Criminal Enforcement Agreement with DOJ has Gibson Guitar Singing a New Tune

The United States Department of Justice (DOJ) announced on August 6, 2012 that it reached a Criminal Enforcement Agreement with Gibson Guitar Corp. regarding allegations that the high-end guitar manufacturer has engaged in conduct that violates the Lacey Act, as well as other civil and criminal laws. You can find some our previously pieces on the Gibson case here.

US officials searched Gibson's facilities three times over the last three years, seizing guitars and wood products allegedly obtained in violation of the laws of India and Madagascar—and, consequently, the Lacey Act, which prohibits the trade in wildlife, fish, plants, and plant products that have been taken, transported, or sold in violation of law, including the law of other countries. Gibson has spent the last few years in litigation contesting the forfeiture of the seized wood and in Congress pressing for legislation that would change core provisions of the Act.

Driven in large part by critics of the Gibson enforcement action, some members of Congress in recent months have been talking about pulling back on the Lacey Act, proposing amendments such as the Retailers and Entertainers Lacey Implementation and Enforcement Fairness (RELIEF) Act. Specifically, Congress has considered limiting the Act's application to plants and plant products imported before the 2008 effective date of the Amendment, narrowing the categories of plant-related foreign laws that trigger Lacey Act violations, and altering the forfeiture provision to include an "innocent owner" defense. Whether these efforts to amend the Lacey Act will lose steam now or survive the resolution of the Gibson case is unclear.

In the Criminal Enforcement Agreement, Gibson now states that it "accepts and acknowledges responsibility" for its actions. Gibson acknowledged that Madagascar had attempted to address the problem of its decreasing forest cover with local laws banning the harvest of ebony and prohibiting its export except as "finished products." Under Madagascar law, guitar "fingerboard blanks" (rough sawn pieces of wood used to make fingerboards) are not considered "finished products" unless those blanks are obtained from certain specified suppliers. As the Agreement spells out, a Gibson representative learned about the relevant Madagascar law and informed Gibson's management about it. Gibson nevertheless continued to order ebony fingerboard blanks without taking further action or asking for confirmation from its supplier that the wood was legal. In the Criminal Enforcement Agreement, Gibson now has conceded that it "should have taken a more active role and exercised additional diligence with respect to documentation of legal forestry practices."

As part of the resolution, Gibson agreed to enter civil settlement agreements in the forfeiture actions, pay a penalty of $300,000, and make a "community service payment" of $50,000 to the National Fish and Wildlife Foundation. It also agreed to cooperate with government investigations and prosecutions concerning the Lacey Act, including responding to requests for relevant documents and information.

Perhaps most importantly for industry in general, Gibson also agreed to implement the "Lacey Act Compliance Program" set forth in Appendix B of the Agreement. The Program is designed "to enhance [Gibson's] current due care standards when purchasing wood products." It provides a list of steps that Gibson must follow in order to perform a sufficiently diligent inquiry into the legality of its wood, requires an annual supply chain audit and employee compliance training, and includes an employee disciplinary policy for violations of the Compliance Program. The Compliance Program likely will have significance beyond the Gibson case, as it sheds further light into the Lacey Act's "due care" standard. As such, the new Gibson Lacey Act Compliance Program provides an important guide for other companies engaged in the trade of resources protected by the Lacey Act.

The resolution of Gibson case is significant. As Gibson acknowledges in its new Compliance Program, companies such as Gibson play a significant role in "safeguarding the future of natural resources critical" to their businesses and compliance with the Lacey Act "is a critical component of a transparent, legal and sustainable supply chain." Companies engaged in international commerce in seafood, wildlife, paper, and wood should view the Gibson Lacey Act Compliance Program as a useful guide as they look to the future and seek to protect themselves from liability. The increase in international attention and enforcement actions has heightened the risks and exposure to these manufacturers and requires enhanced vigilance. It is imperative for companies to take proactive steps now to review policies and procedures and ensure that comprehensive compliance programs are in place—before enforcement authorities come knocking.

UPDATE (8/28/2012): For a more extensive discussion of this issue, click here.

© Arnold & Porter Kaye Scholer LLP 2012 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.