Federal Enforcement Leads to Backlash Over Lacey Act

The Lacey Act amendments of 2008 were designed to reduce illegal logging worldwide, to stop scenes like this photo, which shows a truck load of logs that were illegally taken from the Amazon near the Arariboia Indigenous Reserve in June 2012. (Photo courtesy Environmental Investigation Agency.)

It took a call from a group of Oregon's hardwood plywood manufacturers to Sen. Ron Wyden's office in 2006 to get the ball rolling on the most recent amendments to the Lacey Act. The problem was Chinese manufacturers sending products to the United States. To get an upper hand on American competition, Chinese manufacturers were relying on tariff misclassification, subsidies, fraudulent labeling and, most alarmingly, illegal logging. "These unfair and illegal practices were lowering the costs of the Chinese hardwood plywood imports, giving them an unfair advantage over U.S. hardwood plywood and putting American companies in jeopardy of going out of business and the folks that they employ out of work," Wyden, a Democrat, said on the Senate floor in 2007. In an effort to fix the problem and, at the same time, address the "equally important" issue of illegal logging, Wyden introduced an amendment to the 2008 farm bill that expanded the Lacey Act and made it illegal to deal in wood products sourced through illegal means.

Today, the Lacey Act is so well known in wood circles that it's referred to as just "Lacey," like an acquaintance. Not unlike an acquaintance, it has taken the industry a few years to get to know Lacey. Ever since the first law enforcement over the act's 2008 amendments-the high-profiled case involving Gibson Guitar Corp.-it has become clear that, while many in the wood products world see the need for Lacey and agree illegal logging should be stopped, there are stark divisions over its import requirements and latitude in enforcement wielded by the United States Department of Justice (DOJ). Now, while a portion of the wood products industry seeks to change Lacey yet again in hopes to lessen penalties and narrow its scope, the unlikely coalition that helped craft the amended act from 2006 to 2008-i.e., Wyden, along with The Hardwood Federation, a lobbying group of which the NWFA is a part; the American Forest & Paper Association; and the Environmental Investigation Agency (EIA), an NGO-find themselves having to defend their work.

Breaking the Law

Due to its illicit nature, it is difficult to precisely assess illegal logging worldwide, but, in its report "Justice For Forests," the World Bank says an area the size of a football field is illegally clear-cut across the world every two seconds, while Chatham House, a highly regarded London-based think tank, wrote in 2010 that it "remains a major problem."

The financial losses from illegal logging-in unregulated, untaxed goods-total about $10-$15 billion annually, and these funds often remain in the hands of organized crime gangs, according to the World Bank. Meanwhile, global illegal logging contributes approximately $1 billion annually in economic losses to the U.S. forest products industry both in terms of lower exports and depressed U.S. wood prices, according to a 2004 report from the American Forest & Paper Association. Furthermore, in an effort to reinforce the economic import of the wood industry, the Hardwood Federation says the U.S. wood products industry produces $175 billion in products annually, employs about 900,000 workers and has an annual payroll of $50 billion; in 47 states, the wood industry is in the top 10 of manufacturing sector employers. In addition to these economic factors, illegal logging takes an untold toll on biodiversity, degrades forests, misplaces indigenous forest inhabitants and contributes to a sizeable chunk (somewhere between 10 and 30 percent, depending on the source) of the world's annual carbon emissions. Collectively, these economic and ecological reasons led to Congress's amending Lacey in 2008.

Also allied with the effort to rewrite Lacey were NGOs World Wildlife Fund (WWF), Sierra Club, Greenpeace, Global Witness, and ForestEthics, among others, and labor groups United Steelworkers and International Brotherhood of Teamsters. The 2008 amendment effort represented a broad and unusual partnership of industry, labor and conservation interests. "We felt like it was a competitiveness issue: If you don't have to pay a fair price for your raw materials, you have a lower cost structure," Don Finkell, CEO of Shaw Hardwood and the NWFA's representative to the Hardwood Federation, says of the impetus to rewrite Lacey. "There were also the factors of environmental degradation and climate change, so that is why you had different constituencies coming together to support Lacey."

