Feds Taking Down One of the Last Remaining Major All-American Companies

WSJ: Gibson Guitar to Pay Fine Over Wood Imports

Gibson Guitar Corp. agreed to pay a $300,000 fine to resolve a federal criminal investigation into allegations that it illegally imported wood from Madagascar and India, in a case that has fanned debate about whether the strict enforcement of a century-old conservation law poses a threat to jobs.

The case grabbed national attention nearly a year ago after agents from the U.S. Fish & Wildlife Service raided Gibson, seizing raw materials and nearly 100 guitars and shutting down production at the Nashville, Tenn.-based company, whose guitars are used by musicians including B.B. King and AC/DC’s Angus Young.

Federal officials said Monday that Gibson acknowledged it “may have violated” laws in Madagascar, a country that has struggled with illegal logging and deforestation, when the company acquired unfinished ebony fingerboards through a supplier in 2008 and 2009. Under the U.S. Lacey Act, originally passed in 1900 to regulate trade in bird feathers used for hats, it is illegal to import plant or animal products in violation of foreign laws.

“Gibson has acknowledged that it failed to act on information that the Madagascar ebony it was purchasing may have violated laws intended to limit overharvesting and conserve valuable species,” said Assistant Attorney General Ignacia Moreno, with the Justice Department’s Environment and Natural Resources Division.

Gibson also agreed to pay an additional $50,000 to the National Fish and Wildlife Foundation to be used to promote conservation of tree species used in the musical-instrument industry, implement a compliance program and withdraw its claims to Madagascar ebony seized by investigators and valued at $261,844.

Gibson Chief Executive Henry Juszkiewicz said he felt Gibson was targeted inappropriately. He added that the company settled the dispute to avoid the cost of litigation, and said he was “gratified” that no criminal charges were brought.

“This allows us to get back to the business of making guitars,” he said.

The case gained notoriety—and attention from Washington lawmakers—as Mr. Juszkiewicz spoke out against the investigation, saying it cost the company more than $2 million and threatened jobs at his company. A bill introduced in the House that would reduce penalties for companies that unknowingly violate the Lacey Act has been largely supported by Republicans and opposed by Democrats.

Marcus Asner, a former assistant U.S. Attorney in New York who now advises companies on Lacey Act compliance, said he thought the agreement was a big win for the government that also allowed Gibson to avoid spending millions of dollars on a potentially drawn-out defense. “The government was taking a lot of heat about this, and yet at the end of the day this ended up being a big victory,” he said.

Mr. Asner added that the due-diligence steps Gibson agreed to follow for wood imports will likely become the standard for other companies to follow.

Environmental groups and U.S. wood-products executives, who have both supported the Lacey Act as necessary to deter illegal logging, praised the agreement. The agreement should be “a wake-up call” for companies “that the government is going to take violations of the Lacey Act very seriously,” said Jameson French, CEO of Northland Forest Products Inc. and a board member of the Hardwood Federation, a trade group.

Under the agreement, the Justice Department said Indian law regarding ebony and rosewood exports remains unclear, and it would therefore not prosecute Gibson regarding future imports “unless and until the Government of India provides specific clarification.” The agency said it would then give Gibson advance notice of such a change.

George Gruhn, who owns Gruhn Guitars in Nashville, said he still worries that hurdles under the Lacey Act will continue to cut into his overseas business. “Right now if something has one dot of mother of pearl it requires a few hundred in extra fees,” he said. “It drives us nuts.”

http://online.wsj.com/article/SB10000872396390443792604577573010767171448.html#articleTabs%3Darticle

Write to Kris Maher at kris.maher@wsj.com

Gibson Chief Executive Henry Juszkiewicz on The Peter Schiff Show (9/1/2011)

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