The Gibson Settlement

by Kevin M. Mitchell

The director of the Fish & Wildlife Service has a message to Gibson: Thank you.

“I feel that we and the Department of Justice sat down in good faith, and Gibson acted in good faith, and we worked out a settlement that we are happy with,” says Dan Ashe.  “I offer my thanks to them.”

The news of two raids on the Gibson plant in 2009 and 2011 by the U.S. Fish and Wildlife Service (FWS) received much national press. Gibson CEO Henry Juszkiewicz defended his company through many media outlets, and was even a guest at rallies as he vigorously built a case against government over-reach.

With Lacey and/or CITES, the federal government is targeting guitars, both those who make them and that musician with an old Martin travelling to Europe.  Instruments can potentially get confiscated and, as of recent rulings, destroyed. SWAT teams have raided factories with guns drawn. It’s a dark day for those who make or sell instruments that involve wood.

Or so it seems.

Emotion and speculation, fueled by complex law and international treaty, are in no short supply.  Sorting it out is challenging.

To the letter of the law, it’s illegal to take this Pre-Lacey ammendment Martin across borders. The government insists it won’t prosecute such situations.

The Case Against Gibson

On August 6^th, the Department of Justice announced Gibson would pay a $300,000 fine and donate an additional $50,000 to the National Fish and Wildlife Foundation. By writing these checks, Gibson escaped criminal charges. Gibson also has agreed to abandon a lawsuit seeking $261,000 in damages incurred during the investigation.

“Gibson has acknowledged that it failed to act on information that the Madagascar ebony it was purchasing may have violated laws,” wrote Ignacia Morena, assistant attorney general.

But in the official press release issued by Gibson, Juszkiewicz stated: “We felt compelled to settle, as the costs of proving our case would have cost millions and taken a long time to resolve. An important part of the settlement is that we are getting back the materials seized in a second armed raid on our factories and we have formal acknowledgement that we can continue to source rosewood and ebony fingerboards from India, as we have done for many decades.”

“Gibson is a long time, valued member of NAMM and this experience has obviously been difficult for them,” says NAMM’s Mary Luehrsen, director of public affairs and government relations. “They deserve to express opinions and have a right to defend themselves.”

There is a silver lining: “We have, for the first time, a description from the Department of Justice of what constitutes due care within the Lacey Act, and we and other wood product industry groups now have a precedent,” she says. The settlement offers a roadmap to compliance. “The outcome has produced a black and white ruling, it’s put a stake in the ground, and we are clear what the DOJ needs [for compliance].”

Gibson is unlikely feeling the love. But at least the vast majority of the industry has supported the company during its time on the unenviable business side of the law.

“I think we were just glad to see that the issue has come to a conclusion,” says Martin’s VP of business development, Greg Paul, preferring not to speculate beyond that statement.

Bob Taylor of Taylor Guitars also declined commenting on the settlement as, “It would be like commenting on a friend’s messy divorce!”

Evidence from the 2009 U.S. Fish and Wildlife Service raid. The FWS maintained that these guitar necks were made from an illegal shipment of ebony from Madagascar.

Case Watchers

Case watchers agree the 2009 raid was justified (though Gibson defenders say that any wrongdoing was unintended and caused by confusing laws and regulation). The second raid in 2011 was questionable, at least, and the government’s actions in returning materials from that raid fess up as much. In that raid, it was alleged that some of the wood was in violation of an Indian export restriction, when even the Indian government said there was no violation. And while some are skeptical of Juszkiewicz’s claim that these federal actions could cost American jobs, it’s hard to dispute his main point here: initially the government declared that bringing in wood for fingerboards from India to be finished in Nashville was illegal, but having Indian workers to do the work and then ship the finished product, was not.

Regarding the second raid, Vinod Srivastava, India’s deputy director-general of foreign trade, wrote in a September 16, 2011 letter, “fingerboard is a finished product and not wood in primary form. The foreign trade policy of the government of India allows free export of such finished products of wood.”

