Guns, Guitars and Government Raids

In August, armed federal agents raided the offices and factories of the legendary Gibson Guitar Corp. in Nashville and Memphis. It was the second time the feds had ransacked the renowned Tennessee guitar-maker since President Barack Obama took office. And what were they going after? Dirty laundering monies? Gun smugglers? Cocaine cargo that could make cartels quiver?

No. The federal search and seizure sought to capture ... ready? Wood. To be exact, rosewood and ebony from India, which the U.S. Fish and Wildlife Service had declared to be illegal to import.

Yes, your tax dollars were again hard at work as federal agents sought to bust another pillar of American business by rounding up alleged tree contraband based upon a century-old law. It is called the Lacey Act, which was signed by President William McKinley all the way back on May 25, 1900. Initially, the act was adopted to prevent big-game poachers from killing endangered birds in Africa, particularly to regulate trade in feathered hats. It was later expanded and amended to include endangered plants and illegalize the importing of all forms of fauna and flora, including wood, which was added to the act just three years ago.

So what was Gibson Guitar's specific crime? The feds say Gibson shipped rosewood and ebony that were in an "unfinished" state (i.e., not cut into thin strips or veneer, which is perfectly legal in India). However, Gibson Guitar CEO Henry Juszkiewicz says he possesses a letter from the government of India that declares the legality of the wood as a "finished" product for fretboards on the necks of the guitars.

Last week, Fox News further elaborated that Vinod Srivastava, India's deputy director-general of foreign trade, stipulated in a letter dated Sept. 16, "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."

Of course, there could be far more up the feds' sleeves regarding these searches of Gibson Guitar, but we'll never know. The Associated Press reported this past week, "Specifics of the investigation by the Environmental Crimes Section of the Justice Department have been filed under seal." It probably is filed under the heading "Eric Holder's Fast and Furious holdouts, etc."!

But forget about the feds' "Fast and Furious" gun smuggling crimes and Attorney General Eric Holder's acts of perjury via denial of facts before Congress. Forget about Washington's $528 million debacle with Solyndra. Might as well let go of the billions of dollars that Washington has given to bail out Wall Street over the past few years. And never mind the feds' onslaught of overzealous overreaches and over-regulations on Main Street businesses across the country, because this administration thinks it's high time to further cripple American business by pulling the strings and picking on a staple of the music industry and entrepreneurial spirit. Juszkiewicz recently tweeted the real question that needs to be addressed: "Why is big government spending our money to harm ordinary citizens and small businesses?"

And how pertinent should an ever-expanding and archaic Lacey Act be when it forces Americans to be obliged to follow every other nation's trade laws? If we must bow to other countries' legalities, where are American sovereignty and individual rights? And how long will it be until Interpol oversteps all the boundaries to enforce a universalistic United Nations trade code? At the very least, such federal actions as those taken against Gibson Guitar are reminiscent of those of Lavrenti Beria, the head of Josef Stalin's secret police, who boasted, "Show me the man and I'll find you the crime."

According to The Heritage Foundation, the feds have used the Lacey Act to prosecute orchid growers and spiny lobster importers, too. Now it's guitar manufacturers' turn? And what about tomorrow? What about other companies and guitar-makers, such as Fender, Martin, Taylor, Paul Reed Smith, Ribbecke, Collings and Breedlove, to name a few? What about Gibson retailers and individuals who resell guitars on eBay? What about the purchasers of Gibson guitars -- those who possess the wood contraband inlayed in their stringed instruments? There go the likes of B.B. King, Eric Clapton, Stevie Ray Vaughan, Eddie Van Halen and millions of others. Buyer beware! Armed federal agents could be coming to a music store, sound studio or house near you.

Please email or call the White House today (at http://www.whitehouse.gov/contact or 202-456-1111) and tell the feds to get their eyes off guitars and back on the guns they handed over to Mexican cartels. Then call Gibson Guitar and tell the people there you're joining me in standing with them (http://www.gibson.com/en-us/support or 800-4GIBSON).

The Indian government is okay with the exports, but the US government is not?

