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The New York Attorney General ("NYAG") originally filed a complaint against Fed Ex in December, and on Sunday, filed an amended complaint against the shipping giant. The controversy surrounds FedEx's alleged untaxed shipments of cigarettes, that according to the NYAG, results in a "'direct tax loss' of more than $10 million, reports InsideCounsel.
In the complaint, the NYAG alleges that FedEx shipped over 140 tons of contraband, untaxed cigarettes between 2005 and 2012. The complaint states nine claims for relief under federal, and state laws, including violations of: (1) trafficking in contraband cigarettes; (2) RICO; (3) conspiracy under RICO; (4) failure to label cigarettes; (5) unlawful of shipment of cigarettes; (7) public nuisance; and (8) violation of the assurance of compliance. In addition, the NYAG is seeking injunctive relief, the appointment of a compliance monitor, and nearly $76 million in damages and $163,435,000 in penalties.
In a press release, NYAG Schneiderman stated, "FedEx's blatant disregard for its long-standing agreement with New York, as well as federal and state law, enabled tens of millions of cheap, untaxed cigarettes to be shipped to New Yorkers." FedEx officials have not yet responded to the amended complaint, but back in December when the original complaint was filed, a spokesperson said the company "prohibits the shipment of direct to consumers and believes the claims made by the city are overstated and not founded in law," reports InsideCounsel.
Lessons from Fed Ex
This case is a prime example of why compliance is such an important issue for in-house counsel. In 2006, Fed Ex entered into an agreement with the New York Attorney General to stop the illegal residential deliveries of cigarettes. Had Fed Ex's compliance team been more diligent, they would not be getting sued for and exorbitant amount of money. On the flip side, perhaps Fed Ex's compliance team is on top of monitoring these shipments, and they have the evidence to back it up. Right now, it's too early to tell, we'll have to wait for their answer, and discovery -- if it even gets that far.