Your Tax Dollars At Work For Diageo

[Ralph at Tuthilltown]

Rangel's foreign scam ignored by ethics committee

Source: The Examiner

August 15th, 2010 3:06 pm

Perhaps the most serious violation perpetrated by Rangel is being ignored by Congress and the media.

While the focus of Democrat Congressman Charles Rangel's ethics charges center on doing legislative favors for donors and failing to pay taxes, his most troubling lapse -- enriching a foreign liquor company with billions of U.S. tax dollars -- continues to be largely ignored, according to a non-partisan watchdog group.

A national survey of 1,019 Americans reveals that a clear majority of members of all political parties reported that Rep. Charles Rangel of New York is guilty of the ethics charges brought against him by the House ethics committee.

The study which was conducted among self-reported Democrats, Republicans and Independents during July 29-30 by HCD Research revealed that the majority believe that Rangel is guilty, including 67% of Democrats, 87% of Republicans and 86% of Independents.

The House Ethics Committee's recent charges against the veteran Democratic congressman from Harlem fail to mention his most serious transgression, one that will end up costing U.S. taxpayers about $6 billion, according to Judicial Watch, a Washington, DC public-interest group.

Rangel helped mastermind a shady deal that gives London-based conglomerate Diageo billions of tax dollars to relocate from one unincorporated American territory (Puerto Rico) in the Caribbean to another (Virgin Islands) for no apparent reason, according to attorneys at Judicial Watch.

"Uncle Sam will give the European booze maker nearly $3 billion in tax credits and benefits, help it build a new $165 million state-of-the-art rum distillery, allow it to take half of the Virgin Islands' rum-tax money, a 90 percent income-tax break and a property tax exemption," said Judicial Watch officials in a statement.

Rangel's move will drastically boost Diageo's already lucrative profits -- and cheat the U.S. government out of much-needed tax revenue -- because it will slash in half the amount of taxes the liquor company currently pays for each gallon of rum. For years the rum has been produced in Puerto Rico, where a law caps the amount of tax rebate that can be kicked back to manufacturers. The Virgin Islands have no such rule, making it a far more profitable place to do business.

When lawmakers got wind of Diageo's new accord, many led an effort to pass legislation limiting the amount of rum tax money that can go to corporations since the funds go back into the community to pay for things like schools and environmental preservation. Rangel, who at the time chaired the tax-writing House Ways and Means Committee, blocked the measure thereby preserving the unscrupulous Diageo deal.

Essentially, Rangel diverted money from U.S. schools into tax breaks for a liquor conglomerate, according to Judicial Watch. Meanwhile, the Virgin Islands governor who helped broker the deal is also facing a litany of ethics charges for misappropriating federal funds.

"This is not to say that Rangel's other corrupt acts aren't relevant. After all, the 20-term congressman is under investigation for tax evasion, using his office to raise money from corporations with business before him, illegally accepting multiple rent control apartments in his New York district and hiding more than $1 million in assets," claims Judicial Watch officials.

Rangel's alleged corruption, which President Barack Obama recently called "very troubling," got him booted as Ways and Means committee chair and inspired the commander-in-chief to hint at resignation for the sake of leaving public office with "dignity." Others believe the Democrats wish him out of the picture before facing a tough election cycle.

[Ralph at Tuthilltown]

Sorry for the duplicate post. Perhaps too early in the day to be political.

[Ralph at Tuthilltown]

Diageo Profit Trails Analysts' Estimates on Slowing Sales in U.S., Europe

Source: Bloomberg

By Clementine Fletcher

Aug 26, 2010 3:42 AM ET

Diageo Plc, the world's largest liquor maker, reported annual profit growth that missed analysts' estimates on weak sales in the U.S. and Europe.

Net income climbed to 1.63 billion pounds ($2.54 billion), or 65.4 pence a share, the maker of Smirnoff vodka said today. That compared with the 1.65 billion-pound average estimate of 15 analysts compiled by Bloomberg. Diageo's shares fell as much as 2.3 percent to the lowest in almost two months.

Diageo gets about two-thirds of profit from Europe and North America, where consumers are cutting back and choosing cheaper brands. Operating profit dropped 1 percent in Europe, the company said, while North American earnings were unchanged. The London-based distiller's international unit, including Latin America and the Caribbean, increased profit by 25 percent.

"Europe and North America we're being a little bit cautious about, because while we see some good signs we also see signs that don't tell us growth is here and consumer confidence is back in spades," Chief Financial Officer Nick Rose said today on a conference call. "Cautious is probably a fair description, not downbeat and pessimistic."

Diageo was down 14 pence, or 1.3 percent, to 1,052 pence at 8:21 a.m. in London trading, the second-biggest decline in the U.K. benchmark FTSE 100 Index.

Operating Profit

The maker of Captain Morgan rum and Johnnie Walker whiskey said its operating profit, excluding acquisitions and disposals, rose 2 percent, missing the 2.3 percent median estimate of four analysts surveyed by Bloomberg News. The company had forecast "low single-digit" growth for the year.

"The global diversity of our business, together with the strength and range of our brands and the agility we have demonstrated gives us confidence that in fiscal 2011 we will be able to improve on the organic operating profit growth we have delivered this year," Chief Executive Officer Paul Walsh said in the statement.