Gibson Gets Shredded

Tempest In the Wood Shop-The music world is divided by the Gibson controversey. On one side are music-oriented associations and Henry Juszkiewicz (left), Gibson's CEO, and on the other is a contingent of musicians-including Dave Matthews Band bassist Stefan Lessard-who say they are more concerned with preventing illegal logging. (Photo of Henry Juszkiewicz courtesy of Gibson Guitar Corp. Photo of Stefan Lessard taken by Marc Pagani Photography.)

It's safe to say that most people outside the wood products industry probably had not heard of Lacey before Aug. 24, 2011, and certainly not before Nov. 1, 2009. The latter date marked the first time agents from the U.S. Fish and Wildlife Service, an agency within the Department of the Interior, raided Gibson Guitar's facilities for allegedly violating Lacey. During that raid, agents seized guitars as well as ebony wood that may have been illegally imported from Madagascar. Gibson denied all charges and, on the face of it, the raid ran counter to Gibson's reputation as an environmentally conscious corporation. The company offers FSC-certified guitars (though not all of its guitars are certified), and it has a long history working with NGOs including Greenpeace and Rainforest Alliance. It was the latter's board of directors from which Henry Juszkiewicz (pronounced JUSS-kuh-witz), Gibson's CEO, stepped down in the wake of the raid.

Then, at 8:45 a.m. on Aug. 24, 2011, about 20 armed Fish and Wildlife Service agents served four search warrants on Gibson and raided the company's facilities again, this time seizing pallets of wood, electronic files and guitars. The products in question now included unfinished rosewood, as well as mislabeled and unfinished ebony, all of which came from India. Authorities effectively shut down Gibson for the day and ordered employees to wait in parking lots.

Soon after, attention surrounding Gibson, Juszkiewicz and Lacey skyrocketed. Juszkiewicz held news conferences and gave interviews to countless media (and inspired countless music-related headlines-"Gibson Guitar Wails on Federal Raid"; "Gibson Guitar Raid Strikes Sour Note"; "Raid Strikes Only Minor Chords on Hill"; etc.). In Juszkiewicz's view, Gibson, which had hired 580 employees in the two years prior to the second raid, was the victim of an onerous, job-killing government regulation that rested on the laws of other countries. Furthermore, after two raids, authorities had yet to formally charge the company with any wrongdoing, and it would not return any of the seized property, which Juszkiewicz valued at $2-$3 million, according to The Daily Beast. Juszkiewicz proffered that the government was overreaching and bullying his company. "We feel totally abused, and we believe the arrogance of federal power is impacting me, personally, our company, personally, and the employees here in Tennessee. And it's just plain wrong," Juszkiewicz said during a widely viewed press conference outside his company's factory the day after the second raid.

The anti-government themes of Gibson's plight did not escape the rising Tea Party movement, and Juszkiewicz naturally became its cause célèbre. When President Obama took the stage Sept. 8, 2011, for a speech on jobs to a joint session of Congress, Juszkiewicz attended as a guest of Marsha Blackburn, a Republican from Tennessee and Tea Party backer; in October 2011, Juszkiewicz spoke at a Tea Party rally in Nashville, Tenn., that attracted 500 supporters. "There was a group of Tea Party Republicans, and when they saw this, they saw Gestapo tactics, you know, the government coming in like a SWAT team with guns drawn and making all the employees go in the parking lot, and seizing materials and seizing records," recounts Finkell, whose company is a subsidiary of Warren Buffett's Berkshire Hathaway Inc. "To them, it was very heavy-handed, and I certainly appreciate that?there is a general business dislike for regulations, and Lacey is a type of regulation."

'Draconian Details'

A barge of illegally logged ramin logs being ferried down Indonesia's Seruyan River. (Photo courtesy Environmental Investigation Agency.)

William Jopling, CEO with TW Flooring Group (formerly known as Tesoro Woods), has worked in the wood industry for a shade under 40 years. He has operated sawmills and manufacturing operations in Vermont, and overseen wood operations in Central America (Costa Rica, Honduras, Belize, Panama), South America (Brazil, Paraguay, Bolivia, Chile, Peru), Asia (Indonesia, Malaysia, China), and Africa (Ghana, Congo), as well as Russia, Australia and Europe. "From that I got a pretty good view on supply chains and each country's nuances and laws," he says, "the good, the bad, the ugly." Initially a strong supporter of Lacey when it was being rewritten, the focus on Gibson Guitar has caused him to second-guess the federal powers granted over the wood industry. "Once you got into the details," he says, "the Lacey Act actually has some draconian measures in it."

