While not a binding legal precedent for other cases, the compliance program included in the Criminal Enforcement Agreement that Gibson Guitar recently signed with the Department of Justice (DOJ) brings welcome clarity to the Lacey Act's mandate that companies exercise "due care" when identifying the source of a wood product.
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While not a binding legal precedent for other cases, the compliance program included in the Criminal Enforcement Agreement that Gibson Guitar recently signed with the Department of Justice (DOJ) brings welcome clarity to the Lacey Act's mandate that companies exercise "due care" when identifying the source of a wood product.
The Criminal Enforcement Agreement resolved a nearly three-year investigation and set of legal proceedings concerning wood that was allegedly illegally harvested and/or exported from Madagascar and India. Gibson promised to pay a $300,000 penalty and a $50,000 "community service payment," cooperate in Lacey Act investigations and prosecutions, and drop forfeiture challenges with respect to some of the wood previously seized by DOJ.
Perhaps most significant for the many industries directly affected by the Lacey Act-including wood flooring importers, manufacturers, distributors and installers-was the rigorous Lacey Act Compliance Program that Gibson was required to implement as part of the agreement. The compliance program provides some welcome clarity on the contours of the Act's much-discussed "due care" requirement.
The Lacey Act requires that companies exercise "due care" in identifying the source of their goods, but does not spell out what has to be done to meet this standard. According to DOJ, "due care means that degree of care which a reasonably prudent person would exercise under the same or similar circumstances," and it "is applied differently to different categories of persons with varying degrees of knowledge and responsibility." The standard is generally high in a commercial context. With few precedents for guidance, both regulators and affected industries naturally will look to the Gibson outcome for guidance and to supplement industry customs and standards.
Gibson's Program
As explained in section 2.3 of the Gibson Compliance Program, the Lacey Act due care requirement is designed to "minimize the risk of purchasing plant products that were harvested or traded illegally." To comply with this expectation, the program requires Gibson to follow these steps before buying any wood or wood product:
1. Work with suppliers to ensure they can implement Gibson's policies, which include procuring wood from either recycled sources or forests where legal harvest and chain of custody can be verified, and obtaining copies of all relevant import and export documentation and business or export licenses;
2. Ask questions to gather information about suppliers and the source of the wood and wood products to determine whether the products meet Gibson's requirements for known/legal wood products;
3. "… Conduct independent research and exercise care before making a purchase," which may include everything from Internet research to consulting with U.S. or foreign experts or authorities and making site visits;
4. Request sample documentation from suppliers to evaluate Lacey Act compliance and document validity;
5. Make a determination prior to making a purchase based on all of the information collected;
6. Maintain records of these efforts; and
7. Decline to pursue the purchase if there is any uncertainty of legality.
Section 3 of the Compliance Program sets forth Gibson's policies with respect to wood procurement, verification of foreign law and certifications/licenses, risk determinations, supply chain audits, employee training, record retention, and internal disciplinary actions for non-compliance.
Industry Implications
Gibson's Lacey Act Compliance Program is binding only on Gibson and it is not meant as an official DOJ pronouncement of what "due care" is supposed to mean in other cases. That said, in the absence of other notable precedents, Gibson's program, as a practical matter, helps articulate the industry standard for due care.
Companies engaged in the trade of wood should see the compliance program as a useful guide that may well help protect them from liability. There is no "silver bullet" solution to meeting the due care standard. But companies nevertheless would be well served to implement compliance programs reflecting procedures set out in Gibson's program, tailored to their own circumstances and supply chains. Adopting an appropriately adapted Gibson-style program will give a company a decent argument that it exercised "due care" and therefore complied with the requirements of the law, if it ever unwittingly ends up with some illegal wood and the feds come knocking. DOJ tries to take a consistent approach to enforcement, so the Gibson agreement, and particularly the compliance program, has practical precedential value, even if it is not binding as law on other companies and industries.
International attention on illegal harvesting and environmental commerce is likely to increase. That, in turn, will heighten companies' exposure to civil and criminal enforcement actions under the Lacey Act. Wood products companies would be wise to review their policies and procedures and ensure that they have in place comprehensive programs like Gibson's. This will help insulate them from Lacey Act liability and help further the sustainability of the natural resources that are critical to their operations.