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Judge Finds UPS Liable for Shipments of Cigarettes

U.S. District Judge Katherine Forrest said UPS is liable for having illegally shipped hundreds of thousands of cartons of untaxed cigarettes in New York, depriving the state and New York City of millions of dollars of taxes. By Jeff Berman




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.

U.S. District Judge Katherine Forrest

“Many people within UPS consciously avoided the truth for years”Federal U.S. District Judge Katherine Forrest

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 Logistics Management, 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.” 

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Comments
2 Comments (displaying chronologically) Post a comment
Posted by pfship  on  03/28  at  11:59 AM

Funny how they name FedEx AND USPS and yet no settlement from them. While it’s conceivable that the sales reps knew what was going on, it is also conceivable that the post office knew what was going on. Seems that as a government entity participating for many years, it implies tacit approval by a government official.

And why isn’t the Indian Reservation paying the majority of this fine? They were the instigators of the tax avoidance scheme. UPS benefited only from transportation costs, which they likely would have received whether the cigs were taxed or not. The profiteer in this transaction was the reservation.

Posted by DOOLz  on  03/28  at  10:19 AM

New York govco wants to ensure their greedy money train doesn’t stop. If anyone is culpable of wrongdoing, it’s the amount of taxes collected by the state that is criminal.

About the author
Jeff Berman, Group News Editor
Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. Contact Jeff Berman







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