The open-ended language Lacey uses allows federal authorities to circumvent a number of American legal institutions. Any agents authorized under Lacey may "make an arrest without a warrant" on "reasonable grounds." Those agents may "search and seize, with or without a warrant" and may hold property pending civil or criminal proceedings. "The way it is written is, if you can prove to the Justice Department that something illegally logged entered into a supply chain," Jopling says, "then they have the right to seize the entire supply chain." To Jopling, Lacey disregards the right of due process inherent in America, and he sees the Gibson episode as bearing this out: To date, the company has yet to be charged, court proceedings have yet to be scheduled, and its property is still in the possession of the government. "Once you get down to the real consequences of this law," Jopling says, "without due process, it is so overreaching."

Others find fault with the fact Lacey could potentially ensnare businesses that exercise due care yet are later accused of violating it due to the actions of actors further up the supply chain, and they fault Lacey for not containing any "innocent owner" provisions. "If you've done due care … but some violation may have occurred somewhere without your knowledge, then we believe you should have the permission to petition for that product back," says Brent McClendon, executive vice president of the International Wood Products Association (IWPA), which represents importers selling in North America. "But the way the government currently looks at it, they would say, 'No, you don't'-even though you weren't at all associated with the illegal activity."

Congressional Encore

The current Lacey Act has been called the wood industry's

Prompted by the supposed harassment of an innocent American company at the hands of the federal government, and with the support of the Tea Party movement behind them, some members of Congress stepped forward in October 2011 to attempt to rewrite Lacey yet again using H.R. 3210: the Retailers and Entertainers Lacey Implementation and Enforcement Fairness Act, or RELIEF Act. It would limit Lacey's declaration requirement to solid wood items imported only for commerce; reduce the penalty for an unknowing, first-time offense to $250 (regardless of whether the offender is a corporation or person); and change the law so that goods possessed by an "innocent owner" are not subject to automatic forfeiture. The bill also contains a grandfather provision exempting any plant product manufactured before May 22, 2008, which is the day the amended Lacey took effect as part of that year's farm bill.

While the RELIEF Act enjoys support among Tea Party faithful-garnering sponsorship from 18 House Republicans as of the latest tally-one of its original sponsors (along with Blackburn, the Republican) is Rep. Jim Cooper, a Democrat from Tennessee representing Gibson's hometown of Nashville; Blackburn represents a part of Tennessee where Juszkiewicz has residency, according to The Tennessean. Cooper and Blackburn are separated by party lines, but they've found common ground in championing legislation that appeals to some of the U.S. music industry-and thereby constituents near Nashville. The act garnered support from musicians like "Big Kenny" of the duo Big & Rich, Rosanne Cash and Vince Gill, along with large music-industry associations like the American Federation of Musicians, League of American Orchestras and the National Association of Music Merchants, as well as the Grand Ole Opry.

In addition to support among musicians, the RELIEF Act garnered praise from a cross-section of industry associations like the National Association of Home Builders (NAHB), McClendon's IWPA and the American Home Furnishings Alliance. Specifically, these groups lauded the RELIEF Act's innocent owner provision. Honest business owners must have the right to seek return of goods obtained using due care if they "run afoul of some part of the Lacey Act" without their knowledge, they wrote Cooper after he introduced the RELIEF Act.

The Band Reunites

Now the original backers of the 2008 amendments find themselves having to decry the RELIEF Act while they sell Lacey all over again. To Shaw's Finkell, the fuss raised by Cooper and Blackburn is a tempest in a teapot. "It's unfortunate that Gibson was the first to have an enforcement action, because the exotic woods used in these instruments are a very small tip of the iceberg; they are almost inconsequential," Finkell says. "The bigger thing is massive amounts of timber coming [to America] in furniture and wood flooring-that is really where the main crux of the problem is." EIA, along with a who's who of environmental groups including World Wildlife Fund, Sierra Club and the Rainforest Alliance, says the RELIEF Act would favor "specific interests"-i.e., musicians-at the expense of a larger group of "key stakeholders." "As proposed, this amendment would be devastating to the 2008 Lacey Act amendments, one of the most important and successful trade and conservation laws passed in the last decade," they wrote in a November 2011 letter to the House representatives.

