Gibson Settles Lacey Act Violation Dispute with DOJ

Gibson Guitar and the Department of Justice (DOJ) settled a contentious dispute over allegations of Lacey Act violations related to the purchase of wood from Madagascar and India, both sides said Aug. 6. Gibson agreed to pay penalties, withdraw claims against wood seized as part of the government's investigation and improve compliance efforts, while the government agreed to defer prosecution, according to the agreement.

In August of 2011, federal agents executed four search warrants on Gibson’s facilities in Nashville and Memphis and seized several pallets of wood, electronic files and guitars. Gibson complained that the raid, which forced the company to shut down operations at the time, cost it time and money. The harvest of ebony in and export of unfinished ebony from, Madagascar has been banned since 2006. Gibson bought "fingerboard blanks," consisting of sawn boards of Madagascar ebony, for use in manufacturing guitars, from a supplier who obtained them from an exporter in Madagascar.

The settlement agreement is (here).

The agreement defers prosecution for criminal violations of the Lacey Act and requires Gibson to pay a penalty amount of $300,000 and a community service payment of $50,000 to the National Fish and Wildlife Foundation to be used to promote conservation. Gibson will also implement a compliance program designed to strengthen its compliance controls and procedures, said the government. Gibson will also withdraw its claims to the wood seized in the course of the criminal investigation, including Madagascar ebony from shipments with a total invoice value of $261,844 as part of the agreement, said the DOJ.

"In light of Gibson’s acknowledgment of its conduct, its duties under the Lacey Act and its promised cooperation and remedial actions, the government will decline charging Gibson criminally in connection with Gibson’s order, purchase or importation of ebony from Madagascar and ebony and rosewood from India, provided that Gibson fully carries out its obligations under the agreement, and commits no future violations of law, including Lacey Act violations," said the DOJ in a press release.

(The 2008 Lacey Act Amendments made it unlawful to import, export, transport, sell, receive, acquire, or purchase in foreign commerce a broad range of plants, as well as plant products, with some limited exceptions, taken or traded in violation of the laws of other countries. The amendments also implemented an import declaration requirement, etc. Gibson and others have pushed for legislative changes to the Lacey Act. See ITT's Online Archives 12051045 for summary of a recent hearing on the need for Lacey Act revisions.)

Tariff Classification Change

Among the facts agreed to by Gibson as part of the settlement, the imported wood saw a tariff classification change as it went from Madagascar to the U.S. The shipment of Madagascar ebony fingerboard blanks that entered the U.S. Sept. 28, 2009, was classified in Madagascar customs documents as under series 4418.9010 of the Harmonized Tariff Code (HTC). The 4418.9010 applied to "Builders' joinery and carpentry of wood, including cellular wood panels and assembled flooring panels; shingles, and shakes ... other." Subcategories under 4418.90 include "drilled or notched lumber studs," "wood flooring," arches, roof trusses, and "prefabricated partitions and panels for buildings."

The U.S. Customs documents reflect that when the Sept. 28, 2009, shipment entered the U.S. in Tennessee, acting though a U.S.-based agent, declared the ebony for U.S. Customs purposes under a different tariff classification, HTC series 4407 (wood sawn or chipped lengthwise, sliced or peeled, whether or not planed, sanded, or end-jointed). No evidence exists to demonstrate that Gibson prepared or participated in the preparation of the tariff classifications, said the Justice Department.

Disagreement Remains

Both sides played the settlement off as a win. "This criminal enforcement agreement goes a long way in demonstrating the government’s commitment to protecting the world’s natural resources," said Jerry Martin, U.S. Attorney for the Middle District of Tennessee. "The agreement is fair and just in that it assesses serious penalties for Gibson’s behavior while allowing Gibson to continue to focus on the business of making guitars.”

Gibson said the cost of a trial was a major part of the decision to settle. "We felt compelled to settle as the costs of proving our case at trial would have cost millions of dollars and taken a very long time to resolve," said Gibson CEO Henry Juszkiewicz in a press release. "This allows us to get back to the business of making guitars. An important part of the settlement is that we are getting back the materials seized in a second armed raid on our factories and we have formal acknowledgment that we can continue to source rosewood and ebony fingerboards from India, as we have done for many decades." Juszkiewicz said the raid "shows the increasing trend on the part of government to criminalize rules and regulations and treat US businesses in the same way drug dealers are treated."

The Gibson release also included a hypothetical question and answer with the company about the settlement. The questions appear to include some pointed references to the government's lack of a valid case. For instance, one question reads" "This is a pretty unusual legal deal being executed here. It's not a plea bargain, and it is not a traditional deferred prosecution agreement because there is no draft indictment or other criminal-charging document. But it's apparently not a complete declination, as Gibson is at least paying a nominal penalty. How did you settle on this unique form of agreement, and doesn't it represent just a fig leaf to cover the Government's naked surrender?" The company's answer is: "The case is behind us. The extensive negotiations to reach this agreement succeeded in finding a balance that Gibson supports."

Markey, Blumenauer Celebrate

Reps. Edward J. Markey (D-Mass.) and Earl Blumenauer (D-Oreg.) voiced approval for the settlement. “Gibson’s admission of wrongdoing is a win for the Lacey Act, a win for U.S. jobs and a win for consumers who can be assured that illegally trafficked ‘blood wood’ won’t be used to make their guitars,” said Markey, ranking member of the House Natural Resources Committee. “Gibson, the Tea Party and House Republicans attempted to gut the Lacey Act by changing the law in Congress before the case against the guitar maker was resolved." Blumenauer said the "case sends a message to other companies who think they can ignore the laws." The press release is (here).

Conservatives have railed against the Lacey Act in recent years, pointing to the Gibson case as government overreach. "The Lacey Act ... has devolved into an enforcement vehicle that fails to separate legal acts that boost our free-market economy from illicit criminal conduct," said Marc Levin of Right on Crime, referring to the penalty paid by Gibson Guitar because of illegal wood imports. He said the reforms "should include requirements for the prosecution to provide proof the defendant acted intentionally and assurance that any penalties it inflicts are civil, not criminal, unless there is direct physical or economic harm to humans."

(See ITT's Online Archives 11083010 for summary of the allegations against Gibson.)

The DOJ press release is (here). The Gibson press release is (here).