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The New York Attorney General’s Office and city Law Department announced a $35.3 million settlement with FedEx Ground Package System, Inc. that resolves three lawsuits alleging FedEx teamed up with cigarette trafficking businesses to ship hundreds of thousands of untaxed cigarettes to New Yorkers.
“For years, FedEx knowingly engaged in illegal and harmful behavior at the expense of New Yorkers’ health,” Attorney General Letitia James said in the statement. “Not only did FedEx violate laws created to protect the public from the serious health risks associated with cigarettes, but they also swindled New York City and state out of millions of dollars in tax revenue.”
“For the worst of reasons—profit—FedEx shipped millions of untaxed cigarettes to residents throughout the state,” City corporation counsel Zachary Carter said.
FedEx on Monday did not respond to a request for comment.
In their joint statement, the AG’s Office and city Law Department said that the settlement recovers “substantially more” than the amount of lost state and city taxes and that those additional amounts represent “in large part, a penalty.”
“FedEx was previously investigated for this same conduct, the conduct was longstanding and pervasive throughout the company, and the conduct had the potential to negatively impact public health,” the offices said in naming some factors, among others, that led to what they called a penalty.
The exact amount of lost taxes was not stated.
The offices—which for years jointly investigated and prosecuted the matter—said that the illegal shipping lasted for some 10 years, and they noted that “the evidence is clear that cigarette taxes are the most effective means of deterring smoking.”
“FedEx’s conduct frustrated the public health purpose underlying such taxes—to reduce cigarette smoking,” they said.
The settlement resolves three federal lawsuits, all filed between 2013 and 2017 in the Southern District of New York, according to a separate email from Law Department spokesman Nicholas Paolucci.
Paolucci added that the three suits put forward essentially the same illegal shipping allegations, but addressed cigarette shipments for different FedEx customers. One suit named FedEx Freight as well as FedEx Ground, he said.
In the joint statement, the AG’s Office and Law Department also said that settlement comes after an important October 2018 ruling by U.S. District Court Judge Edgardo Ramos of the Southern District of New York.
Ramos found that “FedEx’s conduct over many years for customers with such names as 'Cigarettes Direct To You' established without the need for a trial that FedEx had knowingly violated a federal anti-cigarette trafficking statute and a 2006 Assurance of Compliance with the AG’s Office in which, to avoid prosecution, FedEx expressly agreed to cease residential cigarette deliveries and comply with a New York law prohibiting those deliveries,” the offices said in their statement.