Lumber Liquidators Raid Shows Companies Need to Heed U.S. Lacey Act

U.S. federal authorities recently executed search warrants at two Virginia facilities belonging to Lumber Liquidators Holdings, Inc., the largest specialty retailer of hardwood flooring in the United States. Lumber Liquidators said in a press release last month that the raids were related “to the importation of certain of the Company’s wood flooring products,” but did not explain further. Media were quick to pick up on the raids, and Lumber Liquidators’ stock price fell 9.3 percent, the largest intra-day decline in 19 months. While the stock has since largely recovered, a number of law firms have announced their intention to file suit on behalf of shareholders. 

This incident highlights how alleged ties to illegally harvested woods can negatively impact business. But moreover, it shows that the U.S. Lacey Act—which bans trafficking of illegally sourced wood and paper products—is continuing to crack down on suspected illicit activity. It’s important that companies take note—and take action to make certain they are in compliance. 

Illegal Harvesting in the Russian Far East 

A Wall Street Journal blog post suggests that a recent report from the Environmental Investigation Agency (EIA), released October 8, offers some indications about the wood flooring products that may be in question. The report, Liquidating the Forests: Hardwood Flooring, Organized Crime, and the World’s Last Siberian Tigers, details the rampant organized illegal activity in the vast hardwood forests of the Russian Far East, which support the last populations of Siberian tigers. It traces the resulting illegal wood through northeast China’s manufacturing facilities, alleging that Lumber Liquidators has been buying illegally sourced Russian hardwoods from a Chinese supplier despite what EIA describes as “immediately apparent” evidence that the supplier’s oak supplies were “riddled with illegal sources.” 

The EIA report follows a widely publicized April 2013 report from the World Wildlife Fund, Illegal Logging in the Russian Far East: Global Demand and Taiga Destruction, which analyzed Russian customs data to show that in 2010, at least half of the oak exported from Russia to China was stolen from Russia’s forests. 

Wood Imports and the U.S. Lacey Act 

U.S. companies that import illegally sourced wood products are committing crimes under the U.S. Lacey Act, which bans trafficking of illegally sourced wood and paper products. If the recent raids were in fact related to potential Lacey Act violations, they would mark the third time that the U.S. government has taken action against importers under the Act. They’re an important indicator that U.S. authorities are serious about enforcing the Lacey Act’s wood provisions. 

Previous Lacey Act wood importation cases dealt with mis-declared Peruvian tropical hardwoods and with Gibson Guitar’s importation of Madagascar ebony and Indian rosewood. Penalties, which can include large fines and prison time, vary based on whether the importer knew that the wood was illegal and on whether the importer conducted “due care” to attempt to exclude illegal products from the supply chain. The Gibson case was settled last year with a Criminal Enforcement Agreement that, among other provisions, included Gibson’s acknowledgment that it did not act on prior knowledge that legal ebony was difficult or impossible to source from Madagascar. The Agreement also outlined a due care program for Gibson, which marked the first time the U.S. government had provided some details on what might be expected of a due care process. These details included, among others: 

  • Communication with suppliers about wood legality risks 
  • Verification of foreign laws and licenses with in-country legal professionals and/or knowledgeable third parties (e.g., NGOs) 
  • Doing independent research to identify risky wood sources 
  • Performance of risk assessments at the species level, using resources such as CITES, the IUCN Red List, and national threatened/endangered species lists 
  • Requesting sample documentation from suppliers to ensure that information provided is sufficient to satisfy Lacey Act requirements 

If they have not already done so, companies that import wood products into the United States—especially from regions known to have a high risk of illegality—should consider implementing these steps into their own procurement processes. 

“Due Care” in Practice 

Because merely being suspected of importing illegally harvested or traded forest products can have a significant effect on a business, as seen with the Lumber Liquidators example, it is more important than ever for companies to take the Lacey Act seriously. Companies now have many tools to help understand and investigate their supply chains, and can take a number of actions to help secure their supply chains against the inclusion of illegal materials. Three major risk-reduction approaches include: 

  • Monitor Regional Legality Risks. Pay attention to NGO reports and media stories related to the regions and species where wood is being sourced and processed. Rampant criminal activity in Russia’s eastern forests has been reported extensively for many years by both NGOs and mainstream media outlets. A clearly established and widely reported pattern of illegality should prompt companies to investigate supply chains in such regions in further detail and exercise additional care. 
  • Seek Independent Third-party Certification. While it is possible to source legally and responsibly produced wood products from nearly anywhere, certain places and products require a higher degree of care to exclude illegal materials from the supply chain. In high-risk regions, such as the Russian Far East, buy only material that is certified by rigorous third-party systems such as the Forest Stewardship Council or the Programme for the Endorsement of Forest Certification. If such material is not available, buy only products that are legally certified by processes that include third-party auditors and local civil society groups. When neither type of material is available, avoid sourcing the product from that region. 
  • Monitor Regional Legality Risks. Use new technologies to help understand whether what you’re buying is what you paid for, and whether it is reasonably free of risk. In its report, EIA details how it used stable isotope analysis to help confirm where lumber under investigation had originated. Both commercial and academic laboratories use techniques such as stable isotope and DNA analysis to identify tree species and determine their country of origin. These techniques are now commercially available and cost-effective. 

Tools – including the Forest Legality Risk Information Tool – are available to help companies understand the laws that apply to the forest products they import. Effective implementation of the U.S. Lacey Act – and similar laws in the European Union and Australia – can help improve forest management and stop the illegal wood trade. Those are outcomes that benefit both forest ecosystems and the businesses and communities that rely on them.