Photo: Antonio Gravante/

The New York Attorney General’s Office and city Law Department announced a $35.3 million settlement with FedEx Ground Package System, Inc. that resolves three lawsuits alleging FedEx teamed up with cigarette trafficking businesses to ship hundreds of thousands of untaxed cigarettes to New Yorkers.

“For years, FedEx knowingly engaged in illegal and harmful behavior at the expense of New Yorkers’ health,” Attorney General Letitia James said in the statement. “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.”

“For the worst of reasons—profit—FedEx shipped millions of untaxed cigarettes to residents throughout the state,” City corporation counsel Zachary Carter said.

FedEx on Monday did not respond to a request for comment.

In their joint statement, the AG’s Office and city Law Department said that the settlement recovers “substantially more” than the amount of lost state and city taxes and that those additional amounts represent “in large part, a  penalty.”

“FedEx was previously investigated for this same conduct, the conduct was longstanding and pervasive throughout the company, and the conduct had the potential to negatively impact public health,” the offices said in naming some factors, among others, that led to what they called a penalty.

The exact amount of lost taxes was not stated.

The offices—which for years jointly investigated and prosecuted the matter—said that the illegal shipping lasted for some 10 years, and they noted that “the evidence is clear that cigarette taxes are the most effective means of deterring smoking.”

“FedEx’s conduct frustrated the public health purpose underlying such taxes—to reduce cigarette smoking,” they said.

The settlement resolves three federal lawsuits, all filed between 2013 and 2017 in the Southern District of New York, according to a separate email from Law Department spokesman Nicholas Paolucci.

Paolucci added that the three suits put forward essentially the same illegal shipping allegations, but addressed cigarette shipments for different FedEx customers. One suit named FedEx Freight as well as FedEx Ground, he said.

In the joint statement, the AG’s Office and Law Department also said that settlement comes after an important October 2018 ruling by U.S. District Court Judge Edgardo Ramos of the Southern District of New York.

Ramos found that “FedEx’s conduct over many years for customers with such names as ‘Cigarettes Direct To You’ established without the need for a trial that FedEx had knowingly violated a federal anti-cigarette trafficking statute and a 2006 Assurance of Compliance with the [AG’s] Office in which, to avoid prosecution, FedEx expressly agreed to cease residential cigarette deliveries and comply with a New York law prohibiting those deliveries,” the offices said in their statement.

In addition to the $35.3 million payment, the settlement also requires FedEx to both put in place internal reforms and hire an independent consultant to oversee FedEx’s compliance with the law and provide compliance reports.

Specifically, according to the statement, FedEx will “cease domestic shipments of tobacco products, including cigarettes (with limited exceptions set forth in the settlement agreement)”; “implement company-wide communications and annual training concerning tobacco shipments, including mandatory notices by employees to company officials if tobacco shipments are discovered”; “take disciplinary action against any employee or contractor who knowingly facilitates tobacco shipments”; and “retain an independent consultant recommended by the city and state to both advise and monitor the company’s compliance with the settlement agreement and with federal, state and local laws and regulations governing the shipment of tobacco [and] the consultant will immediately report violations to the city and state and provide quarterly reports.”

The settlement agreement terms will be extended by one year for each year in which there is a material breach of the agreement as determined by a court or special master, the statement also said.

It added that “as New York has increased the tax rate on cigarettes, the number of smokers in New York has sharply declined. According to the World Health Organization, maintaining high taxes on cigarettes is the most effective anti-smoking policy intervention, particularly among youth.”