For more than a decade, FedEx shipped hundreds of thousands of untaxed cigarettes to residents of New York state and New York City, the New York State Attorney General claimed in a statement on Monday.
New York Attorney General Letitia James and City Corporation Counsel Zachary Carter said FedEx will pay $35.5 million in settlements to New York state and New York City. A FedEx spokesperson said in a statement to Business Insider that the company has obtained “a full release of claims against any FedEx entity” through the settlement.
This payment resolves three separate lawsuits that alleged FedEx “partnered with cigarette trafficking businesses to illegally ship hundreds of thousands of untaxed cigarettes to New Yorkers,” according to the AG statement.
The settlement follows an October ruling from US District Judge Edgardo Ramos in Manhattan. Ramos ruled that the Memphis, Tennessee-based company had violated a federal anti-cigarette trafficking law and a 2006 agreement with New York state to not ship cigarettes to people’s homes.
A spokesperson from the New York City Law Department told Business Insider that FedEx has sold untaxed cigarettes entirely through online stores, rather than physical locations. The spokesperson said the shipping behemoth is supposed to notify New York state when they found online cigarette shoppers, but didn’t, and concealed all online selling activity from the state.
“We remain committed to complying with the law and to cooperating with federal and state law enforcement agencies as appropriate,” the FedEx spokesperson said in a statement. “By tendering shipments to FedEx, our customers warrant that their shipments do not violate our stated terms and conditions.”
FedEx said in the statement that the company had already prohibited moving tobacco products. Further, FedEx said it repeatedly asked New York City and State about which shippers were violating their terms so that FedEx could quickly discontinue working with them, but “both the Attorney General and the City generally refused to do so.”
“On the few occasions that this information was shared with FedEx, evidence in the litigation confirmed that cooperation to be highly effective,” the FedEx spokesperson said.
One FedEx partnership was Cigarettes Direct To You, a website through which FedEx allegedly shipped untaxed cigarettes to residents, according to the attorney general’s statement.
Along with the $35.3 million fee, the settlement requires FedEx to cease almost all domestic tobacco shipments, implement company-wide training and communications on tobacco shipments, and discipline employees who don’t follow those rules. FedEx also must hire an independent counsel to monitor the corporation’s compliance.
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Under New York City law that went into effect last summer, cigarettes must cost at least $13 a pack— the highest in the US. They were previously $10.50. And untaxed packs can cost much less.
As a result of the cigarette tax, the number of smokers in New York City has “sharply declined,” according to the AG’s office.
“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,” said James in a statement.
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