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Pallet Stamp ID Theft: Are Customers or Competitors Skirting International Regulations Using Your Identity?
Feds prosecute pallet user for falsifying marks, private lawsuit in a separate case highlights dangers of pallet stamp ID theft.
By Chaille Brindley
Date Posted: 3/1/2010
From radio and TV ads to horror stories from people we know, most Americans are familiar with the concept of identity theft. It has become big business and frequently involves criminals from all over the world. The pallet industry has its own version of identity theft, and it has become a problem for some around the country.
A few recent high profile cases involving mark fraud of ISPM-15 phytosanitary marks in the United States highlight the importance of defending your mark and looking out for anyone who may be using your mark to skirt international plant health standards.
Recently, Michael Sayklay, a grocery wholesaler executive in Texas, pleaded guilty to falsifying heat-treatment certification stamps used on wood pallets, according to the U.S. Department of Justice (DOJ). At the time of the incident, Sayklay worked as vice president of Economy Cash & Carry Inc, a Texas-based grocery wholesaler. Sayklay had a false stamp attached to hundreds of untreated wood pallets that Economy Cash & Carry used to carry products back and forth over the U.S.-Mexican border, according to the DOJ.
Falsifying pallet markings may seem like a good way to save time. But it is a violation of the Plant Protection Act and U.S. copyright law. Besides damaging your reputation with customers, mark fraud could result in either civil or criminal penalties. If you are a licensed supplier, marking untreated lumber or WPM could result in your company being suspended from a certification program for up to 180 days.
Tom Searles, president of the American Lumber Standard Committee (ALSC) said, “Anyone who is not part of the official program and falsifies marks has committed a felony. Even though the individual in this case only paid an $8,000 fine, nobody wants a felony on their record.”
Economy Cash & Carry uses wood pallets to transport food and pharmaceutical products. As the warehouse manager, Sayklay was responsible for directing the transfer of products destined for Mexico from untreated pallets to treated pallets.
However, in what appeared to be an attempt to save the time and money it takes to transfer products from one pallet to another, Sayklay created a copy of a certification stamp used by Border Pallets of El Paso, and affixed the false stamp to untreated pallets.
The crime was discovered when Felipe Truax, president of Border Pallets recognized a smaller version of their heat-treatment stamp on pallet cores they bought.
“I buy several thousand pallets a week here in the El Paso market, and I started seeing some pallets with a stamp that had my number on it, but it was a smaller stamp, and that’s what triggered everything,” Felipe Truax, President of Border Pallets, said.
After seeing the false stamp repeatedly, Truax decided to do some investigating on his own by checking out pallets at local companies.
“Since those pallet cores were purchased here in El Paso, I had a hunch that whoever was doing that was a local guy,” he said. According to Truax, after he saw a large number of the falsely stamped pallets stacked at Economy Cash & Carry, he called a lumber inspection bureau which later contacted the USDA. A follow-up investigation by the U.S. Department of Agriculture (USDA) resulted in the seizure of fraudulently stamped pallets at the U.S.-Mexican border.
Truax believes the false stamp was made from a copy of his stamp that he had sent to Economy Cash & Carry, following an inquiry into his services, as he had never sold heat-treated pallets to the company.
“That company called me to see if I did heat treating here and they asked if I could send them a copy of our stamp, and I generated a copy, but it was a smaller copy,” Truax said.
Sayklay will pay a fine of $8,000 and serve a term of probation as part of the plea agreement, according to the DOJ.
Felipe Truax’s story reminds us of the importance of protecting one’s ISPM-15 treatment marks and keeping an eye out for any bad actors in the market. It is up to those who abide by the regulations to report suspicious activity. Keep a watch out for improper marks or companies offering heat-treated pallets that don’t have any treatment capacity or don’t utilize pre-treated lumber components. If you suspect mark fraud, the first step is to assemble your preliminary evidence and contact your inspection agency or the appropriate administrator of the program. If you suspect a company is illegally using a heat treatment mark, contact the ALSC at 301-972-1700 or email@example.com. The ALSC will take anonymous tips. If you suspect a company is illegally using a methyl bromide fumigation mark, contact the National Wooden Pallet & Container Association at 703-519-6104 or firstname.lastname@example.org.
Searles of ALSC said, “If anybody has reason to believe a mark is being misused, they can report it to ALSC or the appropriate agency. We investigate every inquiry about fraudulent activity.”