It's complicated (of course it's complicated; but of course it is; among other things it determines whether you place a tariff on items). The World Customs Organization set up a Harmonized System, which is multipurpose international product nomenclature for exporting and importing items.

The Indian government's HS is online. It allows the export of finished wooden parts for musical instruments. These have a code of 9902 (and subcodes for type of part). It allows the export of veneer under 6mm in thickness (HS 4008) (the veneer is used for, among other things, the back and sides of acoustic guitars). It expressly prohibits the export of "wood sawn or chipped lengthwise, sliced or peeled, whether or not planed, sanded, or end jointed, of a thickness exceeding 6mm" (HS 4407).

Because HS 9902 parts are finished parts, there's usually a tariff that has to be paid on them. At least as far back as 1993, U.S. guitar manufacturers received a customs ruling that fretboard blanks (specifically, those from India) were to be considered HS 4407 items. That way, the manufacturers didn't have to pay a 5.7% tariff on the fretboard blanks.

From August 2010 to August 2011, Gibson imported fretboard blanks directly at least eleven times (according to the government's search warrant, which identifies them by date), and Gibson used HS 4407 to identify the blanks for import each time.

In this case, a company called Atheena Exports of India sold fretboard blanks to Luthier Mercantile International of California. Atheena Exports has a website where it says it sells parts for musical instruments. Atheena Exports' website catalogue has ebony fretboards, but they are all finished to size and have slits cut for frets. They're clearly a finished product - a HS 9902 product - legal to export from India. That's what Atheena Exports listed on its export paperwork, a 'finished product for musical instruments." I have no idea whether the Indian government inspected the crate or container; only a small percentage of shipments leaving the U.S. are inspected and customs relies on the paperwork for the rest.

However, Atheena didn't ship finished fretboards to Luthier Mercantile. It shipped blanks that were rough cut, oversized pieces of raw wood with no fret slots. All of the wood was roughly 10mm thick, cut lengthwise into rough shape. In other words, instead of a finished products, it certainly sounds like "wood sawn or chipped lengthwise, sliced or peeled, whether or not planed, sanded, or end jointed, of a thickness exceeding 6mm." That would be a HS 4407 product. That's how US import law identifies it. That product would be illegal to export from India.

Luthier Mercantile either doesn't want to pay the tariff, or LM knows the product isn't finished. Luthier Mercantile changed the import/export paperwork. It replaced the HS 9902/"Finished part" with HS 4408/"Veneer under 6mm thick" on the customs import form.

There, things get complicated, so let's go back to the export.

On June 10, 2011, Atheena Exports of India, documents the export of “finished parts of musical instruments”/HS 9209. The U.S importer of record is Luthier Mercantile of California, a company which specializes in providing wood to luthiers. The U.S. customs port is Dallas.

Luthier Mercantile fills out the import paperwork, changing the description of the goods and the HS code to reflect that the goods in the container are unfinished veneer.

On June 27, 2011, a shipment of Indian ebony is stopped by Customs and Border Patrol (CBP) agents at the Dallas, Texas Port of Entry (the DFW airport). There’s no Lacey Act declaration. The shipment is marked as 4408 ("WOOD VENEER <6MM THICKNESS"). It’s not marked 9209, which would have required payment of a tariff. The paperwork says to notify Luthiers Mercantile International of California upon arrival and to ship interstate to the address of a Red Arrow Delivery Service Warehouse in Nashville. The customs paperwork says the final consignee is Theodor Nagel GmbH, a Germany company. (Well, form 7501 says Nagel, form 3461 lists LMI) Nagel is owned by the same people who own LMI. Plus, Nagel is the company that sold the Madagascar ebony to Gibson in 2009. Based on the 68 different pleadings filed in the Madagascar ebony confiscation case, it's pretty clear that Theodor Nagel is a target (probably the primary target) of a criminal investigation being handled by the Environmental Crimes Division of the Justice Department. In fact, the Madagascar ebony shipment to Gibson was discovered in 2009 because a contact in Madagascar had notified U.S. Fish and Wildlife that convicted wood trafficker Roger Thunam had illegally sold ebony to Nagel, and customs was looking for shipments to the U.S. from Nagel. Gibson just happened to be the purchaser.

