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THE RENAISSANCE OF FEDERAL UNFAIR TRADE PRACTICES – CURRENT ISSUES AND STRATEGIES (Excerpt)

February 12th, 2018

Source: http://www.beveragelaw.com

John Hinman

By: Robert Tobiassen, Compliance Consultant and Former Chief Counsel (TTB)

January 29, 2018

 

Introduction by John Hinman, Senior Partner, Hinman & Carmichael LLP

 

Rob Tobiassen has prosecuted, and advised on, hundreds of alcoholic beverage industry trade practice cases since 1978 when he first joined the Bureau of Alcohol Tobacco and Firearms. Rob rose through the ranks at the BATF (and then the TTB) to Chief Counsel before retiring in 2012. Rob is now providing his significant expertise to those of us engaged in advising our clients how to comply with the trade practice laws, and defending cases when circumstances dictate. This article is a primer on TTB Trade Practice enforcement principles and policies.  Rob and I will be on a panel discussing trade enforcement issues at the upcoming NABCA Legal Symposium in Arlington VA on March 18-20, 2018.

 

The TTB has Substantially Picked up the Pace of Unfair Trade Practice Enforcement-and Pay to Play is at the top of the Agenda

 

TTB is making its presence known in the unfair trade practice arena.  In July 2017, it announced a joint investigation by TTB and Florida State Authorities in the Miami area and then in September it followed with a joint investigation by TTB and Illinois State Authorities in Chicago, the Quad Cities, and Peoria.  Both press releases from TTB emphasize these investigations are focusing on “pay to play” schemes.  According to the press releases, “Pay to play,” also known as “slotting fees,” is an unlawful trade practice that hurts law-abiding industry members and limits consumer choice.[1]

 

The TTB Now has the Money to Investigate, and has reorganized to use the new budget cost effectively

 

Congress gave TTB $5 million of specific funding for fiscal years 2017 and 2018 for “the costs of programs to enforce trade practice violations of the Federal Alcohol Administration Act.”  This appropriation reflected an effort by many industry groups to ensure that TTB has adequate resources to enforce the unfair trade practice provisions of the Federal Alcohol Administration Act (FAA Act), Title 27, United States Code, Section 205(a) through (d).  Trade practice investigations are extremely resource intensive.  They are conducted by investigators and auditors who must obtain evidence through extensive field investigations involving interviews and analyses of business records, and significant attorney support from the Office of the Chief Counsel.

 

To position itself to conduct these investigations, TTB has reorganized the Trade Investigations Division (TID), Office of Field Operations.  Since the TTB’s inception in 2003, the Trade Investigations Division has been charged with enforcing the unfair trade practice provisions.[2]  TID has six districts around the country.[3]  The Market Compliance Office (MCO), Office of Headquarters Operations was moved to TID and monitors trade practice matters.  MCO has an Advertising and Trade Practices Program Manager, Lisa Gesser, who is available to answer your trade practices questions at  TradePractices@ttb.gov.  A new Office of Special Operations was established in TID.  It is charged with initiating, conducting, and overseeing trade practice investigations.  Staffing of that office includes nine Special Operations Investigators (SOI) and a supervisor.  The SOIs are positioned around the country.  TID investigators from the field district offices will be assigned to assist in investigations.  Under this reorganization both monitoring and enforcement is centralized in one program division.

 

Looking back at what TTB has done in the past several years in enforcement of unfair trade practices provides a guidepost to the current and future investigations.  Essentially, TTB has focused on two areas:  the “slotting fee” payments for product placement and consignment sales for malt beverages (beer) in the context of “freshness dating” returns.  An examination of the statutory requirements for a trade practice investigation sheds light on why TTB may be focusing on these investigations.

 

The reason for the appropriation and the reorganization is because the industry asked for the trade practice laws to be enforced. A permissive climate where enforcement is hit or miss encourages corrupt activity, and it is the TTB’s mission to root out corruption wherever it can.

 

Federal Unfair Trade Practices Under the FAA Act – What are they and how is a case made?

 

There are four unfair trade practices:

 

Exclusive Outlet (Section 205(a))

Tied-house (Section 205(b)) with seven specific types of means to induce.

Commercial Bribery (Section 205(c))

Consignment Sales (Section 205(d))

“Pay to play” schemes can fit under the first three practices.  Here is how a violation is proven:

 

There are three statutory elements for a violation.

