UPS Pays $40 Million to End Illegal Drug Shipment Probe

PS Pays $40 Million to Settle Illegal Drug Shipment Probe
UPS signed a non-prosecution agreement with the U.S. that requires the company to set up a compliance program to prevent illegal Internet pharmacies from using its shipping services, according to a copy of the deal released today by the Justice Department. Photographer: David Paul Morris/Bloomberg

United Parcel Service Inc. agreed to forfeit $40 million to settle a federal probe into shipments for illegal online pharmacies, admitting the company had information it was helping distribute controlled substances.

UPS signed a non-prosecution agreement with the U.S. that requires it to set up a compliance program to prevent illegal Internet pharmacies from using its shipping services, according to a copy of the deal released today by the Justice Department. The accord, which requires cooperation with the Drug Enforcement Administration, will remain in effect for two years.

“DEA is aggressively targeting the diversion of controlled substances, as well as those who facilitate their unlawful distribution,” DEA Administrator Michele Leonhart said in a statement. “This investigation is significant and DEA applauds UPS for working to strengthen and enhance its practices in order to prevent future drug diversion.”

From 2003 through 2010, UPS knew from employees that Internet pharmacies were using its services to distribute controlled substances and medicines without valid prescriptions in violation of the law, according to the agreement. UPS didn’t implement procedures to close the shipping accounts of these pharmacies, the Justice Department said.

The company’s drivers went so far as to drop off drug packages with pharmacy customers in parking lots and along highways, according to a law enforcement letter attached to the agreement.

Probe Subpoenas

UPS said in a regulatory filing last year that it responded to subpoenas as far back as 2007 from the U.S. attorney in San Francisco in connection with the DEA investigation.

“UPS cooperated with the DOJ throughout the investigation,” Bill Tanner, a spokesman for the Atlanta-based company, said in a statement. “We believe we have an obligation and responsibility to help curb the sale and shipment of drugs sold through illegal Internet pharmacies.”

FedEx Corp. disclosed that it’s facing a similar probe in documents submitted to the Securities and Exchange Commission. FedEx, in a Sept. 19 filing, said it responded to grand jury subpoenas in 2008 and 2009.

“It’s unclear what federal laws UPS may have violated,” Patrick Fitzgerald, a spokesman for Memphis-based FedEx, said in a statement today. “We remain confident that we are in compliance with federal law.”

DEA List

He said the company has asked the DEA for a list of pharmacies it believes operate illegally “so we can immediately shut off shipping services.”

A statement of facts referred to in the agreement lays out the role UPS played in shipping packages for Internet pharmacies beginning in 1999. UPS admitted that the information in the statement is accurate, according to the agreement.

In 2003, UPS marketing employees identified Internet pharmacies as a sector of the health-care industry worth pursuing because of its high shipping volume and revenue potential. In an e-mail, they noted the importance of luring these customers away from other carriers.

In just a few months, UPS employees became concerned after clients were shut down by state and federal authorities. The company decided to no longer offer pricing discounts to Internet pharmacies that don’t require patients to first see a doctor. UPS still allowed the pharmacies to use its service.

‘Due Diligence’

“Appropriate due diligence was not conducted on all accounts UPS employees knew or should have known were being used to ship pharmaceuticals ordered online to determine whether the businesses were operating legally,” according to the statement of facts.

The document offers the example of United Care Pharmacy, which UPS signed up as a client in September 2005. That same month, the Kentucky Bureau of Investigations Drug Unit sent UPS a list of illegal pharmacies that were shipping drugs to its state that included United Care. UPS continued to ship packages from the pharmacy into Kentucky, according to the statement of facts.

UPS cut the pharmacy from its client list only after senior executives of the pharmacy were arrested two years later, according to the document.

UPS also continued to ship Internet pharmacy orders into Virginia after receiving a letter in 2005 from state law enforcement officials claiming that UPS drivers were delivering drug packages to people in parking lots and beside the highway. Drivers were also delivering packages to the same person who was using several different names, according to an excerpt of the letter published in the statement of facts.

“We are concerned that these drugs, many of which are mind altering pain medication and nerve medication, are being misused, and abused by citizens,” the Southwest Drug Task Force in Big Stone Gap, Virginia, said in the letter.

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