BUSINESS

UPS Illegally Shipped 136 Million Contraband Cigarettes In New York, Says New Lawsuit

02/18/2015 02:17 pm ET | Updated Feb 18, 2015
Justin Sullivan via Getty Images

A new multimillion-dollar federal lawsuit alleges that UPS unlawfully shipped almost 700,000 cartons of untaxed cigarettes in New York, undercutting anti-smoking efforts and depriving the state of millions of dollars in tax revenue.

The joint lawsuit, filed Wednesday by both the state and the city of New York, says the shipping giant made nearly 80,000 illicit shipments of cigarettes from unlicensed vendors on the state's Native American reservations to locations elsewhere in the state from 2010 to 2014.

"Our lawsuit alleges that UPS blatantly disregarded New York and federal tax and public health laws, by shipping tens of millions of cheap, untaxed cigarettes to New Yorkers," New York Attorney General Eric Schneiderman said in a statement Wednesday. "We contend that UPS cost this state millions in revenue and is helping to make illegal, low-cost cigarettes available to our young people, who are disproportionately lured to smoking by lower costs."

"To limit smoking, which remains the number one preventable public health crisis today, we must stop the flow of illegal cigarettes and enforce the law," he continued.

The lawsuit alleges that by making these illegal shipments, UPS deprived the city and the state of over $35 million in tax revenue.

Nearly half of the 136 million individual cigarettes allegedly shipped by UPS were to addresses in New York City, the suit says. A combination of state and local taxes can drive the legal price of a pack of cigarettes in New York City to over $13. Many city convenience stores, however, sell untaxed cigarettes -- usually obtained from out of state or from New York Native American reservations -- for about $8 a pack.

The suit also says UPS's own records show that 70 of its cigarette shipments were handed to a child. It's illegal to sell cigarettes to minors in New York.

"We allege that the entities that ship these cigarettes through UPS earn enormous profits by avoiding the payment of required taxes and that the fees collected by UPS to ship these untaxed cigarettes are paid out of these illegal profits," New York City Corporation Counsel Zachary Carter said in a statement Wednesday.

"Today's action is intended to take the profit out of this enterprise for UPS and to seek penalties sufficient to discourage other common carriers from facilitating the illegal sale and delivery of untaxed cigarettes," he continued.

The lawsuit -- which the attorney general's office said was based on documents subpoenaed from UPS -- is seeking damages and penalties totaling over $180 million. It says UPS violated a previous settlement the company made with the state in 2005 to cease all cigarette deliveries to unauthorized residences and unlicensed dealers.

"This case should not come as a surprise to UPS," Carter told reporters at a press conference Wednesday. "They have been on notice since 2003."

In a statement sent to The Huffington Post, UPS spokeswoman Susan Rosenberg said the company "denies allegations" in the lawsuit "that we have knowingly shipped cigarettes to consumers" and UPS "will vigorously defend our position."

"Since 2005, UPS has continued to work with regulators on this issue," Rosenberg continued. "In fact, UPS agreed to stop delivering cigarettes to consumers nationwide at that time -- a policy that went beyond the requirements of federal and state law. UPS tobacco policy strictly prohibits the shipment of cigarettes to consumers and unlicensed dealers or distributors, and we terminate service under that contract program if that policy is violated."

The lawsuit against UPS is similar to a joint $70 million lawsuit filed against FedEx last year.

Michael Seilback, vice president of public policy at the American Lung Association of the Northeast, applauded Schneiderman and Carter for pursuing litigation against the shipping companies.

"Price is a major issues in use of cigarettes," he told The Huffington Post on Wednesday.

With the high price of legal, taxed cigarettes, he said, "we're more likely to see kids never start to smoke, and it pushes adult smokers to say 'enough is enough,' and moves them toward quitting."

"Untaxed cigarettes directly counter our efforts to deal with cessation," Seilback continued. "By flooding the market with untaxed cigarettes, you're encouraging the use of the product."

Seilback added that he hoped the Food and Drug Administration would adopt a track and trace program to prevent companies like UPS and FedEx from shipping illegal cigarettes.

"From the moment the product comes off the conveyor belt, there would be a bar code," he said. "You'd know when the product is being pulled into this untaxed market."

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