In that same letter, the environmental groups outlined how the RELIEF Act would "eviscerate three key provisions" in Lacey. First, by limiting Lacey's declaration requirement to solid wood items, the RELIEF Act would let pulp, paper and paperboard makers and retailers off the hook of knowing the source of their products. Second, by lowering the fine for unknowing, first-time offenders to $250, Cooper's amendment would remove the impetus for importers dealing in illegally sourced material to change their buying behaviors (as it stands, a corporation that knowingly violates Lacey today could be fined up to $500,000). Third, by adding an innocent owner exception to Lacey, Cooper's amendment would allow manufacturers "to keep wood that has been proven to be stolen."

Jameson French is CEO at Northland Forest Products and past chair of the Hardwood Federation. The RELIEF Act, French fears, would dramatically weaken Lacey. "I always refer to the Lacey Act as a kind of big stick law," he says. "It is sending a message to the traders of the world saying you need to do due diligence to source your wood from legal and sustainable sources. It sends a strong message out that if you don't do that and you get caught bringing in illegal products, you are going to get into big trouble. That is one of the greatest strengths about it." Finkell, meanwhile, sees a problem in adding an innocent owner provision to Lacey. "One of the fundamentals of U.S. jurisprudence is that ignorance of the law is no excuse," he says. "I think it is a very dangerous precedence to say, 'If you didn't know about the law, it's OK.' It's like saying, I didn't know I was speeding because I didn't look at my speedometer."

In addition to the usual players like HF and EIA rallying to preserve Lacey this time, a sizeable-and, arguably, more noteworthy-contingent of musicians has broken from their trade's associations to preserve Lacey. While Cooper maintains the RELIEF Act will protect musicians from having their instruments unjustly seized by the government when they travel, many musicians feel this concern is unfounded since the DOJ has made clear it intends to focus on "commercial traffickers" in enforcing Lacey. "This is pure fear-mongering. Of much greater concern to me is the thought that my guitar may contain illegal wood," Stefan Lessard, bassist and founding member of Dave Matthews Band, wrote in an editorial in Virginia's Richmond Times-Dispatch. Those on board with Lessard include Mick Jagger, Bonnie Raitt, Willie Nelson, Lenny Kravitz, Jack Johnson, Sarah McLaughlin, and tens of thousands of other musicians from around the world.

Exports Up, Imports Down

What has Lacey wrought on the wood products world in its current "big stick" form? The EIA and other environmental groups wrote Congress in November 2011 that "illegal logging is on the decline, as much as 25 percent worldwide, with reductions as high as 50-70 percent in some key countries." Things seem to be improving for domestic wood products, as well. "China now imports two-and-a-half times the amount of U.S. hardwood than they did prior to the [2008 amendments]," Finkell says. "It's not because they suddenly decided they liked U.S. hardwoods-it's because U.S. hardwoods are generally considered to be legal. Some of the other sources for hardwoods that look very similar, like eastern Russia, where they have a lot of white oak and maple, are not legal, or a large portion of them is not legal."

What is more, exports are continuing to grow in most major overseas markets, and they "have never been more important to the U.S. hardwood industry," according to Michael Snow, executive director of the American Hardwood Export Council (AHEC). Today, nearly 40 percent of all graded hardwood lumber produced is destined for export.

While U.S. exports have fared well as companies abroad seek legal sources of timber in order to comply with Lacey, U.S. importers, meanwhile, are feeling the increased cost of doing business that the 2008 amendments brought. While he fully supports Lacey's intent to halt illegal logging worldwide, TW Flooring Group's Jopling believes an underlying goal of the 2008 amendments was to slow the flow of wood products imported into the U.S. "I think the Lacey Act has had its intended effect of chilling imports; it's done well on the protectionist front," he says. Due to Lacey's very nature-making it illegal to import illegally sourced products-wood products importers now carry a heavier burden of doing business, Jopling says. "If foreign lawmakers made a law like this that applied to U.S. companies only, these people would be up in arms rightfully so," he says of domestic wood product makers. "But since it largely targets the import side, there is an incredible double standard."

