Fraudulent Labelling of Timber Sources

Lumber Liquidators’ Lacey Act Violations

In a landmark case, U.S.-based Lumber Liquidators was fined $13 million under the Lacey Act for illegally importing hardwood flooring.

As public awareness of the timber trade’s environmental consequences has increased, so has demand for wood that is “sustainable.” Consumers want to feel confident that the wood in their chairs and floors doesn’t come from a forest that serves as the habitat for an endangered species or a “carbon sink” that mitigates climate change.

However, as much as 23% to 30% of hardwood lumber and plywood traded globally could be from illegal logging activities. While there are international conventions like CITES governing lists of endangered animal and plant species, enforcement relies largely on signatory countries and is often weak. Through complex supply chains and misrepresentations, the source of illegally logged wood is often obscured; in multiple cases, wood sold under a “sustainable” label has been found to have come from endangered species in violations of local logging limits.

However, without inside information, it can be difficult to determine the true source of timber products and whether they were logged legally. The U.S. has multiple whistleblower laws with transnational applications to prevent the trafficking of illegally harvested timber in the U.S and encourage whistleblowers to come forward, including the Lacey Act.

The Act is the United States’ flagship legislation for controlling the illegal trafficking of fish, wildlife and plants. It was amended in 2008 to expand its protections to trees and timber products. The new legislation required importers to declare, among other things, the type of wood and the country where the wood was harvested. The law carries both civil and criminal penalties, and stiff fines ranging from $10,000 for individual misdemeanors to $250,000 for felonies (figures are double for corporations), and up to five years prison time. The Act also contains a whistleblower provision for rewards to anyone who provides information leading to a successful prosecution, to be determined at the discretion of the agency.

While the Justice Department has prosecuted multiple cases related to illegally harvested wood under the Lacey Act, the case with the largest penalties to date is the $13 million fine for Virginia-based Lumber Liquidators on charges that it knowingly imported timber illegally harvested in countries including Russia and Myanmar.

Lumber Liquidators

In 2016, Lumber Liquidators was sentenced to pay more than $13 million in criminal fines, community service, and forfeited assets “related to its illegal importation of hardwood flooring, much of which was manufactured in China from timber that had been illegally logged in far eastern Russia, in the habitat of the last remaining Siberian tigers and Amur leopards in the world.”

According to the Department of Justice (DOJ), from 2010 to 2013, the company had repeatedly ignored internal “red flags” including imports from high risk countries, imports of high risk species, and imports from suppliers who were either unable to provide proper documentation or provided false information. Despite these risks, Lumber Liquidators increased its purchases from Chinese manufacturers, knowing the timber was sourced from the Russian Far East – an area known in the industry for corruption and illegal harvesting.

In its press release, the DOJ noted that in 2013, Lumber Liquidators imported Russian timber logged “under a concession permit that had been utilized so many times that the defendants’ imports alone exceeded the legal harvest allowance of Mongolian oak by more than 800 percent.”

On other occasions, the company falsely reported the species or harvest country of timber when it was imported into the United States.  In 2013, Lumber Liquidators imported Mongolian oak from Far East Russia which it declared to be Welsh oak and imported merpauh from Myanmar which it declared to be mahogany from Indonesia.

The company pleaded guilty in October 2015 to one felony count of importing goods through false statements and four misdemeanor violations of the Lacey Act.

Key Takeaways

The Lumber Liquidators case marked the first time that a U.S. company had been convicted of a felony related to timber under the Lacey Act. It demonstrated the new power of the Act following its 2008 amendments and emphasized the government’s commitment to curbing the illegal timber trade. The case also demonstrates the critical role whistleblowers can play. An NGO, the Environmental Investigations Agency, was key to building the case against the company.

As one of the world’s largest importers of timber products, the United States is in a position to drive reform in the industrial logging industry. As this case shows, whistleblowers can play a key role in this industry change.

It is also important to note that these sort of violations are not only limited to enforcement under the Lacey Act. When a company falsely reports the species or harvest country of timber, like Lumber Liquidators did, they are making a false claim to the government – potentially making them subject to the powerful False Claims Act and its reverse false claims provision. In recent years, customs violations have increasingly been prosecuted under reverse false claims, demonstrating the potential to apply the False Claims Act and its extremely successful whistleblower program to the issue of the illegal timber trade.

To learn more about the False Claims Act and reverse false claims, read The New Whistleblower’s Handbook, the first-ever guide to whistleblowing. The Handbook, authored by the nation’s leading whistleblower attorney, is a step-by-step guide to the essential tools for successfully blowing the whistle, qualifying for financial rewards, and protecting yourself.   

Report Fraud Now