Wines & Vines

February 2018 WINES&VINES 13 WINE INDUSTRY NEWS S an Rafael, Calif.—The New York State Liquor Authority (SLA) ac- cepted a no-contest deal with Southern Glazer's Wine & Spirits to pay $3.5 mil- lion in fines to settle charges the nation's largest wholesaler en- gaged in "pay-to-play" schemes by providing businesses with il- legal gifts and services to influ- e n c e p u r c h a s i n g d e c i s i o n s , permitting incomplete, inaccu- rate and inadequate recordkeep- ing practices, and for engaging in discriminatory sales. The fines were approved by the SLA board at a meeting in December and are the largest ever imposed by the state agency. "The multitude of violations found during the course of these investigations is truly stagger- ing," SLA chairman Vincent G. Bradley said in a statement an- nouncing the fines. "The SLA re- mains committed to rooting out abuse and corruption in the alco- holic beverage control industry to ensure a level playing field for all businesses." According to the SLA, the fines follow an investigation dur- ing the summer of 2017 into other matters that revealed Southern employees were offer- ing "gifts and services" to induce wholesale sales. The SLA states Southern sales staffers were run- ning up large expenses on corpo- rate credit cards at favored retailers without receiving any services or merchandise in re- turn. The scheme is referred to as "credit card swipes" and in- cluded transactions ranging from $50 to $1,000. SLA investigators interviewed a Southern director of sales "who admitted to ap- proving the fraudulent transac- tions as a matter of standard business procedure." Based on findings from that initial investigation, the SLA then requested expense documents from additional district managers and in October 2017 confirmed that other Southern sales staff and supervisors were also en- gaged in these fraudulent busi- ness practices. The agency also reported that, beginning in July 2015, it had received complaints from the owners of restaurant licenses in the area of Albany, N.Y., who dis- covered they had been listed for not paying on time for alcoholic beverage credit accounts even though they were certain they had paid the accounts. The SLA reviewed Southern's books back to January 2016 and "identified incomplete, inaccurate and inad- equate invoicing practices." Another investigation stemmed from a December 2015 complaint by the owner of a small liquor store who alleged Southern was not pro- cessing orders in a fair manner. The liquor store owner had tried to order a discounted pallet of wine, which had been posted on South- ern's internal website. Despite placing an order for the wine im- mediately after it had been posted, the order was rejected. SLA contends that after it re- viewed Southern's ordering sys- t e m , i t d i s c o v e r e d " c e r t a i n retailers were able to obtain dis- counted products, while others were routinely and unlawfully denied the same produces in di- rect violation of ABC law." The agency compelled South- ern to sign a "corporate compliance agreement" that requires the wholesaler to adopt a code of busi- ness ethics, an internal compliance program and appoint a corporate compliance officer, approved by the SLA, to monitor and address suspicious activity. Because of the agreement, $1 million of the fines have been suspended. The agreement also means the compliance code is applica- ble to all of Southern's licenses in New York and is in recognition of the company's "significant and substantial cooperation" in the investigations. "I look forward to working together with Southern to con- tinue to root out deceit, decep- tion and exploitation of the system, and I am excited to pilot our new corporate compliance agreement program moving for- ward," said SLA attorney Chris- topher R. Riano. Alison Herman, an attorney for Southern, noted the compa- ny's cooperation with the investi- gation in a statement, adding that it had taken swift and immediate action to remedy the compliance issues. She said Southern takes the issues seriously and has ap- pointed a compliance officer, implemented routine audits and reporting protocols as well as em- ployee training. TTB and state authorities are investigating other alleged pay- to-play schemes in Miami and Chicago, but have not disclosed the identities of any of the com- panies or individuals targeted in the investigations. In July 2017, the TTB released a statement announcing it con- ducted a joint operation with special agents from the Florida Division of Alcoholic Beverages and Tobacco's Miami office tar- g e t i n g a l l e g e d p a y - t o - p l a y schemes in the Miami area. TTB said the operation was the largest trade practice enforcement op- eration it had ever initiated. The agency also described the pay-to-play schemes as "slotting fees," which are essentially bribes to retailers to carry and display certain products in their stores. In September, the TTB an- nounced a joint operation with the Illinois Liquor Control Commission targeting "pay to play" and "slotting fee" violations in Chicago and other parts of Illinois. At the time, the TTB described the operation as its sec- ond large-scale trade enforcement and part of its "ongoing effort to secure a level playing field nation- wide for law-abiding businesses." The TTB could not confirm if the investigations in the two states are related aside from both con- cerning pay-to-play schemes. "Both investigations are still ongoing, which is not unusual for trade practice investigations, as they tend to be complex," said Thomas Hogue, director of con- gressional and public affairs for the TTB. —Andrew Adams LOUIS DE GOUYON MATIGNON TOP STORY New York Fines Southern for Violations Southern sales staffers were running up large expenses on corporate credit cards at favored retailers without receiving any services or merchandise in return. The New York State Liquor Authority compelled Southern Glazer's to sign a cor- porate compliance agreement saying it would adopt a code of business ethics.

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