The Lacey Act, a century-old U.S. statute, provides a unified set of penalties for possession of illegally procured animals or plants from the U.S. and, after amendments five years ago, those procured in violation of foreign laws as well. The Act was envisioned as a conservation statute, not an anticorruption statute; big cats (Siberian tigers) rather than big cronies were named as the motivation behind a recent prosecution under the new amendments. Yet in finalizing that case—involving retailer Lumber Liquidators’ purchase and import of illegally sourced wood—the Department of Justice (DOJ) seemed to suggest that companies could be held to a higher standard of diligence where they source natural goods from countries with high levels of corruption. In announcing Lumber Liquidators’ agreement to plead guilty to various Lacey Act charges for importing timber procured in violation of foreign logging laws, the DOJ emphasized the company’s failure to address red flags that the imports were illegally acquired. Those flags included that the imported wood came from a region known “to carry a high risk of [timber] being illegally sourced due to corruption and illegal harvesting.” Furthermore, the case suggests heightened scrutiny when natural resource products travel through intermediary agents whose countries also suffer from corruption or lack of robust enforcement of laws against illegal logging and the like. (In the Lumber Liquidators case, Russia was the source of the stock in question, and China was the intermediary seller’s base.)
The fate of Lumber Liquidators should put companies sourcing wood from regions with entrenched corruption on alert. The DOJ’s statement, if it is carried forward, foreshadows positive results. The Lacey’s Act’s potential in the fight against corruption is significant, straightforward, and good for everyone. A Bloomberg analysis notes that enforcement of foreign laws benefits U.S. producers as well as combatting foreign corruption. The Sierra Club emphasizes the role that corruption plays in global illegal logging and the Lacey Act’s role in “leading the fight” against it. The Natural Resources Defense Council blog also advocated the role of the Act in helping “countries establish rule of law and crackdown on corruption.” Such commentary highlights a second takeaway from the DOJ order: to reach the corruption-combatting potential of the statute, wood sourcing companies need to allow the Lacey Act threat to improve compliance in their source nations, rather than leaving for greener pastures. Indeed, using the Lacey Act to incentivize companies to “engage their supply chain” to avoid forestry corruption is both achievable and worthwhile:
- First, avoiding Lacey Act liability for corruption abroad only requires common sense, not huge expenditures. Where natural resource products are suspiciously below market price or otherwise implausibly procured, the Act imposes a responsibility to recognize such red flags. In the case of Lumber Liquidators, particular Russian logging permits were used and re-used so many times that the timber sold to Lumber Liquidators alone would have exceeded the permit’s allocation many times over. Recognizing a huge inconsistency in prices or supply—as massive corruption often produces—doesn’t take much effort. Moreover, as Liz and I have both previously discussed, new technologies make it easier and cheaper to identify the source of wood in particular.
- Second, the knowledge needed to implement Lacey Act-compliant supply chains is accessible and holds potential for both a marketing and anticorruption victory. Plenty has been written and done on paths to success in cleaning up suppliers. The UN encourages education and provides a supplier questionnaire, contract language, and draft code of conduct. Commentators point out the competitive advantage of having clean supply chains and the consumer demand for corporate social responsibility. HP, which might serve as an example to other firms, has been lauded for its dedication to improving, rather than running from, suppliers with problems. While some high-corruption-risk suppliers may not be able to meet higher standards, many likely could.
- Third, the 2008 Lacey Act amendments introduced new reporting requirements that create a clear way to enforce liability for violation of foreign laws, meaning companies can consolidate compliance and government enforcers can do more to catch corruption for those who try to evade the protections. False reporting on that paperwork subjects importers to fines and criminal penalties under the Act. Improvements in the reports (which so far have been admittedly lacking in completeness and accuracy) will be a must for those keen on avoiding liability. The burden of the reporting need not be overwhelming, given a pilot program testing blanket declarations to allow frequent importers to submit less frequent filings. Such blanket declarations would lessen the connection between particular shipments and documentation, but the permits, shippers, sources, countries of origin, and varieties of wood imported to the U.S. can still be scrutinized from centrally reported information.
Facing deep-rooted illegal logging practices, producers may be tempted to avoid the countries that would raise warning signs for the DOJ. That would be no surprise: in addition to the role in fighting corruption, the 2008 amendments were touted for the help they would provide to American loggers, and liability for foreign violations was supported by domestic timber producers. At least one government report suggests that domestic producers are in fact being favored, finding that the new provision is reducing illegal imports but noting that the reduction was achieved through lower levels of imports from risky areas. It would be naïve to think the Lacey Act could reach and reform any particular instance of entrenched, corrupt logging. That said, the Lacey Act does create useful incentives for importers to help improve the quality of their suppliers abroad, or, failing that, to develop alternatives to suppliers involved in land-grabbing, theft of natural resources, and bribery. That sounds like a win-win for consumers and companies alike.