“The second time they raided Gibson, it did look like our industry and Gibson was being picked on,” Taylor says. “It would be bad [for the FWS] to do a third raid on the industry,” adding with a laugh that raiding a flooring manufacturer or plywood mill doesn’t get the type of mainstream headlines that raiding a guitar factory would get. Threats that Eric Clapton could, in theory, go to jail for trying to take his Martin Guitar into Germany and exaggerated headlines like “Will Music Die forever?” will give the FSW more attention than they want. Guitars? Way cooler than plywood.

“It was totally predictable that Gibson wouldn’t skate free on the clearly illegally harvested Malagasy woods, but it’s understandable that both the company and the FWS didn’t want to spend time chasing in the courts,” sums up Chuck Erikson. “I wish they had, since many of the issues involved are left to hang fire over everyone else in the industry.”

Erikson owns Duke of Pearl, and imports material for exotic inlay use, including guitars. He is a self-described “reluctant expert” on all things Lacey and CITES because he has no funds for a lawyer. The latest changes in the law have cost him 30 percent of his business, he says. He and George Gruhn (Gruhn Guitars of Nashville, Tenn.) turned over scores of documents collected over the years for this report, and both subjected themselves to multiple interviews.

“The Gibson raids weren’t a bookkeeping issue for the Government Accounting Office to deal with,” Erikson says. “The 2009 raid involved what seemed to be deliberate criminal activity with Madagascan wood, backed by documented evidence including emails stating that although no legal wood was available it would still be possible to get wood into the ‘gray market.’”

Gibson was sourcing rosewood and ebony from Madagascar timber baron Roger Thunam. In a National Geographic article published in September 2010, a local official was quoted saying of him: “Thunam isn’t a businessman – he’s a trafficker. He cuts what isn’t his. He’s taken from the people’s park.” (The same article describes how the country’s forests have been so decimated that the lemurs have virtually disappeared.)

“The 2009 ebony purchased by Gibson from Thunam through German wood broker Theo Nagle was traced as coming from a specific plot of forest, but when an investigative team surveyed ebony stumps and standing trees in that sector it was found that no logging had been done there for at least a decade, and that the trees harvested had been under the legal size limit. Thunam’s wood did not originate as or where stated, and its sourcing is being lied about.”

What Happened at the Raids

“The Government used violent and hostile means with the full force of the U.S. Government and several armed law enforcement agencies,” Juszkiewicz has said, adding that Gibson was treated the same way “drug dealers are treated.”

Fox News reported: “armed with semi-automatic weapons wearing bullet proof vests a SWAT team raided Gibson’s guitar factory.” The Wall Street Journal also reported that agents entered with “guns drawn.”

Not so says the FWS.  “The raid was conducted in compliance of standard law enforcement procedure,” says Ashe. “Officers entered and identified themselves wearing standard-issue side arms. We don’t have automatic weapons. No guns were drawn. Nobody was made to put their hands on their heads.”

“[Juszkiewicz’] assertions… [sometimes] include a certain amount of deliberate misrepresentation, distortion, or exaggeration,” Erickson says. “Enforcement agents typically wear uniforms and carry weapons – if you’re stopped for a burned-out taillight it’ll be by a [in a way] uniformed, jack-booted, gun-carrying officer, but that doesn’t mean it’s a SWAT team action.”

Bill Woody, chief of law enforcement for the FWS, says that they do prioritize cases, and go after the larger ones. Gibson became one of those larger ones. “We received information that activity was going on that required investigation, we investigated, we saw due course, and we went through all the judicial procedure.” This included involving a prosecutor and a judge, both of whom had to agree that there was enough evidence of wrongdoing to sign off on a raid. Involved was a forensic lab in Oregon, “fully capable of determining the wood origin.”

To the question of why not just go to Gibson first before the raid, “Normally if we think criminal activity is taking place, we don’t call first,” Ashe says. “I don’t think any law enforcement agency does.”

