Skip to comments.DOJ hits Gibson with $300K fine in settlement over exotic wood raids
Posted on 08/07/2012 10:41:41 AM PDT by SeekAndFind
Did you get here Googling "exotic wood raids?" Is this not what you expected? I'm sorry. Settle in for some hot public policy.
Last we checked in with Gibson, the famed Tennessee guitar maker had been raided twice by armed federal agents, who seized almost $500,000 in exotic wood imported from India and Madagascar and shut down production. The ebony and rosewood in question have been used for decades to make the instrument's fingerboards and are integral to their style and sound, the company said. (Great video background from Reason, here.)
This week, Gibson settled with the government in a "criminal enforcement agreement," which means the feds won't bring criminal charges after their three-year investigation. In exchange, Gibson acknowledged some of its imports from Madagascar violated environmental laws and agreed to pay a fine of $300,000 plus $50,000 to the National Fish and Wildlife Foundation, to be directed to preserving forests. It will also step up compliance efforts.
The admission of wrongdoing only applies to Madagascar wood imported and seized in 2009, not to Indian wood imported and seized in 2011. Gibson will be able to recover the wood seized in the 2011 raid, suggesting there was no evidence of wrongdoing in that raid.
The government admits as much in the agreement, which Gibson has posted in full on its website, along with the evidence against it:
The Government and Gibson acknowledge and agree that certain questions and inconsistencies now exist regarding the tariff classification of ebony and rosewood fingerboard blanks pursuant to the Indian government's Foreign Trade Policy. Accordingly, the Government will not undertake enforcement actions related to Gibson's future orders, purchases, or imports of ebony and rosewood fingerboard blanks from India, unless and until the Government of India provides specific clarification that ebony and rosewood fingerboard blanks are expressly prohibited by laws related to Indian Foreign Trade Policy. The Government agrees to provide Gibson notice of any such clarification from the Government of India in the future and a reasonable period of time (60 days or as otherwise agreed) to address the potential change in the understanding of the law as it relates to shipments received by or en route to Gibson.
Gibson invites everyone to check out the full report and evidence for themselves. It’s not a long read, and really gives you a feel for the complexity inherent in our regulatory system. Here, from the DOJ report is Gibson’s violation, which prompted two armed raids and three years of investigation:
Between June 20, 2008, and November 17,2009, Gibson did not ask for or obtain paperwork or official assurances from officials in Madagascar that the wood it was purchasing from Madagascar through its German supplier was legally harvested and exported from Madagascar, notwithstanding the information received by Gibson during the June 2008 trip to Madagascar. Before November 2009, Gibson further did not ask for additional paperwork or other confirmation from its supplier that the wood it was purchasing from Madagascar was legally harvested and exported, although the execution of the search warrant. Instead, Gibson relied on the fact that T.N.(the German supplier) was an established, FSC (Forestry Stewardship Council) chain of custody certified supplier. Before ordering or accepting delivery of the fingerboards, Gibson should have taken a more active role and exercised additional diligence with respect to documentation of legal forestry practices in the areas of Madagascar from which those shipments from its wood supplier may have originated. Information received by the Gibson representative during the June 2008 trip to Madagascar was not further investigated or acted upon, prior to the continuing placement of orders with the supplier, T.N. Information sent to company management by the Gibson representative and others following the June 2008 trip to Madagascar also was not further investigated or acted upon, prior to the continuing placement of orders with the supplier, T.N. Instead, Gibson continued to purchase Madagascar ebony after June 20, 2008.
Translation (allowing for the fact that I’m not a lawyer): A Madagascar law allows the export of finished fingerboards but not unfinished “fingerboard blanks,” which would leave the finishing work to Gibson, adding frets and shaving fractions of an inch off the wood pieces. A Madagascar company was given a special dispensation to export existing stocks of rosewood after the passage of this Madagascar law, and Gibson received that company’s wood through a German company, which was also certified by an outside environmental group as forest-friendly. It turns out, the Madagascar company did not have a dispensation for ebony, but Gibson was getting the wood through two respected dealers, as far as it was concerned. Because a Gibson employee visited Madagascar with Greenpeace in 2008 and prepared a report, which went to higher-ups, addressing some of the risks of violating Madagascar law, Gibson should have taken additional steps to prevent the import of this Madagascar ebony.
Is there technically a violation of the Lacey Act somewhere in there? Sure, arguably, and that’s the fun of very complex U.S. laws dependent on the interpretation of unclear foreign laws and enforced via byzantine reporting requirements.
