FedEx Accused of Racketeering in Untaxed Cigarettes Suit

Federal Express Corp. (FDX) was accused by New York City of taking part in a racketeering conspiracy by shipping tons of untaxed cigarettes from a Long Island Indian reservation to city residents’ homes.

The city, in a complaint filed today in federal court in Manhattan, alleged FedEx transported about 19.5 tons of untaxed cigarettes from the Shinnecock Smoke Shop in Southampton, New York, to local consumers from December 2005 to January 2012. The bulk of the shipments followed a February 2006 agreement with New York’s attorney general to stop the deliveries, the city claimed.

“FedEx intended to, and did in fact, actively facilitate the contraband cigarette trafficking of Shinnecock Smoke Shop,” the city said.

New York City imposes a $15 excise tax on each carton of cigarettes, which generally pass through wholesalers who affix tax stamps, according to the complaint. By law, the tax must be incorporated into the price of the product, according to the complaint.

The city is seeking triple damages of $2.5 million under civil provisions of the Racketeer Influenced and Corrupt Organizations Act.

It’s also seeking a ruling that bars FedEx from making further deliveries of untaxed cigarettes in New York, a civil penalty of $49.5 million, and the appointment of an independent monitor to oversee FedEx’s compliance with the court order.

Angela Wheland, a spokeswoman for Memphis, Tennessee-based FedEx, didn’t have an immediate comment on the lawsuit.

The Shinnecock Indian Nation and other New York Indian tribes have claimed that their smoke shops aren’t subject to state and local taxes.

The case is New York v. FedEx Ground Package System Inc., 13-cv-9173, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Christie Smythe in Brooklyn at csmythe1@bloomberg.net

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