“I’ve been watching the public debate about the Gibson case over the last several months, and I just want to reiterate my appreciation of Gibson for working with us on this issue,” Ashe adds. “It’s really about conserving some of the most important habitats in the world. If we think about this globally, in the last 50 years we’ve lost more than one half of the forest in the world. Places like Madagascar have experienced so much deforestation that it is driving species to extinction.”

Christie Carter, Rep. Marsha Blackburn, George Gruhn, and Jim Goldberg.

Singled Out

“We feel that Gibson was inappropriately targeted,” Juszkiewicz says.

“Nobody was singled out,” Ashe counters. “We are contacted by companies in this industry and others, people who have questions about Lacey or CITES compliance, and we work with all companies in all situations. Gibson was not singled out. We received information from Customs and Border Patrol,” and acted on it.

FWS has visited the Martin plant too. “We’ve enjoyed a good and open relationship with FWS, and for many years they have come for an inspection, or even just to visit wanting to know something,” Paul says. “We’ve had questions, they’ve had questions. We need to work with each other.”

Another sympathy-inducing comment from Gibson is how their material was confiscated, but then held without charges being filed. “We’ve been in this battle for over two years now, and no charges have been filed,” Juszkiewicz told MMR in April.

“U.S. courts have allowed seizures of property without charges being filed against individuals/businesses since 1827,” Erikson says. “Civil forfeiture is based on the concept that property is guilty, not the owner, and since property has no legal rights, it can be confiscated for any reason without charges being filed – even if no crime was committed. This is one reason why Gibson’s confiscated wood could be indefinitely held without bringing charges against the company itself.”

“The most cases we prosecute are Lacey Act violations,” says Ashe. And when the act was amended, “Congress did not give us any special appropriations for it. The Gibson case is just one case, and at any time we have 1,000 or more investigations ongoing. This is not something we’re dedicating any specific or sustained special focus to… there’s no reason to fear that the [MI industry] is being singled out.”

The FWS has around 225 special agents and 300 wild life inspectors total, which Ashe considers fairly modest. “The Lacey Amendment of 2008 required no special training for our agents. It’s just an extension of what we do for tortoise shell or otter fur or anything else.”

Lacey v. CITES

“CITES and Lacey are intertwined, and people are confused,” Taylor says. “We’re clearing some Brazilian Rosewood right now and we’ve spent quite a long time with it and are making some progress. Then you have the international aspects of Lacey that are confusing. Spain, Germany, the United States – all have a different take on it. If I’m importing into a country I have to understand that particular country will have a different take on the law then another.”

“There is some overlap,” says Jim Goldberg, of Goldberg & Associates, who for the last 20 years has worked with NAMM as a lobbyist. The Lacey Act is a U.S. law enacted in 1900 that makes it illegal to trade in poached wildlife, fish, and plants. The conservation bill was introduced to Congress by Iowa Republican John Lacey, and signed into law by President McKinley. For a century and eight years it treated those who trafficked in illegal game and plant life as criminals. In 2008, the Act was amended to broaden the scope of plants it protects, and the geographical scope of that protection. And then things got interesting for those who use wood to make instruments…

There’s a requirement to file import documents verifying the “genus, species, and country of harvest” for wood in many imported products (including pianos, stringed instruments and most raw materials) to prove you’re in compliance with Lacey Act requirements.

One of the claims floating around on MI-related blogs is that the 2008 amendment that originated from a congressman from Oregon who just wanted to protect his state’s timber businesses. “That’s not exactly true,” Goldberg says carefully. “It was part of the 2008 Farm Bill, something they pass every five years that deals with many other things.”

The Lacey Act amendment was part of that, and Luehrsen adds that many members of the House of Representatives signed on. “There was a deliberative process, it wasn’t something slipped in secretly,” she says.

Yet prime sponsors were Rep. Earl Blumenauer (D) and Sen. Ron Wyden (D) of Oregon, and the Act was supported by two groups more often than not in opposition: environmental groups and domestic lumber companies. Goldberg states that environmental groups feel that the more endangered species protected the better, while the timber industry sees that the more restraints put on imported wood the better.

