FedEx charged for illegal transportation of drugs

The Justice Department has charged FedEx Corp with conspiracy to distribute controlled substances for its alleged role in transporting painkillers and other prescription drugs that had been sold illegally.

If found guilty, FedEx faces a potential fine of at least US$1.6 billion, along with restitution and forfeiture of profits, according to a statement from the US attorneys office in the Northern District of California, reported The Wall Street Journal.

In a 15-count indictment filed in San Francisco, federal prosecutors say that beginning in 2004 the company repeatedly ignored warnings from the government it was breaking the law by shipping drugs ordered from online pharmacies that dispensed them to anyone who filled out an online questionnaire.
Among the charges included in the indictment are conspiracy to distribute controlled substances, conspiracy to distribute misbranded drugs, distribution of controlled substances and misbranding drugs.

The charges come after a years-long investigation by the Drug Enforcement Administration and federal prosecutors in Northern California into the role of shipping companies in the illicit prescription-drug trade.

Prosecutors say FedEx made at least $820 million shipping the drugs. If found guilty, the company faces a potential maximum fine of twice that. FedEx has been summoned to appear in court on July 29 in San Francisco.

FedEx denied wrongdoing, saying the company would plead not guilty.
"We will defend against this attack on the integrity and good name of FedEx and its employees," Patrick Fitzgerald, senior vice- president of marketing and communications, said. The company has a history of close cooperation with law enforcement, he added.

The indictment says FedEx went out of its way to keep doing business with online pharmacies and collect payments from them, despite efforts by the DEA and the Food and Drug Administration to shut them down.

In 2003, when one pharmacy had its license suspended for selling illegal prescriptions, a FedEx employee wrote in an email that after being notified, the FedEx account executive said that "customer has to increase weekly payment to 150,000 to ensure shipping privileges."
By 2004, the indictment says, FedExs revenue was taking a hit because online pharmacies were being shut down by the DEA, then left unable to pay their bills. So FedEx set up a special "Online Pharmacy Credit Policy," approved by its chief financial officer along with other executives.

By 2006, it required online pharmacies to provide a security deposit or a letter of credit from a bank. Attached to the new policy circulated to Fedex managing directors of sales was an explanation. "Many of these companies operate outside federal and state regulations over the sale of controlled drugs," the note said. "Several sites have been shut down by the government without warning or simply disappeared leaving large balances owing to FedEx."

FedEx has repeatedly asked for a list of online pharmacies that are illegally shipping prescription drugs, Fitzgerald said. "Whenever DEA provides us a list of pharmacies engaging in illegal activity, we will turn off shipping for those companies immediately," he added.
Fitzgerald said the indictment threatens the privacy of FedExs customers through asking it to assume criminal liability for the contents of the more than 10 million packages it ships each day.

"We are a transportation company - we are not law enforcement," Fitzgerald added.
In its annual corporate filing this week, FedEx said it had responded to grand jury subpoenas in both June 2008 and August 2009, as well as to some additional requests in relation to those subpoenas.

"We believe that our employees have acted in good faith at all times. We do not believe that we have engaged in any illegal activities and will vigorously defend ourselves in any action that may result from the investigation," FedEx said in the filing.

FedEx executives in late 2012 told The Wall Street Journal that the company had been informed it could soon face criminal charges.
At the time, they called the investigation "absurd and deeply disturbing," adding that the government was hoping to deputise FedEx delivery people to catch criminals. The company said the shipments in question involved legal drugs with a valid prescription from online pharmacies licensed by the Drug Enforcement Administration, something which FedEx said it had no way of determining which might be illegal.

United Parcel Service, which was also originally targeted in the probe, signed a non-prosecution agreement in March 2013. It agreed to pay $40 million, admitted to a "statement of facts" about their conduct and started an online pharmacy compliance programme, according to a quarterly filing.

The agreement "did not have a material impact" on results, UPS added.