UPS hit with $247M in penalties for shipping untaxed cigarettes

A federal judge who found UPS guilty back in March of illegally shipping cigarettes on Thursday ordered the package delivery giant to pay $247 million in damages and penalties to New York state and New York City.

“The court is convinced that modest penalties would not make a sufficient corporate impact on UPS as a whole,” Judge Katherine B. Forrest of Federal District Court in Manhattan, wrote in the decision.

UPS and the state had reached agreement on the shipping of illegal cigarettes back in 2005, according to the New York Times. The state alleged that UPS has been shipping untaxed cigarettes to Indian reservations, unlicensed dealers and individual consumers, the Times said, in violation of the 2005 agreement.

Shipping and delivering untaxed cigarettes is illegal under the federal Contraband Cigarette Trafficking Act (CCTA), the federal Prevent All Cigarette Trafficking Act (PACT), federal racketeering statutes, and New York state laws.

In March, Forrest agreed and criticized the company for creating a culture that encouraged such practices. Yesterday, the judge said that UPS officials showed “lack of acceptance of responsibility for their actions at issue in this case,” leading to the large award.

“The court’s monetary award is excessive and far out of the bounds of constitutional limits, particularly given that the shipments at issue generated around $1 million in revenue,” Susan Rosenberg, director of public relations at UPS, said in an interview with the Times.

UPS is not the first carrier to run afoul of New York’s laws on untaxed cigarettes.

In 2013, Ohio-based R + L Carriers reached a settlement with the state to avoid prosecution of shipping illegal cigarettes into the state. According to the state, R + L was discovered to have hauled two truckloads of untaxed cigarettes into St. Lawrence County in early 2012.

“The investigation revealed that an out-of-state company had been making massive shipments of untaxed cigarettes to various locations in New York State, and that many of the shipments were made through R + L Carriers of Wilmington, OH,” the attorneys said at the time.

There was no admission of guilt on R + L’s part through the terms of the settlement.

Later in 2013, another company, LaserShip, was charged with the same offenses. In that case, New York attorneys alleged LaserShip had joined a broader delivery network that was avoiding the requirements of the PACT Act. That network was broken up in May of 2013. State authorities alleged that Buffalo, NY-based logistics firm Regional Integrated Logistics had been shipping untaxed cigarettes nationwide. New York claimed that LaserShip joined the network in 2011 and shipped approximately 75,000 cartons of cigarettes into New York City prior to May 2013.