About a year-and-a-half ago, it was big news when the Gibson guitar factory was raided by gun-carrying agents of the US Government. The raid was deemed necessary because of an alleged violation of the Lacey Act.
The Lacey Act, as amended in 2008, now makes it illegal for a US business to purchase any plant that is sold in violation of a foreign law. A United States Department of Agriculture document says that “It is the responsibility of the importer to be aware of any foreign laws that may pertain to their merchandise prior to its importation into the United States. Currently, the U.S. Government has no plans to create…a database [of applicable foreign laws].”
Apparently, some wood purchased by Gibson from India and Madagascar was originally considered to be illegal for export from those countries and, per the amended Lacey Act, by default, illegal for purchase by a US company. Despite the massive news coverage at the time of the raid, there was very little coverage of the resolution this past August. So little, in fact, that I did not see any coverage at all until now, when I got curious and googled the topic.
I guess sourcing news isn’t sexy to the general public unless guns are involved. So, despite the fact that it is somewhat “old news,” I think the resolution is still relevant and I will cover it here.
It ends up that the US government decided not to bring criminal charges against Gibson, opting for a settlement that had Gibson paying a “$300,000 penalty to the U.S. government, and it also has agreed to make a ‘community service payment’ of $50,000 to the National Fish and Wildlife Foundation — to be used on research projects or tree conservation activities,” according to an article on cnsnews.com. Interestingly, the same article reports that the US government and Gibson “acknowledge and agree that certain questions and inconsistencies now exist” relative to the imported Indian wood products and, therefore, Gibson may continue to purchase such products from India “unless and until the Government of India provides specific clarification” that the wood products are, in fact, in violation of Indian law.
As far as the Madagascar wood…it appears that wood was and is definitely illegal for exportation according to Madagascar’s laws. However, even that situation is not so cut and dried and should be of keen interest to all sourcing professionals. Here’s why…
In a US Department of Justice memo summarizing the investigation, there is buried this interesting paragraph:
“Gibson ordered ebony fingerboard blanks to use in the manufacture of guitars from T.N. GMBH, a company based in Hamburg, Germany. Based upon documentation now in Gibson’s possession, T.N. purchased some of its ebony fingerboard blanks from R.T., a forestry operator in Madagascar. Gibson maintains that specific information concerning that sourcing was not provided to Gibson by T.N. when Gibson placed its orders. Gibson assumed, without asking, that T.N. had undertaken to provide it with lawfully harvested and exported materials and, after the execution of the search warrant in this case, T.N. represented to Gibson that it had supplied legally obtained and exported materials.”
So, Gibson bought the “illegal” wood from a supplier in Germany, who bought that wood from a supplier in Madagascar. But, in the end, Gibson is held responsible for illegal sourcing. This case has several sourcing lessons:
- It’s nice to talk about trusting suppliers. But when it comes to legal compliance, sometimes trusting a supplier isn’t enough. You need to verify. Trust may please the textbook writers, but when your company is getting raided by officials with guns, who gives a crap about pleasing textbook writers? Oh, a supplier may not like feeling untrusted but, I would wager that Gibson’s sourcing team would tell you, that would pale in comparison to the pain that Gibson felt as a result of the raid. If a supplier or buyer is uncomfortable with a discussion that may feel like trust isn’t at its maximum, one or both needs to grow the proverbial pair.
- When it comes to legal compliance, just having visibility in the first tier of the supply chain isn’t enough. You need to be able to trace your supply chain back as far as it goes. You can be held responsible for violations at your suppliers’ suppliers or even further back in the supply chain.
- You need to take responsibility for all materials that eventually make their way into your factory as if the very first stages of manufacture were conducted in your factory and not at a supplier’s.
My personal opinion is that Gibson didn’t intend to break any laws. Their offense was more a crime of omission than a crime of commission. But that’s a small consolation to a company that was raided in a “violent and hostile” manner. For the rest of US companies, it sets a precedent that sets the bar for more thorough performance by all sourcing professionals affected by the Lacey Act and similar importing laws.
My hope for you is that you never make a sourcing decision that invites a SWAT team.