BATF Out of Hell

Even before Waco, people in the booze business were afraid of the Bureau of Alcohol, Tobacco, and Firearms.

A 12-ounce bottle of Grant's Scottish Ale contains 170 percent of the U.S. Recommended Daily Allowance for vitamin B.-12. I can legally tell you this because I don't make beer for a living. But Bert Grant, creator of Grant's Scottish Ale, can't.

In January 1993, a few months after Grant and his wife, Sherry, started putting nutritional information on six-pack cartons of the beer, David Dunbar, an inspector with the Bureau of Alcohol, Tobacco, and Firearms, visited their Yakima, Washington, brewery. Dunbar told them that Yakima Brewing & Malting is not allowed to inform consumers about the vitamins and minerals in a bottle of beer. This surprised the Grants, because neither the Federal Alcohol Administration Act nor the regulations issued under it address nutritional information. The regulations do, however, forbid false or misleading claims about "curative or therapeutic effects," and the BATF cited a 1954 regulatory interpretation that says "any reference to vitamin content in the advertising of malt beverages would mislead a substantial number of persons to believe that consumption of the product would produce curative or therapeutic effects."

The Grants had to stop using the Scottish Ale six-pack cartons and drop plans to put nutritional information on the packaging of their other beers. But the rule seemed silly to them. So Sherry Grant wrote a press release about the BATF's order and sent it to some trade journals. "We felt it should be brought out, because we wanted the law changed," Bert explains. The story eventually attracted attention from the mainstream press, including Playboy and radio commentator Charles Osgood, as well as industry publications. The coverage was sympathetic to the Grants and critical of the BATF. An editorial in the Vancouver Columbian, for example, called the BATF policy "hypocritical on its face" and argued that "more information, not less, is the way to encourage better choices."

"Then the coincidences started," Bert recalls. Dunbar, the BATF agent, came back several times to look at the Grants' records and grill the couple and their employees, spending a total of three weeks at the brewery. Sherry says Dunbar, who declines to comment on the case, had an intimidating, confrontational manner. "It scared me, because in the back of [my] mind, there was always this picture of Waco," she says. "And then I got really, really angry, because I thought, 'This is wrong. I should not have to be afraid of my own government.'"

During 1993, Bert estimates, the Grants had to devote about a fifth of their time to dealing with one regulatory problem after another. Among other things, the BATF said they had to get the label for Grant's Celtic Ale reapproved because of a change in color. And the bureau decided that Grant's Spiced Ale, which the brewery had been producing since 1985, had a "frivolous" name that required a generic description–"A Fermented Ale with Added Spices and Honey"–in letters as big as the name.

Worst of all, the alchemists at the BATF transformed Grant's Cider, which the company had been producing since 1984, into a wine by bureaucratic edict. The financial consequences of that trick are serious. Under federal law, hard cider is exempt from excise taxes, but wine is taxed at $1.07 a gallon. The BATF claims that the Grants owe back taxes on the cider-cum-wine for nine years, plus the annual occupational tax for wineries, plus interest, plus penalties.

The bureau has not yet informed the Grants what all that will come to, but it could be hundreds of thousands of dollars. For a small business like Yakima Brewing & Malting, which produces about 9,000 barrels a year, that would be a significant hit. And the tax liability is in addition to some $100,000 in legal fees and lost sales that Bert estimates the hassles with the BATF have already cost the brewery.

The Grants feel they are being punished for criticizing the bureau's censorship. "It doesn't matter what you do for a living," Sherry says. "You still have a right to free speech. And I shouldn't have to worry about the government coming down on me for what I think or say."

The BATF denies any link between the Grants' recent troubles and the conflict over nutritional information. "There is no conspiracy," says Les Stanford, a BATF spokesman in Washington, D.C. "There is no connection between the two issues." Whether or not the BATF decided to retaliate against the Grants, their case illustrates the arbitrary power that the agency wields over brewers, vintners, and distillers. Entrepreneurs like the Grants operate in an environment of uncertainty created by vague regulations, inconsistent enforcement, unpredictable policy changes, and capricious decisions that apply retroactively. Long before the Waco fiasco made the BATF notorious, producers of alcoholic beverages had reason to fear the bureau.

