The Rum Wars

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Captain Morgan, one of the largest rum brands in the world, operates a mega-distillery in St. Croix, in the U.S. Virgin Islands. And this distillery is at the heart of a years-long billion-dollar conflict known as The Rum Wars. James Sneed/NPR hide caption

Captain Morgan, one of the largest rum brands in the world, operates a mega-distillery in St. Croix, in the U.S. Virgin Islands. And this distillery is at the heart of a years-long billion-dollar conflict known as The Rum Wars.

When you buy a bottle of rum in the United States, by law nearly all the federal taxes on that rum must be sent to Puerto Rico and the U.S. Virgin Islands. It's an unusual system that Congress designed decades ago to help fund these two U.S. territories. In 2021 alone, these rum tax payments added up to more than $700 million.

Puerto Rico and the Virgin Islands split the money according to how much rum each territory produces. And the territories produce a lot of it — especially Puerto Rico, which single handedly supplies the majority of the rum that Americans drink.

But in 2008, the U.S. Virgin Islands pulled off a coup. It convinced one of the largest rum brands in the world, Captain Morgan, to abandon Puerto Rico and to shift its operations to the tiny island of St. Croix.

This was the beginning of the Rum Wars.

Planet Money Episode 826: The Vodka Proof

On today's show, the story of how a scheme designed to help Puerto Rico and the U.S. Virgin Islands turned them into bitter rivals. And how it ended up putting hundreds of millions of dollars a year — U.S. taxpayer dollars — into the pockets of big liquor companies instead.

This episode was hosted by Jeff Guo and Sarah Gonzalez. It was produced by James Sneed with help from Sam Yellowhorse Kesler. It was edited by Molly Messick, engineered by Cena Loffredo, and fact checked by Sierra Juarez. Alex Goldmark is Planet Money's executive producer.

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Music: "Roberto's Song," "Future Afrobeat," "Walk That Talk," and "Call Me Yours."

Correction March 15, 2024

A previous version of this story incorrectly said that Diageo owned Jose Cuervo and Dom Pérignon. In fact, Diageo had distribution rights to Jose Cuervo and has partial ownership of Dom Pérignon.