After its competitor UPS settled with U.S. authorities over accusations that it was a key link in the supply chain for Internet pharmacies, FedEx vowed to fight any charges that came its way. It will get the chance to do just that after the Justice Department (DoJ) filed charges against the international delivery service.
Authorities last week filed a 15-count indictment accusing the Memphis, TN-based company of ignoring warnings from authorities for 5 years, and delivering controlled substances and misbranded drugs from illegal online pharmacies. They said deliveries included products like generic Xanax, Valium and Ambien and went to people who had no medical reason to get them. If convicted, the agency says FedEx could face penalties of about $1.6 billion, double the $820 million the DoJ estimates FedEx earned over the years from the operations.
The company, which had warned shareholders that it was the subject of a probe, said it would fight the charges. It said federal authorities want it to violate one of the basic rules of its business: its agreement to not open packages. "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 FDA and DoJ, which have been fighting illegal online pharmacies on several fronts, figured that interrupting their supply chains could be an effective tactic. UPS last year settled with authorities, agreeing to forfeit the $40 million it made on deliveries of drugs sold by illegal online pharmacies after soliciting their business. It also put in place a compliance program to train employees and reduce the chances of repeating the problem.
The indictment says authorities warned FedEx that it was being used but the company did not act on the information. In fact, business grew with accounts for online pharmacies tripling to 600 in 2010 from about 200 in 2004. The indictment says the drivers expressed concerns that delivery addresses included parking lots and that they were even stopped sometimes "on the road by online pharmacy customers demanding their packages of pills." The DoJ says senior management were told about the questions.
While FedEx said Friday that it would defend itself, it warned investors in an SEC filing that if it loses, the penalties could be "material" to its finances.