Net sales rose 5 percent to 9.78 billion pounds. Excluding the effect of acquisitions, sales gained 2 percent, missing the 2.3 percent median estimate as a 3 percent decline in Diageo's ready-to-drink category offset growth in beer and spirits.

Diageo raised the dividend for the year by 6 percent to 38.1 pence a share and said it expects to "at least" maintain that rate of growth in the current fiscal year.

***

Just so it is not overlooked, $6,000,000,000 of that dividend came from American taxpayers thanks to Mr. Rangel and his friends on the hill who failed to quash the sweetheart deal described in the report above in the EXAMINER.

[delaware_phoenix]

I almost hate to get political here, but what Rangel did is simply business as usual over at Congress. And it doesn't matter which flavor of corporate owned political party is in office/power.

Until We the People decide to elect representatives that actually represent our interests rather than the corporate interests that fund the campaigns, nothing's going to change.

[Ralph at Tuthilltown]

Well I have to say that while I agree on the elect-better-Representation part, I must respectfully disagree with the comment nothing will change till then; which contradicts the first thing Phoenix wrote which is that this is the way Congress works. If we wait for the "right" people to be elected, our great grandchildren will still be bitching about the law.

Without influencing any election, working with officials in office and law cemented and then patched over and over again into NY Statutes, we managed to change New York State Alcohol Beverage Control Law three times over the last seven years; alone, without an attorney or legislators in our pocket.

For better or worse, the creation of Law IS Political by nature and driven by many factors, one of which is greed but it is not the only motivating factor in the process. If we want a better climate for our industry the law must be changed and that is achievable no matter who is in office.

What it takes is Homework, Action and Followup; not the election of new legislators who may or may not act on their own or Corporate interests. It takes action by voters and taxpayers (sometimes not the same thing). Organization and Lobbying for reasonable, definable, PRACTICAL solutions works. It just takes reasonable proposals with justifications, time, patience and a willingness to go the distance.

Ralph

[delaware_phoenix]

If anyone can change legislation Ralph, it's you. Not that you have more influence, it's just that you have well reasoned arguments and communicate well with legislators.

My state assemblyman was supportive, my state senator not (because he seems very anti-alcohol). I'm sure you can bring about some kind of reasonable improvements in NY, Ralph. Of anyone can do it, it's you. Without your efforts there wouldn't even be a NY micro-distillery category in the state law, so we all in this state owe you a debt of thanks!

[Ralph at Tuthilltown]

FROM DIAGEO'S SPIN MASTERS:

Statement With the Intent to Clarify From Diageo re: the 30-Year Public-Private Initiative Between the Government of the USVI and Diageo

Source: Trading Markets / Diageo

Wed, 08 Sep 2010 12:18:00 EDT

The 30-year public-private initiative between Diageo and the government of the US Virgin Islands is a local agreement. No member of the United States Congress played a role in negotiating or approving it. The agreement was created and executed in a fully transparent manner and was debated and voted on by elected representatives in the legislature of the US Virgin Islands. Any assertion or implication to the contrary is inaccurate and erroneous.

The landmark agreement will generate new local revenue for public needs, benefitting the economy and the people of the territory for at least the next 30 years.

Considering the amount of attention the earlier reports of this deal generated, this "explanation" is thin. The fact is, though it was a US Virgin Islands and Diageo initiative, the MONEY trading hands is American tax revenue; YOUR tax dollars, you are paying for it. If the Federal Government of the US elects to aid the Virgin Islands' economy certainly there are better and cleaner methods to make the direct contribution without the Virgin Island Legislature and the largest alcohol consortium in the world making the decision how US tax dollars are spent. The deal is nothing more than a vaguely disguised pass-through (yes it walks like a duck, and squawks like a duck).

The deal as Diageo claims perhaps did not need US Legislative approvals. However, the US Legislature has the power to control the purse-strings and perhaps should reconsider the allocation of US tax dollars to the Virgin Islands to take into account the injection of cash the VI will be receiving from Diageo, just to balance the scales a bit. Not to mention the fact the arrangement has all the earmarks of a back-room deal. It doesn't matter how "transparent" an activity is if it is not held up for inspection during the process from the start.

R

[Ralph at Tuthilltown]

Ethics Comm. Ignores Rangel's Most Corrupt Act

Judicial Watch

08/13/2010

While the focus of Charles Rangel's ethics charges center on doing legislative favors for donors and failing to pay taxes, his most troubling lapse - enriching a foreign liquor company with billions of U.S. tax dollars - continues to be largely ignored.

The House Ethics Committee's recent charges against the veteran Democratic congressman from Harlem fail to mention his most serious transgression, one that will end up costing U.S. taxpayers about $6 billion. A hard-hitting piece in a conservative news website offers the gory details of Rangel's dirty little deal to enrich a British rum company and raises a logical question; what's in it for him?

Rangel helped mastermind a shady deal that gives London-based conglomerate Diageo billions of tax dollars to relocate from one unincorporated American territory (Puerto Rico) in the Caribbean to another (Virgin Islands) for no apparent reason. Uncle Sam will give the European booze maker nearly $3 billion in tax credits and benefits, help it build a new $165 million state-of-the-art rum distillery, allow it to take half of the Virgin Islands' rum-tax money, a 90 percent income-tax break and a property tax exemption.

