FedEx Corp. (FDX) faces money-laundering charges in a drug-trafficking case brought by the U.S. last month over shipping of prescription painkillers and other controlled substances for illegal Internet pharmacies.
The allegations of a conspiracy to launder money were included in a revised indictment against the company filed today in federal court in San Francisco. FedEx and individuals who ran the illicit pharmacies “knowingly and intentionally” schemed to launder more than $630,000 in shipping payments that were derived from drug sales, federal prosecutors said in the indictment.
The government has said that FedEx and its co-conspirators could face a fine of twice the gains from the conduct, alleged to be at least $820 million.
As part of a crackdown on prescription drug abuse, United Parcel Service Inc. (UPS) agreed last year to forfeit $40 million in payments from illicit online pharmacies under a non-prosecution agreement with the U.S. Justice Department. Walgreen Co. (WAG) and CVS Caremark Corp. (CVS) have paid a total of more than $150 million in civil fines over claims they sold medications knowing they weren’t for legitimate medical use.
FedEx, operator of the world’s largest cargo airline, last month pleaded not guilty to the federal charges, saying it can’t be responsible for the contents of the 10 million packages it transports daily and that policing customers would violate their privacy.
“FedEx is innocent of these and all of the charges filed in this matter,” Patrick Fitzgerald, senior vice president for marketing at Memphis, Tennessee-based FedEx, said today in an e-mail. “We will plead not guilty. We will continue to defend against this attack on the integrity of FedEx. We continue to ask for a list of all Internet pharmacies engaging in illegal activity so we can turn off shipping for those companies immediately. We have asked for a list, and they have sent us indictments.”
The U.S. alleges that FedEx delivered drugs to Internet pharmacies that supplied pills to customers who filled out online questionnaires and were never examined by doctors -- knowing these practices violated federal and state drug laws, the government alleged.
The company knew it was delivering drugs to dealers and addicts, with couriers in Kentucky, Tennessee and Virginia expressing concerns circulated to senior managers that FedEx trucks were stopped on the road by online pharmacy customers demanding packages of pills, according to the indictment. Some delivery addresses were parking lots or vacant homes, prosecutors said.
FedEx said last year that an indictment or prosecution would threaten a basic tenet of its shipping business -- not opening packages. Revenue from online pharmaceutical shipments is a small percentage of total sales, the company previously said. FedEx reported $44.3 billion in revenue for fiscal 2013.
The company said in a Feb. 18 regulatory filing that a conviction could be “material.”
Under the U.S. Controlled Substances Act, a shipping or freight company is allowed to possess and transport drugs “in the lawful and usual course of its business” without registering with drug enforcement authorities. The law regulates the manufacture and distribution of narcotics and certain other drugs and chemicals used in the illegal production of controlled substances.
Consumers are turning to online pharmacies because of the convenience and privacy of purchasing medicines there, and as insurance companies encourage home delivery for long-term medications, according to the U.S. Food and Drug Administration website.
FedEx fell as much as 1.4 percent on today’s news and closed at $148.72 in New York trading.
The case is U.S. v. FedEx Corp., 14-cr-00380, U.S. District Court, Northern District of California (San Francisco).
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