UPS Ordered To Pay $247 Million To New York For Illegal Shipping Of Cigarettes

via Flickr user weenieart
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via Flickr user weenieart

UPS must shell out $247 million to New York City and New York State for "illegally shipping" hundreds of thousands of untaxed cartons of cigarettes, a federal judge ruled on Thursday. Of that sum, $165 million will go to the state and $81 million will go to the city.

In the ruling, District Judge Katherine Forrest noted that the illicit shipments had deprived New York of millions in taxes, adding that "modest penalties" would not make a "sufficient corporate impact" on UPS. In March, the judge found that UPS had a "high degree of culpability" in shipping hundreds of thousands of cigarettes to New York.

A spokesperson for UPS said that they were "extremely disappointed in the court's ruling."

"New York's action sought to force UPS to serve in a quasi-law enforcement role which involved monitoring, inspecting and reporting package contents, which is not appropriate for a common carrier," the spokesperson said. "UPS cannot be held to contractual obligations to which it never agreed."

The ruling stems from a 2015 joint lawsuit, filed by Attorney General Eric Schneiderman and city Corporation Counsel Zachary Carter, alleging that UPS "turned a blind eye" to these illicit shipments. The suit accused the company of illegally shipping nearly 700,000 cartons of cigarettes between 2010 and 2014, costing the city over $35 million in tax revenue.

A year prior to that lawsuit, the state created a "Cigarette Strike Force" to cut down on smoke smuggling. At the time, a study by the Tax Foundation found that 57 percent of cigarettes smoked in New York came to the state illegally. The study also found that some enforcement authorities "turn a blind eye" to the illegal shipments.

According to the UPS spokesperson, "the shipments at issue generated around $1 million in revenue." The spokesperson added that the company plans on "vigorously appealing" the ruling, and is confident that the Second Circuit Court of Appeals will reverse the decision.

Last month, Mayor de Blasio announced a series of measures that would, among other restrictions, raise the base price of cigarettes to $13 a pack—the highest rate of anywhere in the nation.

In a statement, Attorney General Schneiderman said the award marks a win for New Yorkers and a win for public health.

"We are pleased that the award of nearly $247 million to the city and state reflects the serious nature of the offenses at issue," added City Corporation Counsel Zachary Carter. "Cigarette smoking is a leading cause of preventable death and the city and the state will continue in their efforts to protect the public health."

The city and state currently have a similar lawsuit currently pending with FedEx.

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