New York sues UPS for allegedly shipping untaxed cigarettes

New York sues UPS for allegedly shipping untaxed cigarettes
UPS was sued by New York city and state for delivering untaxed cigarette (David Goldman / AP)

The city and the state of New York sued United Parcel Service Inc., alleging the shipping giant delivered 683,000 cartons of untaxed cigarettes into the state and fueled a contraband market that cheated state and local tax coffers and threatened the public's health.

The suit highlights the legal perils shippers continue to face in delivering regulated products such as tobacco even though they have beefed up compliance policies. Both UPS and rival FedEx Corp., for instance, previously had put in place policies to stop knowingly shipping tobacco products directly to consumers.


The suit, filed Wednesday in U.S. District Court in Manhattan, alleged that UPS sent the cigarettes in more than 78,500 shipments from 2010 to 2014 and that the state and the city lost a combined $34.4 million in taxes.

Many of the shipments were made to unlicensed vendors on state Indian reservations, and about 70 shipments were delivered to minors, according to UPS's own records, said New York Atty. Gen. Eric T. Schneiderman. The suit seeks damages and penalties of more than $180 million.

"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," Schneiderman said.

The suit, joined in by New York City Corporation Counsel Zachary W. Carter, said the shipments violated a 2005 settlement in which UPS agreed to end cigarette deliveries to unauthorized recipients.

Susan Rosenberg, a spokeswoman for the Atlanta-area shipping firm, said UPS denied that it "knowingly shipped cigarettes to consumers." She said the company will "vigorously defend our position."

UPS has worked with regulators on the issue since 2005, she said. The decision to halt all deliveries of cigarettes nationwide, she said, was "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," Rosenberg said, "and we terminate service under that contract program if that policy is violated."

The suit against UPS follows similar action filed by both city and state officials last year against UPS rival FedEx, based in Memphis, Tenn.

That suit alleged that FedEx made nearly 33,000 illegal shipments of more than 400,000 cartons of cigarettes to New York state consumers from 2006 to 2012, resulting in a loss of more than $10 million in state tax receipts. The FedEx suit, which is pending, seeks a total of $235 million in damages and penalties.

The shipments were illegal under the 1978 federal Contraband Cigarettes Trafficking Act and the 2010 Prevent All Cigarette Trafficking Act, as well as New York tax and public health laws, the attorney general's office said.

In both the UPS and FedEx cases, the state alleged that the multiple shipments constituted "a pattern of racketeering activity," a charge that allows the state to seek higher penalties.

Twitter: @deanstarkman