Most people will recognize the name of Gibson Guitar, one
of the most widely known makers of guitars in the United States. Unfortunately
the company was recently raided by the US Fish and Wildlife Service for a
failure in the compliance arena. However, it was not for a violation of the
Foreign Corrupt Practices Act (FCPA); UK Bribery Act; OFAC or other more widely
recognized anti-corruption statutes. Gibson Guitar was raided through an
investigation of the Lacey Act. As reported in the September 1 edition of the Wall Street Journal (WSJ),
in an article entitled "Gibson
Guitar Wails on Federal Raid" James Hagerty and Kris Maher reported
about an August 24 raid by the US Fish and Wildlife Service. All of this
reminded me of my 'This Week in
FCPA' colleague Howard Sklar's multiple discussions of compliance
convergence.
The Lacey Act
The 111-year-old Lacey Act, originally
passed to protect wildlife, was expanded in 2008 to cover wood products. This
expansion of the Lacey Act requires companies to "make detailed disclosures
about wood imports and bars the purchase of goods exported in violation of a
foreign country's laws." In a subsequent WSJ article on September 2, entitled "Forestry
Law Splits Wood Industry", the same reporters stated that "that
companies need to be more diligent about ensuring their entire supply chain is
sourcing wood legally. The authors also quoted Leonard Krause, a Lacey Act
consultant who is advising his clients to retain local counsel in the countries
where the wood is purchased to make sure that the wood is not exported in
violation of local law.
The Allegations
According to the American Shipper, in
an article entitled "Lacey
Act ensnares Gibson Guitar Corp.", the Fish and Wildlife Service
reportedly made two allegations in its affidavit, to obtain a search warrant
for the raid. The first was that product in question "was exported from India
by Atheena Exports under an incorrect tariff code (HS 9209), allegedly to avoid
the Indian government's prohibition on export of sawn wood products (HS 4407),
and was declared upon import as finished veneer (HS 4408)." The second
was that Gibson Guitar was not identified as the end user. The importer of
record, Luthier Mercantile International, listed itself as the end user.
Compliance Convergence
So how does a company, or indeed an entire industry
subject to the Lacey Act, manage all of these risks? I suppose the first
thought would be to only buy American but that thought is probably as
unrealistic as a US based energy company not doing business overseas because of
the FCPA. No, I think the answer is that a company must first identify the
risks it faces and then manage those risks. Here the primary risks would appear
to be knowledge of local laws and liability for the acts of those in your
supply chain. I would submit there are two keys to managing these risks. The
first is Process, Process and Process. The second is Document, Document and
Document.
Whatever business you are in, the requirement is for you to
understand what laws are applicable to your business. If you have to hire local
lawyers in the jurisdiction where you are doing business to ascertain if your
exports violate local law, don't whine about it, hire them. If your company has
strict liability for those in your supply chain, engage in due diligence, train
those vendors in the law and your requirements and manage those relations going
forward. All of the above should be documented so that if your company is
investigated it can produce those records in short order. Talking about unfair
111 year-old laws will not get you much sympathy, from the US Department of
Justice, the US Fish and Wildlife Service or a Federal Judge.
Visit the FCPA Compliance and Ethics Blog, hosted by Thomas Fox, for more commentary on FCPA
compliance, indemnities and other forms of risk management for a worldwide
energy practice, tax issues faced by multi-national US companies, insurance
coverage issues and protection of trade secrets.
This publication contains general information
only and is based on the experiences and research of the author. The author is
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© Thomas R. Fox, 2011
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