A Growing Branch of Supply Chain Risk: the Timber Regulations

Introduction

In recent years, multinational corporations have been under growing regulatory pressure to manage the risks which arise from operating complex and globalised supply chains. One aspect of this, which is now attracting heightened regulatory focus, is the procurement of timber and timber products and the prevention of the trade in illegally harvested timber. 

In the UK, the applicable legislation is the Timber and Timber Products (Placing on the Market) Regulations 2013 (the UKTRs), which is enforced by the Office for Product Safety and Standards (the OPSS).

Core provisions of the UKTRs

In summary, the UKTRs require ‘operators’ (defined as those businesses which first place in scope timber and timber products on the Great British market[1]) to have in place a sufficient due diligence system. Prior to Brexit, it was only businesses which first placed timber on the EU market which needed to carry out this due diligence. 

Therefore, the obligations of UK-based companies which procure timber from the EU have drastically increased post-Brexit – they can no longer rely on the due diligence carried out by their EU-based suppliers and will essentially have to repeat the due diligence process for themselves. 

Four key observations 

1. Risks of prosecution: The OPSS recently prosecuted Sunseeker International Limited, a manufacturer of luxury yachts, for the administrative offence of failing to conduct adequate due diligence on imported timber. This was a landmark prosecution and represented a real shift in historical enforcement practice. The case was brought by the OPSS despite the fact that Sunseeker’s breaches were inadvertent, resulting from previously lawful acts which became unlawful following the post-Brexit change in law, as well as the fact that Sunseeker took steps to remedy the situation as soon as it came to light, and cooperated with the investigation throughout. The regulatory ramp-up by the OPSS is also evidenced by the fact it has issued a notice of remedial action at a rate of approximately one every 2 months for the last 2 years, not including 2 seizure notices.

2. Approach to fines and penalties: In the Sunseeker prosecution, the OPSS successfully argued before the Crown Court that it should have regard to the Food Safety and Food Hygiene Regulations sentencing guidelines when determining the appropriate sentence, as no UKTR specific guidelines exist. It is expected that the OPSS will continue to seek to rely on these guidelines – in considering the appropriate level of harm and culpability – when prosecuting offences under the UKTRs, notwithstanding the fact they are concerned with other matters. 

3. Supply chains and money laundering risks: The OPSS did not just seek to fine but commenced confiscation proceedings under the Proceeds of Crime Act 2002 (POCA). POCA enables the recovery of proceeds which are deemed to represent the ‘benefit’ of criminal activity – in Sunseeker’s case, the value of the timber products. The OPSS’ approach is a helpful reminder to companies that supply chain risk can often lead to POCA/AML considerations and it is vital for companies to manage the process through which criminal property can be generated in their supply chains. This is especially so following the Court of Appeal’s decision in the R (on the application of World Uyghur Congress) v National Crime Agency case which concerned how modern slavery in supply chains could give rise to POCA considerations (you can read our commentary on those developments here). 

4. Global risk: As supply chains tend to be global, so are the risks that arise from them – companies must ensure that they comply with all applicable regulatory regimes. Regulators are likely to coordinate to address the international nature of supply chains and there is evidence of interest from multiple regulators in the procurement of timber. In a recent case involving a Dutch yacht builder, it appears that the Dutch Public Prosecution Service passed information concerning a German supplier suspected to be in breach of the relevant legislation to the appropriate German regulator.

Looking ahead

In the EU, despite certain amounts of political opposition, there are a number of new laws designed to tackle environmental issues in supply chains, in particular the flagship  EU Deforestation Regulation (EUDR) and the Corporate Sustainability Due Diligence Directive, along with a number of other sector and product-specific measures (such as the Batteries Regulation). Several member states have also introduced their own domestic legislation. The EUDR will repeal the EU version of the UKTRs, on which the current UK legislation is based, but will impose similar obligations in relation to a much broader range of products. Companies which operate in both the UK and the EU will need to have sufficient safeguards in place to address the requirements of both regimes. For now, it remains to be seen whether the UK will realign itself with the EU approach.

You can see more commentary on recent developments on the topic of supply chain compliance and related issues on our Sustainability Blog.

A team from Freshfields LLP, led by Matthew Bruce, alongside Tahleel Lateef and Charlotte Dunn, with others in support, represented Sunseeker International Limited with respect to the OPSS prosecution. 

[1] There are specific rules concerning the trade of timber and timber products to or from Northern Ireland.