In one sense, it’s small potatoes. By the numbers alone, the government seizure of a few pallets of exotic hardwood worth only about $100,000 barely merits mention in an era where corporate penalties can top $1 billion. But U.S. v. Ebony Wood in Various Forms is no ordinary enforcement effort, and it may cast a long shadow for years to come.
The case has garnered a lot of mainstream press, largely because the target, Gibson Guitar Corp., is a beloved instrument maker and not the type of company intuitively associated with environmental violations. Music blogs are abuzz with musicians’ fears that—if you follow the enforcement action to the next logical step—they could be in jeopardy of losing their instruments.
“Musicians have raised concern that it may curtail their ability to perform concerts abroad because that would involve a border event that could subject them to seizure,” says William Droze, an environmental litigation partner at Troutman Sanders. “Keep in mind that while we’re talking about guitars, a number of musical instruments incorporate wooden parts, so many types of musicians could be affected.”
Those fears could have a broad impact on the music industry. The action also could have a direct effect on the building and furniture trades, and any other business that relies on imported wood. But the most interesting aspect of the case from a legal perspective is the troublesome scope of the law in question. The Lacey Act empowers authorities to enforce any relevant foreign law, and as the case proceeds, U.S. federal courts face the thorny task of interpreting and applying the laws of Madagascar and India.
“The Gibson forfeiture is entirely based on foreign law,” Droze says, “and the legal system has traditionally been skeptical of the application of foreign law in court proceedings.”
The Lacey Act, which prohibits trade in protected plants and animals, dates back to 1900 when poaching was rampant throughout the nation’s newly settled West. In recent decades, the law was primarily used to stem the import of invasive exotic species. Amendments to the law in 2008 expanded plant protections and shifted the enforcement focus to combating illegal logging practices.
The law has both civil and criminal provisions. The case against Gibson was initially just a forfeiture action—the principal risk to the company being the loss of the contested wood. While that’s not an insignificant threat in an industry where customers are notoriously finicky about materials, things got worse for Gibson on Oct. 6, when it was confirmed that the DOJ’s Environmental Crimes Section (ECS) was mounting a criminal investigation. That could mean significant fines and even jail time for executives.
The case began when U.S. Fish and Wildlife Service agents raided Gibson in 2009, seizing rare ebony wood from Madagascar, as well as guitars. Federal agents raided Gibson again in August, this time taking a shipment of Indian rosewood. Both seizures were based on how the origin and sale of the protected woods was documented.
“Part of the difficulty with Lacey Act compliance is that a product obviously begins as a piece of wood somewhere, but it could be fabricated into any number of variations as it moves along the supply chain,” Droze says. “The government seems to be taking the position that each step along the way has to be documented or there’s a risk of forfeiture. The burden is on the owner to document that it was sourced within the law.”
That can be an onerous, if not impossible task, given the winding path any piece of wood takes from the tree to its final form. Gibson has pointed to its involvement with organizations such as the Forest Stewardship Council and the Rainforest Alliance as evidence it was making efforts to comply with environmental laws in wood sourcing, but that may not be enough.
“The government is focusing on declaration forms, evaluating whether the representations are accurate and, if not, whether they’re knowingly inaccurate,” says Gregory Linsin, a partner at Blank Rome who previously spent 17 years in the ECS. “At least with regard to Madagascar, the government appears convinced that the company was making knowing misrepresentations.”
In essence, it’s a paperwork violation, and only derivatively connected to the illegal logging practices that the enforcement effort is determined to curb. Nonetheless, it highlights significant new risks and responsibilities for what are often relatively small businesses.
Linsin left ECS about four years ago, at a time when the section was extensively debating how to enforce the then-pending Lacey Act amendments.
“Quite honestly, there was a lot of concern about the level of detail that would be required in these declaration forms,” he says. “There was a recognition that the law placed a fairly high burden on people importing wood products to rely on representations of folks overseas, and a concern that they were then being asked to sign a form under penalty of perjury as to the information’s accuracy. These are strict requirements when you’re talking about products from sources that are sometimes not all that well documented.”
Added to that is the gap between legal theory and practice abroad. The Lacey Act empowers U.S. authorities to bring a case based on foreign law, regardless of how or if that law is actually enforced in the country in question.
One issue in the Gibson case, for example, is whether the shipments constituted raw materials, which would be illegal, or whether by being roughly fashioned into guitar components before shipping the wood could be construed as a finished product, which may be permissible. U.S. courts will have to interpret the foreign laws in question, while Gibson attempts to demonstrate it has documentation from those countries that the exports met local standards, regardless of what their laws might say.
“It may very well be that the actual practice in a foreign country is different than their written laws,” says Greg Corbin, a Stoel Rives partner who practices in the forest products industry. “If, in fact, Gibson has documentation from the government of India that says something inconsistent with the written laws, that will place the government in the challenging position of having to argue that the written laws of the country are what the court ought to apply, notwithstanding some official document from an agency of that jurisdiction’s government.”
Few Lacey Act cases ever reach trial—most are resolved by negotiated plea—so real clarity on the issue may be a longtime coming.
“The outstanding question for corporate counsel is the standard by which they will be measured in determining the origin of these products, and this case suggests that standard will be pretty high,” says Linsin. “That’s a sobering message, especially in these initial years when the government is looking to establish benchmarks for enforcement.”
It was previously assumed that Gibson would not face criminal charges in the case. The DOJ often focuses on civil measures in a new area until enforcement baselines are set. News of the criminal investigation, however, underscores the urgency for companies to establish Lacey Act compliance programs.
“Companies should think very carefully about what form of due diligence they use to make certain materials are legally obtained,” Corbin says. “That means understanding the laws of the jurisdiction from which the material comes, and also scrutinizing the required declarations. The more steps you take to build the best record you can, the better position you’re in if law enforcement officers come knocking.”