I must admit, I was yesterday days old when I learned that there is a specific federal statute which prohibits “commercial bribery” in the alcohol beverage industry.
27 U.S.C. § 205 (titled “Unfair Competition and Unlawful Practices”) states:
“It shall be unlawful for any person engaged in business as a distiller, brewer, rectifier, blender, or other producer, or as an importer or wholesaler, of distilled spirits, wine, ormalt beverages, or as a bottler, or warehouseman and bottler, of distilled spirits, directly or indirectly or through an affiliate:
(c) Commercial Bribery
To induce through any of the following means, any trade buyer engaged in the sale of distilled spirits, wine, or malt beverages, to purchase any such products from such person to the exclusion in whole or in part of distilled spirits, wine, or malt beverages sold or offered for sale by other persons in interstate or foreign commerce, if such inducement is made in the course of interstate or foreign commerce, or if such person engages in the practice of using such means, or any of them, to such an extent as substantially to restrain or prevent transactions in interstate or foreign commerce in any such products, or if the direct effect of such inducement is to prevent, deter, hinder, or restrict other persons from selling or offering for sale any such products to such trade buyer in interstate or foreign commerce: (1) By commercial bribery; or (2) by offering or giving any bonus, premium, or compensation to any officer, or employee, or representative of the trade buyer.”
Recently, the DOJ announced that Southern Glazer’s Wine and Spirits LLC (SGWS), the country’s largest distributor of wine and spirits, “entered into a non-prosecution agreement with federal prosecutors, and agreed to make a monetary payment of $12.5 million and other remedies to resolve” and investigation “involving Southern Glazer’s executives and employees funding and concealing improper payments and benefits to employees of alcohol retailers, including chain grocery stores in California and elsewhere.”
As stated by the DOJ:
“In the [NPA], Southern Glazer’s admitted to and acknowledged responsibility for the acts of individuals employed by the company, which included years of improper payments and benefits to various alcohol retailer employees in connection with the promotion, purchase, maintenance, and placement of certain alcohol products distributed by Southern Glazer’s, and the use of third-party vendors and false invoices generated to conceal the practice. Several Southern Glazer’s executives based in California, including several Vice Presidents, were directly involved in the conduct, which included substantial cash payments, prepaid gift cards, flights, golf trips, resort stays, and luxury goods, along with participation in the falsification of documents.”
The NPA references “putative violations” of 27 U.S.C. § 205 as well as wire fraud, honest services fraud, obstruction, and conspiracy statutes.
The 2-year NPA includes following “relevant considerations.”
“The Company’s acceptance of responsibility for conduct related to improper payments and benefits provided to SGWS employees (including off-book “creative incentive” payments to SGWS employees) and improper gifts, travel, cash/gift cards, and other benefits to employees of SGWS retail customers (including alcohol buyers at chain grocery stores), which payments and benefits were at times facilitated through the use of third-party vendors, documented with falsified invoices, or sent directly from SGWS’ alcohol suppliers with the knowledge of certain SGWS employees …
The Company’s Compliance Program in place during the Relevant Period, which included compliance policies; a Code of Conduct and employee handbook; training on trade practice regulation; and processes for reporting, investigating, and remediating conduct; and in 2019, the Company took steps to mitigate known violations of trade practice regulations by providing written notice to certain third-party marketing companies and terminating their ability to handle incentives and gift cards …
Since 2023, the Company’s significant efforts to enhance its Compliance Program and to expressly align its Compliance Program to the factors set forth in the DOJ’s Guidance for Evaluating Corporate Compliance Programs, including:
The Company’s structural and leadership enhancements to the Compliance Program, including the promotion of the General Counsel to the Executive Vice President Chief Legal and Compliance Officer reporting directly to the CEO as of September 2023; the creation (and hiring) of a Senior Vice President of Compliance & Ethics reporting to the Chief Legal and Compliance Officer in October 2023; the hiring of a Vice President and Associate General Counsel for the Company’s West region in January 2024; and the alignment of the legal and compliance functions, including by re-mapping the compliance function to the Company’s five business regions;
The Company’s substantial investment in the Compliance Program, which has expanded headcount by 85% and received increased funding by over 65% from 2022 to 2024;
The Company’s investment in outside compliance experts to advise on Compliance Program enhancements and best practices;
The Company’s removal of certain Vice Presidents and other managers for violations of Company policy; discipline for additional employees; and replacement of senior leadership for California and the West Region;
The Company’s commitment to “tone at the top” messaging, including from its President and Chief Executive Officer, reinforcing the importance of compliance and ethics to all employees;
The Company’s updated corporate values statement of “HEART” representing Honesty, Excellence, Agility, Respect, and Teamwork;
The Company’s effort to ensure that the Compliance Program is embedded throughout the organization, including through a community of “Compliance Champions” for each state, responsible for driving compliance awareness at the local level and offering additional compliance support;
The Company’s imposition of a Trade Practice Compliance Audit Program, “iShop” platform for marketing and promotional spending, and additional mandatory ethics and compliance training programs and resources; and
The Company’s imposition of a Third Party Management Program requiring all vendors to agree to the Company’s compliance and audit standards; subjecting vendors to enhanced due diligence and documentation requirements; requiring vendors to provide the Company with audit rights; requiring that any vendor must be pre-approved before any payment may issue; and the offboarding of vendors as a result of these requirements.
