Sourcing Legal Timber: Due Diligence Management System

Transcription

1 Sourcing Legal Timber: Due Diligence Management System Presentation by Kip Howlett President, Hardwood Plywood and Veneer Association An ANSI Approved Standards Developer March 29, 2013

2 ANS LTDD Webinar Thank you for joining us We ask that you mute your phones We will open the webinar for questions after the presentation If you have music when you place your phone on hold, we ask that you disconnect from the webinar and rejoin us after your other call 3/29/2013 2

3 Objections on the first ballot: ANS LTDD Too prescriptive Black listing Went beyond Gibson case due diligence questions Too focused and detailed on a worst case Beyond the capabilities or capacity of smaller enterprises 3/29/2013 3

4 ANS LTDD Virtually every ballot included suggested language to improve the standard Suggestions included changes to both the standard and the appendices Differentiation between primary/secondary manufacturers closest to the log and downstream entities in the value chain resulted in changes in the standard and expansion of the Writing Group 3/29/2013 4

5 ANS LTDD Significant revisions: Due diligence is common to EUTR, Lacey Act, Australia and Japan Gibson guidelines are important (consistent with them but doesn t extend beyond them) Fabricators, wholesalers and retailers have more flexibility 3/29/2013 5

6 Keeping Illegal Timber from the Supply Chain 3/29/2013 6

7 ANS for Due Diligence in Procuring/Sourcing Legal Timber This standard is intended to serve as a common understanding of the best internal management system for establishing confidence that illegal timber is excluded from products in the timber supply chain. 3/29/2013 7

8 HPVA Board Lacey Due Care Act Expanded Writing Group Tim Schallich -Chairman, Vice President, Columbia Forest Products Stacey Kapushy - Customs Compliance Manager, Armstrong World Industries Anthony Lynchesky- Import/Export Coordinator, Veneer Technologies Don Finkell- CEO, Shaw Hardwood Cathy Lynn Danzer- Danzer Group Greg Kuntz- Manager of Technology Department: R&D Group, Kimball Tim Heidt- President, St-Raymond Veneers, A Penrod Company Cindy Squires - NAMM and now IWPA, President Cassie Phillips- Vice President, Weyerhaeuser 3/29/2013 8

9 Lacey Work Group OBJECTIVE: Develop a consensus of what are the due diligence requirements to purchase legal timber and wood products Define a set of quality control guidelines consistent with those requirements Be proactive Protect our brands Avoid product forfeiture Reduce supply chain disruptions Be cost effective Focus on global requirements Be a true national consensus standard 3/29/2013 9

10 Due Care - U.S. Department of Justice Gibson Guitar s settlement sets out 11 specific questions that provide a due care checklist for assuring timber sourcing is from legal sources. Red flags are the alerts to ask more questions and increase efforts ANS LTDD is consistent with the DOJ guidance Sourcing Legal Timber draft 1 cld

11 Due Care in a Nutshell Certainty based approach: tree species, country of origin, country of harvest, and suppliers. Be aware of red flags Ask questions: the higher the uncertainty, then the more questions are asked. ANS LTDD starts with the assumption timber is legal 3/29/

12 Due Care in a Nutshell Develop a compliance program Use industry and government standards Record your efforts and retain documents Make changes to continually improve 3/29/

13 ANS for Due Diligence in Procuring/Sourcing Legal Timber This is not a forest certification of sustainability standard This is not a legal verification standard This is not a chain of custody standard back to the stump This is not a labeling standard It is a due diligence standard 3/29/

14 Due Diligence and the Reasonable Person Standard What do you know? What should you know? What would a reasonable and prudent person know? If you put the system in place, does that protect you from legal, both criminal and civil, liability? Is it better than nothing? Can I avoid forfeiture by implementing this Standard? Lacey Act is a strict liability statute with forfeiture of stolen property. However, the other penalties are on a continuum from civil to criminal. Ignorance of the law is no defense. 3/29/

15 Due Diligence and the Reasonable Person Standard Concerns with the law need to be addressed with the executive and legislative branches. Common to all these legal timber laws is the requirement to conduct due diligence. For enforcement, size does not matter. Where there is more certainty that risks are low, then the government is playing the leading role. Where there is more uncertainty, then private efforts supplement government s efforts. 3/29/

16 ANS for Due Diligence in Procuring/Sourcing Legal Timber 1. Purpose 2. Scope 3. Definitions 4. Management Program 5. Risk Assessmernt Process 6. Due Diligence Program 7. Document Control Program 8. Inspection, Verification, and Audits Procedures 9. APPENDICES (Non-binding information) 3/29/

17 ANS for Due Diligence in Procuring/Sourcing Legal Timber: Purpose and Scope Purpose: Document the best internal management system for establishing confidence that illegal timber is excluded from the timber supply chain. Scope: Reduce the risk of illegal timber entering the supply chain and demonstrate due diligence. A North American focus which could have international implications for timber in international commerce. 3/29/

18 ANS for Due Diligence in Procuring/Sourcing Legal Timber: Management Program Elements Procurement policy statement does not have to be made public Top management designates a coordinator to run the due diligence program (Note: in a small company may be the same individual and in larger companies multiple people) Infrastructure and Control Systems: databases of suppliers, tree species, country/region information and reference materials Document control system (Sec.7) Management review 3/29/

