Report: U.S. District Judge finds UPS to be liable for shipments of cigarettes

Late last week, a United States district judge ruled that transportation and logistics bellwether UPS.

A Reuters report said that UPS “illegally shipped hundreds of thousands of cartons of untaxed cigarettes, depriving the state and New York City of Millions of dollars of taxes, with U.S. District Judge Katherine Forrest saying the state and the city are entitled to compensatory damages and fines.

And the judge added in the report that UPS’s high degree of culpability infers significant penalties are appropriate, saying that “"UPS largely relied on its size and weak internal procedures to excuse blatantly culpable conduct. But there were many, many people within UPS who consciously avoided the truth, for years."

While the city and state were looking to recoup more than $872 million from UPS, the report said Judge Forrest could determine the amount of the award by April.

In the court’s decision, UPS was accused of shipping more than 683,000 cartons of untaxed “contraband” cigarettes, going back to 2010, to unlicensed wholesalers, unlicensed retailers and residences, oftentimes from smoke shops on Indian reservations, said Reuters, which the plaintiffs said stands in violation of an October 2005 agreement UPS made with New York State not to ship cigarettes to unlicensed dealers and individual consumers. And UPS, said Reuters, was also accused of violating federal laws against racketeering and cigarette trafficking and New York’s public health law.

In comments provided to LM, UPS said that it is still evaluating the court’s lengthy decision.

“The Court has not yet issued a final ruling, and will do so only after the parties make further submissions,” UPS said. “We are pleased that the Court found that UPS's current tobacco compliance program is adequate, and declined to award plaintiffs the injunctive relief they sought or to appoint a monitor to oversee UPS's compliance program.”  

Jerry Hempstead, president of Hempstead Consulting, said that it is inconceivable that the UPS sales representatives that set these accounts up were totally unaware of what the shippers were up to.

“These are frequent shippers originating volumes of packages from Indian (native Americans) reservation,” he said. “The tobacco taxes don't apply to cigarettes sold on Indian reservations. The folks with access to these purchases set up web sites to peddle the less expensive cigarettes at a big discount. They then ship the orders via UPS, FedEx, USPS etc. So to get a good shipping rate one has to engage a sales rep. He has a financial incentive to onboard the shipper. At some point any intelligent rep figures out the scam. The carriers had already had a consent decree from being previously caught but some sales reps memories are short when it comes to making budget and earning a bonus.”