Lacey Act/Trade Compliance

Dear Friends:

As you may have seen, last week brought another example of trade-related enforcement that companies should find to be of interest.  U.S. authorities raided two offices of Lumber Liquidators Inc. on September 26th.  While the search warrant is sealed, reports indicate that the warrant was executed in connection with an investigation by Immigration and Customs Enforcement, the U.S. Department of Justice and the U.S. Fish and Wildlife Service of alleged potential violations of the Lacey Act.

The Lacey Act (16 U.S.C. §3371 et. seq.; 18 U.S.C. §42) broadly prohibits, among other things, the import, export, transport, sell, receipt, acquisition or purchase in interstate or foreign commerce of any fish, wildlife or plant taken, possessed, transported or sold in violation of any law or regulation of any State or any foreign law that protects such wildlife.  The Lacey Act provides for strict liability forfeiture of infringing merchandise, as well as civil and criminal penalties.  Felonies under the Lacey Act carry maximum fines of $250,000 for individuals, $500,000 for organizations and/or imprisonment for up to five years.

Last year, Gibson Guitar Corporation (“Gibson”) entered a criminal enforcement agreement with the Department of Justice, which required Gibson to pay a $300,000 penalty directed to the Lacey Act Rewards account.  The settlement was reached after highly-publicized (and controversial) raids of Gibson’s manufacturing facilities in Nashville and Memphis and allegations that Gibson had sourced ebony wood from Madagascar and rosewood and ebony from India in alleged violation of the laws and policies of those countries.  The settlement acknowledges that certain questions and inconsistencies exist with respect to India’s policy and the related claim.  Under the settlement agreement, Gibson is required to take a number of steps to strengthen its supply chain compliance program.  Such steps include, among others, providing annual training for its purchasing employees and wood suppliers; independently researching and exercising care to verify, prior to purchases, the documentation required for the legal export of woods and the validity of the documentation received from suppliers; and conducting annual supply chain audits, including the evaluation of all documents, certifications, licenses and other records associated with its wood purchases and the evaluation of its adherence to existing laws governing the protection and export of wood in all countries where it sources wood.

While these cases should be of special interest to any company that imports wood, plants or other Lacey Act-regulated products, they also underscore how important it is for all companies involved in international trade to understand their business activities and the inherent areas of risk associated with those activities (e.g., importations subject to special requirements like FDA requirements, antidumping and countervailing duties, etc.).  Once this is understood, the next step is to develop and implement internal controls that are tailored to the business activities and that take into account the company’s level of risk.  The controls should be designed to mitigate the risks involved, but it is equally important to make sure that such controls are documented, tested periodically and revised when necessary.

If you have any questions about developing or revising internal controls over customs and trade compliance, in general, or questions involving Lacey Act compliance in particular, please let us know.

Best regards,

Ted

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