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AG says office does not investigate non-payment of taxes. So who's making sure the Calvos pay?

By Troy Torres

Leevin Camacho’s predecessor, Attorney General Elizabeth Barrett Anderson, wrote to the Department of Revenue and Taxation on July 24, 2018, asking a simple question: How and why did the Calvo administration renew MidPac’s business license during the three years the company owed GovGuam at least $14.7 million in taxes?

MidPac is owned by former Gov. Eddie Calvo’s family. She wrote that letter nearly three years ago. She wrote that letter after a tax lien by DRT on MidPac was publicly revealed in federal court, showing that in May 2017, DRT assessed MidPac a total of $14.7 million in cigarette taxes over a period including every month from April 2014 to March 2017. The assessed amount was a settlement - a discounted price on the actual taxes MidPac owed GovGuam.

“Our office is writing to express concern regarding enforcement efforts against [MidPac],” Ms. Barrett Anderson’s letter to then-director of revenue and taxation John Camacho states. “DRT is required to closely monitor the distribution of all cigarettes released from any bonded warehouse and to collect the taxes in advance of purchase. These taxes are monitored not singularly for tax collection purposes, but to assure that the territory honors the obligations of states and territories pursuant to the 1998 Master Settlement Agreement.”

Mr. Camacho never responded to the attorney general’s concern that “[T]he renewal of a business license without payment of outstanding taxes is disturbing.” But was anyone really surprised that a Calvo-owned company was able to get away with not paying taxes during a Calvo administration?

But the questions remain: Did they pay their taxes? Why did GovGuam raise the business privilege tax on the poor, when a giant company owned by one of the richest families on Guam owed so much in taxes? Is anyone in GovGuam doing anything about the collection of these taxes? Do any of our leaders even care?

What ensued from that letter were two tracks of action: 1) The Attorney General of Guam supposedly was investigating how the Calvo company got special dispensation, and whether the settlement of taxes was done in good faith. And 2) The Legislature put into motion a series of laws to ensure GovGuam was holding up its part of the deal as a recipient of monies from the 1998 Tobacco MSA. The first was Michael San Nicolas’s Cigarette Tax Stamp Program, which Eddie Calvo refused to implement.

Every year in perpetuity, the big tobacco companies in the United States pump money into this MSA, and the member states and territories who took part in the class action lawsuit that led to the MSA get their cut. Guam gets a cut, so long as Guam is enforcing its tobacco laws. Among the most important of those laws are the taxes on cigarettes.

GovGuam’s failure to assess and collect such a huge percentage of the taxes on cigarettes sold on island from 2014 through 2017 should have been a gigantic red flag upon Guam’s compliance with the 1998 MSA. It is why we asked the Office of the Attorney General last week whether the OAG ever informed the tobacco standing committee of the National Association of Attorneys General about the issue.

The OAG did not respond directly to that question, but did state, “While the OAG is not responsible for the implementation of the Cigarette Tax Stamp Program, we join all those who want to see the Cigarette Tax Stamp Program get off the ground.”

While it is true the OAG is not responsible for the Cigarette Tax Stamp Program, it is responsible for the implementation and enforcement of the federal and local laws on tobacco on Guam, as is made very clear under the terms of the 1998 MSA. As a matter of fact, in a May 28 email to senators, OAG general counsel Stephanie Mendiola makes this point clear to senators.

The problem with that email was that Ms. Mendiola, representing the OAG, said her office was in support of legislation that would have ended one of the Legislature’s solutions toward compliance with the 1998 MSA and the proper collection of cigarette taxes. In simple terms, the OAG - according to Mendiola’s email - was supporting a return to the days, when DRT was simply allowed to let Big Tobacco on Guam get away with not paying taxes.

Contrary to that email, the OAG said Attorney General Leevin Camacho did not endorse wholesale the legislation, Bill No. 104, which ended up failing. “The OAG neither recommended Bill 104 nor were we the driving force behind the measure, however we do share the goal of increased fairness, transparency, and effectiveness of tax collections, especially when these particular taxes support the Healthy Futures Fund,” the statement from the OAG states.

In fact, the statement continues, the OAG is so committed to its role in the implementation and enforcement of the laws that, “Last year, after the OPA audit was issued, the OAG reached out to DRT to see if assistance could be provided to the Program. The OAG then committed to starting with the purchase of stamps. The $200K appropriation from the Healthy Futures Fund authorized under PL24-55 has not been used to date, however, the OAG was able to use other office funds for the purchase.”

The OAG, while clarifying its position on Bill No. 104 has demonstrated that not only is there a disconnect between its public position on this issue and what its general counsel has told senators… there also seems to be a change in tune between the former attorney general, Elizabeth Barrett Anderson, and the present one, Leevin Camacho.

Elizabeth Barrett Anderson minced no words in her letter to Calvo’s DRT three years ago. “It is our position that unpaid tobacco taxes should not be compromised through settlement,” the former attorney general wrote. “[T]he renewal of a business license without payment of outstanding taxes is disturbing, giving cause for further review by our Office.”

Three years later, Mr. Camacho’s office says, “The OAG also do not investigate non-payment of taxes. That authority and responsibility rests solely with DRT.”

In a white paper by Thomas Fox called The Use of Monitors by State Attorneys General, this nationally-acclaimed expert on compliance and ethics with the MSA says the attorney general’s “most important and most challenging role may be the right to bring litigation - to file suit - in the name of the state. If someone defrauds the state, the state AG may file a suit for damages under the state’s False Claims Act or similar legislation.”

Ironically, cigarette’s sister in sin, alcohol, has its own tax, and a private citizen named John Ryan sued an alcohol wholesaler recently for violations of the False Claims Act and non payment of alcohol taxes. When Kandit asked director of revenue and taxation Dafne Shimizu for a comment on the lawsuit, which was filed without the OAG but on behalf of GovGuam, Ms. Shimizu replied, “The OAG is representing us in this matter.”

How is it that the attorney general is steering the ship on the collection of alcohol taxes, but washes its hands of its enforcement responsibilities through the 1998 MSA when it comes to the collection of cigarette taxes?

Elizabeth Barrett Anderson’s July 24, 2018 letter to DRT clearly stated the OAG at the time had begun to look into the non payment of cigarette taxes by MidPac, and the subsequent settlement that allowed MidPac to pay only a fraction of the taxes they owed. Although she left office just a few months later when her term ended, that investigation should not have stopped. Where is that investigation now?

More importantly, if DRT has failed to timely and properly assess and collect these cigarette taxes, and if the attorney general is now saying that there is no investigation, then who the hell is making sure that MidPac is even paying the taxes it owed by the terms of whatever that settlement agreement was? And where is this settlement agreement? Why isn’t it public? How much in taxes did MidPac really owe? And are they just going to get away with the whole thing?

Perhaps it’s time for Guam’s public auditor to find these answers.

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