Federal Express Indicted for Narcotics Trafficking

July 19, 2014

 

Are Shipping Companies and Social Media Websites the Next Target in the U.S. War on Drugs?

 

Has the internet-age caused a shift in the U.S. war on drugs?  Maybe.  Market watchers and legal experts were shaken when a federal grand jury impaneled in San Francisco handed down a 15-count indictment on July 18, 2014 charging global shipping giant, FedEx Corporation and its subsidiaries, with Conspiracy to Distribute Controlled Substances in violation of 21 U.S.C. Sections 841 and 846, among other charges.  If the company is found guilty at trial, it could face fines as high as $1.6 billion dollars, forfeiture and compulsory compliance conditions.  Such a fine would represent 3.6% percent of FedEx’s $44.3 billion dollars in annual revenue as reported by Bloomberg Businessweek for fiscal year 2013.  None of FedEx’s corporate executes, directors or employees were charged in this indictment.  The government’s novel approach and prosecution theory in this case has criminal defense attorneys wondering whether other shipping companies are at risk to face similar prosecutions?

 

The indictment, which was filed in U.S. District Court for the Northern District of California charges that the Memphis, Tennessee based company from 2000 to 2010 conspired with the U.S. based companies the Chhabra-Smoley Organization and Superior Drugs to deliver prescription drugs from online pharmacies to customers whom FedEx knew did not have a valid prescription.  The government alleges that members of Congress, the FDA and the DEA had repeatedly warned FedEx that it was delivering unlawful prescription drugs to dealers and addicts who had not been examined by a physician, had not attended a face to face meeting with a doctor or even been diagnosed with a medical issue related to the prescription drugs they ordered.  Rather, the indictment alleges that FedEx knew these internet pharmacies filled drug orders based solely on online questionnaires in violation of federal and state laws. 

FedEx counters that they pleaded not guilty and will vigorously fight these charges, which they described to the Wall Street Journal as “absurd and deeply disturbing.”  FedEx explained that they have 10 million customers and that they are a shipping company not a law enforcement agency.  Thus, they cannot be expected to open every package and such inspections would violate their customer’s privacy.  The parties were expected in court for the first status hearing before the federal judge on July 29, 2014.

 

Proving that FedEx knowingly and intentionally distributed controlled substances and misbranded drugs through their parcel delivery system will be a challenge for the government.  The government’s case against FedEx alleges that FedEx had actual knowledge that it was delivering illegal narcotics from online pharmacies.  In addition to the numerous warnings from various components of the federal government, prosecutors allege that FedEx had warnings from its own employees in Kentucky, Tennessee and Virginia.  The indictment alleges that FedEx drivers in those states complained that FedEx delivery trucks were being stopped on the roadside by online pharmacy customers demanding to be given their packages of illegal medications on the spot.  USA Today reported that delivery addresses for these packages included parking lots, schools and vacant homes where automobiles packed with people waited for their online pharmacy orders.  The government alleges that some drivers were even threatened.  In response to these concerns, FedEx reportedly required some customers in problem areas to pick up online drug orders from specific company stations rather than have them delivered to the requested customer address.  Finally, the government alleges that FedEx created a special “credit policy” for online pharmacies which took steps to protect the business so FedEx would not lose money if the online pharmacies were shut down by police for operating outside of state and/or federal law.

 

FedEx has denied these charges and is innocent until proven guilty beyond a reasonable doubt in a court of law.  In its defense, FedEx argues that it has not received cooperation from the government in its efforts to ferret out illegal online pharmacy customers.  For example, FedEx argues that it has requested a list of suspected illegal online pharmacies from the DEA so that it would be able to block those companies from using its shipping services.  According to FedEx, the government so far has declined to provide such a list.  Evidence of this kind, showing that the government refused to assist FedEx even though FedEx attempted to cooperate, may not bode well for the prosecutors with potential jurors. 

 

The indictment against FedEx comes on the heels of a similar federal criminal investigation against FedEx’s chief rival, UPS.  In March 2014 UPS and the government entered into a Non-Prosecution Agreement (“NPA”) for its role in delivering illegal narcotics from online pharmacies under similar circumstances.  Under the NPA, UPS agreed to pay $40 million dollars in fines, voluntarily agreed to identify and eliminate illegal online pharmacies from its customer base and agreed to institute strict compliance programs to ensure such violations will not occur in the future.  The criminal investigations of industry shipping giants FedEx and UPS, may have broader implications for the shipping industry.  In the past few years there has been an explosion of newly created regional shipping carriers such as LaserShip Inc, Eastern Connection Operating, Inc. and Pitt Ohio LLC which are fiercely competing with FedEx and UPS.  In general, companies in the shipping business may want to consider whether to conduct proactive internal investigations to determine whether they are in compliance and institute and/or strengthen, if necessary, compliance programs in the wake of these criminal prosecutions of UPS and FedEx. 

The federal government’s shift in strategy to go after corporate shipping companies in the internet-age war on drugs has also extended to social media and social networking companies.  In 2011, “Google” settled with the U.S. Department of Justice over allegations that it knowingly allowed advertisements on its website from Canadian pharmacies that targeted U.S. customers to purchase prescription drugs, which Google knew were not approved for sale in the United States.  As a part of the settlement agreement, Google agreed to pay $500 million dollars in fines, which at the time was the largest forfeiture settlement in U.S. history.  Other companies in the social networking and social media sphere or any company that relies on internet advertising to pay the bills should take special care to ensure their advertising policies, practices and customers are within applicable federal and state law and the regulatory framework.

 

It remains to be seen whether the federal government will continue to investigate and prosecute shipping companies and social media and social networking companies in the war on drugs.  Only time will tell.  But the one thing that is clear is that those companies and corporate executives who are investigated and/or prosecuted for conspiracy to violate the drug trafficking laws should consult with an experienced white collar attorney knowledgeable about the recent trends in corporate narcotics prosecutions.  

 

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Terry Eaton -
Attorney, Professor & Speaker

Terry Eaton is the Founder and Principal at the Eaton Law Firm, PLLC.  Mr. Eaton focuses his practice defending

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202-780-4270

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