The move will drastically boost Diageo's already lucrative profits - and cheat the U.S. government out of much-needed tax revenue - because it will slash in half the amount of taxes the liquor company currently pays for each gallon of rum. For years the rum has been produced in Puerto Rico, where a law caps the amount of tax rebate that can be kicked back to manufacturers. The Virgin Islands have no such rule, making it a far more profitable place to do business.

When lawmakers got wind of Diageo's new accord, many led an effort to pass legislation limiting the amount of rum tax money that can go to corporations since the funds go back into the community to pay for things like schools and environmental preservation. Rangel, who at the time chaired the tax-writing House Ways and Means Committee, blocked the measure to preserve the unscrupulous Diageo deal.

Essentially, Rangel diverted money from schools into tax breaks for a liquor conglomerate, according to an in-depth story published by an investigative news organization earlier this year. Incidentally, the Virgin Islands governor who helped broker the deal is also facing a litany of ethics charges for misappropriating federal funds.

This is not to say that Rangel's other corrupt acts aren't relevant. After all, the 20-term congressman is under investigation for tax evasion, using his office to raise money from corporations with business before him, illegally accepting multiple rent control apartments in his New York district and hiding more than $1 million in assets. His corrupt antics, which President Obama recently called "very troubling," got him booted as Ways and Means committee chair and inspired the commander-in-chief to hint at resignation for the sake of leaving public office with "dignity."

[Ralph at Tuthilltown]

MORE FALLOUT FROM DIAGEO DEAL:

WASHINGTON, Sept. 8 /PRNewswire/ -- The U.S. Virgin Islands (USVI), aided and abetted by Congressman Charlie Rangel, has awarded the wealthy British liquor conglomerate, Diageo, a $6 billion deal to produce rum in their territory. This is one of the most outrageous gifts to a foreign company at the expense of US taxpayers. "This sweetheart deal is nothing more than a 'kick-back' program that gives Diageo a huge financial payday in exchange for being required to only hire only 40 employees," said Robert Deposada, President of Latinos for Reform.

"This deal pays this British conglomerate two times the cost of producing the rum! That means that they could sell the rum for one cent plus the excise tax and still make a lot of money!" Deposada added. American manufacturers of bourbon and whiskey do not enjoy the same sweetheart tax breaks and ingredients subsidies and, in fact, would be undermined if USVI rum producers decided to engage in a liquor price war.

The House Committee on Standards of Official Conduct and the U.S. Department of Justice need to investigate the possible corruption and abuse in this deal. First, the House Committee should ask Charlie Rangel and his close ally Rep. Donna Christensen (USVI), under oath, if they will be receiving benefits from this sweetheart deal in the years to come. Also, the U.S. Department of Justice investigate whether key players behind this sweetheart deal, from the corrupt USVI Governor all the way to Congressman Rangel and his allies, will receive golden parachutes after all components of this deal are in full effect?

Second, why is Wall Street giddy over the bond deal to raise the initial $250 million to build the distillery for Diageo, when the Virgin Islands makes California look fiscally responsible? Why would the financial analysts believe that there are almost no chances for the Cover Over tax subsidy to be limited or capped in this Congress? The fact is that legislation (H.R. 2122) was introduced before Congress to limit the amount of the tax subsidy revenue that can be paid directly to a rum producing company. The only way analysts would come to that conclusion is if they received private assurances directly from the House Ways and Means Committee then-Chairman Charlie Rangel that no legislation that could affect this subsidy would see the light of day in his committee.

"Considering the initial gifts of the $250 million state-of-the-art distillery, the $50 million 'start-up' funding, the 50 percent Cover Over tax subsidy kick-back, all additional local tax incentives, and the unbelievable subsidy on molasses, one can only conclude that this $6 billion largesse was designed to only benefit the British liquor conglomerate -- at the expense of U.S. taxpayers," Deposada concluded.

[Ralph at Tuthilltown]

The HUFFINGTON POST takes note:

Huffington Post

Yesterday

In 2008, the Democratic Party Platform criticized the previous eight years of Republican failures: "These are not just policy failures. They are failures of a broken politics -- a politics that rewards self-interest over the common interest and the short-term over the long-term, that puts our government at the service of the powerful. A politics that creates a state-of-the-art system for doling out favors and shuts out the voice of the American people." Sadly, a mere two years later, we Democrats are already guilty of the same failures.

Despite numerous appeals to Senate Majority Leader Harry Reid, House Speaker Nancy Pelosi and then-Chairman of the Ways and Means Committee, Charlie Rangel, lawmakers allowed a British liquor conglomerate to abscond with $6 billion of tax revenue that was intended for the general welfare of the U.S. Virgin Islands. The party leadership's failure on this issue is epic.

Rather than protect about 350 union jobs, Democratic lawmakers have allowed British-owned Diageo to move to the U.S. Virgin Islands where they will take about half of the Federal tax subsidy on rum, in order to provide the U.S. Virgin Islands 40 jobs in exchange for a $6 billion gift from US taxpayers. Not only are these jobs non-union, Diageo is guaranteeing that only 32 of the jobs will be filled with locals from the U.S. Virgin Islands. American taxpayers are paying more than $3 million per year for each of these non-union jobs for locals. Government is in the service of Diageo -- it appears to be actively promoting the company with tax dollars that were intended to support the general welfare of our citizens in the U.S. territories.

