Gibson Guitars Settles in Lawsuit Over Illegal Wood Sourcing

If only life were like the Olympic Games – while in the Olympics participants either win or lose, life is full of compromise and most of the time there are no clear winners or losers. This seems to be the case in the fight between the Department of Justice and Gibson Guitars over whether the company imported wood illegally from Madagascar and India, violating the Lacey Act, a law requiring that all wood products and plants imported into the U.S. come from legal sources. This case, which made the headlines due to two raids on Gibson’s factory and accusations that Gibson is persecuted because of political reasons, ended last week in a settlement between the two sides.

Under the settlement the DoJ has closed its criminal investigation against the company, while Gibson agreed to pay $300,000 in penalties, forfeit claims to about $262,000 worth of wood seized by federal agents and make a $50,000 donation to the National Fish and Wildlife Foundation to promote the conservation of protected tree species. In addition, Gibson will also implement a compliance program designed to strengthen its compliance controls and procedures.

This might be a surprising outcome, at least for those who remember Gibson’s statement after the second raid - the company pledged to “fight aggressively to prove our innocence.” What happened to the company’s claim that it is innocent and will fight to protect its rights? Well, apparently the accountants have taken over the war and the company decided it’s not worth the money. “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.” Gibson’s CEO Henry Juszkiewicz explained.

And don’t get it wrong – Juszkiewicz still thinks Gibson is the victim here.

“We feel that Gibson was inappropriately targeted, and a matter that could have been addressed with a simple contact by a caring human being representing the Government. Instead, the Government used violent and hostile means with the full force of the U.S. Government and several armed law enforcement agencies costing the taxpayer millions of dollars and putting a job-creating U.S. manufacturer at risk and at a competitive disadvantage. This shows the increasing trend on the part of the Government to criminalize rules and regulations and treat U.S. businesses in the same way drug dealers are treated. This is wrong and it is unfair," he added.

The Justice Department begged to differ. "As a result of this investigation and criminal enforcement agreement, 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 wood species from Madagascar, a country which has been severely impacted by deforestation," said Assistant Attorney General Ignacia Moreno of the Justice Department.

So was Gibson involved in wrongdoing or not? While it might be difficult to give a clear answer, it seems from the settlement that the Justice Department had a strong case against Gibson. First, if you look at the Justice Department’s statement, it talks in detail only about the Madagascar ebony. The settlement also presents details related to the import of the Madagascar ebony, including the fact that a Gibson employee learned during a 2008 trip to Madagascar that there are many legal issues pending on wood harvesting and export particularly with ebony and rosewood, but nevertheless Gibson continued to import it. Last but not least, Gibson won’t receive back the seized Madagascar wood. On the other hand, there is little mention whatsoever of the Indian rosewood from the original case and Gibson will be able to get the seized Indian wood back.

You can also recognize that Madagascar is Gibson’s weak spot in its response to the settlement. CEO Juszkiewicz included in the response a Q&A to make sure Gibson’s position is clear. One of the questions is: “The statement of facts includes Gibson's official acknowledgement that you could have and should have exercised greater due diligence in regard to the importation of the questionable wood from Madagascar. Doesn't this amount to an admission that the company violated the law, notwithstanding all your previous protests?” Unlike his other answers, which are straight and clear, here he’s just trying to avoid the question: “Gibson is strenuously dedicated to continuous environmental improvement. We want to be leaders in our business, and our business includes protecting the environment. We can always do better.”

Still, there was one place though when you couldn’t find any doubt about Gibson’s innocence. The Tea Party folks, who had rallied behind Juszkiewicz at the time adopting this case as an example of how the big government is hurting business, had nothing but empathy for Gibson. One blogger justified the settlement, explaining that “you can’t fight the federal government” and advised Gibson to move overseas. Another one wrote that “this is just another example of the strong-arming thuggery we are seeing in Obama’s America.” In their mind Juszkiewicz is  the winner (not to say a hero), no matter what the settlement says. For the rest I guess this case will stay a bit more complicated.

[Image credit: jacksonpe, Flickr Creative Commons]

Raz Godelnik is the co-founder of Eco-Libris, a green company working to green up the book industry in the digital age. He is an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and the New School, teaching courses in green business and new product development.