Senator Vialet Calls For Full Inquiry Into Diageo USVI

ST. CROIX — Senator Kurt Vialet is calling for a full inquiry into Diageo USVI, stating in a press release issued this afternoon that he is disturbed that the rum producer has been under investigation by local authorities that questioned whether containers imported as molasses actually contained rum or some type of distillate. Mr. Vialet is requesting that the inquiry investigate whether Diageo has violated sections of the operating agreement with the Government of the Virgin Islands as it relates to the molasses subsidy.

The investigation was brought to the fore after a Consortium report revealed that Department of Justice and Department of Licensing and Consumer Affairs officials had on Monday morning descended on the Gordon A. Finch Molasses Pier, located on the south shore of this island, to take samples from 12 tanks of what’s supposed to be molasses used to produce rum at Diageo USVI’s Captain Morgan Rum Distillery.

Part of Diageo’s agreement with the government is that the GVI subsidizes the molasses imported to make the rum here. But the samples collected on all 14 tankers (two at Diageo’s facility) did not appear to be molasses, which is dark in color and has a strong, distinct smell, a suspicion Diageo later confirmed when it revealed that the substance was actually a sugar cane distillate.

Mr. Vialet is requesting that Acting Attorney General Claude Walker subpoena all bill of ladings in reference to molasses shipments to determine the contents of containers shipped for the past five years. The first-term Democrat is also requesting that the DOJ determine if Diageo was paid a molasses subsidy for what the company says is a sugar cane distillate but appears to be semi-processed rum. And lastly, Mr. Vialet wants the DOJ to determine the amount of molasses subsidy received that was paid for the sugar cane distillate.

Following The Consortium report, Diageo USVI issued a statement attempting to explain the situation, contending that it was testing new means of distilling as it seeks to become more proficient.

“Now in our fifth year of rum distillation on St. Croix, Diageo USVI is proud to have achieved a number of milestones in our production. From record water recovery and conservation, to the creation of new rum products, we continue to innovate and test distilling processes and techniques.  Some of these distilling techniques are used throughout the Caribbean, and may help improve plant efficiency, our environmental footprint, and productivity,” wrote Erica J. Johnson, communications and corporate relations head at Diageo USVI.

“As part of this, we have been testing a new distilling process using sugar cane intermediate, in which a minority amount of this ingredient, which we would be bringing from outside the territory, would be added into our distilling process along with molasses.  Some tankers of this ingredient are now being questioned by the VI Department of Justice officials.  As with all our distilling methods, the use of sugar cane intermediate is not only legal and meets federal and local standards, it is also within the boundaries of our agreement with the Government of the Virgin Islands,” she added.

But Mr. Vialet contends that the community, whose tax dollars continue to fund the Diageo agreement, has a right to know the truth and whether there was any breach of sections of the operating agreement and if any subsidy was paid in error based on misinformation. He is urging Governor Kenneth Mapp to be vigilant in the pursuit of this information and is encouraging Diageo to cooperate fully.

In 2008 the GVI subsidized Diageo’s move to the island, totaling an estimated $2.7 billion over 30 years. Some of the subsidies include: a new $165 million distillery, “market support payments” to keep prices low for molasses, 35 percent of what Diageo spends on advertising, a 90 percent income tax break, exemption from property taxes, environmental mitigation supports, and 47.5 percent of all tax revenue collected on Captain Morgan rum. By one estimate, Diageo’s net cost to produce rum is zero, according to Tax Foundation, a leading independent tax policy research organization. The 30-year agreement received Senate ratification on July 9, 2008, with a 10-5 vote.

However, the rum-cover over funds are supposed to be for rum produced in the territory; not imported from elsewhere and reshipped out as if the products were made here.

According to Ms. Johnson, Diageo informed Mr. Mapp of the new methods being tested. She said these methods were also approved by federal regulators at the Alcohol and Tobacco Tax and Trade Bureau.

“In January of this year, we informed Governor Mapp and his team that we would be testing this distilling process.  In addition, prior to entering into this test, Diageo USVI had the proposed process vetted by federal regulators at the Alcohol and Tobacco Tax and Trade Bureau to ensure the process was legal and that rum produced under it was compliant for purposes of selling rum into the US market and thus triggering Cover Over payments.  We would never have entered into a test of this nature without express confirmation from our regulators that it was compliant,” Ms. Johnson said.

The release also made known that the 14 tankers that were turned over to the Department of Justice has been released to Diageo by Mr. Mapp, and said Diageo continues to put its best foot forward in relation to transparency.