On August 6, the U.S. Department of Justice announced that it reached a criminal enforcement agreement with Gibson Guitar Corp., resolving two investigations into allegations that Gibson violated the Lacey Act by purchasing and importing illegally harvested wood materials into the United States from Madagascar and India. Because this is the first major set of investigations to be publicly resolved under the new amendments to the Lacey Act, the agreement will help set precedents important to the U.S. and the global wood products industry. The announcement puts to rest nearly three years of investigation and speculation, and it has significant implications for future implementation of the Lacey Act and forest legality regulations across the world.
The Threat of Illegal Logging
The U.K. think tank Chatham House estimated in 2010 that rates of illegal wood harvesting worldwide have declined by almost one-quarter since 2000, thanks in large part to consumer-country policies such as the Lacey Act. However, illegal logging remains a significant threat to many of the world’s most biologically diverse forests. A recent World Bank report estimates that illegal logging generates $10 to $15 billion annually in unregulated, untaxed funds. The illegal trade robs developing countries of their national patrimony, undermines broader law enforcement efforts, harms legal companies’ efforts to compete in the market, and helps fund criminal gangs. As one of the world’s largest consumers of forest products, the United States is in a position to contribute to the solution by enforcing the Lacey Act and trading only in legally sourced products.
What Is the Lacey Act?
The Lacey Act is a 1900 United States law that bans trafficking in illegal wildlife. In 2008, the Act was amended to include plants and plant products, such as timber and paper. This landmark legislation is the world’s first ban on trade in illegally sourced wood products.
What is the Gibson Guitar Agreement?
The Department of Justice and Gibson Guitar agreed on significant facts related to Gibson’s purchase of ebony from Madagascar and established penalties. The company must:
- Pay a penalty of $300,000.
- Further pay a community service payment of $50,000 to the National Fish and Wildlife Foundation to be used “to promote the conservation, identification and propagation of protected tree species used in the musical instrument industry and the forests where those species are found.”
- Implement a detailed compliance program designed to strengthen its compliance controls and procedures.
- Relinquish its civil claims to wood seized by the Government during the course of the criminal investigation, including Madagascar ebony valued at $261,844.
The government will not pursue criminal charges against Gibson or its employees in the two cases (Madagascar and India), provided that Gibson fully carries out its obligations under the agreement and commits no future violations.
Importantly, Gibson accepted responsibility for its actions. The company acknowledged that it did not act on prior knowledge that legal ebony was difficult or impossible to source from Madagascar, that the investigation into the harvest and export of these woods “served important environmental and law enforcement objectives,” and that its duties under the amended Lacey Act include “reasonable corroboration of the circumstances” of the harvest and export of musical instrument parts from foreign countries.
The Agreement on Due Care
One of the most interesting parts of the agreement for other companies in the wood products industry is the section on Gibson’s Lacey Act Compliance Program, because it contains valuable information related to due care. “Due care” is a legal standard used in considering penalties under the Lacey Act, generally held to be “that degree of care which a reasonably prudent person would exercise under the same or similar circumstances” (more resources on due care are available here). Due care is meant to be flexible and company-specific, but many companies have been clamoring for additional clarity since the Lacey Act was amended. Gibson’s compliance program contains a number of details for other companies to consider when creating their own due care systems, such as:
- Annual training for all purchasing staff
- Communication with suppliers
- Adherence to a detailed procurement checklist
- Verification of foreign laws and licenses with in-country legal professionals and/or knowledgeable third parties (e.g., NGOs)
- Going beyond the checklist by doing independent research to identify risky sources
- Performance of risk assessment at the species level, using resources such as CITES, the IUCN Red List, national threatened/endangered species lists, and UNEP World Conservation Monitoring Centre data
- Requesting sample documentation from suppliers to ensure that information provided is sufficient to satisfy Lacey Act requirements
- Maintenance of records
- Disciplinary action for staff who fail to follow policies on legal wood procurement
Gibson’s Lacey Act Compliance Program offers helpful pointers for companies working to strengthen their own due care programs in the hopes of avoiding the kinds of activities that landed Gibson in trouble.
Lessons Learned from the Gibson Agreement
The penalties imposed on Gibson demonstrate that demand-side forest legality policies can be effectively enforced by national governments, a message that should encourage policymakers in the European Union and Australia, who are currently working on similar legislation. It also shows that the U.S. government is serious about the Lacey Act as a means to protect the world’s forests from illegal exploitation.
The case offers a number of important lessons for companies, too. In the future, avoiding the legal and reputational headaches associated with a public Lacey Act violation will come down to careful use of due care. The references listed above are helpful, and a number of other organizations have compiled guides relevant in particular parts of the world or for certain industries. The Forest Legality Alliance, a project that works to achieve better forest governance by increasing the capacity of supply chains to deliver legal wood products, offers an online list (http://www.forestlegality.org/) of them.
The Forest Legality Alliance, of which WRI is a founding partner, has also created tools to help make compliance with the Lacey Act and similar policies easier for importers. These tools include the Risk Information Tool, the Lacey Customs Declaration Form Tool, and the Guide to Sustainable Procurement of Wood and Paper-Based Products.
As the Gibson case powerfully illustrates, the Lacey Act has teeth. Now it’s up to companies to put policies in place that ensure their products are sourced legally.