Fedex Settles With New York City Over Illegal Shipments of Cigarettes

The New York City Attorney General’s office announced a $35.3 million settlement with FedEx to resolve claims over illegal cigarette deliveries to residents throughout New York City and State made by FedEx over a ten-year period. 

The settlement resolves three lawsuits against FedEx alleging that it partnered with cigarette trafficking businesses to illegally ship hundreds of thousands of untaxed cigarettes to New Yorkers. In addition to the payment, FedEx will implement internal reforms and hire an independent consultant that will oversee FedEx’s compliance with the law and provide compliance reports to the City and State. 

The settlement follows the October 2018 ruling by federal district judge for the Southern District of New York finding 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 New York Attorney General’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 evidence is clear that cigarette taxes are the most effective means of deterring smoking. As New York has increased the tax rate on cigarettes, the number of smokers in New York has sharply declined. 

According to the World Health Organization, maintaining high taxes on cigarettes is the most effective anti-smoking policy intervention, particularly among youth. By enabling cigarette traffickers to sell and ship untaxed cigarettes to New Yorkers, FedEx caused damages to New York State and City in lost tax revenue. In addition to the monetary tax loss, FedEx’s conduct frustrated the public health purpose underlying such taxes – to reduce cigarette smoking. 

Under the terms of the settlement, FedEx agreed to implement reforms to ensure compliance with various laws. FedEx agreed to: Cease domestic shipments of tobacco products, including cigarettes, and Implement company-wide communications and annual training concerning tobacco shipments, including mandatory notices by employees to company officials if tobacco shipments are discovered; and take disciplinary action against any employee or contractor who knowingly facilitates tobacco shipments. ■

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