During late March 2022, USDA’s Food and Nutrition Service (FNS) did something truly shocking: it rescinded hundreds of charge letters and disqualification determinations against SNAP-authorized grocers and convenience stores. This is truly unprecedented action for an agency that is rarely reverses administrative actions, even when its decisions have inequitable and/or discriminatory impacts. While FNS should be applauded for its actions, the agency should not get a free pass for the immense harm that its enforcement efforts have caused to the thousands of SNAP retailers caught in an enforcement scheme that is tantamount to entrapment.
Review of FNS’s anti-fraud efforts is important to understanding how the agency ended up here. Pursuant to delegations from Congress and the Secretary of the Department of Agriculture, FNS is authorized to administer the Supplemental Nutrition Assistance Program (SNAP). Formerly known as the food stamp program, SNAP provides supplemental nutrition benefits to more than 42 million Americans. While states have authority to authorize SNAP beneficiaries, FNS retained exclusive authority to administer the authorization of SNAP retailers. The agency aggressively enforces violations of the Food and Nutrition Act of 2008 and FNS’s SNAP regulations committed by SNAP retailers. Historically, FNS has typically done so in two primary ways: (1) through undercover investigations of SNAP retailers involving the exchange of SNAP benefits for cash; and (2) pursuant to its Anti-Fraud Locator using EBT Retailer Transactions (ALERT) system. FNS uses the ALERT system to review all SNAP transactions and flags what the agency describes as “patterns of suspicious transactions.”
During 2018, FNS started charging smaller retailers with a new type of SNAP trafficking. Sometimes described as “reverse” or “indirect” trafficking, this scheme involved having an undercover FNS investigator enter SNAP-authorized stores and telling clerks that they could sell them Red Bull or other items at a discount. Store clerks would purchase those items for their personal use, using their own funds. Even though FNS did not have evidence that stores ever sold the items purchased by clerks or advise notwithstanding having knowledge of their employees’ interactions with undercover investigators, FNS would charge the store with trafficking in SNAP benefits. The penalty for engaging in trafficking is permanent disqualification from the program. In more than 90% of these types of administrative cases, FNS permanently disqualified the retailer from SNAP.
Last spring, FNS stepped up its reverse/indirect trafficking efforts. During late April and early May 2021, the agency charged more than 80 Memphis-area retailers with trafficking based on this scheme. Shockingly, most (if not all) of those retailers were immigrants from the Middle East and practiced the Muslim faith. Not surprisingly, FNS permanently disqualified nearly all of those retailers. Last summer, FNS quietly rescinded many of those charge letters and permanent disqualifications. While the agency has refused to disclose why it did so, it appears that one or more of FNS’s undercover investigators (who are contractors, not federal employees) were making false or inaccurate representations that led the agency to charge those retailers with trafficking.
During Fall 2020, I filed a complaint with FNS’s Civil Rights Division (CRD) on behalf of immigrant and Muslim retailers who sustained discriminatory impacts as a result of the agency’s actions. While CRD refuses to disclose what actions, if any, it has taken as a result of the complaint OFW filed, a broad investigation was apparently started. While it is also not known whether the agency’s recent rescissions of reverse/indirect trafficking Charge Letters and Permanent Disqualification Determinations was the result of OFW’s complaint, it appears that FNS has rescinded all pending charge letter proceedings of that variety, including all active administrative review proceedings that followed the permanent disqualification of retailers charged with indirect or reverse trafficking in SNAP benefits.
Unfortunately, FNS has not taken any action to address the many permanently disqualified retailers whose cases are closed. While all retailers caught in FNS’s reverse/indirect trafficking web have sustained harm, those with closed cases have suffered the most. This is indisputable because those retailers have permanently lost their SNAP authorizations and are not currently accepting SNAP benefits. Unlike those retailers whose cases were at the charge letter stage (and who still have their SNAP authorizations), those retailers with closed cases are no longer able to redeem SNAP benefits. In many cases, this has been the status quo for several years and a substantial percentage have already been forced to sell their businesses and/or close their doors. For stores located in food deserts, FNS’s actions have caused immense harm to the people they are charged with helping: SNAP beneficiaries.
Will FNS rescind the determinations in closed cases and, if so, when? Without question, FNS must do so immediately. Each day that passes is another day of lost revenues and profits for those retailers. Failure to do so is arbitrary and capricious and will likely lead to a class action complaint being filed against the agency in the near future. Additionally, FNS should provide compensation to all affected retailers. Those stores that have been permanently disqualified have sustained thousands of dollars in lost SNAP revenues. Additionally, many stores have incurred attorney’s fees and costs associated with responding to FNS’s improper charges. The agency should promptly admit wrongdoing and swiftly take action to make all affected SNAP retailers whole, including by paying them an amount equivalent to their lost SNAP receipts and related expenses. If FNS fails to provide compensation to adversely impacted SNAP retailers, Congress should order the agency to set up a claims process and, if necessary, appropriate sufficient funds.
Although FNS’s administrative actions to reverse its wrongdoing is a step in the right direction, it is time for Congress to overhaul the agency’s entire SNAP retailer administrative process. In the next Farm Bill, FNS should be directed to institute a system that is fair and equitable to SNAP retailers. The agency should be required to provide all records and other evidence that agency officials will review or rely upon to make determinations to retailers and their counsel; currently, FNS makes determinations based on records and other information never given to retailers or their counsel during administrative proceedings. No other USDA agency operates this way. Additionally, FNS should utilize Administrative Law Judges and convene evidentiary hearings when adverse decisions are administratively appealed. The agency should also provide impacted retailers with the right to engage in discovery and to cross-examine agency officials. Failing to do so will permit FNS to continue operating its administrative process in a manner that has been described as Kafka-esque and akin to a Star Chamber.
SNAP retailers should be hopeful than change might be on the horizon. Hearings related to the 2023 Farm Bill have recently commenced. USDA’s Office of Inspector General (OIG) has also received several recent complaints filed by OFW relating to FNS’s SNAP retailer administrative process. USDA’s newly formed Equity Commission has also received correspondence from OFW that requesting an investigation of the discriminatory impacts that FNS’s decisions in SNAP retailer proceedings have had on Muslim and immigrant store owners. Between Congress, OIG, CRD, and USDA’s Equity Commission, hopefully one or more of these entities will take a hard look at what FNS has been up to and embark on long-needed reforms.