The WSJ explains what businesses are up against in dealing with these laws, even when making good-faith efforts to comply:
Gibsons predicament, which raises concerns for musical-instrument makers and other importers of wood, illustrates the pitfalls of complying with U.S. law while dealing with middlemen in faraway countries whose legal systems can be murky.
But why, if the 2009 raid’s Madagascar wood is the wood that violated the Lacey Act, were there no criminal charges brought between the 2009 raid and the 2011 raid? Could it be there wasn’t much of a criminal case, here?
In that case, shutting down production in a second armed federal raid seizing hundreds of thousands of dollars in wood, which (oops!) didn’t violate any laws would be a pretty keen way to get someone to cop to the violations of the first raid without a trial, wouldn’t it?
Gibson contends it had to settle to save money and move on with the company’s business:
“We felt compelled to settle as the costs of proving our case at trial would have cost millions of dollars and taken a very long time to resolve. This allows us to get back to the business of making guitars. 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.”
Despite the fact that, “…the government acknowledges that Gibson has cooperated with the Government and the investigation conducted by the Fish and Wildlife Service”, Gibson was subject to two hostile raids on its factories by agents carrying weapons and attired in SWAT gear where employees were forced out of the premises, the production was shut down, goods were seized as contraband, and threats were made that would have forced the business to close.
CEO, Henry Juszkiewicz commented, “We feel that Gibson was inappropriately targeted, and a matter that could have been addressed with a simple contact a caring human being representing the government. Instead, the Government used violent and hostile means with the full force of the US Government and several armed law enforcement agencies costing the tax payer millions of dollars and putting a job creating US manufacture at risk and at a competitive disadvantage. This shows the increasing trend on the part of government to criminalize rules and regulations and treat US businesses in the same way drug dealers are treated. This is wrong and it is unfair. I am committed to working hard to correct the inequity that the law allows and insure there is fairness, due process, and the law is used for its intended purpose of stopping bad guys and stopping the very real deforestation of our planet”.
Juszkiewicz and others in the music industry remain worried about those, including individual musicians, who might get ensnared in Lacey Act violations:
George Gruhn, who owns a vintage guitar shop in Nashville, said he wasn’t surprised that Gibson officials accepted the settlement.
“Regardless of the merits of the case on either side, it would have cost more than that by far to pursue it,” he said. “Even if they thought they conceivably they could win, it would have probably cost more than $1 million to do it…
“The problem is that virtually every instrument prior to 1970 contains Brazilian rosewood,” he said. “Even on a Gibson LGO, which was their cheapest student guitar.”
The government has said it won’t go after individual guitar owners, but the law does not prevent it. Early this year, Sen. Rand Paul introduced a law that would strike references to “foreign” law from the Lacey Act and substitute a civil penalties for the law’s criminal ones.
For now, Gibson will pay its $350,000 after a three-year investigation that cost us God knows how much to make amends for four shipments of wood totalling $262,000.
The difference? The owners of Martin are big Dem supporters, while the head of Gibson is a Republican.
This worthless excuse for a president is using the entire U.S. justice system to "punish his enemies" . . . just as he promised he would.
pay the extortioner and move on.
bastards (the Feds, that is).
I think Gibson got off easy paying a $300,000 settlement.
Consider that their main Gibson line guitars are not less than $1000 (I won’t use Epiphone since that’s their budget line). They easily go into the $3000 range for various models.
I’m also sure they decided to put away plenty of money for a rainy day (though they probably didn’t assume the rainy day would be feds raining down on them). It won’t take them a long time to make the $300k back.
There, fixed it.
Consider that their main Gibson line guitars are not less than $1000
Don't forget that a part of the extortion payoff agreement was that Gibson forfeit claims to the seized woods (did the government also seize completed instruments?). That could be a huge cost to the company. And the markup on instruments is in the neighborhood of 100% for major manufacturers. Also, don't forget that the wood used by a company like Gibson can't be used immediately. It needs to be dried slowly, until the moisture content gets down to a certain level.
I haven't seen an official list of what was seized, but it could be VERY costly to Gibson, far in excess of the shakedown amount paid to Obama's thugs.
That's not true. Find anything for me indicating that C.F. Martin or Taylor guitars purchased Madagascar ebony from Roger Thunam, a convicted lumber trafficker, whose wood was under government seizure. Gibson employee Gene Nix was on the ground in Madagascar and emailed Gibson executives that Thunam's wood was under seizure and that there was no 'legitimate' source for a purchase.
The owners of Martin are big Dem supporters, while the head of Gibson is a Republican.
