Fedex faces legal assault over cigarettes sent to new yorkers — businessweek

New York City s war on cigarettes continues by opening an unexpected front, with a lawsuit accusing FedEx (FDX) of a racketeering conspiracy for helping a Long Island based tobacco merchant skirt city and state tax laws by shipping cigarettes to consumers.

In the lawsuit, filed on Monday against two FedEx subsidiaries, the city is seeking more than $52 million in penalties and lost tax revenue, as well as legal fees and a court appointed overseer to ensure the shipping giant s compliance. Higher cigarette prices have been incontrovertibly established to convince greater numbers of smokers to quit, reducing the incidence of smoking related death and disease, the city contended.

The lawsuit alleges that FedEx delivered at least 55,000 cartons delivered to city residents from 2005 to 2012, with a tax loss of $825,000, from the Shinnecock Smoke Shop in Southampton, N.Y., owned by Jonathan Smith. The suit also seeks a civil penalty of $49.5 million and triple the tax loss damages under civil terms of the U.S. Racketeer Influenced and Corrupt Organizations Act. Federal law prohibits the shipment of untaxed cigarettes to anyone except cigarette wholesalers, who typically act as a government taxing agent. New York City has sued about 20 smoke shops for selling untaxed cigarettes since 2008.

FedEx does not allow direct shipments of tobacco to consumers and believes the claims made by the city are overstated and not founded in law, the company said today in a statement. The Memphis based company said it does not open packages without a reason and intends to defend this case while continuing to work with authorities to stop prohibited tobacco shipments.

Smith s smoke shop is not a defendant in the FedEx lawsuit but could be named in later litigation, says Eric Proshansky, an attorney with the city s Law Department. Smith did not return a call Tuesday to his business seeking comment.

New York City imposes a $15 excise tax on each carton of cigarettes, while New York State collects $43.50. That adds up to $5.85 in taxes on each pack, driving the cost to more than $10 per pack in the city. It s an aggressive policy designed to deter smoking, particularly among teenagers. The Shinnecock Indian Nation and other New York tribes have claimed that their smoke shops aren t subject to state and local taxes.

In March, meanwhile, FedEx agreed to pay $2.4 million to settle the city s claim that it had delivered 160,000 cartons of untaxed cigarettes from a Kentucky based website from 2006 to 2009. Federal authorities have since closed that business. FedEx, United Parcel Service (UPS), and DHL (DPW GR) signed an agreement with then Attorney General Eliot Spitzer in 2006 to abide by a New York law prohibiting the shipment of cigarettes to residences.

Smith has a long history of legal battles with state and federal authorities dating back to at least 1984 not always around tobacco. In December 2012 a state conservation officer issued the smoke shop owner a ticket in Montauk, N.Y., for possession of 87 undersized bay scallops. The following month, Smith sought to move the case (PDF) from the Town Court of East Hampton to a U.S. District Court, alleging his civil rights were violated. Smith claimed in his motion that he enjoys aboriginal fishing rights as a member of the Shinnecock Indian tribe. Smith has also tangled, unsuccessfully, with the U.S. Internal Revenue Service over income taxes.

E-cigarettes could become ‘medicines’ available on nhs

E cigarettes could be available on the NHS by the end of the year with at least two companies one a subsidiary of British American Tobacco having already embarked on the process of obtaining licences from the medicines regulator.

The UK company Nicolites said its application was «well advanced» while BAT’s Nicoventures has also started the process, although decisions on whether their products are prescribed on the NHS will be made by local commissioning groups.

The status of «medicines» will give the companies commercial advantage and allow the e cigarette makers to market their product internationally, including in sponsorship deals, a move that will be banned for competitors not in the same bracket.

The news came to light as ministers in England prepare to ban the sale of e cigarettes to under 18s Wales and Scotland are likely to follow suit.

The Committees of Advertising Practice are also about to launch a consultation on new rules to cover e cigarettes, used by 1.3 million people in Britain last year. It will start later this month, with the framework likely to be in place by autumn, nearly two years after the first TV adverts for such products.

The applications to the Medicines and Healthcare Regulatory Authority are a victory for the regulator’s determination to persuade manufacturers and importers to apply voluntarily for a licence and meet specific rules including on the amount of nicotine provided. They are continuing the process even though the European parliament defeated UK attempts to make medicinal licensing compulsory for e cigarettes last autumn,.

Existing anti smoking therapies such as gums, patches, an inhaler, and a mouthspray already have medicine licences and have been endorsed by the National Institute for Health and Clinical Excellence, which advises on good practice and value for money. Nearly 1.4m prescriptions for them were issued in England in 2012, but licensed e cigarettes would not need a separate Nice assessment.

Nikhil Nathwani, managing director of Nicolites, said the company was «well advanced in the product’s licencing» and hoped to achieve marketing authorisation some time this year. It was working closely with the government, the regulator and Nice. «This will be continued even after marketing authorisation has been achieved», he said. Nicoventures has also made a licence application for a nicotine inhalation device to the MHRA.

A spokesman for BAT, which already has a standard e cigarette brand, Vype, on sale in Britain, said the company would like to see «a regulatory approach that puts consumer safety and product quality first, while allowing the appropriate level of innovation, marketing and distribution freedoms to allow this important new product category to grow.»

A spokesperson for Njoy, a big US cigarette company, which has also endorsed MHRA regulation, could not say whether an application was in progress, when contacted.

The readiness of big e cigarette players to go down the voluntary route for the expensive process of medicines approval is in sharp contrast to the position of the UK trade body for e cigarettes, Ecita, which has railed against the over regulation it claims will be introduced EU wide.

E cigarettes classed only as consumer products from 2016 will have to carry health warnings that nicotine is highly addictive. The draft EU directive, which has still to complete its legislative process in the coming months also contains new curbs on tobacco including health warnings covering nearly two thirds of cigarette packs.

This article was amended on 3 February 2014 because it is the Committees of Advertising Practice who are launching a consultation on new rules to cover advertising e cigarettes, not the Advertising Standards Agency as the original said.


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