Heineken USA Agrees to Pay $1.25 Million Fine to Settle New York Trade Practice Violations

The New York State Liquor Authority (SLA) on Wednesday finalized a $1.25 million settlement agreement with Heineken USA Incorporated (HUSA) for 42 alleged violations of the state’s Alcoholic Beverage Control (ABC) law.

The New York fine comes three months after HUSA agreed to pay the largest offer in compromise ever — $2.5 million — to the Alcohol and Tobacco Tax and Trade Bureau (TTB) for alleged trade practice violations related to its proprietary “BrewLock” draft systems.

The TTB investigation uncovered alleged violations of the Federal Alcohol Administration (FAA) Act, specifically subsection 205 “unfair competition and unlawful practices,” in Florida and later Washington state and New York City between August 1, 2015, and March 26, 2019.

According to the TTB, HUSA also reimbursed retailers who purchased the so-called “patented” and “revolutionary” on-premise technology through “disguised” credit card transactions. HUSA was also accused of making “slotting fee payments” to retailers, which were disguised as “permissible activities” such as consumer sampling experiences that never took place.

The federal investigation spurred the New York investigation, as the TTB notified the SLA last year that HUSA was allegedly providing retailers with BrewLock systems at no cost.

The BrewLock systems, according to both the SLA and TTB, are designed to only dispense Heineken products packaged in unique kegs, which subsequently induced retailers to purchase more products made by the global brewing company.

Through its investigation, the SLA determined that HUSA gave away more than 800 BrewLock systems, valued at about $500 each, from 2014 to 2015. Additionally, the SLA’s investigation found that Heineken attempted to conceal transactions involving its “Blade” kegerator device by using a third-party, Micro Matic, to incentivize retailers.

On June 10, the SLA charged HUSA with 42 violations of New York’s ABC law, including 32 counts of providing illegal gifts and services and 10 counts of failure to maintain adequate books and records.

“Whether you are small craft brewery or a major international company, you have to comply with the rules and laws of New York,” State Liquor Authority chairman Vincent Bradley said in a press release. “Our agency remains committed to rooting out anti-competitive practices that artificially restrict consumer choice and place small manufacturers at a disadvantage.”

A HUSA spokesperson acknowledged that a settlement agreement had been reached, but said it was not an admission of guilt.

“Heineken USA has been and remains committed to legal compliance in everything we do,” the spokesperson added. “Earlier this year we introduced an enhanced and robust compliance program for all employees and have established a new internal audit process.”

HUSA has since discontinued the BrewLock program in New York.

During an SLA board meeting Wednesday, commissioners questioned HUSA associate general counsel Jax Russo Curtin about the BrewLock and Blade programs.

“We believed it was compliant based on the statute and conversations that were informal with the New York SLA,” Russo Curtin said of the BrewLock program. “So that is why we felt confident proceeding with the program.”

According to the SLA, the fine is among the largest in the agency’s history.

In December 2017, the SLA accepted $3.5 million — the largest civil penalty in the agency’s history — from Southern Glazer Wine & Spirits for alleged “pay-to-play” activities.

Last year, the SLA accepted a $975,000 settlement from Boston Beer Company subsidiary American Craft Brewery LLC for allegedly selling 1.4 million cases of unregistered products in the state in 2017.

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