestic economic growth.

Taxpayer dollars are also misused in cases of fraud. When government contracts are awarded based on fraudulent certifications, public funds are wasted on projects or products that fail to comply with legal standards. This reduces the effectiveness of government spending and erodes public trust in how taxpayer money is managed.

Additionally, trade agreement fraud can pose serious national security risks. The use of non-compliant materials from adversarial countries is especially concerning in contracts that involve sensitive or critical infrastructure. Such practices can jeopardize the safety and security of vital national systems.

Yes. The U.S. government takes trade agreement fraud seriously and has aggressively pursued cases of non-compliance through the Department of Justice (DOJ) and other federal agencies. Violations of the TAA, BAA, or related laws often result in liability under the False Claims Act (FCA), which allows the government to recover three times the amount of damages caused by fraud.

• TAA Fraud by Staples, Office Depot, and Office Max: Three well-known office-supply retailers paid nearly $22 million to settle allegations that they submitted false claims when they sold office supply products manufactured in countries not permitted by the Trade Agreements Act to United States government agencies.
• BAA Fraud by London Bridge Trading Company: A Virginia-based tactical gear and equipment company paid nearly $2.1 million to resolve allegations that it failed to comply with the requirements of the Buy American Act, Trade Agreements Act, and the Berry Amendment (which requires certain items purchased by the Department of Defense to be 100 percent domestic in origin and mandates a higher level of domestic content than the Buy American Act) when selling textile-based products to the Department of Defense.
• BAA Fraud by Novum Structures: A Wisconsin-based architectural firm entered a guilty plea and paid $3 million to resolve its criminal and civil liability arising from its improper use of foreign materials on construction projects involving federal funds, which violated BAA. 

These cases demonstrate the government’s commitment to prosecuting trade agreement fraud and ensuring compliance with procurement laws.

Whistleblowers are critical to uncovering trade agreement fraud, as they often have insider knowledge of fraudulent practices that would otherwise go undetected. Many violations of the Buy American Act or Trade Agreements Act involve false certifications or misrepresentations submitted to federal agencies, which can be prosecuted under the  False Claims Act (FCA).

Under the False Claims Act, whistleblowers who report fraud may be eligible for financial rewards ranging from 15% to 30% of the government’s recovery. In addition to monetary compensation, whistleblowers are protected from retaliation by their employers, ensuring that they can report fraud without fear of losing their jobs.