If the federal government ever requires treatment and certification of domestic wood packaging, the potential for mark fraud increases. This would likely result from the large number of small players that can’t afford proper treatment facilities. These companies might be tempted to use fraudulent marks in order to avoid the costs and delays associated with paying others to treat finished pallets. The risk of getting caught may be the only thing that would keep some unscrupulous people from committing mark fraud. But the penalties could be severe if both criminal and civil cases are brought. The largest financial penalty we have discovered relating to wood packaging fraud committed in the United States occurred last year when the Northeastern Lumber Manufacturers Association (NELMA) won a civil judgment for almost $1 million against Amtech Packaging Solutions of Rochester, N.Y., which is a packing freight company. That’s a staggering number for any company to consider.
Currently, the U.S. Animal and Plant Health Inspection Service is considering a domestic treatment requirement due to concerns associated with the spread of invasive species from state to state. It would likely take years before a domestic requirement becomes implemented.
Civil lawsuits can pose a huge challenge because each agency mark is protected by U.S. copyright law. Last year, NELMA sued a New Hampshire pallet recycler for alleged misuse of its certification marks. NELMA sued Northern States Pallet Company of Greenland, N.H. in federal court for trademark infringement and counterfeiting under the Lanham Act.
As one of the certification agencies in the U.S. heat treatment program, NELMA inspects companies to ensure compliance with standards designed to eliminate pest risks associated with transport packaging. NELMA also alleges that Northern States Pallet engaged in false advertising and used unfair competitive tactics by passing off a certification stamp owned by a former supplier as its own mark.
According to court records, the stamp in question was licensed to Index Packaging of Milton, N.H., which had supplied heat treated pallets to Northern States. Stamp irregularities were discovered this summer by NELMA field inspectors, and the loads were traced back to Northern States Pallet.
Jim Jackson, the president of Northern States Pallet, refused to comment. However, his attorney, Jeff Snow, said that the complaint “doesn’t have merit, and Northern States will defend itself against these claims.”
Bruce Lander, president of Index Packaging, stated to the court, “Jackson admitted to me that he had been in possession of and had used one of Index’s certification stamps on Northern States’ pallets for quite some time. At first, Jackson stated that he had ‘borrowed’ the certification stamp. He later stated that he came into possession of the certification stamp when one of Index’s former employees went to work for Northern States.”
Lander declared to the court that Jackson eventually returned the stamp after he visited his plant to retrieve it. Lander stated that Jackson asked, “Am I in trouble?”
The stamps connected back to Northern States Pallet aroused suspicion due to the size of the mark, the number of sides marked and the type of ink used. NELMA inspectors noticed that the stamps did not resemble the practices typically done by Index Packaging.
Barbara Philibotte, a former truck driver for Northern States Pallet, told the court that the company did not have heat treatment capacity last year when she was instructed to mark invoices with “HT” before delivering to customers. She said, “I have no way of knowing whether the pallets were actually heat treated.”
No trial date has been set in the Northern States case. NELMA is asking for summary judgment to push along the case toward a remedy.
Despite these two recent cases, Searles claims that the number of fraud cases has dropped over the last few years. Searles estimated that there have been 30-40 reported fraud cases since the program began.
Searles commented that criminal investigators working for the U.S. Animal and Plant Health Inspection Service (APHIS) have done a really good job tracking down mark fraud. Government agents can impound pallets, confiscate stamps, impound vehicles and levy stiff fines. The type of legal ramification pursued depends on the severity of the act, the cooperation of the perpetrator, the ability to remove fraudulent marks from circulation, etc.
Searles said, “In every case we know about, APHIS involvement has stopped illegal activity immediately.”
The good news is that the vast majority of companies appear to be following the program. Searles explained, “Most of the pallet people out there are legitimate and are doing the right thing. We currently have almost 4,700 facilities in compliance. There are only a limited number of bad apples that are trying to spoil it for everyone else.”
Wood Packaging Mark Protection Tips
1. Pallet and lumber companies need to keep a close eye on their stamps and make sure that they do not get taken or copied by a disgruntled employee. It is against the rules of the U.S. heat treatment program to forward or send your stamp to any third party.
2. Certified pallet and lumber suppliers should keep watch out for questionable activity and report any problems to the appropriate certification agency and possibly APHIS. Be aware that improper activity done with your mark could damage your customer relationships and even result in expulsion from the program depending on the circumstances involved.
3. You may want to educate customers to always request proof that a vendor is part of an official export packaging program. We have provided on our Web site flyers that you can use to educate customers, employees and vendors about the dangers of mark fraud and what to do to report suspicious activity.
4. Anyone can check to ensure compliance. All you need to do is ask the certified heat treating or fumigation facility what agency it uses and what its number is. Then you can contact the agency to verify the information.
5. Certification agencies and the federal government take mark fraud very seriously and will work to prosecute those trying to falsely mark non-compliant packaging.