Monday, December 4, 2017

Buyer Beware



There is, on the internet, a very active secondary market in rare bourbons and other alcoholic beverages. People offer bottles for sale or indicate bottles they would like to buy. Transactions are arranged by email or other private messaging. This happens on Facebook and Craigslist, and probably many other places. I’m not going to point you to any of them. They aren’t hard to find.

Unfortunately, in the United States the secondary market in alcoholic beverages is illegal.

I’ve written about this before, as recently as October.

It is illegal to sell alcohol if you don’t have a license to sell alcohol. It is against Federal law and it is against state law in every state.

There has been some question, at least in my mind, as to whether, in a given transaction, both buyer and seller are in legal jeopardy. Clearly the seller is in violation, but is the buyer? I couldn’t point to a law that said the buyer was in trouble too.

Now I can.

At the Federal level, laws regulating alcoholic beverages can be found in Title 27 of the Code of Federal Regulations. I’ve spent a lot of time in the early parts of Title 27, Chapter I, Subchapter A, especially Part 5, which gets into the labeling and advertising of distilled spirits, but I never made it down to Part 31, which regulates alcohol beverage dealers. There we find a section (27 CFR 31.141) titled “Unlawful purchases of distilled spirits.” It says that it is “unlawful for any dealer to purchase distilled spirits for resale from any person other than” a licensed dealer.

You may be thinking, “what does that have to do with me? I’m not a dealer.” Well, the statute defines a ‘dealer’ as “any person who sells, or offers for sale, any distilled spirits, wines, or beer.” For virtually all secondary market participants, both parties to a transaction are 'dealers' under the law.

The maximum penalty for violations is a $1,000 fine and one year in prison.

It should be noted that shipping alcohol is also and separately illegal if you are unlicensed.

If you are a typical online player, you probably don’t think of yourself as a ‘dealer,’ but you are. I suppose that if you only buy to consume and never trade or resell, you could argue you’re not a dealer. There are lots of ways to parse these things. No doubt the comments section will shortly be filled with all kinds of pushback. The mental gymnastics secondary market participants use to rationalize their illegal behavior can be stunning. The only sound argument is that prosecutions are rare, so you probably won't get caught. But don’t kid yourself. You are breaking the law and the risk of life-changing consequences will always be there.

29 comments:

Anonymous said...

In Kentucky, it becomes a real free-for-all come January 1 when the "Vintage Law" takes effect. No license required.

Chuck Cowdery said...

In theory, but the KABC has yet to announce its rules for the program, and there will be rules.

Chuck Cowdery said...

And maybe a license.

Chuck Cowdery said...

And only licensed retailers can participate. Person to person sales will still be illegal.

mgmarks said...

Thank you Chuck. All those supporters of the secondary need to take heed of this. So good to see you posting to keep bourbon drinkers on the right track. I posted many times on bourbonr: "Don't support the secondary." And your post will add powerful emphasis. I'm with you all the way. I posted this blog post from you on bourbonr.

Anonymous said...

Seems pretty clear that if you don't sell or offer for sale, you're not a dealer. So, someone who just buys a bottle that isn't available to him/her, shouldn't be at risk.

Anonymous said...

Too much government. These laws are in place simply for the sake of taxes.

Mike D said...

great article Chuck! Thank You for posting this

Anonymous said...

If it is against Federal law for a non licensed person to sell alcohol, how can Kentucky's bill allowing sales from individuals to licensees be legal? How can a state (KY) supersede Federal law in this matter?

Jamie Ficor said...

What's your point? If the goal of this article (and the previous) is to scare people away from doing said act, I think you're gonna have to try a little harder. Treating the cause, not the symptom, You'll have better luck giving JVW3 a call and asking him to raise his MSRP ten-fold.

Anonymous said...

I was also the first comment. Yeah the language is now written, the original legislation was to go into effect on July 1st, 2017....had to be delayed for the writing of the exact language.

Chuck Cowdery said...

You're talking about the wording of the statute. I'm talking about the implementation rules, for which the KABC is responsible. Those have not been announced. KABC presumably will provide some kind of guidance before 1/1/18, but has yet to do so.

Anonymous said...

Quoting the language you provided: "It says that it is “unlawful for any dealer to purchase distilled spirits for resale from any person other than” a licensed dealer."

