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CHAT GPT, HAVE I COMMITTED CUSTOMS FRAUD?

UPTICK IN FRADULENT UNDER-VALUATION WITH NEW TARIFF ENVIRONMENT

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Not since the 1980s and ‘90s has our specialized Customs, Trade & Indirect Tax Firm seen such an uptick in clients with significant under-valuation issues with the Canada Border Services Agency (“CBSA”).

This may be a due to over-reliance on AI tools for customs valuation (generally not a good idea), or to new Canadian businesses lacking a full understanding of CBSA’s audit powers (and taking highly unadvisable risks when valuing imported goods). Or it may be due to some other causes. Regardless, under-valuation it is a serious issue for all impacted.

Below, we review Canada’s customs valuation rules as mandated by the Customs Act (the “Act”), and briefly review the consequences of CBSA alleging, and assessing for, under-valuation.

Canada’s Customs Valuation Rules

The CBSA requires importers to follow rules laid out in sections 44 to 53 of the Act, which assign specific valuation methods based on the characteristics of the imports. The primary method — and the one used most often by far — is the Transaction Value Method (“TVM”, at section 48 ), which uses the actual price paid or payable when the goods were sold for export to Canada. However, other methods are required in specific circumstances, with more unusual import arrangements that render accurate valuation more complicated.

Consequences of Under-Valuation

Where CBSA alleges under-valuation, the consequences are potentially quite significant. In fact, CBSA (and US CBP) assessments for under-valuation are becoming increasingly more common (especially with the new “data mining“ environment), in which CBSA and CBP can quickly look at entire industries and identify industry participants with anomalous import valuations.

At a minimum, the consequences of under-valuation will be expected to include assessments for additional duties and penalties payable, with mandatory correction obligations (under section 32.2 of the Act or US reasonable care rules for certain past importations). In the worst case (now becoming somewhat more common), one sees criminal investigations and penalties for fraud and customs evasion under section 153 of the Customs Act and US CBP's powers under 19 U.S.C. § 1592 . Prosecutions and investigations under these provisions can involve large penalties, fines and even imprisonment.

Increasingly, our clients are receiving significant reassements from CBSA and CBP in a variety of industries, from jewellery and apparel to suppliers of industrial steel and steel derative commodities.

Ideally, trouble can be avoided altogether with proper, preemptive customs valuation advice from an Experienced Customs & Trade Lawyer. However, in the current tariff environment, contentious after-the-fact CBSA or CBP valuation verifications can require "reactive" rather than proactive advice.

Takeaways

Customs under-valuation, which was a common issue in the 1980s and ‘90s due to that era’s high-tariff environment, is making a comeback in 2026 for largely the same reasons. When CBSA or US CBP finds under-valuation, that will lead to duty and penalty assessments and mandatory corrections – at a minimum. In the worst cases, it can lead to criminal search warrants and charges.

When CBSA or CBP comes knocking, one needs to call Experienced Counsel to assist, and the sooner the better.

For help with Customs Valuation Issues, please click here.