If you are American, then the TTB might be after you

I noted in my previous post (Long-term negative trends for wine in the USA) that it is the Alcohol and Tobacco Tax and Trade Bureau (TTB) that looks after federal government regulations regarding alcohol in the USA, rather than it being the Food and Drug Administration (FDA). This is an unusual separation of duties, as the TTB combines things like tax collections with seemingly unrelated human health issues. This is an odd consequence of the repeal of Prohibition, way back in 1933.

I also noted that it was not until 2017 that the TTB was given an explicit budget to chase commercial wrong-doers (The TTB ramps up enforcement over trade practices). We might therefore expect that they were not very successful at investigating unlawful trade practices prior to that time. This topic is worth looking into here.

For some context, we can start by quoting the Annual Report for the Fiscal Year 2020, which discusses the TTB Trade Practice Program:

Unlawful trade practices threaten fair competition because they undermine equal access to the marketplace and limit consumer choices. TTB enforcement has never been more important to ensure a level playing field and fair competition within the marketplace, particularly following years of growth by new, small industry members who cannot afford to pay for market access.

Since 2017, TTB’s enacted budget has included directed funding for the purpose of increasing trade practice enforcement. With these resources, TTB established an Office of Special Operations within its Trade Investigations Division, which includes dedicated investigators to increase trade practice enforcement. TTB started FY 2020 with 23 open investigations and initiated 10 new investigations this year, including a National Response Team case that involved a large-scale, complex investigation.

Due to their complexity, often involving multiple locations, crossing several jurisdictions, and requiring coordination with local and state authorities, trade practice cases can take several years to conclude. In FY 2020, in the fourth year since receiving dedicated resources, TTB closed 19 trade practice cases, with 74 % resulting in successful outcomes. These successful resolutions included 3 Offers-in-Compromise and 11 permittees that served suspensions.

The TTB noted for 2018 that: “The federal government has allocated $5 million for TTB trade practice enforcement funds ... Prior to receiving this funding, the TTB averaged two trade practice investigations per year, based on its limited enforcement resources and the resource-intensive nature of these investigations.” So, let’s look at how it has fared since then. Most of the information is contained on the Administrative Actions web page, or in the Annual Reports.

One of the most serious Actions seems to be Suspension of an industry member’s permit (if the permit holder has willfully violated any condition of its basic permit). No Suspensions are listed before 2018, and the numbers since then have been:

2018    10
2019    19
2020    11
2021     3

The decreasing number seems to suggest that people have gotten the message! The TTB now has some teeth, and they can bite.

The most common Action seems to be to arrive at an Accepted Offer in Compromise:

A compromise is an agreement made between the Government and an alleged violator in lieu of civil proceedings or criminal prosecution. TTB generally considers offers in compromise for any violation of the laws and regulations it administers, and TTB will provide appropriate assistance to any person or business that wishes to make an Offer in Compromise.

The data concerning such Compromises, provided by the TTB, are shown in the graph.

Note the big burst in 2018, compared to the immediately preceding years. The dedicated money for pursuing violations certainly seems to have had an effect, compared to the previous six years. However, there actually were quite a few Accepted Offers for the four years prior to that (2008—2011), suggesting that the TTB was quite active back then, as well. The Compromise numbers have been erratic since 2019, but still mostly high.

Many of the reported violations involve what is usually referred to as Pay to Play (Pay-to-Play schemes keep TTB busy). Such behavior involves payment to a retailer (for example) to increase sales of specific products, or to obtain preferential shelf or promotional space within their store (which might lead to greater sales). Providing promotional material is one thing, but pay-for-service applies to employees only, not to outsiders, when it comes to alcohol sales. Apparently, the list of illegal financial offences that have been committed by alcohol suppliers and wholesalers is a long one.

Advice has been offered as to what suppliers can do about this (How to avoid pay-to-play violations). Obviously, the suppliers need to learn which practices are prohibited for alcohol sales, irrespective of their status for other commercial products. The most common violation practices are ones that compromise the retailer’s independence. This includes inducing a retailer to purchase certain products to the exclusion (in whole or in part) of other brands’ products, or requiring a retailer to buy a product that it doesn’t want in order to get access to a particular product that it does want. You cannot even offer a “consignment sale”, where the retailer has the option that if a product doesn’t sell, then the retailer can return that product to the supplier.

Put simply: as an American, you must avoid “This for That” situations in the wine world, even if you are quite used to them in other spheres.