Judge Finds UPS Liable for Shipments of Cigarettes

As reported by Supply Chain 24/7
Tuesday March 28, 2017

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.

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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Ken Wood is the founder of LJM Consultants. LJM helps clients negotiate “Best in Class” UPS/FedEx agreements. LJM was recently named the “best parcel auditing company in America” and was also inducted into Inc. Magazine’s Top 500/5000 fastest growing companies in America for 2013. To learn how LJM Consultants can help your company get the parcel contract you deserve, call 631-844-9500 or email kenwood@myLJM.com.