By adding money laundering to the charges against FedEx Corp. (FDX), federal prosecutors are trying to force the package-shipping company to settle its drug-trafficking case, attorneys and analysts said.
“This looks like it’s a matter of ratcheting up the pressure,” said Larry Cote, an attorney at Quarles & Brady LLP in Washington and former associate counsel with the U.S. Drug Enforcement Administration. “It’s like charging someone with murder and then adding an underlying weapons charge.”
Allegations of conspiring to launder money were added Aug. 15 to July conspiracy and drug-trafficking charges that alleged FedEx delivered drugs for online pharmacies, supplying pills to customers who were never examined by doctors, while knowing the actions violated federal and state drug laws. FedEx says it’s innocent of all counts and will fight the case in court.
The new charges, along with the amount of money and time involved to rebut the accusations and on public relations efforts might make a settlement without an admission of guilt the best course, said Kevin Sterling, a BB&T Capital Markets analyst in Richmond, Virginia.
“They’re trying to throw the book at FedEx,” Sterling said in an interview. “The government is pushing it and, unfortunately, probably the best course of action, the quietest course, is to settle. They’re trying to make life as miserable as possible for FedEx.”
Lillian ArauzHaase, a spokeswoman for U.S. Attorney Melinda Haag in San Francisco, didn’t respond to a voicemail message seeking comment on the new charges.
FedEx “cannot estimate the amount or range of loss, if any,” from a conviction, the company said in a July 17 regulatory filing. “However, it is reasonably possible that it could be material.”
FedEx Chief Executive Officer and founder Fred Smith “can keep fighting it, but there’s also a cost to that,” Sterling said.
The added money-laundering charges “can turn up the heat a bit on the company,” said Tim Crudo, head of the white-collar defense and government enforcement practice at Coblentz Patch Duffy & Bass LLP and former assistant U.S. attorney in San Francisco. Anything linking FedEx to the illegal drug distribution charges “gives a jury another hook” on which to convict, he said.
As part of a crackdown on prescription drug abuse, United Parcel Service Inc. 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. and CVS Caremark Corp. 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 yesterday reiterated its innocence on all charges in an e-mailed statement. The Memphis, Tennessee-based company previously had said “settlement is not an option” in the case.
“We will continue to defend against this attack on the integrity of FedEx,” Patrick Fitzgerald, FedEx senior vice president for marketing and communications, said in the statement. The company has said privacy rights of customers who ship 10 million packages a day are essential for its business.
FedEx and its co-conspirators could face a fine of twice the gains from the illegal conduct, alleged to be at least $820 million. According to the Aug. 15 charges filed in federal court in San Francisco, FedEx, along with others, ran the illicit pharmacies “knowingly and intentionally” and schemed to launder more than $630,000 in shipping payments that were derived from drug sales.
The initial indictment said the shipping company knew it was delivering drugs to dealers and addicts, with couriers in Kentucky, Tennessee and Virginia expressing concerns to managers that FedEx trucks were stopped on the road by online pharmacy customers demanding packages of pills. Some delivery addresses were parking lots or vacant homes, prosecutors said.
The charges against FedEx grew out of a federal investigation that began in 2008. FedEx has said government officials have declined to provide a requested list of illegal online pharmacies so it can stop doing business with them.
“This has been going on for years,” said Art Hatfield, a Raymond James & Associates Inc. analyst. “That ought to tell you FedEx isn’t settling. They could have settled long ago.”