FedEx has received a special delivery from the U.S. Department of Justice (DOJ), a 15-count indictment accusing it of being the delivery vehicle of choice for a certain kind of drug dealer. If convicted, the agency says FedEx could face penalties of $1.6 billion.
The indictment accuses the company of handling deliveries of controlled substances and misbranded drugs for illegal online pharmacies, including products ranging from generic Xanax and Valium to Ambien.
The Memphis, TN-based global delivery company responded curtly. "We will plead not guilty," spokesman Patrick Fitzgerald told Bloomberg in a statement. 'We will defend against this attack on the integrity and good name of FedEx and its employees,"
The DOJ says that FedEx delivered drugs for more than 5 years, even after being told of the problem by the the FDA and DOJ. It says concerns expressed by drivers over delivery addresses being parking lots and sometimes being "stopped on the road by online pharmacy customers demanding packages of pills," were passed to senior management. When one of the key customers was publicly indicted, it continued to deliver for its successor, the DOJ claims.
The FDA pointed out in a statement that the indictment alleges that FedEx employees found that from 2004 to 2010, its accounts from online pharmacies spiked threefold to more than 600 from about 200. The agency has been fighting the huge growth in these companies, some of which have been tied to counterfeit drugs making their way into the U.S.
The charges came as no surprise to the company, which has said in public filing that it was a target of a probe. Its competitor UPS last year escaped prosecution by agreeing to give up the $40 million it made on deliveries of drugs sold by illegal online pharmacies after soliciting their business. It agreed to a compliance program to reduce the chances of repeating the problem.
But FedEx last year said there was no way it was going to settle. It says federal authorities want it to violate one of the basic rules of its business: its agreement to not open packages. It has claimed that sales from Internet pharmacies are a miniscule portion of its more than $44 billion in annual revenues. The DOJ estimated FedEx has grossed about $820 million over the years from the operations and says the company could be fined up to twice that amount. The company did acknowledge in a filing with the SEC today that if it is found guilty, the penalties could be "material" to its finances.