In the DOJ release, U.S. Attorney Craig Missakian (N.D. California) stated:
“One of government’s top jobs is to ensure a level playing field for American business. Southern Glazer’s employees tried to distort the wine and spirits market in California through bribes and other improper conduct and in the end it was the consumer that lost out. Our office takes this kind of conduct seriously and we are committed to making sure everyone plays by the same rules, which will mean lower prices and more choices for the California consumer. By refusing to compete honestly, the company didn’t just harm its competitors and consumers — it struck at the heart of the American tradition of fair and open competition.”
Kareem Carter (Executive Special Agent in Charge of the Internal Revenue Service – Criminal Investigation (CI), Washington, D.C. Field Office) stated:
“[This] announcement of this agreement is a testament to IRS Criminal Investigation and our law enforcement partners commitment to holding accountable companies like Southern Glazer’s Wine and Spirits who engaged in dishonest business practices that circumvented trade practice regulations and internal controls. This investigation is an excellent example of the importance of law enforcement agencies working together to address complex illicit financial activity by holding those responsible to account for their actions.”
Anthony Gledhill (Assistant Administrator, Field Operations, Alcohol and Tobacco Tax and Trade Bureau (TTB)) stated:
“TTB takes trade practice enforcement seriously to ensure that all industry members operate under the same rules and that law abiding businesses do not lose competitive ground because of the illegal actions of a few. This case serves as an important reminder that industry members are accountable not only for their own conduct, but also for the actions taken on their behalf by third party affiliates. Third parties, likewise, are responsible for any illegal activities they carry out on behalf of an industry member.”
In this release, SGWS stated that the “investigation focused primarily on activities which occurred many years ago” and “the misconduct at issue involved former employees who took steps to circumvent compliance controls and policies, including submitting fraudulent documentation through third parties.”
The release further states:
“The Company cooperated fully with authorities throughout the investigation and accepts responsibility for the conduct and lapses acknowledged in the NPA. The agreement explicitly credits the significant investments the Company has made to strengthen its compliance program over the past several years. These efforts included augmented and reorganized staff, new procedures and policies, proactive monitoring and auditing, and strong internal enforcement. These enhancements reflect Southern Glazer’s ongoing commitment to conducting business with integrity and in full compliance with the law. The agreement also acknowledges the Company’s efforts to expressly align its compliance program to the factors set forth in the DOJ’s guidance for evaluating corporate compliance programs.”
In the release, Wayne Chaplin (President & Chief Executive Officer) stated:
“We have always had an industry-leading compliance program, and we have redoubled our efforts to make our compliance program an example for any Company, within our industry or otherwise. This conduct does not reflect Southern Glazer’s values, culture, or standards and it will not be tolerated. Our success has always been built on winning the right way. We are gratified to resolve the investigation in this fashion, and to be able to focus on earning the trust of our customers, supplier partners, and employees through ethical business practices, strong compliance oversight, and accountability at every level of the organization.”
