NY Attorney General Goes After FedEx For Untaxed Cigarette Deliveries

Monday, 31 Mar 2014 12:59 PM

By Melissa Clyne

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FedEx delivered some 80 million bootlegged cigarettes in New York state between 2006 and 2012, and the Big Apple’s attorney general is seeking $70 million in compensation for the alleged violations of state and federal laws, according to a news release from Attorney General Eric T. Schneiderman’s office.

The state of New York joins New York City in a federal racketeering case accusing FedEx of defying a 2006 agreement that the global courier delivery service would stop shipping untaxed cigarettes to consumers, Bloomberg Businessweek reports.

Subpoenaed documents from FedEx, as well as an investigation by Schneiderman’s office, allegedly show that FedEx delivered more than 400,000 cartons of untaxed cigarettes to New Yorkers from cigarette vendors in Kentucky, California, and the Shinnecock Reservation in Long Island, the news release states.

The Shinnecock Indian Nation has taken the position that its smoke shops aren’t subject to state and local cigarette taxes, according to Businessweek.

New York law prohibits direct shipments of cigarettes to consumers in the state, while federal law prohibits shipments of 10,000 or more untaxed cigarettes in a jurisdiction where such taxes are required by state or local law, according to the Attorney General’s Office.

The lawsuit accuses FedEx, based in Memphis, Tenn., of racketeering with cigarette retailers. By doing so, New York can seek $35 million in damages under the federal Racketeer Influence and Corrupt Organizations Act, known as the RICO act, in addition to the tax loss. And the 2006 agreement states that that FedEx must pay a stipulated penalty of $1,000 per violation, amounting to about $34 million, according to the news release.

"FedEx’s blatant disregard for its long-standing agreement with New York, as well as federal and state law, enabled tens of millions of cheap, untaxed cigarettes to be shipped to New Yorkers," Schneiderman said. "Not only has FedEx cheated the state out of millions in tax dollars — but many of these cigarettes may have ended up in the hands of teenagers, who are particularly vulnerable to low-priced cigarettes. Illness and death caused by cigarette smoking is the No. 1 preventable public health epidemic of our day. If we can make cheap cigarettes less widely available, we can discourage young people from smoking and limit this public health disaster."

On March 19, FedEx posted its third quarter results, showing $11.3 billion of revenue (up 3 percent from the previous year) and a net income of $378 million, a gain of 5 percent from last year. The company has not issued a statement about the lawsuit.

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