due diligence – ans ltdd 1.0 2014 diligence... · products have due diligence programs in place...

Due Diligence –

ANS LTDD 1.0 2014 Presentation to the Forest Legality Alliance

December 3, 2013

Kip Howlett, President, Hardwood Plywood and Veneer Association

Engineered Hardwoods and Flooring –

The Lacey Act

• HPVA represents engineered hardwoods manufactured only in North

America

• Over 75% of engineered flooring, 95% of hardwood plywood and 70% of

hardwood veneer

• Over 85% of logs and veneers are domestically sourced

• Some of the engineered flooring companies have off shore manufacturing

plants – Latin America and Asia


The Lacey Act

• Most of the raw material are sourced from low risk countries

• All of the companies bringing in foreign sourced logs, veneers and finished

products have due diligence programs in place

• Some companies stop sourcing from high risk areas or high risk species

• All companies are knowledgeable about their legal obligations and use a

variety of tools


The Lacey Act

• Inquiries and assurances from suppliers

• Selective audits of the sourcing

• Use of forest certification schemes to identify species and countries of

harvest

• Use of field audits and inspections

• Cooperation with ENGO’s in the sourcing areas

Monetizing Illegal Timber

• Two antidumping/countervailing duty cases have been brought against Chinese produced engineered wood flooring and hardwood plywood

• Duties in place for flooring

• The ITC recently determined that the U.S. industry was not being injured or threatened with injury from Chinese produced hardwood plywood as “they are not substitutable for each other”.

• Department of Commerce found on average 59% dumping and 27% countervailable duties.


• Dumping monetizes in part the value of illegally sourced logs and raw

materials used in the manufacture of these products

• Mixing “fungible wood” in engineered products

• Value is estimated to be 15-20% of the finished product

• Market economy comparison to determine “values” in a managed non-

market economy like China


• 15-20% of 59% is a significant contribution to the economic competitive

value for these products

• $686 million Chinese hardwood plywood imported into the U.S.

• $451 million of kitchen cabinets

• $3.65 billion of furniture

• $

ANS LTDD 1.0 2014

• A national consensus standard developed under the ANSI standards process

• HPVA is the sponsoring standards developer

• Unlike ANSI/HPVA HP-1-2009 and ANSI/HPVA EF 2012 which are ISO

17065, ISO 17020 and ISO 17025 based, ANS LTDD 1.0 is consistent with

ISO 17021 Management Systems

The Goal: Keeping Illegal Timber from the

Supply Chain

ANS LTDD 1.0 – 2014

Significant features:

• Due diligence is common to the Lacey Act, EUTR, Australia and Japan

• Gibson guidelines are important (consistent with them but doesn’t extend beyond them)

• Fabricators, wholesalers and retailers have to rely on the due diligence programs of their suppliers

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


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


Legal Timber

OBJECTIVE:

Assist companies in establishing a suitable quality assurance program to demonstrate the level of due diligence in controlling associated risk

Scope covers interstate commerce, import, and export with a North American focus

• 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


Legal Timber

Due Care in a Nutshell

• Certainty based approach: tree species, country of origin, country of harvest, and suppliers.

• Be aware of “red flags” which identifies uncertainty/risk

• Ask questions: the higher the uncertainty/risk, then the more questions are asked. Conduct due diligence

• ANS LTDD starts with the assumption timber is legal


Legal Timber

• Develop a quality assurance program

• Use industry and government

standards

• Record your efforts and retain

documents

• Make changes to continually improve


Legal Timber

1. Purpose

2. Scope

3. Definitions

4. Management Program

5. Risk Assessment Process

6. Due Diligence Program

7. Document Control Program

8. Inspection, Verification, and Audits Procedures

9. Appendices (Non-binding Information)


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

Species-Related Risks? (See 5.2)

No Yes

Hig

h R

isk

Co

un

try?

(Se

e 5

.1)

No

• 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) A

• Products traced to Country of Harvest*

• Supplier has necessary species-related permits

• Supplier uses standard business documentation for level in

supply chain


• Optional: products third-party certified w/ chain of custody

B (See 6.2)

Yes

(See 6.3) C • Products traced to Forest Management Area

• Pass-through contracts with suppliers or products

third-party certified w/chain of custody


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



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)

Decision Flow Chart and the Due Diligence Matrix –

the heart of the standard

• 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.


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


Legal Timber: Document Control Program

• Document retention and control:

• Financial records

• Questionnaires

• Other documents

• Confidentiality

• Control Procedures

– Relevant to risks

• Improvement Programs

• Remediation

• Mitigation


Legal Timber

Inspection, Verification and Audits

• Annual report of suppliers

progress

• Internal audits

• 3rd Party audits

• Accredited 3rd Party audits


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 3rd 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

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.

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 liability - both criminal and civil? Is it better than nothing?

• Can I avoid forfeiture by implementing this Standard? The 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.

How do you know it’s legal? Trust your suppliers.

ANS LTDD 1.0 2014

• Thank you for listening

• Please – are there any questions?

Visit: www.hpva.org for updates and more information

http://www.hpva.org/

due diligence – ans ltdd 1.0 2014 diligence... · products have due diligence programs in place...

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