Diageo is receiving an average of $100 million per year in corporate tax breaks, sugar subsidies and direct payments. That is enough money for every child in the U.S. Virgin Islands to receive over $3,000 per year for their current or future educational expenses. This money could more than double what the territory currently spends for its combined Health and Human Services and Department of Health budgets. Instead, these funds will be lining the pockets of British corporate executives and their shareholders.

While this may sound like a Republican corporate welfare scheme, this happened on Democrats' watch -- and with our complicity. Legislation (HR 2122) was introduced before Congress to set a ten percent cap on the amount of Cover Over revenue that can be paid directly to a rum producing company. As then-Chairman of the U.S. House Ways and Means Committee, Charlie Rangel was able to block this legislation imposing corporate kickback limits from leaving his Committee.

By keeping the legislation from seeing the light of day, Rangel denied American taxpayers the opportunity to learn about and publicly debate the appropriate use of federal tax revenues and financial support for our nation's territories. As a result, lawmakers shut out the voice of the American people before we had a chance to speak. For example, Puerto Rico uses 94 percent of this federal tax rebate to support investments in infrastructure, health, education, and environmental preservation. The additional six percent is being spent to promote the territory's rum industry. Local law limits to ten percent the amount that can be used for this purpose. Why should we allow a highly profitable, union-busting British company take a $6 billion gift from the US treasury at a time when our local economy needs that money reinvested in our soil.

Another result of Congress' stalling the bill in committee is that Diageo will now receive subsidies worth more than twice their production costs. Basically, they will make substantial profit -- while workers receive less than a pittance in return.

Any which way you look at this sweetheart deal, you realize it was designed only to benefit the British company. From the initial gifts of the state-of-the-art distillery, to the $50 million "start-up" funding, to the 50% of the tax subsidy, to all additional local tax incentives, to the unbelievable subsidy on molasses, this deal is a major gift to a very wealthy foreign company at the expense of U.S. taxpayers. Should we be worried about another corruption scandal here? It is very strange that with so much money at stake here there has been absolutely no debate in Congress over this deal.

When Republicans controlled government, Democrats promised a new era of ethics and responsibility. Handing $6 billion to a profitable British liquor conglomerate is exactly the kind of unethical policy that Democrats promised to end. Allowing funds intended for the general welfare to be diverted to corporate pockets sounds like an exaggeration from the pen of Charles Dickens.

The union workers who lost their jobs and the American people who put us in control of government in the last election are owed -- at a minimum -- an apology. Instead of putting a stop to this outrageous corporate thievery, lawmakers were complicit in this betrayal of workers.

Lawmakers should immediately allow this legislation to move forward -- allowing the public to debate the appropriate use of tax dollars in supporting corporations. In fact, they should go a step further and oppose any attempt to directly pay corporations a dime. After all, if this program is going to be used to allocate $6 billion for just 40 jobs, we should strongly consider eliminating this tax subsidy altogether.

If this is the kind of "change" that we Democrats are willing to deliver to the American people, then we do not deserve to lead.

Now isn't this just the kind of thing makes you want to go to your window, throw it open, stick your head out and yell "I'M MAD AS HELL AND I'M NOT GONNA TAKE IT ANY MORE."

R

[Ralph at Tuthilltown]

Thanks to Mark Brown at Buffalo Trace for monitoring the DIAGEO deal news. Here's the latest:

Tuesday September 14, 2010, 11:38 am EDT

The National Puerto Rican Coalition (NPRC) will hold a press conference on Thursday, September 16, at the National Press Club to discuss the organization's requests to the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) to investigate a deal between Diageo, a UK-based liquor conglomerate, and the U.S. Virgin Islands.

"Diageo has structured an unusual and highly suspect agreement with the government of the U.S. Virgin Islands," said NPRC Chairman Miguel Lausell. "Through this 'deal' more than $6 billion in U.S. tax funds will be assigned directly to Diageo over the next 60 years to assist in the creation of 40 jobs. When you take into account the 350 jobs in Puerto Rico that were lost as a result of this deal, Diageo in effect will be pocketing $19 million for every job killed in Puerto Rico. What's most troubling about this sour deal is that the Federal and State officials involved in negotiating and/or sanctioning it have close family ties."

"How can a publicly-traded company secure a deal so sweet that it is guaranteed profits that exceed 100 percent annually for up to 60 years?" Lausell added, "Or give credible indications of revenue inflows to its shareholders when the 'rebates' are based on a discretionary federal program that Congress may alter or eliminate in any given year?"

Copies of the requests to the U.S. Department of Justice and the Securities and Exchange Commission will be available.

DETAILS:

Thursday, September 16, 2010

10:00 AM

National Press Club, Zenger Room - 13th floor

529 14th Street NW, Washington, DC

For more information on the press release, contact Naomi Lopez at 318-422-0446

In the past 32 years, the National Puerto Rican Coalition, a non-profit organization, has emerged as one of the most respected and effective organizations advocating for the concerns of the Puerto Rican community. NPRC's mission is to systematically strengthen and enhance the social, political, and economic well-being of Puerto Ricans throughout the United States and in Puerto Rico with a special focus on the most vulnerable.

