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OAG tried to sway senators to vote for Calvo-backed cigarette tax bill

By Eric Rosario

Internal correspondence shows the Office of the Attorney General of Guam tried to sway senators to vote for a Calvo-backed bill that would have ended the effort to properly ensure cigarette wholesalers are paying millions in annual cigarette taxes.

At 9:31 a.m. May 28, just three-and-a-half hours before the Legislature's vote on Sen. Sabina Perez's Bill No. 104, OAG general counsel Stephanie Mendiola wrote to senators:

"With regard to Bill 104 as amended, we continue to stand in support of the measure and appreciate the Committee's inclusion of a funding mechanism for our office," Ms. Mendiola wrote in her email to Speaker Therese Terlaje and Sen. Perez, which was then shared with senators prior to the vote on Bill No. 104. That is the legislation, which failed that day, that among other things would have ended the ongoing procurement of a private entity to do what the Department of Revenue and Taxation has for decades failed to do - assess and collect cigarette taxes.

The email also informed senators of the OAG's work "with the National Association of Attorneys General Center for Tobacco and Public Health, which specializes in all matters relating to tobacco and nicotine, including the regulation of tobacco products and the 1998 Master Settlement Agreement (MSA), of which Guam is a party."

Ms. Mendiola then emphasizes in her email that the OAG "is responsible for implementation and enforcement of the MSA in Guam."

Despite the OAG's responsibility for Guam's compliance under the MSA, at least one cigarette wholesaler - Calvo-owned MidPac - was able to escape the payment of cigarette taxes over a three-year-period from April 2014 to March 2017 amounting to (at least) nearly 3.7 million packs of cigarettes sold during that period.

We emphasize the qualification 'at least,' because the amount of taxes owed during those three years appears in a June 2, 2017 tax lien by the DRT on MidPac for the negotiated-down tax liability. It has never been publicly been made known how much the original tax liability was. The negotiated settlement on the taxes owed was done during the administration of former Gov. Eddie Calvo, whose family owns MidPac.

The failure by DRT to timely assess and collect the original tax liability, and the OAG's failure to enforce the MSA as it relates to MidPac, led then-Sen. Michael San Nicolas to champion the Cigarette Tax Stamp Program to require that any pack of cigarettes to be sold on Guam to bear a stamp signifying the tax on the product had been paid to the government of Guam. Gov. Calvo refused to implement the program. Gov. Lou Leon Guerrero, in her first year in office, also failed to implement the program, her DRT agency heads telling senators they could not afford the program's implementation costs.

In December 2019, then Speaker Tina Muna Barnes convinced the Legislature and the governor to enact a requirement that DRT issue a procurement for a private company to implement the Cigarette Tax Stamp Program within 45 days of the law's passage.

Following several months of DRT's failure to comply with the new law, one cigarette wholesaler - WSTCO - took GovGuam to court to force the implementation of the law. A month ago, Judge Dana Gutierrez ordered DRT, who was represented by the OAG, to implement the law and begin the procurement process by May 18.

The OAG had produced to Judge Gutierrez the procurement record showing the court DRT and OAG's compliance with her order and the start of the procurement process for the private entity to collect Guam's cigarette taxes. Sen. Perez simultaneously pushed her Bill No. 104 through the Legislature to stop the ongoing procurement from finishing. During the public hearing for the bill, the OAG did not indicate its support for Perez's proposal and said nothing as MidPac's competitors and even Congressman Michael San Nicolas spoke against the bill.

In her May 28 email to senators, Ms. Mendiola wrote "Through our work with the Tobacco Center we've discussed the RFP mandate under Public Law 35-129 and we've discovered that, of the 51 states and territories that use tax stamps, Guam may be the first to completely outsource the administration of the program."

While Mendiola told senators no other state or territory has completely outsourced their programs, she failed to mention that no other state or territory has allowed such a huge percentage of taxes to be evaded. Kandit asked the OAG whether it ever informed the MSA or the tobacco standing committee of its national organization about the MidPac tax liability and tax lien. The OAG has not responded to our inquiries as of news time.

The OAG was not in the dark about the MidPac liability, as it received a copy of then-Speaker BJ Cruz's letter to the United States Attorney and the FBI on July 26, 2018 asking that they investigate MidPac and anyone who may have been involved in any illegal activity:

"As the Speaker of the 34th Guam Legislature, I am writing to notify the U.S. Attorney’s Office and the Federal Bureau of Investigation of potential violations of federal and Guam law relating to the underreporting and non-payment of cigarette taxes by Mid Pac Distributors (“Mid Pac”), the distributor of Philip Morris branded cigarettes on Guam. The admitted failure of Mid Pac to report and pay over $14.5 million in local cigarette taxes in the past three years requires federal agencies to investigate the possibility of tax evasion and diversion of cigarette activities—cigarette smuggling—in violation of federal and Guam law spanning beyond the reported three (3) year period."

The following excerpt from that letter is of importance to Ms. Mendiola's emailed assertion to senators that her office "is responsible for implementation and enforcement of the MSA in Guam:"

"Guam is required to enforce local laws under the terms of the Master Settlement Agreement (the “MSA”), a settlement reached by participating tobacco manufactures and the States and Territories in 1998, which provides tobacco settlement payments to Guam. The MSA settlement payments secures the $40 million GEDA Tobacco Settlement Revenue Bond. Guam is required under the MSA to diligently enforce its laws as it relates to reporting and the collection of cigarette taxes."

If Guam is required to enforce these local laws under the 1998 MSA, and it is indeed the OAG that "is responsible for implementation and enforcement of the MSA in Guam," then why was a negotiated-down tax settlement allowed on three-years's worth of unpaid cigarette taxes? Why has the OAG never prosecuted those involved in these events? And why would the OAG support a bill, backed by the very company in question, that would keep GovGuam from abiding by its responsibility "for implementation and enforcement of the MSA in Guam?"

We have asked the Office of the Attorney General for answers to all these questions and more. We also asked one fundamental question - was Attorney General Leevin T. Camacho even made aware of his office's endorsement of the bill. We patiently await their reply.


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