"If you know how the average citizen feels about the IRS, the industry is in even greater fear of the ATF, because they have such awesome power over their very existence," says Jerry Mead, editor and publisher of The Wine Trader. "They can yank your license. You can appeal, but so what? You're out of business….If you piss them off, they can come in and audit your books. Even if they don't find anything wrong, they totally disrupt your [operation] for days, sometimes weeks, going through everything. And the ATF probably could find something wrong with just about anybody's operation, if they were really looking."

In the case of Yakima Brewing & Malting, practices the BATF had known about for years suddenly and inexplicably became violations. The bureau had never before complained, for example, that Grant's Spiced Ale, a name that seems straightforward and descriptive, was in fact "frivolous." Furthermore, as Sherry Grant notes, the BATF continues to allow the use of many fanciful beer names–including Pete's Wicked Ale, Labatt's Blue, and Blackened Voodoo–without demanding special explanations on the labels. "Tell me they're not picking on us," she says.

This combination of fuzzy rules and selective enforcement is an invitation to abuse. While ostensibly pursuing its regulatory mission, the BATF can punish businesses for criticizing the bureau or offending the wrong people. In 1992, for example, the BATF threatened to rescind its approval of labeling for Crazy Horse malt liquor after then-Surgeon General Antonia Novello called the name "an insensitive and malicious marketing ploy" aimed at appealing to Native Americans. Since the bureau is not supposed to pass judgment on the propriety of target marketing, it cited a different concern: the use of three phrases on the label–"Fine Blend," "Lot No. 0690711," and "Registered at the Brewery"–that it considered confusing or misleading. These phrases had apparently escaped the BATF's attention when it approved the label two months before.

A similar reversal involved PowerMaster, a malt liquor that the BATF approved in 1991. Like many other malt-liquor brands, PowerMaster was aimed mainly at inner-city blacks, but it attracted special attention because it had a higher alcohol content than its competitors. After Novello called the product "socially irresponsible" and anti-alcohol activists expressed their outrage, the bureau decided that the word Power was a veiled reference to alcoholic strength, which brewers are not allowed to advertise. It instructed G. Heileman Brewing Co. to remove the word from the product's name. The brewer, which had spent more than $2 million on research and marketing, decided to scuttle the venture.

Another company that the BATF targeted for political incorrectness was not so compliant. In 1989 Federico Cabo acquired the right to import Black Death, an award-winning European vodka distilled from beets. The BATF approved the product's label, which shows a grinning skull wearing a black top hat. Cabo subsequently spent over $1 million to promote and market the vodka, and in 1992 he bought worldwide rights to the brand for $3.3 million in cash and guaranteed royalties. That same year, Novello and other critics started worrying aloud that Black Death USA's marketing tactics, which included coffin-like vodka boxes and the slogan, "Drink in Peace," would appeal to young people and encourage alcohol abuse. The BATF decided to take another look at the Black Death label.

In April 1992 Terry Cates, chief of the BATF's Industry Compliance Division, sent a letter to Cabo, ordering him to stop selling Black Death vodka within 10 days. Cates explained that the label violated BATF regulations in two ways. First, he said, the skull and the name, which Cates interpreted as an allusion to bubonic plague (it's actually a translation of an Icelandic slang term for distilled spirits), create the misimpression "that the product is inherently unsafe for human consumption at any level." At the same time, he wrote, the label "mocks the real health risks which may result from the consumption of alcohol by making an obviously false claim about the dangers of alcohol consumption," thereby undermining the surgeon general's printed warnings.

Cabo challenged the BATF's decision in federal court and won by summary judgment. In October 1992 the U.S. District Court for the Northern District of California ruled that the BATF had violated the Due Process Clause; that it lacked statutory authority to revoke a label approval three years after granting it, except in exceptional circumstances; and that it had acted "arbitrarily and capriciously," in violation of the Administrative Procedure Act.

"Not only does it defy common sense to believe that the use of the term 'death' in conjunction with the image of a grinning skull overcomes the otherwise clear indications on the bottle that the product contains vodka," U.S. District Judge D. Lowell Jensen wrote, "but the two reasons put forth by the BATF for revoking the label are contradictory. The BATF claims that the 'Black Death' label mocks the dangers of alcohol such that consumers will believe that alcohol is not dangerous, while also claiming that consumers will believe that the vodka is inherently unsafe for consumption." The judge found the BATF's behavior so egregious on other grounds that he did not consider the free-speech implications of banning the brand, except to say that "the government's prohibition of the 'Black Death Vodka' label strikes at the heart of the first amendment."