 

http://www.beveragelaw.com/booze-rules/2018/1/29/the-renaissance-of-federal-unfair-trade-practices-current-issues-and-strategies

 






XO Cognac classification increases to 10 years

February 12th, 2018

 

Source: The Spirits Business

by Amy Hopkins

12th January, 2018

 

All XO Cognac must be aged for a minimum of 10 years, as opposed to six, under new industry regulations, which will come into force in April.

 

The Cognac industry has increased its XO age classification in order to “extend the quality positioning” of the category.

 

Trade body the Bureau National Interprofessionnel du Cognac (BNIC) also said the change “aims to align the regulation and the market reality”, since many XO blends on the market are made with eaux-de-vies exceeding 10 years of age.

 

The BNIC first announced the amended law in 2011, but is implementing the change this year in order to give producers longer to mature their stocks.

 

However, the BNIC is allowing XO Cognacs aged for six, seven, eight and nine years, and packaged by 31 March 2018, to be sold as XO until 31 March 2019.

 

Brands that want to use this lead-time must send a stock declaration form to the BNIC outlining the pre-packaged XO eaux-de-vie stocks concerned by 1 March 2018.

 

Despite being hit by China’s long-running austerity campaign in recent years, older expressions of Cognac continue to rebound in terms of export sales – recording 24.2% growth in 2016/17.

 

Towards the end of last year, the BNIC unveiled a new visual identity for the Cognac appellation, which is rolling our across all communication for the organization.






ANNOUNCEMENT

February 12th, 2018

 

We are happy to announce that Arielle J. Albert and Barbara J. Kwon have been made Partners of the firm Danow, McMullan and Panoff, P.C.

 

CHANGES TO FEDERAL ALCOHOLIC BEVERAGE TAXES

 

On December 22, 2017, President Donald J. Trump signed into law the Tax Cuts and Jobs Act of 2017, which makes changes to the Internal Revenue Code of 1986, including provisions related to beverage alcohol industry.  All changes were effective January 1, 2018.  The passage of the act included the Craft Beverage Modernization and tax Reform Act which also took effect on January 1, 2018 but incorporated a sunset provision so that all taxes will revert back to the 2017 levels on January 1st, 2020.  The benefits of the new law vary depending upon the type of beverage alcohol produced.

 

DISTILLED SPIRITS

In the case of distilled spirts removed during the calendar years 2018 and 2019 for consumption and sale the applicable tax is $2.70 per proof gallon on the first 100,000 proof gallons and $13.34 per proof gallon on the next 22,130,000 proof gallons. The lower tax applies to all beverages distilled in the United States.  Foreign manufactures can also elect to take advantage of the reduced tax rate on distilled spirits. The Secretary of the United State Department of Treasury is charged with developing procedures for the foreign distillers to assign the reduced rate to their importers in such a way as to keep track of which importer gets the first 100,000 proof gallons and which get the next 22,130,000.  Unless the rate reduction is extended, commencing January 1st, 2020 the tax on distilled spirits will return to $13.50 per proof gallon.  In addition, it appears that distilled spirits transferred in bond during the calendar years 2018 and 2019 can take advantage of the special bulk transfer rules in Section 5212 without regard to weather the distilled spirits are sufficient in volume to be classified as bulk distilled spirits.

 

WINE

Still wine containing not more than 14% alcohol by volume removed prior to December 31, 2017 was taxed at $1.07 per wine gallon.  For wine removed after December 31, 2017 and before January 1st, 2020 the $1.07 rate will apply to wine containing not more than 16% alcohol by volume.  Wine with more than 16% alcohol by volume will be taxed at $1.57 per wine gallon. That is the same rate that applied to wine above 14% before January 1st 2017.

There is also a credit allowable in 2018 and 2019 that can be taken for those wines that do not qualify for the lower tax discussed above including still wine containing more than 21 percent but not more than 24 percent alcohol by volume. Champagne, sparkling wine, artificially carbonated wine and hard cider also qualify for this credit.  The credit applies to the first 750, wine gallons removed during each applicable calendar year. Foreign manufacturers can take advantage of the credit by making an election to assign the credit to their importers. The Secretary of the Treasury is required to set up procedures to accomplish this without duplicating the credit when there is more than one importer.