So if a person buys on the secondary market solely for their own personal consumption and does not engage in "resale" (or flip or trade) can we agree that buyer is not a "dealer"?

However we parse this language, we can examine enforcement history for clues on how the law is construed by those who enforce the laws. Can you provide any evidence that the federal law has been or will be construed in the way you suggest by any federal enforcement entity? For that matter, can you provide evidence that any state has construed their laws such that an in-state buyer who buys previously lawfully sold liquor (not untaxed moonshine) solely for personal consumption is exposed to criminal liability solely for having purchased the liquor from an unlicensed in-state seller? I'm assuming, here, that we are not discussing "dry" counties where mere possession of any beverage alcohol is unlawful.

Chuck Cowdery said...

These issues are addressed in the post. The law on the books is as I have stated. I also pointed out that there has been very little enforcement. No one at the state or federal level has made it a priority to prosecute secondary market participants, although there have been a few cases. If you ask any of the agencies, they will repeat what I have said. It is illegal to buy or sell alcohol without a license.

Chuck Cowdery said...

Many have characterized the offense here as 'like a speeding ticket' or 'like jaywalking.' That is factually incorrect. You can't be jailed, in most cases, for merely exceeding the posted speed or crossing the street in the wrong place. Those are offenses, but not crimes. You get a ticket and have to pay a fine. These alcohol violations are crimes, for which the penalty can include incarceration. Much more serious than jaywalking.

Chuck Cowdery said...

Persons of legal age may legally possess alcoholic beverages everywhere in the U.S., including 'dry' areas. 'Dry' just means sales are prohibited. There are no jurisdictions in the U.S. where "mere possession of any beverage alcohol is unlawful."

Anonymous said...

one can go to jail for speeding (reckless driving). Its a misdemeanor in most states...

Matt Snodgrass said...

In theory, state law cannot supercede federal law, but in practice there are always a variety of laws (and interpretations of laws) that do just that. If this state law is ever challenged in court it could be struck down, or rewritten, but until challenged it will probably just sit there on the books. Of course, it is possible that any rule that comes from the new statue could potentially be written to comply with federal and state law though that doesn't sound easy in this case.

Chuck Cowdery said...

And the Feds defer to the states on alcohol regulation more than they do on most other things.

Anonymous said...

maybe i missed this - where does this leave charities? i.e. I donate my bottle to charity and the charity has a bidding process on said bottle...

Chuck Cowdery said...

Nothing has changed and that certainly is widely done. I suppose it is technically illegal, but nobody is enforcing it. Charity fundraising gets a lot of leeway, with raffles for example, which are technically illegal 'games of chance,' i.e., illegal gambling. That exemption has, however, been codified in at least some states.

Galileo said...

mgmark, you must be a retail liquor store or distributor, correct?

Joseph Galia said...

There is absolutely 0 chance that a small time trader or flipper is going to be prosecuted. The government has real problems to deal with. My local UPS guys know I'm shipping beer/bourbon and don't care. You guys really want to have your government tell you what you what beverages you can and can't trade? That's ridiculous. I'd never buy a rare bottle online for fear of it being fake...but it has nothing to do with the stupid laws.

Joseph Galia said...

You're never going to get caught. I have shipped and received hundreds of boxes of beer and bourbon.the UPS guys know what I'm sending and don't care. Don't let your own government tell you what beverages you can and can't trade. No way in hell they prosecute a guy for sendin his buddy a box of booze. Bunch of worrywort softies on this thread

Galileo said...

Chuck, the very fact that you even wrote this blog makes me wonder whose water are you carrying? Why do you care if some Joe Blow that works down at the factory is buying a bottle of Four Roses online?

Chuck Cowdery said...

I don't care. I provide the information because many people don't seem to know the practice is illegal. What you do with that information is up to you.

Eric Z said...

I don't disagree that the practice is illegal under current law, my question for Chuck is do you agree with the law? To me it would make more sense just to carve out a small number of person to person sales without a license, similar to homebrewing or home wine making. Just a thought.

Chuck Cowdery said...

I favor secondary market legalization.

Anonymous said...

Let law enforcement crack down on second hand gun market, not alcohol sales, which do no comparable harm to anyone.