[Ralph at Tuthilltown]

It appears BACARDI is not to happy about the DIAGEO/VI deal either. The following report is from UK's TELEGRAPH this morning:

The FTSE 100 spirits group published a 13-page missive accusing privately-owned Bacardi of using clandestine and selfish tactics to block its main US rival’s expansion in America.

Guy Smith, executive vice-president at Diageo and author of the emotive statement, claimed Bacardi’s move was a “hidden campaign to drive a rum competitor out of the US and destroy the economy of the US Virgin Islands”.

Diageo and Bacardi at war over rum distillery

Diageo launched a scathing attack on rival Bacardi as the two drinks groups went to war over rum supremacy in America and a $2.7bn (£1.75bn) tax rebate from the US Virgin Islands.

By Helia Ebrahimi, Senior City Correspondent

Published: 10:34PM GMT 25 Feb 2010

The dispute centres on Diageo’s decision to quit Bacardi’s home turf of Puerto Rico – where a third party makes the UK drinks company’s popular Captain Morgan rum – and build its own $170m distillery in the US Virgin Islands.

The new distillery, located on the island of St Croix and a launchpad for Diageo’s expansion in America,

is being built with bond money backed by future rum “cover-over revenues”.

These are essentially American tax refunds – from the excise duties levied on the spirit – awarded to US territories.

In a quirk of the archaic law, local authorities can sign over such cash to the distillers themselves via such things as local tax breaks and advertising subsidies.

According to Bacardi, Diageo stands to rake in $2.7bn of US taxpayer funds over the next 30 years from its pact with the island territory.

But the Puerto Rican government has reacted to the plans with fury. It has attempted to get Congress to change the rules and cap payments, which would make Diageo’s agreement untenable.

Puerto Rico, which currently gets about $450m a year from the programme, will lose $150m a year from Captain Morgan’s relocation while for the Virgin Islands, currently the recipient of $90m, it will be a huge boon.

Mr Smith said Diageo’s deal was “a historic and innovative public-private initiative… that would lift the US Virgin Islands’ economy out of crisis”.

Should the agreement collapse, he said, Diageo may be forced to move outside the US to the huge benefit of Bacardi and Puerto Rico.

Mr Smith said the Virgin Islands were “under attack by the entrenched corporate interests of a wealthy family seeking to maintain their decades-long grip on rum subsidies”.

Bacardi said: “This isn’t about where Diageo receives a free distillery, but about the proper use of federal tax dollars. Diageo has some explaining to do to the US Congress and American people.”

*****END OF ARTICLE****

The big boys can slug it out all they want but the issue facing American Micro Spirits Producers is stated the last paragraph, the bit about "the proper use of federal tax dollars". The original intent of the "cover over revenues" program was support of economic and infrastructure in the rum producing territories which are typically in dire need of this kind of help. The terms of the Diageo deal is a complete perversion of the intent of this program, in favor of corporate profit.

What the Virgin Islands and Puerto Rican development and government organizations claim one way or another is not the issue. The only issue is the subversion of the bill which would have limited payments such as is proposed from the VI to Diageo to 10% of the revenue paid the governments from excise taxes collected by the US on rum made in its territories. The promised creation of 32 jobs for locals in the VI by included in this deal is a cynical response to the concept of Economic Development. And the windfall profits to be made by Diageo on the backs of American taxpayers is outrageous considering Diageo is the largest alcohol conglomerate in the world.

Imagine that this kind of support was available to economically disadvantaged States (I think we could identify a few of those) from the Fed the same as it is available to Territories. I would be thrilled if the Fed rebated 50% of the Excise tax New York distillers pay on spirits production to the State so we could get the State to build us a nice (let's not be greedy here) $2.5 million distillery and pay us back a portion of that rebated tax so we wouldn't have to suffer economic disadvantage as we start up our brand new FREE distillery. Oh, well perhaps "free" is misleading. It would be free to American taxpayers would it? And it wouldn't be "free" to the other New York distillers who don't get a fine new distillery like we would get, since it would be their excise taxes paying for the distillery.

Write your Federal Representatives and make noise. The "cover over" program is good for developing US Territories. It should be continued. But the Congress must investigate the history and nature of this deal.

R

[Ralph at Tuthilltown]

It appears BACARDI is not to happy about the DIAGEO/VI deal either. The following report is from UK's TELEGRAPH:

Diageo and Bacardi at war over rum distillery

Diageo launched a scathing attack on rival Bacardi as the two drinks groups went to war over rum supremacy in America and a $2.7bn (£1.75bn) tax rebate from the US Virgin Islands.

By Helia Ebrahimi, Senior City Correspondent

The FTSE 100 spirits group published a 13-page missive accusing privately-owned Bacardi of using clandestine and selfish tactics to block its main US rival’s expansion in America.

Guy Smith, executive vice-president at Diageo and author of the emotive statement, claimed Bacardi’s move was a “hidden campaign to drive a rum competitor out of the US and destroy the economy of the US Virgin Islands”.

The dispute centres on Diageo’s decision to quit Bacardi’s home turf of Puerto Rico – where a third party makes the UK drinks company’s popular Captain Morgan rum – and build its own $170m distillery in the US Virgin Islands.