That's not true. Chris Martin is an unabashed Democrat. Henry Juszkiewicz (Gibson's CEO) is not a Republican; he's an unabashed liberal. He's one of the founders of the Rainforest Alliance. Gibson, which he co-owns, was one of the first supporters of the Clinton Global Initiative. He was a presenter at MTV's Rock the Vote when Clinton received a special award and Barack Obama was also honored. He's on the board of countless liberal causes, such as one that promotes 'poetry slams' in children's hospitals to promote diversity. Since 1990, he's made two contributions to political candidates - one to a Republican (Huckabee) and one to a Democrat (Cooper, of Tennessee).
Let’s call it...Protection money.
I wonder what a ‘59 Les Paul Goldtop is worth now........
Ted Nugent better watch out.
Don't be so certain, unless Gibson's huge increase in sales as a result of public reaction to the August 2011 raids has been a help.
Gibson's been in financial trouble since before 2008. It went into technical default on $150 million+ in loans by failing to meet covenants in its loan agreements. For one thing, Gibson refused to provided audited financials for 2008 and has refused to provided audited financials to its lenders since then. The only thing that's kept the lenders from accelerating the loans is the IP value of the Gibson name.
You can read the details in a number of debtwire.com articles.
Then, while Gibson was floundering financially, the spring 2010 flood hit Nashville just as Gibson was preparing to relocate its production facility at Opryland Mills. Not only was wood on pallets on the floor, but all of its mandolin and banjo forms/molds were on pallets - irreplaceable forms and tooling dating back perhaps eighty years or more. Gibson lost it all.
Gibson didn't build another mandolin until early 2011 and has yet to manufacture another banjo (although there are rumors that the custom shop has a waiting list of over 250 orders with no set delivery dates).
So Gibson was on shaky financial footing for a couple of years before the first of these raids, then was hit by a natural disaster.
As a collector of guitars for 40 years and an attorney, I've been downloading all pleadings in the civil forfeiture actions as well as talking with my contacts in the industry (some of whom are former Gibson executives). Since the August 2011 raids, I've been crying out in the FR wilderness that Gibson clearly did something it knew was illegal when it purchased the Madagascar ebony.
Guess I can’t believe everything I hear down at the guitar store!
Wow, $300k for Øbozo’s reelection coffers. Not a bad day’s work.
I didn’t know about any of that.
I guess it’s a good thing I’m not a big fan of Gibson, though as a guitar player I’d hate to see them have to close shop.
It turns out, the Madagascar company did not have a dispensation for ebony, but Gibson was getting the wood through two respected dealers, as far as it was concerned.
I can pick apart so many statements in this article.
Take this one. Two respected dealers?
Theodor Nagel Gmbh, yes. But the other dealer was Roger Thunam. He'd just been released after serving a term for illegal trafficking in Madagascar lumber. All of the wood at his 'factory' was under government seizure - and Gibson employee Gene Nix emailed Gibson executives with this information.
Nix also reported that there was no 'legitimate' source for the wood.
If you read through the legal documents filed in the civil forfeiture action, several parties who were also on the trip with Nix gave statements that all of the parties, including Nix, discussed Thunam's legal troubles, trafficking conviction, and the fact that purchasing wood from him was illegal.
And Greenpeace? Just no. Don't make me dig through the hundreds of pages of pleadings, but the host organizations that organized the trip to Madagascar didn't include Greenpeace.
This article plays fast and loose with details.
> The owners of Martin are big Dem supporters
Glad I never bought one of those overrated clunkers.
I’ve been buying Ibanez, since Gibson has been somewhat out of my league. I did once own a beautiful SG, but it was stolen.
Once this administration is turned out, it would be very instructive to do a thorough investigation of how all these raids by various branches of Obummer's bureaucracy were initiated, with e-mail correspondence, etc. Congress should start collecting data on this now, but much would remain, somewhere in the system, even after Obummer, Holder, and their people are gone.
Then it would be even more instructive, since many of these operations were fraudulently conceived and carried out under color of law, to go after each of these individuals personally, making them pay fines and serve prison terms, of coursebut also seizing their personal and marital assets to repay any wronged individuals for losses and damages, so that the former administration officials if necessary would lose their domiciles. Pour encourager les autres.
This would be part of a vast house-cleaning, a period of national renewal, wherein Congress eliminates every agency and practice that has no basis in the Constitution. Whether it takes years or decades, it must be done.
Then the governmental projects and regulatory agencies that can't be justified through the Constitution, which would be most of them, can be shut down and their offices sold to any private businesses that will buy themor to Maryland farmers for pasture.
50 to 75000. Gold tops don’t bring the same amount in like the 59 to 60 Bursts do. The bursts are now going for 125 to 350000.
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