NY authorities say UPS knowingly shipped untaxed cigarettes

AP News
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Posted: Jun 07, 2016 1:32 PM

NEW YORK (AP) — Authorities said Tuesday they have proof UPS knowingly shipped about 700,000 cartons of untaxed cigarettes from Native American reservations to consumers and smoke shops from 2010 to 2014, even though they had agreed more than a decade ago to stop.

New York's attorney general and New York City's law department sued the Atlanta-based shipping giant in 2014, alleging that it ignored clear indications that some of its clients were shipping cigarettes and should have done more to stop the shipments. The city and state allege in their $180 million federal lawsuit that cheap cigarettes increased smoking by New Yorkers while costing $29.7 million in lost tax revenue.

The suit also alleges that UPS dishonored a 2005 agreement with the state that it wouldn't deliver cigarettes to consumers who purchased them online and violated an array of federal statutes, including the Contraband Cigarette Trafficking Act.

UPS has denied the allegations. Attorneys for the company asked a federal judge to dismiss the suit, but U.S. District Court Judge Katherine Forrest said after a hearing Tuesday in Manhattan that she believed there were issues that should be decided at trial and ruled that the case could continue.

"UPS policymakers have turned a blind eye to shipments of contraband cigarettes," said John Oleske, senior enforcement counsel for the state attorney general's office. "As long as these shippers would say they were shipping cigars and not cigarettes, UPS would not audit them. UPS just ignored the warning signs."

UPS spokeswoman Susan Rosenberg said the company "has a comprehensive tobacco contract program that enforces compliance by tobacco shippers, and we will terminate service when it appears that a shipper is violating UPS policy." She said the company complied with its legal obligations and would continue to vigorously defend itself.

But authorities charge that the company didn't go far enough to stop the shipments, that workers should have known some of the packages contained cigarettes because they were being shipped from smoke shops and that it would have been simple to just open boxes they suspected contained prohibited items. Oleske said records show some of the shippers made claims to UPS that their boxes of cigarettes were lost or damaged.

Mark McPherson, an attorney representing UPS, said in court Tuesday that there was "simply a disconnect" when the company didn't immediately terminate the accounts of shippers who reported cigarettes in their claims. He said that issue has since been rectified.

A businessman whose company made and sold cigarettes on the Akwesasne Reservation of the St. Regis-Mohawk Tribe in Hogansburg said he specifically told a UPS account executive who was visiting his business that they were shipping cigarettes, according to court documents.

"I don't want to hear that," the UPS employee said before opening the account anyway, court papers said.

Another employee at a mail-order cigarette business located on the Seneca Nation of Indians, near Buffalo, said in court papers that UPS shipped all their cigarette orders — without tax stamps — from 2012 until their account was closed in 2014.

Authorities said UPS also shipped cigarettes from a wholesaler on the Seneca Nation to smoke shops on the Poospatuck Reservation on Long Island.

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Follow Michael Balsamo on Twitter at http://twitter.com/MikeBalsamo1.