The new distillery, located on the island of St Croix and a launchpad for Diageo’s expansion in America,is being built with bond money backed by future rum “cover-over revenues”.

These are essentially American tax refunds – from the excise duties levied on the spirit – awarded to US territories. In a quirk of the archaic law, local authorities can sign over such cash to the distillers themselves via such things as local tax breaks and advertising subsidies.

According to Bacardi, Diageo stands to rake in $2.7bn of US taxpayer funds over the next 30 years from its pact with the island territory.

But the Puerto Rican government has reacted to the plans with fury. It has attempted to get Congress to change the rules and cap payments, which would make Diageo’s agreement untenable.

Puerto Rico, which currently gets about $450m a year from the programme, will lose $150m a year from Captain Morgan’s relocation while for the Virgin Islands, currently the recipient of $90m, it will be a huge boon.

Mr Smith said Diageo’s deal was “a historic and innovative public-private initiative… that would lift the US Virgin Islands’ economy out of crisis”.

Should the agreement collapse, he said, Diageo may be forced to move outside the US to the huge benefit of Bacardi and Puerto Rico.

Mr Smith said the Virgin Islands were “under attack by the entrenched corporate interests of a wealthy family seeking to maintain their decades-long grip on rum subsidies”.

Bacardi said: “This isn’t about where Diageo receives a free distillery, but about the proper use of federal tax dollars. Diageo has some explaining to do to the US Congress and American people.”

*****END OF ARTICLE****

The big boys can slug it out all they want but the issue facing American Micro Spirits Producers is stated the last paragraph, the bit about "the proper use of federal tax dollars". The original intent of the "cover over revenues" program was support of economic development and infrastructure in the rum producing territories which are typically in dire need of this kind of help. The terms of the Diageo deal is a complete perversion of the intent of this program, in favor of corporate profit.

Adding insult to injury is Diageo's Chief Executive's threat "Should the agreement collapse, he said, Diageo may be forced to move outside the US to the huge benefit of Bacardi and Puerto Rico."

What the Virgin Islands and Puerto Rican development and government organizations claim one way or another is not the issue. The only issue is the subversion of the bill which would have limited payments such as is proposed from the VI to Diageo to 10% of the revenue paid the governments from excise taxes collected by the US on rum made in its territories. That bill (HR 2122) was delayed and eventually kept from debate, stalled in Charlie Rangel's Ways and Means Committee, never to see the light of day. That bill never reached the floor of the House.

The promised creation of 32 jobs for locals in the VI in the name of "Economic Development" included in this deal is a cynical response to the concept of Economic Development. And the windfall profits to be made by Diageo on the backs of American taxpayers is outrageous considering Diageo is the largest alcohol conglomerate in the world, which just gave its CEO a nearly 80% salary increase.

Imagine that this kind of support was available to economically disadvantaged States (I think we could identify a few of those) from the Fed the same as it is available to Territories. I would be thrilled if the Fed rebated 50% of the Excise tax New York distillers pay on spirits production to New York State on the condition that the State build TUTHILLTOWN SPIRITS a nice (let's not be greedy here) $2.5 million distillery and pay us back a portion of that rebated tax so we wouldn't have to suffer economic disadvantage as we start up our brand new FREE distillery. Oh, well perhaps "free" is misleading. It would not be free to American taxpayers would it? And it wouldn't be "free" to the other New York distillers who don't get a fine new distillery like we would get, since it would be their excise taxes paying for the distillery. But hey, in the name of Economic Development we'll promise to hire a local worker. And damnit if my proposal isn't ratified and we don't get our free distillery, we're moving to New Jersey, or better yet the Virgin Islands!*

*[size=2

](Kidding of course, but you get the drift, and frankly under these conditions perhaps American micro distillers would rethink where they might locate their second facility if they are successful with their first. Diageo's research and lobbying efforts could be viewed in another light, as saving all us little guys the hard work and preparing fertile ground for expansion of our Micro operations off-shore, thus avoiding onerous taxes and regulation on the Continental US and in our individual States, and putting them in the queue for a Federal handout.)[/size]

Contact your Federal Representatives and make noise. The intent of the "cover over" program is good for developing US Territories. It should be continued. But the Congress must investigate the history and nature of this deal. And HR 2122 should be reintroduced and include the VI/Diageo deal.

R

[Ralph at Tuthilltown]

This link takes you to a piece from BLOOMBERG which ran A YEAR AGO. It is very enlightening on the background of the COVER OVER program and the maneuvering going on over our tax dollars. Turns out it goes alot deeper than simply footloose and fancy free spending of our Excise Tax rebates. Read on: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=amp5wXx35fkc

And just so you don't think it's just me shining this light, more from the WASHINGTON EXAMINER: http://www.washingtonexaminer.com/politics/Subsidies-on-trial-in-Caribbean-rum-rumble-8546430-70300937.html

[Ralph at Tuthilltown]

This issue is heating up. Check out what the WASHINGTON TIMES had to say on Friday:

6:23 p.m., Friday, September 17, 2010

We may be witnessing the single worst example of corporate welfare in a generation. With all due respect to the crowd favorite, Archer Daniels Midland, the new contender essentially could give its product away and still make a profit - thanks to the generosity of the American taxpayer.

