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How the U.S. Can Hold Foreign Laws Against You


A new addition to an old law means that U.S. regulators can enforce other countries laws even if that country doesn't.

Feature Photo Credit: Rich Pedroncelli/AP

Commentary by Ray Hennessey, the editorial director of Entrepreneur.com. Previously, he was director of business news at the FOX Business Network, where he managed day-to-day editorial operations for the channel. Before joining FOX News in 2007, Ray spent a decade at Dow Jones in a variety of positions, notably editor of SmartMoney.com and news editor for Dow Jones Newswires. For six years, he authored the IPO Outlook column for The Wall Street Journal and appeared daily on CNBC television. He was also a regular on-air contributor to CBS News. He can be contacted on Twitter, @Hennesseyedit.

Think there’s too much government regulation of business? How about if you had to comply with foreign law, too, even if those laws weren’t even enforced in those other countries.

You might be breaking the law right now, for all you know. And U.S. law enforcement might be ready to swoop in.

At issue (again) is the Lacey Act, now that Lumber Liquidators was raided by agents from U.S. Department of Homeland Security and the U.S. Fish and Wildlife Service last week. If that kind of armed government raid sounds familiar, it is reminiscent of when Gibson Guitars was raided a few years back.

Both Lumber Liquidators and Gibson have one thing in common: wood, and lots of it, harvested from exotic places around the world.

And that’s where the Lacey Act comes in. Passed in 1900, it was the first real American conservation law. Originally, it had a markedly federalist feel to it. States had very clear laws about how to prevent the poaching of birds, which were popular not only for the meat they provided but for the feathers used in fin-de-siecle hats. A particularly pretty bird could be protected from sale in Iowa, but those Iowa laws were hard to enforce when you were plucked and sold in Illinois. So the Lacey Act just afforded federal enforcement of state laws across state lines.

Over the years, though, the Lacey Act changed. More wildlife was added beyond birds, and eventually flora met fauna, and exotic plants were added.

But there were two changes that continue to cause agita for businesses today. In 1935, the Lacey Act was changed to require not only compliance with state law, but also animal imports “in violation of any foreign law.” That essentially meant that, if you were in the birds-and-beasts trade, you had to know what the laws in the source country were or face enforcement at home.

Then came 2008, when Congress extended the Lacey Act to include wood, mostly to stop deforestation in protected areas worldwide. It was Gibson’s sourcing of Madagascar wood that made it subject to armed federal agents raiding its facilities. There is some speculation that Lumber Liquidators is now in the crosshairs because of sourcing Russian wood in areas that are supposed to be protected because of the Siberian tiger.

Interestingly, the business community has largely been supportive of the Lacey Act on two fronts. First, most companies want some kind of conservation to make sure they have long-term access to raw materials. For all the criticism logging gets, it is in the best financial interest of timber companies to plant trees so they will know that have something to mow down in the future.

Second, and less noble, is the protectionist aspect of the Act. In 2008, the business community saw a potential cross-border quid-pro-quo in expanding Lacey. By protecting and defending the laws outside of the U.S., the hope was that these countries would stop other foreign companies, namely from China, from violating laws, too.

In fact, it is hard to find a corporation to call for the repeal of Lacey. Even Gibson Guitars CEO Henry Juszkiewicz called for it to be changed, not repealed. (Gibson Guitars would ultimately settle its case for a modest fine and a donation to the U.S. government, in the form of a check to the National Fish and Wildlife Foundation.)

It is unclear what Lumber Liquidators will face in penalties, but the Lacey Act includes jail time. Gibson, in settling, got off easy. A few lobster fishermen weren’t so lucky.

Several American fishermen were convicted under the Lacey Act for, among other things, catching Caribbean spiny lobsters that were too small and shipping them in plastic bags, not cardboard boxes. U.S. law doesn’t require shipping lobsters in boxes. The laws of Honduras did. The U.S. enforced Honduran law. In retrospect, someone had to, because Honduras didn’t. Honduras wasn’t fining people for shipping lobsters in bags, nor for size violations. It didn’t care, even though those laws were on its books. The lobstermen ended up in prison because the U.S. applied a Honduran law even Honduras didn’t bother to enforce.

That’s the problem facing Lumber Liquidators now. Vladimir Putin may have international diplomacy to think about and not hear the tree falling in the Siberian woods. There could be no penalty locally, but the U.S. could decide it likes Russian law so much it wants to enforce it itself.

That is the dangerous implication of Lacey, for Lumber Liquidators and for any company that makes wood a part of its products and commerce. It makes Lacey a law too dangerous to conserve in its present form.

Read more: http://www.entrepreneur.com/article/228632#ixzz2gOkkxdNb

[Editor's Note: This is a cross post that originally appeared on Entrepreneur.com]

Feature Photo Credit: Rich Pedroncelli/AP

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