Did Charlie Rangel Double-Cross American Taxpayers?

How Rangel Secured $6 Billion in Tax Revenue Kickbacks for a British Liquor Conglomerate

Daily Right:   Posted by ScottMcKay on 9/7/2010

Corrupt political leaders of U.S. Virgin Islands managed to fleece the rum tax rebate program in order to line the pockets of British liquor conglomerate, Diageo – and through all this process, they were aided and abetted by Rep. Charlie Rangel.


What will Mr. Rangel and his cronies get in return?

Background:

U.S. territories receive a rum tax rebate from the Federal Government (known as the Cover Over tax subsidy). Most of the federal excise tax on rum sales is returned to the territorial government where the rum was produced.

In order to increase their level of tax subsidy revenue from the federal government, the Government of the U.S. Virgin Islands (USVI) and British owned company Diageo developed a scheme in 2008 by which Diageo will produce its Captain Morgan rum in a facility to be built in the USVI. Unfortunately, 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 about half of the tax revenue rebate and a huge number of other gifts, under the thinly-veiled guise of “economic development.” What is the most shocking provision in this $6 billion agreement is that Diageo is required to hire only 40 employees.

The tax subsidy is two times the cost of producing the rum! The cost of producing a gallon of rum in a Puerto Rico distillery is $3.07 per proof gallon. Diageo has finagled a deal from elected officials that can pay them $6.38 per proof gallon for producing the same rum. That means that they could sell the rum for $.01 plus the excise tax and still make money! 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. Who wouldn’t drink to such a sweet deal from the U.S. taxpayers?

The Sweetheart Deal:

The Gift from Taxpayers: $50 million and a new State-of-the-Art Distillery. The USVI is building Diageo a state-of-the-art distillery financed with a $250 million government bond. Bonds issued will be repaid using future tax subsidy revenues by the USVI, not by Diageo. This is a turnkey facility and the deal grants Diageo the property title of this state-of-the-art facility. The deal also provides $50 million to be granted to Diageo as a gift for its use as working capital and with no financial risk to the British company.

Is Wall Street back to its crooked old ways? Why would Wall Street be giddy over this bond deal when the Virgin Islands makes California look fiscally responsible? Why would the financial analysis 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 to ten percent (10%) the amount of the tax subsidy revenue that can be paid directly to a rum producing company, which would effectively kill the Diageo deal. The only way analysts would come to that conclusion is if they received private assurances directly from the House Ways and Means Committee Chairman Charlie Rangel that no legislation that could affect the Cover Over Tax Subsidy would see the light of day in his committee.

British Company gets over $6 billion in U.S. tax subsidies. The Diageo deal would also give this British company about half of the Virgin Islands’ Cover Over tax subsidy revenues during the next 30 years. These kickbacks are worth about $2.7 billion. Diageo can unilaterally renew this agreement for an additional 30 years, making this deal worth over $6 billion to Diageo at the expense of US taxpayers.

More tax benefits for the British Company. As if this wasn’t enough, the deal also gives Diageo a 90 percent corporate income tax reduction; exemptions on real property taxes, gross receipts taxes and excise taxes on materials and equipment.

An Even Sweeter Deal… The deal provides a molasses (the key ingredient in making rum) subsidy to Diageo. While molasses sells for about $1.50 per gallon, Diageo will not have to pay more than 16 cents – even if the price skyrockets. Within the past 30 years alone, we have seen a barrel of oil fluctuate in price from $14 to over $90. Would U.S. lawmakers allow foreign companies that do business here to pay no more than $1.50 for a barrel of oil – subsidized with tax dollars – while all other American companies pay market rates? Not likely. One has to wonder why they are turning a blind eye to this outrageous use of tax dollars.

U.S. Congress’ Role:

Legislation (HR 2122) was introduced before Congress to limit to ten percent (10%) the amount of the tax subsidy revenue that can be paid directly to a rum producing company. 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. These funds DO NOT directly benefit individual rum companies.

As Chairman of the U.S. House Ways and Means Committee, Rangel was able to block the 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.

The Players, and soon to be very wealthy former elected officials:

Donna M. Christensen, U.S. Congressional Delegate for the US Virgin Islands, lobbied heavily to make sure the Diageo deal was protected – by blocking HR 2122 – in Congress. Rep. Christensen is a key member of the Congressional Black caucus and a close ally of Charlie Rangel. It is interesting to note that Donna Christensen attended the Rangel-led, Citigroup-funded junket to the sunny Caribbean island of St. Maarten in 2008 that is included in the ethics charges against Rangel.

As it turns out, the Diageo deal was negotiated by her brother, Adam Christensen, who serves as USVI Governor John P. deJongh’s legal counsel. Not only did he decline to comment on this deal to the USVI state legislature using attorney-client privilege, the then quickly appointed him to the USVI Superior Court. Not only can he not be questioned on this matter now that he is a sitting judge, but he may receive immunity from any future prosecution. http://cruciansinfocus.com/2009/11/20/christian-bench-bid-should-be-withdrawn/ http://cruciansinfocus.com/2009/11/21/privilege-moves-judicial-bid-forward/

Should we worry about corruption? Absolutely! US Virgin Island Governor deJongh utilized $490,000 in federal funds allocated for road enhancements to make enhancements to his private home in St. Thomas. After a federal investigation by the Inspector General at the US Department of Interior, the report indicated that the funds were improperly diverted. http://cruciansinfocus.com/2010/01/23/ig-report-governor-misused-funds/.

His legal counsel, Adam Christian, determined this action was legal and appropriate. The Interior Department is demanding that the funds be returned. The same counsel that determined that it was OK to misappropriate federal funds was the key negotiator in the Diageo rum deal.

His sister Rep. Christensen worked closely with Rep. Charlie Rangel to guarantee no action against this deal in the House Ways and means Committee and to utilize his influence with Wall Street analysts to guarantee a low risk assessment for the initial $250 million bond necessary to get this sweetheart deal going.

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 that the key players behind this sweetheart deal, from the VI Governor all the way to Congressman Rangel and his allies will receive golden parachutes after all components of this deal are in full effect?

Next Steps

American taxpayers should demand that the House Ethics Committee ask Charlie Rangel and his close ally Donna Christensen, under oath, if they will be receiving benefits from this sweetheart deal in the years to come. Will they or their family and staff receive massive gifts or consulting contracts from Diageo or any of their subsidiaries in the years to come?

Americans should demand an answer to why Rangel protected a $6 billion transfer from U.S. taxpayers to a British company, in exchange for only 40 jobs.

http://dailyright.net/post/Did-Charlie-Rangel-Double-Cross-American-Taxpayers.aspx