At the heart of the rip-off is a policy known as the "cover over" tax subsidy, which provides Puerto Rico and the U.S. Virgin Islands (USVI) a rebate on the federal excise taxes U.S. consumers pay when they buy rum produced in those territories. There are virtually no restrictions on the use of the money - though Puerto Rico currently uses 94 percent of the revenues to support investments in infrastructure, health, education and environmental preservation. (The additional 6 percent is spent on marketing for the island's rum industry.)

To increase its revenue from the program, the Virgin Islands' government two years ago signed an agreement with the British liquor conglomerate Diageo in which the company agreed to move its Captain Morgan rum distillery from Puerto Rico to USVI. Under the agreement, which makes the federal government's policy of paying farmers not to grow crops look penurious, the USVI government will give Diageo nearly half of all cover-over revenues generated by Captain Morgan sales.

The deal also gives Diageo a 90 percent corporate income tax reduction and exemptions on real property taxes, gross receipts taxes and excise taxes on materials and equipment. Diageo also will receive a state-of-the-art distillery financed with a $250 million USVI government bond, with future cover-over revenues used to repay the bond. At the end of the initial 30-year contract, which Diageo can renew at will for an additional 30 years, the facility will be deeded to the company.

Though economic incentive programs to lure jobs and industry to an area are nothing new, few can match this deal on the cost per promised job. During the agreement's initial 30-year life span, Diageo could receive about $2.7 billion in direct payments, tax benefits and facilities. Yet, under the agreement, Diageo promises to hire just 40 workers - just 32 of whom must be USVI residents. That is well over $2 million per job per year.

Worse, about 350 jobs were lost in Puerto Rico - meaning the Diageo deal produced a net loss of 310 jobs. If you cost this out, it means the U.S. government, in effect, is paying a foreign company more than $19 million for each job it kills.

Another extraordinary distinction of the deal is that the direct subsidy Diageo will receive is worth about twice the cost of its rum production (even excluding the cost of the free manufacturing facility). The cost of producing a gallon of rum in a Puerto Rican distillery is $3.07 per "proof gallon." Diageo will receive as much as $6.38 per proof gallon for producing the same rum. This means the company could sell the rum for 1 cent plus the excise tax and still make money.

Legislation that would put a 10 percent limit on the amount of cover over-revenue that can be paid directly to a private company has been introduced in both the House and Senate, but former Ways and Means Committee Chairman Charles B. Rangel, New York Democrat, buried the House bill. The Senate bill was referred to the Finance Committee.

At a time when the United States is facing seemingly intractable unemployment problems, Congress shouldn't be lining the pockets of foreign companies - and especially shouldn't be paying a company $19 million for every job it destroys.

Following the November election, if not sooner, House Ways and Means Committee Chairman Sander M. Levin, Michigan Democrat, and Senate Finance Committee Chairman Max Baucus, Montana Democrat, should schedule hearings to re-examine the purpose of decades-old cover-over tax rebate policy. There is something amiss when U.S. territorial governments use federal tax revenues to provide lavish subsidies to private firms.

If Congress turns a blind eye to this outrageous corporate welfare giveaway, it will confirm the worst fears of many voters: that politics today is an inside game between those seeking favors and those giving them away - with the hapless taxpayer as the involuntary banker. Such abuses need to end.

Naomi Lopez Bauman is a public-policy consultant and an adjunct fellow with the Pelican Institute in Louisiana.

[Ralph at Tuthilltown]

This link is very helpful if you are following this thread and looking for alternative information sources.

http://cruciansinfocus.com/category/diageo/

[Ralph at Tuthilltown]

In the NEW YORK TIMES, October 15th:

http://www.nytimes.com/2010/10/16/business/16rum.html?_r=1&ref=diageo_plc

Perhaps now someone will pay attention to this on the Hill and revisit HR 2122, which would limit incentives to 10% of the Cover Over Funds. No free ride for the biggest of the big.

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[Ralph at Tuthilltown]

What a surprise! Mr. Rangel judged by his peers to be guilty of nearly a dozen ethics violations and now subject to "punishment" by the Congress; of course "punishment" does not mean any criminal charges just a slap on the wrist by his fellows on the hill; though that slap may end up in expulsion which is a rare outcome in the history of the Congress. Rangel of course still pleads and storms out of committee rooms, bolts hearings and goes back to work like nothing at all is happening. But that's a problem for the Congress and the Attorney General isn't it.

Our problem is, as the result of highly questionable practices by the Ways and Means Committee under Rangel's Chairmanship has led to a trade war among our own US Territories that has implications for all American spirits producers.

There is a movement to resurrect the question should the COVER OVER program exist at all. Or, as some suggest, should the Congress revisit the issues raised by the sabotaged HR 2122, which would have mandated a cap of 10% on the amount of those returned funds which could be used as incentives to lure new spirits producers to the islands.

And there is another specter raised by the failure of the Ways and Means Committee to properly consider HR 2122, that is the sudden availability of cheap CANE NEUTRAL SPIRITS, which may be used in place of GRAIN NEUTRAL SPIRITS to make......wait for it......"Blended Whiskey". You read correctly. Under the CFR the word "grain" is missing from the definition of blended whiskey which permits the use of "neutral spirits" in the blend and still permits the end product to be labeled "whiskey".