But it’s even more complex than that. “We have to remember that this was enacted during the immediate post-Katrina [Hurricane disaster] time period, when imported plywood was coming in to rebuild devastated Gulf Coast areas,” so the two groups’ mutual interest was further joined, Luehrsen says.

Regarding CITES, Geroge Gruhn has been vocal about the bind it has put his respected vintage Gruhn Guitars business. He’s met with NAMM members, written editorials about it in the Nashville paper, and gone to Washington over the issues.

“CITES is an international treaty signed by over 100 countries, and is an environmental protection treaty that designates both plant and animals for various levels of protection,” Goldberg says. “In some cases it’s okay to trade certain listed items if the appropriate paperwork is there.”

The “international” part is the problem. Recently, German authorities declared that they won’t accept pre-CITES certificates and, taking their declaration to the letter of the law, appear to be threatening to destroy instruments with such certification. “These instruments are irreplaceable pieces of American artistic and cultural history. Vintage and used instruments already in the European Union should be grandfathered and owners should be permitted to obtain proper documentation to assure their safety in the future.”

Luehrsen acknowledges the flurry that has come out of the recent meeting about CITES in the EU. She says there is some [environmental] advocacy that seems to be overreaching from time to time, or rulings that have unreasonable or unintended consequences, and it’s their job to find the tactical and strategic way to fix the unintended consequences.

The CITES Convention meets every couple of years, and a proposal that the U.S. may make at the 2013 meeting is that a process be established that gives instruments their own passport. This passport would travel with the instrument as private players travel from country to country and thus keep the instrument from being suspect. “It’s a work in progress,” she admits. “We work to bring the unique concerns about older instruments and the making of new ones to the regulators and to Congress.”

She pauses. “If you’re not on the bus, you’re under the bus,” she says about the regulatory and legislative lobbying process.

The Vintage Guitar Dealer

Gruhn maintains there is an inherent “Catch-22” in trying to get a permit for an old instrument to prove it’s not made of illegal woods, as there’s no paper trail. It’s deadly serious: “Over 40 percent of my business used to be export,” says Gruhn. “I can’t import or export things from the EU right now. Everything is in limbo and it’s affecting my business by millions of dollars.”

Ashe emphatically rebuts the notation that the agency is “going after” that musician crossing the border with an antique guitar or that dealer selling one to someone in Europe. “We are not looking at individual instruments, not targeting individual outlets.”

“It’s hard for me,” he continues. “I really don’t understand, because antique furniture dealers trade wood product, and they do it with documentation and that’s a vibrant trade. Dealers need to be aware that, say, that antique piano has ivory keys, but is legal to move because they have the documentation. People just need to be informed and vigilant. We regularly issue pre-Act documentation for antiques, personal effects, et cetera, but you have to get it. It’s not an onerous process.” (It’s on their site at http://www.fws.gov/international/permits/antiques.html.)

Anyone with more questions can ask them in person: The FWS will have a booth set up at NAMM in January.

Like an Elvis sighting, stories are told of guitars being confiscated by zealous Border Agents – though no one interviewed was able to come up with a specific incident that could be fact-checked. “We always hear all kinds of news, and we need to take the time to research the actual situation,” Martin’s Paul says of these fears. “We’ve heard of situations where guitars have been detained, absolutely. But I can’t recall a situation where one was permanently taken from someone.”

“The most important thing to know is that we do not target individual consumers,” Ashe reiterates. “There is no evidence, not one incident, where we have confiscated a musical instrument because of Lacey or CITES.”

Yet Juszkiewicz has correctly maintained, “The law is clear. To comply with the law, almost no guitar can cross a border. That’s according to the letter of the law, which of course would virtually shut down commerce because that applies to anything with wood in it.”

The Future – A Kindler, Gentler Lacey?

So the Gibson settlement resolved that situation, right?