A 1981 case in the U.S. District Court for the District of Columbia confirms the potential to overturn BATF actions on First Amendment grounds. The Taylor Wine Company had developed a low-calorie, low-alcohol product called Taylor California Cellars Light Chablis. The bureau said it would be misleading for Taylor to call the wine "light" while promoting its lower calorie content, since federal regulations define light to mean simply that a wine has an alcohol content of 14 percent or less. The judge, Aubrey E. Robinson, found that the BATF did not have legal authority to reject the Taylor label for this reason. Even if it did, he said, "prohibiting Plaintiffs from disclosing the caloric content of the wine is clearly unconstitutional. Plaintiffs' attempt to disclose the information is accorded first amendment protection."

Similarly, the U.S. Court of Appeals for the 10th Circuit last year ruled that brewers have a right under the First Amendment to tell consumers the alcohol content of their products. Ostensibly to prevent "strength wars," the Federal Alcohol Administration Act forbids the listing of alcohol content on containers of beer unless state law requires it. In 1987 the Adolph Coors Company proposed labels for Coors and Coors Light that included alcohol content. After the bureau rejected the labels, citing the statutory prohibition, Coors sued. The appeals court agreed that the government has a legitimate interest in preventing "strength wars" but concluded that the labeling restriction "does not advance this interest in a direct and material way….The Government simply has not shown a relationship between the publication of such factual information and strength wars." The court therefore overturned the rule as "an unconstitutional restraint on commercial speech in violation of the First Amendment."

These successful challenges stand out in an industry where timidity is the rule. Because of its power, the bureau usually gets its way, no matter how slight the justification for its orders. In 1986, for instance, the bureau blocked the sale of Collio wine from Italy because the bottles had labels that included a drawing of a nude woman by the artist Erté. The BATF cited its authority to prohibit "obscene or indecent" representations. "The breasts on this label were upthrust and very evident," a BATF spokeswoman told The Wall Street Journal. "If the picture had been a masterpiece, it would have been allowed, but it wasn't, so it's obscene." Bowing to the bureau's artistic judgment, the wine's importers applied gold paint to 4,000 bottles, covering up the woman with a "low-cut, modern swimming costume," which won BATF approval in May 1987. The next year's batch of Collio bore a new label, featuring a flat-chested version of Erté's nude woman.

Sometimes the BATF doesn't even bother to explain its orders. In 1988, with clearance from the BATF, California's Robert Mondavi Winery started running this statement on some of its bottles: "Wine has been with us since the beginning of civilization. It is the temperate, civilized, sacred, romantic mealtime beverage recommended in the Bible. Wine has been praised for centuries by statesmen, philosophers, poets and scholars. Wine in moderation is an integral part of our culture, heritage and the gracious way of life." In 1990 the BATF instructed Mondavi to change the statement, striking the word sacred, excising the reference to the Bible, and inserting the word family's between our and culture. "We never got any reasons," says Harvey Posert, spokesman for the winery. "There's nothing in the law that says you can't say wine was recommended in the Bible. It was recommended."

Incidents like this one show that BATF regulation is driven by anti-alcohol ideology as well as bureaucratic zeal. Under pressure from neoprohibitionist groups such as the Center for Science in the Public Interest, the bureau actively fights industry attempts to say good things about beer, wine, or liquor. "There have been many inquiries regarding the inclusion on wine labels of statements which make therapeutic or curative claims, or which otherwise attribute positive effects to the consumption of wine," Jerry Bowerman, head of the BATF's Product Compliance Division, said in a 1990 letter. "These statements imply that the consumption of wine is beneficial to society and is recommended by religious authorities, without mentioning any of the possible harmful societal effects arising from the consumption of wine."

In this view, the surgeon general's warnings on every bottle and the anti-alcohol messages that saturate the media are not enough to provide balance. Every positive statement requires a corresponding warning. That attitude is reflected in the BATF's policy regarding health claims. Federal regulations forbid any statement about "curative or therapeutic effects if such statement is untrue in any particular or tends to create a misleading impression." But the bureau's interpretation says that "all therapeutic claims, regardless of their truthfulness, [are] inherently misleading and particularly deceptive in view of the possible social effect of encouraging the consumption of alcoholic beverages by those who for psychological or physical reasons are adversely affected thereby." (Emphasis added.)