 

The credit for wine other than hard cider is an amount equal to the sum of $1 per wine gallon on the first 30,000 wine gallons, plus 90 cents on the next 100,000 wine gallons and 53.5 cents per wine gallon on the next 620,000 wine gallons.  A different credit is available on hard cider.

 

BEER

Beer that was heretofore taxed at $18 per barrel is also is subject to reduced rate. The first 6 million barrels of beer removed for consumption and sale during the calendar years 2018 and 2019 will be taxed at a rate of $16 per barrel. Any additional beer removed will be taxed at $18 per barrel. A barrel cannot contain more than 31 gallons. As with distillers, foreign manufactures can take advantage of the reduced rates through a system to be set up by the Secretary of the Treasury that allows the Brewer to assign a number of barrels to each of its importers.

 

In the case of a brewer who produces not more than 2 million barrels of beer during the calendar year, the per barrel rate of the tax imposed will be $3.50 on the first 60,000 barrels of beer which are removed in such year for consumption or sale and which have been brewed or produced by such brewer at qualified breweries in the United States.

 

[1] Keven Danow is an attorney representing members of all three tiers of the Beverage Alcohol Industry and member of the firm of Danow, McMullan & Panoff, P.C. 275 Madison Ave, NY, NY. 10022.  (212 3703744). Website: dmppc.com; email: kdanow@dmppc.com. Arielle Albert is a partner of the firm of Danow, McMullan & Panoff, P.C. and is admitted in New York and New Jersey. This article is not intended to give specific legal advice. Before taking any action, the reader should consult with an attorney familiar with the relevant facts and circumstances.






KNOW THE LAW _ The Craft Beverage Modernization and tax Reform Act

February 12th, 2018

 

Congress passed and the President signed the Tax Cuts and Jobs Act.  The Craft Beverage Modernization and tax Reform Act was included in that act, with a sunset provision so that all taxes will revert back to the 2017 levels on January 1st, 2020.  The benefits of the new law vary depending upon the type of beverage alcohol produced.

 

DISTILLED SPIRITS

 

In the case of distilled spirts removed during the calendar years 2018 and 2019 for consumption and sale the applicable tax is $2.70 per proof gallon on the first 100,000 proof gallons and $13.34 per proof gallon on the next 22,130,000 proof gallons. The lower tax applies to all beverages distilled in the United States.  Foreign manufactures can also elect to take advantage of the reduced tax rate on distilled spirits. The Secretary of the Treasury  is charged with developing procedures for the foreign distillers to assign the reduced rate to their importers in such a way as to keep track of which importer gets the first 100,000 proof gallons and which the next 22,130,000.  Unless the rate reduction is extended, commencing January 1st, 2020 the tax on distilled spirits will return to $13.50 per proof gallon.  In addition, it appears that distilled spirits transferred in bond during the calendar years 2018 and 2019 can take advantage of the special bulk transfer rules in Section 5212 without regard to weather the distilled spirts are sufficient in volume to be classified as bulk distilled spirits.

 

WINE

 

Still wine containing not more than 14% alcohol by volume removed prior to December 31, 2017 was taxed at $1.07 per wine gallon.  For wine removed after December 31, 2017 and before January 1st, 2020 the $1.07 rate will apply to wine containing not more than 16% alcohol by volume.  Wine with more than 16% alcohol by volume will be taxed at $1.57 per wine gallon. That is the same rate that applied to wine above 14% before January 1st 2017.

 

There is also a credit allowable in 2018 and 2019 that can be taken for those wines that do not qualify for the lower tax discussed above including still wine containing more than 21 percent but not more than 24 percent alcohol by volume, champagne and sparkling wine, artificially carbonated wine and hard cider.  The credit applies to the fires 750, wine gallons removed during each applicable calendar year. Foreign manufacturers can take advantage of the credit by making an election to assign the credit to their importers. The Secretary of the Treasury is required to set up procedures to accomplish this without duplicating the credit when there is more than one importer.

 

 

The credit for wine other than hard cider is an amount equal to the sum of  $1 per wine gallon the first 30,000 wine gallons, plus 90 cents the next 100,000 wine gallons and 53.5 cents per wine gallon the next 620,000 wine gallons.  A different credit is available on hard cider.

