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Gibson Case Sets Precedent for Lacey Act Enforcement
The investigation into whether Gibson Guitar violated the Lacey Act has been resolved, leaving some lessons for the forest products industry.
By DeAnna Stephens Baker
Date Posted: 10/1/2012
The U.S. Department of Justice’s (DOJ) recently resolved a high-profile case involving alleged violations of the Lacey Act by Gibson Guitar Corp. Federal authorities claimed that the guitar maker illegally purchased and imported rosewood ebony wood. Gibson recently settled with the government to avoid a costly trial although the company denied any wrongdoing. This case brought national attention to something that the wood products industry has known for a long time – regulating foreign wood products is not an easy task. But now that it is over, many in the industry are left wondering what repercussions could come from this case.
The Gibson investigation has caused some uncertainty over how the Lacey Act applies in different situations and what steps the government expects companies to take to ensure the legality of imported wood products that they receive. The Lacey Act, which is intended to protect endangered species and prohibits the trade of goods that are illegally obtained, was amended in 2008 to include logs and wood products under the regulated goods.
According to the agreement signed between the DOJ and the guitar company, Gibson was sourcing wood products that are used in manufacturing its renowned guitars through a company based in Germany. Rather than personally ensuring that the wood it was purchasing through this supplier was legally harvested, Gibson relied on the fact that the supplier was an established Forest Stewardship Council (FSC) chain of custody certified supplier.
Because this was really the first test of the 2008 amendments including wood products, its resolution does set some precedent for future enforcement. For one thing, it shows that the federal government is serious about enforcing the 2008 amendments.
“The decision demonstrates that the Lacey Act has teeth,” said Adam Grant, senior associate at the World Resources Institute. “It shows that the law can be enacted with serious, but balanced penalties for violations.”
The Lacey Act includes a “due care” requirement for U.S. importers. And probably the most important outcome of this case is that it could be used as a precedent for what constitutes due care.
“Due care basically means that a reasonable person should undertake certain measures to ensure him or herself that the product that they are importing comes from legal sources and does not violate a foreign country’s laws. But it’s never been spelled out what it means,” said Jacob Handelsman, senior director of international trade at the American Forest & Paper Association (AF&PA). “So one thing that the DOJ/Gibson Guitar settlement does is provide a roadmap for large regular importers as to what is the meaning of due care and how the DOJ interprets due care in the case of an entity like Gibson Guitar.”
This means that the sources of any imported wood products need to be double or even triple checked. The government expects companies to take affirmative actions to ensure that what they are importing does not violate a foreign country’s laws. These measures may include training purchasing staff, communicating with suppliers and authenticating documents.
“People are getting the message that you need to deal legally around the world and they need to be careful of their suppliers,” said Mark Barford, executive director of the National Hardwood Lumber Association (NHLA).
Gibson and the DOJ both agreed that before ordering or accepting delivery, Gibson should have taken a more active role and exercised additional diligence with respect to documentation of legal forestry practices in the areas from which shipments from its wood supplier may have originated.
Gibson officials maintain that the company did nothing criminally wrong, simply that it could have done better and that there is always room for improvement. Gibson will not face criminal charges, but will pay a penalty of $300,000, a service payment of $50,000 to the National Fish and Wildlife Foundation and withdraw its claims to almost $262,000 worth of seized wood products. In addition, the company has agreed to implement a compliance program designed to ensure the legality of its imported wood products.
“We felt compelled to settle as the costs of proving our case at trial would have cost millions of dollars and taken a very long time to resolve,” said Gibson chief executive officer Henry Juszkiewicz. “This allows us to get back to the business of making guitars. An important part of the settlement is that we are getting back the materials seized in a second armed raid on our factories and we have formal acknowledgment that we can continue to source rosewood and ebony fingerboards from India, as we have done for many decades.”
Juszkiewicz has also reiterated that he believes the government inappropriately targeted Gibson, used undue force in the raids and that legislative reform of the Lacey Act is needed. Members of the wood products industry are divided on what kind of changes should be made to the Lacey Act. Many of those who have opposed proposed changes to the Lacey Act are concerned that these efforts will undo what the 2008 amendments achieved in protecting American producers from foreign competition that violate laws in other countries.
“The main thing we worry about is will it significantly alter the effectiveness of the Lacey Act,” said Barford. “We are supportive of looking at ways to adapt the bill to make sure it is effective and fair. But we do not feel right now that legislation is the proper means.”
By requiring documentation that imported wood products were harvested and obtained legally, Lacey Act supporters believe that it gives domestic suppliers a level playing field while protecting forests from illegal timber harvests and other environmentally harmful practices.
“Nobody is saying replace foreign species with domestic species,” said Barford. “All we’re saying is make sure that we’re playing on a level playing field.”
Legislative reform of the Lacey Act has been debated in Congress as some influential interests support major reforms. This includes the National Association of Home Builders, the International Wood Products Association, the National Retail Federation, U.S. Chamber of Commerce, National Association of Manufacturers and the National Lumber & Building Material Dealers as well as some musicians groups.
A number of reform bills have been proposed in Congress. The Freedom from Over-Criminalization and Unjust Seizures Act of 2012 (H.R. 4171 and S. 2062) and the Retailers and Entertainers Lacey Implementation and Enforcement Fairness Act (H.R. 3210) were introduced earlier this year in both Houses. However, for now, the proposed bills do not seem likely to go anywhere during this session of Congress.
Internationally, the Gibson case could serve to show other countries that the United States has a secure and legal wood supply. With most of the U.S. high grade hardwood lumber now going overseas, this is important as the European Union has timber regulations going into effect next year and Australia is currently considering implementing similar policies.
“I think we’ve sent a strong message to the world that we want to be leaders in this,” said Barford. “We think it will help us when we are talking to our world buyers that they know that we have a Lacey Act and that we think it sets a good example for what the world should do.”