As Berkeley, California, wine importer Kermit Lynch could tell you, the BATF construes "therapeutic claims" rather broadly. Since November 1989, a federal law has required wine importers to affix a label with the now-familiar government warnings about the dangers of alcohol to every bottle they sell. Trying to provide a counterpoint to these dire admonitions, Lynch asked the BATF for permission to quote Thomas Jefferson on the label: "Wine from long habit has become an indispensable for my health." He also suggested quotes from Louis Pasteur ("Wine is the healthiest, most hygienic beverage known to man") and 1 Timothy ("Drink no longer water, but use a little wine for thy stomach's sake"). The bureau said the quotes violated the rule about therapeutic claims.

In 1991 Lynch tried again with a different Jefferson quote: "Good wine is a necessity of life for me." After issuing a series of contradictory rulings, the BATF rejected the quote, arguing that it misleadingly implied both a health benefit and a judgment about the wine. In Dcccmber 1992, Lynch wrote the bureau a letter in which he noted that "Jefferson has been dead for two centuries," and "no one would imagine that he had tasted or was judging a wine currently for sale." He also argued that the quote could not reasonably be construed as a health claim and concluded: "I think your office should proceed with caution when deciding whether Thomas Jefferson's writing is too dangerous to be read by the American public." Whether worn out by his persistence or shamed by his arguments, the bureau finally agreed to let Lynch use the quote.

The BATF also looks askance at industry attempts to publicize the large and growing body of scientific evidence that moderate alcohol consumption reduces the risk of heart disease. In 1992 Leeward Winery in Ventura, California, summarized the relevant studies in its newsletter. The article included excerpts from a 1991 60 Minutes story, "The French Paradox," that suggested daily consumption of red wine accounts for the fact that the French have a lower rate of heart disease than Americans despite a diet that is relatively high in fat and cholesterol. In March 1992 the BATF told Leeward to stop distributing the newsletter, which the bureau considers a form of advertising. The bureau also told Robert Mondavi to stop using bottleneck tags quoting from the 60 Minutes story.

Yet that October, the BATF approved a similar "neck-hanger" proposed by World Wine Estates of St. Helena, California, which owns the Beringer and Napa Ridge brands. Like the Mondavi tags, the neck-hanger quoted from "The French Paradox," but the bureau felt the excerpts presented a balanced picture. (One of the physicians quoted on the tag mentioned "the tremendous problems of alcohol abuse.") A month after getting clearance from the BATF, the winery announced that it would not use the tags after all.

"There were objections to our neck-hanger by a few federal agencies," says Doug Roberts, director of financial services for World Wine Estates. "We had a clear indication that it would not be warmly received."

Roberts doesn't want to be specific–"it's still a very sensitive issue in Washington," he says–but the agencies that might have taken an interest include the Food and Drug Administration, the Federal Trade Commission, and the surgeon general's office. Legally, the winery did not need to get approval in advance from anyone–even the BATF, since a neck-hanger is not considered part of the label. But a prudent winery tries to avoid problems by getting permission for any move that might be controversial. "Until we have some kind of clear direction," Roberts says, "we don't want to expose ourselves to the wrath of any agency."

Meanwhile, Leeward and about 10 other wineries have formed a group called the Coalition for Truth and Balance to negotiate guidelines with the BATF for discussing health benefits. So far the bureau has not approved any of the statements that the coalition has come up with. But it has agreed to allow wineries to reprint and distribute, in its entirety, a four-page pamphlet called "Moderate Drinking" from the National Institute on Alcohol Abuse and Alcoholism. The government pamphlet includes three paragraphs on the evidence that moderate drinking reduces the risk of heart disease. Posert, the Mondavi spokesman, says the pamphlet is "a little large for a label," but maybe "you could make a paper bag out of it and put a bottle of Fumé Blanc in there."

The Wine Trader's Mead dreams of a simpler approach. "There ought to be two rules," he says. "If it's true, you can say it. If it ain't true, you can't say it. Other than that, you don't need any rules. The ATF doesn't see it that way."

Nor is the bureau likely to be convinced that it should narrow its focus. As Sherry Grant discovered, regulators can be expected to view their mandates as broadly as possible. She says her experience with the BATF "changed me from a person who trusted her government into a person who looks at government with a jaundiced eye. I lost my innocence."