Gibson's name doesn't appear anywhere on the Dallas shipment, but Nagel's does, and the Red Arrow Delivery Service Warehouse does - which is where Nagel sent the illegal Madagascar ebony in 2009.

Customs agents inspect the container. It doesn’t contain veneer. It contains rough pieces of cut wood about 10mm thick – they’re fretboard blanks. Since 1993, customs rules have said that guitar fretboard blanks are a 4407 item (cut, split, or chipped wood over 6mm thick). Indian law prohibits the export of 4407 items (India’s HS is online).

Fish and Wildlife is notified and a Wildlife Inspector notifies Luthier Mercantile. Natalie Swango, the General Manager for LMI shows up and produces a Lacey Act declaration that was signed back on June 17, before the shipment arrived. It was never filed. The Lacey Act declaration doesn't list Nagel as the final consignee. It shows Gibson Guitars as the final consignee with a note, “Attention: Herb Jenkins.” Herb Jenkins orders wood for Gibson. (LMI has since stated that it was the final consignee, having changed from Nagel to Gibson and then to LMI).

According to the Wildlife Inspector (Swango has confirmed that she told the WI that the final consignee was Gibson, but says she was mistaken), she says that Gibson is the final consignee and the import paperwork is wrong.

The feds don't stop the shipment. They want to see where it goes. They track the shipment to the Red Arrow Delivery Service Warehouse. There, they find another shipment of fretboard blanks from India. This shipment came in through Canada on paperwork listing LMI as the final consignee. WI Kim Theurer speaks with a manager at the warehouse, Nancy Alvarez, who says that the wood belongs to Gibson and is delivered to Gibson as Gibson asks for it. The manager also gives WI Theurer an email from LMI stating that Gibson Guitars is the actual final consignee, not LMI, which is listed as the final consignee on the customs forms.

At this point, the feds get a warrant and raid Gibson's two factories (and offices) and the Red Arrow warehouse, where they seize wood, computers, and a thumb drive.

Now, try fitting in the changing of HS codes and descriptions, and final consignees, and shipments from Canada, and the fact that the importer is owned by the same people who own the German company that's almost certainly a target in an ongoing criminal investigation - and try and fit that into a thirty-second television report. Or a blog.

I think this situation - the import from India - was a clusterdance and Gibson was invited to the party. I don't think Gibson asked LMI/Nagel to use false HS codes and false consignees. Gibson had been importing fingerboard blanks directly with appropriate codes, and with its own name on the import forms, and without government raids or seizures.

I think the government's position may be technically correct, but isn't reasonable in the long run. You have to be able to import blanks from India (although it appears the feds had no problem with it until LMI tried it without a Lacey Act declaration, with a false description, with a changed and false HS code, and with a false consignee).

And this was rinky-dink stuff. The 2009 raid and confiscation is where Gibson really fouled up.

Gibson needs to stop doing business with Theodor Nagel GmbH and any other company owned by Nagel's principals.

This may be splitting hairs, but I haven’t found any reference online for 9209 that say “finished” parts. Everything I’ve read just says “parts for musical instruments”. I don’t see the term “finished” anywhere.

I agree with you. The word "finished" doesn't appear in the description that accompanies Harmonized System code 9902 by itself, but the code's written by lawyers. In the full Harmonized systems, there are classifications and subclassifications above the codes, and subcodes and sub-sub-codes below them. Those classifications, etc. add to the definitions. In the subclassifications in the code, HS 9902 is listed as a value-added product. It appears with the definition of 'handicraft' above it, which means "[i]t must be graced with visual appeal in the form of ornamentation or in-lay work or some similar work lending it an element of artistic improvement and such ornamentation must be of a substantial nature and not a mere pretence [sic]"

If you run through all of the classifications above and below, and the footnotes in the full code, its clear HS 9902 is talking about finished products.

But forget the lawyers for a moment. Just look at the people involved in this transaction.

Start with Indian officials. Vinod Srivastava, India's deputy director-general of foreign trade, stipulated in a letter dated September 16, 2011, "[f]ingerboard 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."