Some will, and do, argue that this is simply the way the law reads and nothing to be done about it. Perhaps true. But all the "craftsmen" I know across the US who make whiskey believe "whiskey" to be a grain based spirit, unadulterated by non-grain spirits. We've all heard the phrase "laws were meant to be broken", but I disagree. I say "Laws are made to be changed." All legal experts agree the Law is a living, changing, evolving thing; not set in stone. The whole system, when it works properly, identifies the broken law, the mistaken regulation, and provides mechanisms for change, correction, modernization. Simply accepting the fact of a major mistake in the regulations that only now comes to the fore because of modern conditions not heretofore existing, does nothing to solve the problem, and encourages the defense and blind acceptance of other problematic, purposeless, obsolete law.

The Congress should take up HR 2122 again and look at it without the leaden influence of the former Chairman.

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[Guest Liberty Bar - Seattle]

I just wrote one response, but, upon reading more - it appears that this was just one hell of a sweetheart deal. 350 union jobs for 32 USVI jobs?

This was one hell of a deal.

[cowdery]

My summary of the above: Diageo and USVI cooked up a clever and entirely legal deal to their mutual benefit, and at the expense of Puerto Rico as well as Diageo's competitors, who either need to cut a similar deal with USVI or pressure Puerto Rico into duplicating it (which PR has the power to do). The effect on the US taxpayer is essentially neutral, as the affected dollars were never going to be in the U.S. Treasury, except for the fact that Puerto Rico has nowhere to go for the lost funds except begging to the U.S. Treasury. Allegations of Rangel's involvement are dubious, not least because nothing about the deal required his involvement.

It's a deal that stinks if you're on the short end of the stick but is brilliant if you're one of the winners.

This deal is unquestionably good for Diageo. Whether it actually is good for the people of the USVI is questionable, but one cannot doubt it was good for the USVI officials who made it happen. Bottom line is it's not much different from states or municipalities dangling goodies in front of corporations to get a new or relocated factory or other facility. It's great for the winners and stinks for the losers.

[Guest Liberty Bar - Seattle]

Bottom line is it's not much different from states or municipalities dangling goodies in front of corporations to get a new or relocated factory or other facility. It's great for the winners and stinks for the losers.

THAT is the main point. I wish that we all could get such a good deal, alnd this is a reaity to what has happened in the past, happens all the time and will happen more and more in the future as states/countries do all that they can to ensure industries stay in their regions.

I really wonder how often any of us would say 'no' to such a deal...

[Ralph at Tuthilltown]

Yes, it happens all the time in big corporate machines dealing with governments and millions of dollars. But to me, that is what separates the "craft" or "micro" producer from the industrial producers. The sole goal of the major corporate producer is "profit". For many of us building our distilleries and our brands of course profit is important, but it is not the only motivating factor. I like to believe our operation is also moral and not out screw anyone just so we can make a profit. I doubt that discussion ever comes up around the board room at Diageo.

[Ralph at Tuthilltown]

Not only is Congress not addressing a limit on the amount of the "cover over" funding returned to territories which can be used as incentives for companies such as Diageo, but:

U.S. Senate approves rum cover over extension

Source: V.I. Daily News

By JOY BLACKBURN

December 16, 2010

A measure that would keep federal rum tax rebates flowing to the territory at a rate of $13.25 per proof gallon was part of an $858 billion tax-cut bill that the U.S. Senate approved by an 81 to 19 vote Wednesday afternoon.

The bill is expected to come back to the U.S. House of Representatives for a final vote by the end of the week, according to a prepared statement released by V.I. Delegate to Congress Donna Christensen.

The provision is only a tiny part of the bill.

If the measure passes, for every proof gallon of Virgin Islands-produced rum exported to the U.S. mainland, the federal government will continue to return to the territory $13.25 of the $13.50 in excise taxes it collects from the manufacturer.

The territory used to get $10.50 back, but in 1999, Congress passed legislation that temporarily increased that rebate to $13.25 per proof gallon.

That measure has been renewed several times since then, keeping the rate at $13.25.

The extender was up for renewal again this year, and has been volleyed back and forth between the U.S. House and Senate, attached to various bills.

If passed, the rum coverover extender would be retroactive for all of 2010 and would also cover 2011, said Monique Clendinen, a spokeswoman for Christensen.

The rum coverover extender had been routinely approved in the past, but has come under increased "public scrutiny and congressional challenge over the last two years after the Virgin Islands government inked deals with Diageo and Fortune Brands to use coverover proceeds as part of 30 year deals for the expansion of production capabilities on St. Croix," the release states.

Bills - one sponsored by Puerto Rico Resident Commissioner Pedro Pierluisi, Puerto Rico's non-voting member of Congress, and the other proposed by Sen. Robert Menendez of New Jersey - seek to limit how territories can use their rum tax revenues.

"I am pleased that our rum coverover extension is closer to passage," Christensen said in the release. "While there are certain provisions of the overall tax package that I oppose, feel could be improved upon and which I have worked with the Congressional Black Caucus and others to amend, a tax cut package is expected to pass the House and with it, all tax extenders to include our coverover. This is decidedly good for the economy of both Puerto Rico and the U.S. Virgin Islands."