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20 ANS for Due Diligence in Procuring/Sourcing Legal Timber: Risk Assessment Process Areas of Risk - If risks are not high, move to next area for evaluation Law enforcement in the country of harvest -The laws are enforced and corruption is not a serious problem Species - The species are native to the country of harvest and not CITES listed or otherwise trade restricted Supply chain - My supplier is reputable and well established 3/29/

21 ANS for Due Diligence in Procuring/Sourcing Legal Timber: Risk Assessment Process If the Entity discovers concrete information the shipment is illegal or the supplier is engaged in illegal activities, then the transaction is halted and the authorities notified. 3/29/

22 Illegal Logs - 2,000 Truck Loads Worth - Seized by INTERPOL LYON, FRANCE - Some 194 people were arrested and timber valued at $8 million was seized in INTERPOL s first international operation targeting large-scale illegal logging and forest crimes. Twelve Central and South American countries were included in Operation Lead, conducted by INTERPOL's Environmental Crime Program from mid-september through November last year. INTERPOL, the international police cooperation, said its agents confiscated more than 50,000 cubic meters of wood, equivalent to 2,000 truckloads of lumber and valued at approximately $8 million. INTERPOL's investigation included Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Guatemala, Honduras, Paraguay, Peru, and Venezuela. INTERPOL officials inspected and investigated transport vehicles, retail premises, and individuals, as well as surveillance and monitoring at ports and various transport centers. The illegal timber trade, currently estimated to be worth between $30 to $100 billion U.S. annually. March, /29/

23 Decision Flow Chart and the Due Diligence Matrix both significantly simplified Even in higher risk circumstances, certainty that addresses those risks means an Entity can still conduct business. Reliance on your standard business documentation (invoices, purchase orders, shipping documentation, bills of sale, etc.) Primary focus is on the primary/secondary manufacturer who is closest to the forest and the trees. Fabricators, distributors or retail entities have the option to use all or only parts of the standard in non-mandatory Appendix 9. 3/29/

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25 Species-Related Restrictions? (See 5.2) No Yes High Risk Country? (See 5.1) No Yes Products traced to Country of Harvest* Supplier uses standard business documentation for level in supply chain Supplier doesn t raise red flags Optional: products third-party certified w/certified sourcing or chain of custody (See 6.1) (See 6.3) A C Products traced to Forest Management Area Pass-through contracts with suppliers or products third-party certified w/chain of custody Supplier doesn t raise red flags Products traced to Country of Harvest* Supplier has necessary species-related permits Supplier uses standard business documentation for level in supply chain Supplier doesn t raise red flags Optional: products third-party certified w/ chain of custody B (See 6.2) D (See 6.4) Products traced to Forest Management Area Supplier has necessary species-related permits Pass-through contracts with suppliers or products third-party certified w/chain of custody Supplier doesn t raise red flags 3/29/

26 ANS for Due Diligence in Procuring/Sourcing Legal Timber Risk Based Approach: higher risk requires more due diligence (Quadrants C and D) Low risk (Quadrant A) requires document controls Preliminary risk assessment of suppliers common to all Quadrants (Ex: gate wood in A) Higher risk requires the determination of the country/region/forest management unit (FMU) 3/29/

27 ANS for Due Diligence in Procuring/Sourcing Legal Timber RED FLAGS: Timber originates from region with human rights violations, armed conflict, UN sanctions violations Timber from areas with open conflicts Any suspicion timber originates from parks or protected areas Suppliers involved in armed conflict or illegal logging CITES species list Annex I,II, or III or protected by national law without the proper paperwork/permits 3/29/

28 ANS for Due Diligence in Procuring/Sourcing Legal Timber: Document Control Program Document retention and control: Financial records Questionnaires Other documents Confidentiality Control Procedures Relevant to risks Improvement Programs Remediation Mitigation 3/29/

29 ANS for Due Diligence in Procuring/Sourcing Legal Timber Inspection, Verification and Audits Annual report of suppliers progress Internal audits 3 rd Party audits Accredited 3 rd Party audits 3/29/

30 ANS for Due Diligence in Procuring/Sourcing Legal Timber Appendices provide useful information Non-binding to the standard Provide aids to compliance 1. Policy Statements 2. Industry standards for coordinator competency 3. Resources for Country Risk Assessments 4. SFC and 3 rd Party Legality Verification 5. Supplier Questionnaire 6. Examples of High Risk Suppliers and U.S. DOJ Guidance Questions 7. Timber species references 8. Examples Declaration of Legality and Origin 9. Due Diligence Program for Fabricators, Distributors and Retailers 3/29/

31 ANS for Due Diligence in Procuring/Sourcing Legal Timber Submitted PINS to ANSI in May Standard out for first ballot to the Canvass Committee November/December Writing Group expanded and addresses objections and recommendations Second ballot in April /29/

32 ANS for Due Diligence in Procuring/Sourcing Legal Timber Standard provides the key elements of a due diligence program that when implemented provides a legal defense that your conduct was that of a reasonable person 3/29/

33 How do you know it s legal? Trust your suppliers. 3/29/

34 Lacey Due Care Act Work Group ANS LTDD Thank you for listening Please are there any questions? Visit: for updates and more information 3/29/