FedEx allegedly helped smuggle untaxed cigarettes in New York for more than a decade - and now it's paying $35.3 million in settlement fees

fedexMark Lennihan/AP

  • FedEx will pay $35.3 million in settlements to New York state and New York City.
  • Three lawsuits claimed FedEx has shipped hundreds of thousands of untaxed cigarettes to New York residents for over a decade. The settlement resolves those suits.
  • Under New York City law, cigarettes must cost at least $13 a pack. Untaxed packs can cost much less.

For more than a decade, FedEx shipped hundreds of thousands of untaxed cigarettes to residents of New York state and New York City, the New York State Attorney General claimed in a statement on Monday.

New York Attorney General Letitia James and City Corporation Counsel Zachary Carter said FedEx will pay $35.5 million in settlements to New York state and New York City. This payment resolves three separate lawsuits that alleged FedEx "partnered with cigarette trafficking businesses to illegally ship hundreds of thousands of untaxed cigarettes to New Yorkers."

The settlement also follows an October ruling from US District Judge Edgardo Ramos in Manhattan. Ramos ruled that the Memphis, Tennessee-based company had violated a federal anti-cigarette trafficking law and a 2006 agreement with New York state to not ship cigarettes to people's homes.

A spokesperson from the New York City Law Department told Business Insider that FedEx has sold untaxed cigarettes entirely through online stores, rather than physical locations. The spokesperson said the shipping behemoth is supposed to notify New York state when they found online cigarette shoppers, but didn't, and concealed all online selling activity from the state.

One such partnership was Cigarettes Direct To You, a website through which FedEx allegedly shipped untaxed cigarettes to residents, according to the attorney general's statement.

Along with the $35.3 million fee, the settlement requires FedEx to cease almost all domestic tobacco shipments, implement company-wide training and communications on tobacco shipments, and discipline employees who don't follow those rules. FedEx also must hire an independent counsel to monitor the corporation's compliance.

FedEx did not immediately return Business Insider's requests for comment.

Read more: Shipping boomed in 2018 - but transportation companies' stocks plunged this year

Under New York City law that went into effect last summer, cigarettes must cost at least $13 a pack - the highest in the US. They were previously $10.50. And untaxed packs can cost much less.

As a result of the cigarette tax, the number of smokers in New York City has "sharply declined," according to the AG's office.

"Not only did FedEx violate laws created to protect the public from the serious health risks associated with cigarettes, but they also swindled New York City and State out of millions of dollars in tax revenue," said James in a statement.

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