 

 

BEER

 

Beer that was heretofore taxed at $18 per barrel also is subject to reduced rate. The first 6 million barrels of beer removed for consumption and sale during the calendar years 2018 and 2019 will be taxed at a rate of $16 per barrel. Any additional beer removed will be taxed at $18 per barrel. A barrel cannot contain more than 31 gallons. As with distillers, foreign manufactures can take advantage of the reduced rates through an system to be set up by the Secretary of the Treasury that allows the Brewer to assign a number of barrels to each of its importers.

 

In the case of a brewer who produces not more than 2 million  barrels of beer during the calendar year, the per barrel rate of the tax imposed will be $3.50 on the first 60,000 barrels of beer which are removed in such year for consumption or sale and which have been brewed or produced by such brewer at qualified breweries in the United States.

 

 

 






Package Stores Can Offer House Accounts to Businesses

June 1st, 2016

Until now, a wine and spirits off-premise retailer was permitted to accept credit cards, but could not extend credit on its own. This regulation was problematic for retailers who serviced large corporate clients used to purchase from vendors based upon open invoices.  The only way for these businesses to legally purchase beverage alcohol for holiday parties or to give as gifts was to ask one of its employees to put the purchase on a credit card and then reimburse the employee.  Effective immediately, off premise licensees are permitted to offer credit to businesses and corporations.  Please note, the change applies only to business purchases.  It is still illegal for a package store to offer credit to individuals except via a credit card.

Irony And The Federal Government

Rudy Kurniawan was convicted of fraud in 2013 and sentenced to ten years in prison. His conviction was based upon proof submitted by federal prosecutors that wine he had sold at auction was counterfeit.  The government claimed that unsuspecting consumers paid more than twenty nine million dollars for ersatz wine mixed by Mr. Kurniawan in his home.

William Koch, alone is alleged to have lost over two million dollars on counterfeit wines Mr. Kurniawan put up for auction as having been made by Chateau Petrus and Domaine de la Romanee-Conti.  Mr. Koch filed numerous lawsuits seeking to change the way many respected wine auction companies vet the wines they sell.

Now the U.S. Marshals Service (whose moto is Justice, Integrity, Service) announced it will auction approximately 4,700 bottles of wine, deemed authentic, that belonged to Rudy Kurniawan, the man convicted of fraud in federal court in 2013 for producing and selling millions of dollars of counterfeit wine.

In litigation, the various auction companies argued that it was often not always possible to say with certainty that wines received on consignment were genuine.  In fact, it was reported that representative of the wineries were present at many of the tasting dinners hosted by Rudy Kurniawan. Now a representative of the U.S. Marshals Service is quoted as saying, ““While there can be no guarantee with 100 percent certainty in any situation such as this, to the best of our knowledge the wines we are selling are genuine.”

More Than A Grain Of Salt

New York is the first city in the nation to require chain restaurants to post warning labels next to menu items that contain high levels of sodium. The proposal was passed unanimously on September 9, 2015by the New York City Board of Health and went into effect on December 1, 2015. Under the new rule, all food service establishments that are part of a chain must comply.  This includes restaurants, cafeterias, mobile food vendors and temporary food vendors.  Chain is defined as any establishment with 15 or more locations doing business in the United States under the same name and offering the same or almost the same, menu items.

An icon of a salt shaker in a warning triangle which can be downloaded from nyc.gov/health/salt must be placed directly on the menu, menu board or item tag next to any food item that has 2,300 milligrams or more of salt. That is about 1 teaspoon full.  The Icon, which must always be as wide as it is tall, must be as large as the largest letter of the food item on the menu, menu board or tag.

If the menu contains a combination meal and the entire combination or the total of any selection which a customer is permitted to make in connection with the combination contains 2,300 milligrams of sodium or more, the warning icon must be placed next to the combination meal on the menu.

For menu items which are intended to serve more than one person such as the family size bucket, you must divide the salt content by the number of servings. If a single serving has more than 2,300 milligrams of salt, the warning sign must be added.

In addition, in a clearly visible place at the point where the customers place their order at a chain food service establishment, the following warning must be posted:

Warning: indicates that the sodium (salt) content of this item is higher than the total daily recommended limit (2,300 mg). High sodium intake can increase blood pressure and risk of heart disease and stroke.

Starting March 1, 2016, a restaurant that is not following the rule may get a violation that could lead to a $200 fine.







Danow, McMullan & Panoff, P.C.      275 Madison Avenue, Suite 1711  NYC, NY  10016          Tel: (212) 370-3744          info@dmppc.com
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