FedEx Agrees to Pay N.Y. $35 Million to End Cigarette Suit

(Bloomberg) -- FedEx Ground Package System Inc. agreed to pay $35 million to resolve a lawsuit over illegal cigarette deliveries to residents in New York, three months after a judge said the company appeared to have knowingly violated a federal trafficking law.

The settlement resolves allegations in three lawsuits that the company, a unit of FedEx Corp., partnered with cigarette trafficking businesses, including “Cigarettes Direct To You,” to illegally ship hundreds of thousands of untaxed cigarettes, New York Attorney General Letitia James said Monday in a statement. The state says cigarette taxes are the most effective means of deterring smoking.

“Not only did FedEx violate laws created to protect the public from the serious health risks associated with cigarettes, but they also swindled New York City and state out of millions of dollars in tax revenue,” James said in the statement.

FedEx agreed to halt domestic shipments of tobacco products, including cigarettes, and implement annual training on tobacco shipments, according to the state. The company also agreed to be advised and monitored by an independent consultant, which Fedex said will help it identify and halt any illegal shipments in New York.

In a separate statement, FedEx said that even before the settlement, tobacco was a prohibited item for transport on the company’s delivery network.

“More than half of cigarettes purchased in New York are sold on the black market,” FedEx said in a statement. “Yet, despite repeated requests for New York City and state to share information about shippers which they knew to be violating our terms and conditions, both the attorney general and the city generally refused to do so.” When information was shared, “appropriate action” was taken, it said. The company added that it will “continue to honor the privacy of our customers.”

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