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New Year’s Resolution for Alcohol Licensees:
Tip Scales in Your Favor with More Compliance

Teri Quimby

Teri Quimby Law, PLLC

Alcohol licensee enforcement actions are alive and well, as evidenced by the record amount of fines and penalties from resolutions of recent federal and state violation allegations. The Alcohol and Tobacco Tax and Trade Bureau’s (TTB) $5 million Offer in Compromise with Anheuser-Busch in 2020 was twice as much as one for $2.5 million with Heineken USA the previous year.

Just months ago, New Jersey’s Office of the Attorney General announced record-high penalties for that state’s largest wine and spirits wholesalers, reaching $4 million each for Allied Beverage Group and Fedway Associates. Along with that $8 million, another $2.3 million from 20 retailers brings New Jersey’s totals to $10.3 million for this investigation.

An unprecedented $3 million fine in Michigan was also announced in 2020 concerning the distributor RNDC.

Smaller companies may not commonly be subject to million-dollar fines but will not escape the government’s watchful eye. Licensees with demonstrable records of misconduct may see suspensions or revocations instead of or in addition to monetary fines or penalties.

On the federal level, the TTB’s enforcement addresses unlawful trade practices in the marketplace to ensure level playing fields for manufacturers and distributors of alcohol in the United States. States regulators have enforcement authority over manufacturers, distributors and retailers of alcohol. Investigations may be coordinated between the TTB and state and/or other agencies. Issues involved in the aforementioned cases focus on trade practice and other violations.

Alleged conduct of concern catching regulator’s eyes specifically included:

  • Sponsorships for sports and entertainment venues with product exclusivity attached

  • Inducements to purchase exclusive brands accompanied by furnishing fixtures, equipment or services

  • Use of third parties to provide things of value in exchange for product placement

  • Credit swipe payments falsely categorized as services, such as non-occurring consumer sampling events, but really paid in return for product placement promises

  • Discriminatory practices favoring large retail accounts over smaller ones, with anticompetitive behavior negatively impacting smaller retailers and consumers

  • Delivery and inventory issues

  • Customer service complaints

  • Failure to provide requested records

Noteworthy are regulators’ utilization of corporate monitors. Visible in many other sectors, monitors may become bigger tools in alcohol regulators’ toolboxes as resources are stretched more than usual during and after the pandemic. Basically, companies agree to hire independent monitors to evaluate compliance. Independent monitors submit reports to regulators indicating progress—or lack thereof—made toward compliance. Companies pay for the monitors, which can be expensive.

For example, the New Jersey Consent Orders referred to earlier specifically require the two wholesalers to each hire a third-party certified public accounting firm. The CPA, selected by the state, will audit information such as business records, invoices, billing, credit, trade practices, financial accounts, and possibly more, as directed by the state to ensure compliance. Findings are reported by the CPA to the New Jersey regulators. Responses to findings are required by these companies for evaluation by the regulators. Reading reports from monitors quickly provides government with information it needs: Is the licensee now in compliance or not? If compliance goals have been reached by violators, then regulators rest assured that meaningful mechanisms are in place moving forward. On the other hand, reports of continued noncompliance may serve as a basis for continued monitoring and possibly more governmental involvement.

Is it preferable to create and maintain your own effective compliance program within your company or to have the government help do it? The answer should be the former. The CPA maximum billable amount in the New Jersey Orders is capped at $150,000 per year for the two years. Independent monitoring, then, will cost these two businesses up to $300,000 each.

Many companies already have compliance programs, but gauging the level of effectiveness is another matter. While the DOJ guidance for Evaluation of Corporate Compliance Programs, revised in 2020, stems from the DOJ’s Criminal Division, this content is globally viewed as fundamental to all compliance programs (not just criminal components). The DOJ guidance provides many questions; it’s your responsibility to provide answers. Review the document, then review your responses to the questions. While some questions may not apply to every company, many do. Companies that can relay complete compliance stories to the government may be better positioned for happier endings to violation allegations.

Ask the following to “tip” the compliance scale in your favor:

  • Do procedures exist for government subpoenas or investigators showing up at the licensed premises? What should the first point of contact say or do?

  • Do procedures exist for proper paperwork to demonstrate compliance? Permissible trade practices still need proper documentation and audit trails to prevent violations.

  • Will lack of organization for document production lead to violations for failure to cooperate or failure to provide information?

Fines, suspensions and revocations become real after reading written words received in mailboxes or inboxes from government alcohol agencies. Licensees have the potential to lose a lot when the government alleges violations.

Start 2021 off right with thorough compliance reviews. If you think the company is doing enough, do more.

Teri Quimby is an author, attorney, speaker, and compliance consultant. Quimby is also a former member of the Michigan Liquor Control Commission, with background in several highly regulated sectors. She was a speaker at PLI’s Alcohol Law 2020 program, available from PLI Programs On Demand.

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Disclaimer: The viewpoints expressed by the authors are their own and do not necessarily reflect the opinions, viewpoints and official policies of Practising Law Institute.

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