Summary

Lumber Liquidators Inc. (“LL”) is a U.S.-based public cooperation and one of the country’s largest sellers of wooden flooring products. In 2015, LL was charged with one felony and four misdemeanours concerned with the illegal importation of timber in violation of the Lacey Act. On several occasions, employees of LL were aware of discrepancies in documented and declared information from their suppliers but failed to act in accordance with company internal guidelines, effectively ignoring red flags and violating Lacey Act requirements. Most of the timber in question was illegally imported from the Russian Federation’s Far Eastern Federal District (“Far East Russia”), posing a risk to the last remaining endemic species of Siberian tigers and Amur leopards. In late 2015, the company pleaded guilty to the criminal charges and agreed to pay more than USD 13 Million in fines, forfeiture and community service payments, making it the first felony conviction related to the illegal import of timber in the U.S. and one of the largest criminal fines ever under the Lacey Act at that time.

Environmental background

Illegal logging in Far East Russia is a problem acknowledged by the Russian government and several Civil Society organizations. This remote area features one of the last old-growth temperate rainforests contains trees of the species of Mongolian oak and Korean pine, both CITES-listed flora species. Far East Russia and its temperate forests are home to the last wild-living Siberian tigers (Panthera tigris altaica) and amur leopards (Panthera pardus orientalis). An estimated 450 Siberian tigers and 57 amur leopards are estimated to remain in the wild. Illegal logging is a major driver of extinction of both big cats. The reason for this is two-fold. For one, the temperate forests of Far East Russia are the natural habitats of both species, which is directly threatened through illegal logging. In addition, the acorns of the Mongolian oak and the nuts of the Korean pine are the primary food source for deer and boars, both prey species for tigers and leopards.

Case background

Russian oak is listed in the highest risk category of LL’s internal documents, including guidelines, a compliance plan and training material. Yet, on multiple occasions, LL failed to enforce its own rules and ignored red flags that led to the purchase and import of falsely declared timber products.

Between 2011 and the government’s search of the company’s offices in 2013, LL increased its purchases in Russian oak steadily. LL purchased wood flooring from China-based Company X. Between late 2011 and early 2012, LL imported 23 shipments of oak flooring from Company X with a falsified statement regarding the origin of the timber contained. For these shipments, the declaration stated that the flooring was made out of Mongolian oak harvested in Germany when in fact this tree species does not occur in Germany. LL failed to review the declaration, which was done by Company X, prior to submitting it to the authorities. In early 2013, an employee of LL noted in an internal email that it was impossible that the Mongolian oak in question was harvested in Germany. Yet, between February and August 2013, LL continued purchasing and importing Mongolian oak flooring from Company X and another Chinese supplier, who claimed to have sourced the timber from Germany.

During the same time, in 2012 and 2013, LL increased its purchases of oak flooring from another Chinese supplier, Company Y, which operates in the border area of China and Russia, including Far East Russia. Between May and July 2013, LL purchased and imported 35 shipments of Mongolian oak. LL furthermore received documentation from Company Y, including a harvest concession for logging rights in Far East Russia and a tracking sheet documenting the timber as stemming from Mongolian oaks. Notwithstanding, the supplementary Lay Act Declaration for those 35 shipments claimed that the timber in question was Quercus petraea, also known as sessile oak, Welsh oak or Irish oak, a species that is commonly known to be of little risk of illegal exploitation. This tree species, however, does not occur in Far East Russia. Again, LL failed to execute the required due care and to adhere to its own internal guidelines, thereby illegally importing timber and violating the Lacey Act.

From May through September 2013, LL imported 79 shipments of oak flooring from Company Y to be resold through retails stores in the United States of America. The logging concession provided by Company Y certified the permission to log 373m³ of Mongolian oak from the Khabarovsky Province of Far East Russia. This would translate to roughly 300m³ of industrial timber fitting in just over 9 shipping containers. The aforementioned 79 shipments of oak flooring amounted to 2,494.80m³, eightfold of what is permitted by the logging concession. Internal communication revealed that employees of LL were aware of these discrepancies but failed to act accordingly.

Moreover, between September 2012 and September 2013, LL continued importing timber from another Chinese supplier, Company Z. During an inspection of Company Z by employees of LL in September 2012, it was noted that Company Z failed to use any tagging system and did not provide information on harvesting locations. In a follow-up survey, Company Z was unable to provide LL with documentation of their logging areas. Nevertheless, LL continued procuring timber from Company Z, contrary to their own guidelines. In the last months leading up to September 2013, LL purchased and imported six shipments of Indonesian big-leaf mahogany (Swietenia macrophylla) flooring from Company Z. This was done despite the fact that LL considered mahogany a species exposed to a high risk of illegal logging and overharvesting, as well as Indonesia being a country at high risk of illegal logging. After the shipment was done, Company Z provided LL with documentation claiming the timber in question stemmed from merpauh (Swintonia florbunda) from Myanmar, explaining that they had substituted the Indonesian mahogany with merpauh in order to meet LL’s price points. The documentation showed that the exporting company was the Myanmar Timber Enterprise, a company that U.S. companies were prohibited from doing business with due to a ruling by the U.S. Treasury Department. Notwithstanding the many issues with these shipments, LL again failed to exercise due care as it did not require Company Z to provide legit documentations of harvesting grounds as well of chain-of-custody documentation.

Sentencing

In October 2015, LL was sentenced to pay a criminal fine of USD 7,800,000 and to Community Service Payments totalling USD 1,230,825. Furthermore, LL was sentenced to a probation term of five years with special conditions, such as the implementation of an Environmental Compliance Plan and the engagement in external environmental audits. Moreover, the company agreed to forfeit and pay USD 969,175, representing the proceeds of 385,38m³ of Mongolian oak that was imported between February and August 2013. Another USD 3,155,000 were due to a forfeiture agreement stemming from a civil forfeiture case concerning birch and oak hardwood flooring.