In the end, supporters and detractors of the 2008 amendments agree that Lacey has gotten a global discussion going on forests. "A lot of really good work has been done around the world in response to the Lacey Act," Finkell says. "It is starting to have a very positive effect on what is going on … You see countries like Indonesia, Gabon, where illegal logging has been just legendary, and they've developed voluntary partnership agreements with the European Union" under its FLEGT program to battle illegal logging. Jopling says Lacey is altering wood buying habits the world over. "Another effect has been raising legality as an issue in all those other cultures" that, historically, have not shown concern for legality in logging, he says. "They are talking about it and actually acting on it, and that is the thing I agree with 100 percent-they are actually changing their buying habits and shying away from questionable things. Companies are starting to really understand their supply chains and not just buying on the lowest price. They are starting not to buy in areas that are pretty rampant with illegal logging."

Standard Bearers

Regardless of its intended consequences and how this Congress acts in altering or not altering Lacey, nobody is calling for its outright repeal; it should remain for the future in one form or another. As Jopling puts it, arguing against Lacey is like arguing against "mother or apple pie, because who is for illegal logging?" Yet there remains the problem of Lacey's vague "due care" definition. The phrase is mentioned three times in the 2008 amendments; however, it is not defined anywhere. Do importers need to personally visit the stands from which their products are sourced? Does an FSC chain of custody suffice as due care? (Gibson maintains the wood in question during its second raid was FSC-certified; however, FSC has said it was not.) Are letters from foreign governments enough to satisfy the requirement? In an attempt to clarify this issue, some in the U.S. wood products industry-including Gibson, Anderson, the NWFA, Columbia Forest Products and paper products maker Kimberly-Clark, among others-have partnered to form the Lacey Due Care National Consensus Committee, whose goal it is to popularize a due care standard that would be defensible in court. "Lacey requires companies to use due care in compliance with the law, but the lawmakers did not define that," says Mike Italiano, CEO at Capital Markets Partnership, a nonprofit group that helped the committee write the standard. "There is a lot of confusion in the market, and Lacey liability is very scary … That's why we developed the standard."

A company that wants to "certify to the standard" must first conduct a risk audit. It must map its supply chain identifying the countries of origin from where their products are sourced, and it must evaluate risks within the supply chain (e.g., species, CITES, supplier integrity, etc.). Second, the company must complete a legal audit during which it checks with foreign authorities to verify forest governance and logging legality. Third, the company conducts a compliance audit during which it conducts on-site visits with suppliers, providing training and developing procurement policies. Last, the company is required to use a forest certification standard from the likes of the Forest Stewardship Council, Sustainable Forestry Initiative, American Tree Farm System, or AHEC. In addition, the standard names the NWFA's Responsible Procurement Program (RPP) as an approved stepwise approach to FSC certification. This means that a company that has not yet attained FSC certification could use the RPP in its quest to meet the standard. (For the full standard, visit www.LaceyDueCare.com.) "If you do the specific steps, you're in Lacey compliance," Italiano says, "and you get a defense to the strict criminal liability." Along with heightened criminal defense, a company would also be better defended against product seizure and forfeiture, according to one of the standard's provisions.

Moving forward, Italiano is hoping to spread use of the standard in order to bolster its legal standing. "If you certified to the standard, you could use that certificate of compliance as a legally binding certification to show the government you are in compliance," he says. "The key thing to getting the standard used in the market is getting companies certified to it. Once companies start certifying, that will increase the competitive pressure on other companies to do so."

What a Long, Strange Trip It's Been

The debate over Lacey is ongoing. A vote on the RELIEF Act could happen any day now (and may have occurred as of press time for this issue). Even if the bill is not passed, Gibson and other music-related companies in Nashville (collectively known as "Music Row") launched a multi-million-dollar lobbying effort in Washington, D.C., in 2011, and the results are yet to be seen.

While these music industry interests are concentrating on protecting traveling musicians, French sees his mission to protect Lacey in order to preserve forest products jobs. "They have sort of co-opted this case and turned it into something that is way more than what it is," French says of the RELIEF Act's supporters. "They run the risk of having it backfire, because many of the same people are talking American jobs and rural economies, and yet they are wanting to destroy a law that has definitely benefited American manufacturing companies and American exporting companies that are selling wood from our forests. It's become a poster child for something that is maybe not quite what they think is."

Editor's note: Since this feature was published, House Republicans issued a defiant reaction, reiterating his stance that his company was "improperly targeted" by authorities.