You'll note he used the word finished, and India exported these items as HS 9902. That's because there is a HS code 4407: "Wood sawn or chipped lengthwise, sliced or peeled, whether or not planed, sanded, or end jointed, of a thickness exceeding 6mm." And India prohibits the export of HS 4407 wood for all species, without exception. HS 4407's "lawyer-ese" makes it clear that it's a wood product in primary form under the Harmonized Schedule.

Atheena Exports makes finished fretboards, all the way down to finished edges and slots for frets. In this case, it exported wood in primary form, cut to rough blanks.

India's deputy director-general of foreign trade is saying the fretboard are 'finished' items, because if they weren't finished, they would be HS 4407 items and illegal to export under Indian law.

Then, step away from the hair-splitting attorneys.

Luthier Mercantile International's business is to import wood for luthiers - those who make musical instruments. LMI knows what it's doing when it comes to importing fretboards. It's website says:

We usually have more than 10,000 fingerboards in stock at any given time as we supply most of the major manufacturers.

When Luther Mercantile filled out the import papers for the U.S., it changed both the HS code and the description of the fingerboards. Luthier Mercantile knew these fretboard blanks weren't finished products. Why? Because the United States International Trade Commission has repeated ruled that fingerboard blanks are HS 4407 items. They've even ruled that's the case specifically for East Indian rosewood and ebony. A ruling in 1993 is the one the guitar industry relies upon: CLA-2-44:S:N:N8:230 881630 (1993). This may seem like a little thing - but it was a big deal for luthiers and the guitar industry for two reasons. First, if the fingerboard blanks had been finished HS 9902 items, then the importers would have been required to pay a tariff on finished goods (it was either 5.4% or 5.7% at the time). Second, once you start using too many 'finished' goods from another country in your product, you can't label it as "Made in the U.S.A." It has to be "Assembled in the U.S.A. from parts made in _________."

This bit Gibson Guitars in the rear in 1990, with respect to Gibson's "Blueridge" acoustic guitar line. Gibson was having guitar necks and bodies made in Japan and shipped to its factory in Bozeman, Montana (apparently through the Seattle customs port). Gibson was gluing the neck to the body, finish sanding, drilling holes for strings (in the bridge), applying a finish to the guitar, screwing on the tuners, and labeling the guitars "Made in the U.S.A." (At the time Gibson was truly making some fine Made in the U.S.A. guitar in Bozeman, just not these). A court in Seattle told Gibson is had to label the guitars "Made in Japan."

Gibson sought United States International Trade Commission right to call the guitars "Made in the U.S.A." Gibson lost, because it used too many finished parts from Japan and did too little labor to materially change those parts in the U.S. The guitars had to be labeled "Made in Japan" or "Assembled in the U.S.A. from Parts Made in Japan."

So when LMI, an expert in the importation of fretboards (and East Indian rosewood and ebony fretboards are some of, if not the most, popular imported fretboard for decades), it knows to change the HS code from HS 9902, because the fretboard blanks aren't finished products.

When LMI changed the HS code and description, that's where the mistakes starting being made that led to the raid on Gibson. LMI changed the code to HS 4408 (veneer, under 6mm thick, like you would use for the back and sides of guitars, and technically legal to export from India), and the description to veneer, filled out a Lacey Act declaration showing Gibson as the final consignee, which it didn't file, and instead listed Theodor Nagel GmbH as the final consignee. Well, on the Dallas shipment. It listed itself as the final consignee on the shipment through Canada.

The government's making a big deal about LMI using the 4408 code and description to hide the import. I think the government is wrong. My guess is that LMI made a mistake. LMI also imports HS 4408 veneer all of the time.

So, India issued a letter indicated that it knew HS 9902 was supposed to be finished, and LMI changed the HS code to an unfinished code because it knew that the fretboard banks weren't finished and U.S. law said so.

What did Gibson do? Well, Gibson had ordered fingerboard blanks from India eleven times from August 2010 to June 2010. It used HS 4407 every time - each of the shipments is listed in the search affidavit. Gibson knew that HS 9902 was a finished product, and new about the Tariff rulings, and used the appropriate code.

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