“Allowing Gibson to settle out of court with a small fine does nothing at all to resolve critical questions about the wrong tariff codes which were used in both the African and Indian shipments,” Erickson says. “If the Feds are allowing both raids to be lumped together as only a single issue instead of two separate ones, all the six mm-plus woods brought in for decades as well as all the instruments made using them could remain technically illegal and subject to Lacey enforcement, leaving someone else to be charged and brought to court as a test case.”

Taylor is concerned about the smaller American guitar makers. “The bigger the company, the more material you’re moving through, the more work you need to do for it and it’s incredibly burdensome.” Larger companies can afford the resources required. “The poor person making guitars by themselves has to read the same volumes [of regulations] as we do. My heart goes out to smaller companies.”

Goldberg and NAMM worked on the RELIEF Act sponsored by two Tennessee representatives, Jim Cooper (D) and Marsha Blackburn (R) that would take care of some of the Lacey Act challenges. (When President Obama spoke to Congress about jobs in September 2011, Juszkiewicz was Blackburn’s guest.) Although the bill did make important headway in the legislative review process, it was pulled from final debate and vote just after Summer NAMM this year; efforts will continue to work on needed fixes in the legislation.

“The law shouldn’t be changed or gutted, but perhaps refined,” Paul agrees. “The agency consists of a small group of people that must also handle a large enforcement challenge and they are doing the best they can to work through it.”

Yet Taylor is confident that many of the confusing and confounding aspects of the laws will be worked out, and what’s left will be manageable. “We’ll have some more scuffles, and then it’ll settle in. We’ll get a more kindler, gentler version of Lacey. Five years from now everyone will understand it, and the FWS will understand it,” and agents will understand. Quoting the ultimate authority, Star Wars, he says known respected players will receive something uttered by agents akin to, “these aren’t the droids you’re looking for, go about your business.”

Taylor says Lacey should stick to new timber products and concern itself only with that first sale, leaving any second sale/vintage products alone. “If you didn’t need a piece of paper when the guitar was first made you shouldn’t need one now. I don’t care about pre-Lacey things. I care about the 600 guitars I’m making now that will last a century and might pass through 10 hands and as many countries. Hold my feet to the fire all you want on the wood I’m bringing in now, but once I sell that guitar, the game should be over. Now opponents to that idea think there’s a loophole that someone could make a false antique but really – a factory would get into that business? Maybe one guy…”

The industry will have to figure out how to do business in compliance with the law, Luehrsen says. After the Gibson raids, she says that NAMM did its homework. “It’s tedious, it takes time, and whatever you have to do, you learn to do it. You may not like it, but you realize you need to understand the laws and invest the time it takes to comply. The days of ‘I didn’t know I needed that form’ are gone. You have to have the knowledge if you want to be in business.  Our job at NAMM is to take this seriously. As soon as the 2008 Amendment happened, we kicked right into gear with compliance training.”

“First and foremost, we’re supportive of the Lacey Act,” Paul says. “The abuses have been appalling, so the 2008 amendment was needed, and we think anything that battles illegal logging is a good thing.” He says they know it means more paper work, but not a prohibitive amount. “I can’t say it’s not difficult sometimes, but it’s definitely something workable and I think as time goes by we’ll see administrative challenges that will be worked through.”

“We continue to put pressure on the process,” Luehrsen states emphatically. “We have to choose to spend our resources, and I can’t tell you the number of hours we’ve spent with NAMM members about this regulatory challenge, and yes it is true that time must be spent to understand it… International commerce requirements are legitimate and need to be understood to participate in commerce. Now we have lobbied directly to the Europe Regulators who enforce CITES, pointed out the irregularities, and the just plain stupid aspects of it, and they have listened. We are committed to helping members stay in compliance with these amendments, but also working with legislatures to create a bill that is more clear while removing unintended consequences.”

“I’ve taken the bull by the horns to organize an effort to actually to improve the Lacey Act, to make it so it leads to a more productive and sustainable future which in the end is what our industry needs, frankly,” Juszkiewicz told MMR in April. “If you’re against a strong Lacey Act you’re against our industry.”