The Lacey Act in the 21st Century: An Old Law’s Renewed Clout Imposes Serious Consequences on Importers and Processors of Foreign Wood (Updated)
In the past several years, some high-profile federal enforcement cases have confirmed the importance of awareness of, and compliance with, the Lacey Act.
The first notable enforcement action under the Lacey Act took place in 2011. After enduring multiple raids on its facilities, Gibson Guitar paid a $300,000 penalty related to illegally sourced hardwood from Madagascar and India. More recently, in February 2016, a federal court sentenced Lumber Liquidators for illegally importing hardwood from Chinese suppliers. That sentence included a penalty of more than $13 million and included a five-year probation period during which Lumber Liquidators will be required to increase its emphasis on avoiding trafficking in illegal wood. In June 2016, federal authorities searched the premises of Global Plywood & Lumber Inc., a California-based company, based on the United States Department of Homeland Security’s belief that Global Plywood, in conjunction with its Peruvian supplier, had violated U.S. and Peruvian laws by importing “significant quantities” of illegally harvested Amazonian timber. And in September 2017, Young Living Essential Oils pleaded guilty to Lacey Act violations that included the importation of rosewood oil without obtaining CITES export permits. Besides the $760,000 in penalties paid under the plea deal, the Young Living Essential Oils case is notable for the significant auditing and compliance measures the company will be required to follow during its five-year probation period.
Enacted in 1900, the Lacey Act banned trafficking in illegal wildlife for more than 100 years. In 2008, Congress expanded the Lacey Act to penalize importing or possessing plants and their products—including timber and wood products—taken in violation of the laws or regulations of the country from which they are sourced. It is illegal to “import, export, transport, sell, receive, acquire, or purchase” such materials. The scope of the statutory regime is broad enough to include, for example, logs harvested in violation of a harvest permit or indigenous peoples’ rights to the forestland. The Lacey Act imposes strict liability on offenders, meaning that U.S. importers are exposed to liability for any illegal conduct occurring before taking title to imported wood. In other words, the Lacey Act casts a wide net with respect to the acts it covers and the businesses that can be held liable under its terms.
Criminal and civil penalties under the Lacey Act vary depending on the offender’s level of culpability and exercise of “due care.” For knowing violations, the Lacey Act imposes criminal penalties of up to five years’ imprisonment and a maximum fine of $250,000 for individuals and $500,000 for organizations for each offense. For unknowing violations, the penalties are less but still vary depending on whether the offender exercised due care and therefore should have known that it was violating the Lacey Act. For example, an offender who, in the exercise of due care, should have known that it was violating the Lacey Act is subject to one year’s imprisonment and a maximum fine of $100,000 per individual or $200,000 per organization for each offense.
A lesser penalty is imposed on an offender who is exercising due care but still unknowingly violates the Lacey Act. In that case, the offender is subject to a maximum fine of $10,000, though even this smaller fine is applied to each violation. Offenders may be required to forfeit the illegal wood, together with the vessels, vehicles, aircraft, and other equipment used to aid the illegal trading in addition to the fines and prison time.
The Lacey Act does not define “due care,” but courts have interpreted the term to mean the care that a “reasonably prudent person would exercise under the same or similar circumstances.” Accordingly, for forest products companies sourcing timber domestically and abroad, an analysis of internal sourcing policies and procedures in the context of industry standards is critical to determine whether they would meet the due care standard. The probation conditions imposed on Lumber Liquidators also contain due care requirements that are instructive on what elements federal prosecutors believe are needed to meet the Lacey Act’s due care standard.
But without any uniform guidance from the federal government, forest products companies face a difficult task in establishing due care programs under the Lacey Act because the definition of “due care” is based on a flexible and amorphous test. Industry and consensus standards, which undoubtedly impact the due care bar, are becoming more complex. Therefore, forest products companies that source wood from foreign countries should be engaging experts well-versed in the Lacey Act, consensus standards, and the various third-party certification and verification schemes to help them craft due care programs that are tailored to each company’s unique profile. These programs should consist of policies and procedures that capture the heightened diligence required under the Lacey Act, yet remain simple and fit seamlessly within the company’s existing business structures.