The Department of Justice filed a criminal indictment this week against package-delivery company FedEx for its alleged role in conspiring with illegal online pharmacies to distribute controlled substances and prescription drugs.

According to the indictment, filed July 17 in the U.S. District Court for the Northern District of California, FedEx was warned by the Drug Enforcement Administration, the Food and Drug Administration, and Congress as early as 2004 that illegal online pharmacies were using FedEx shipping services to distribute controlled substances and prescription drugs in violation of the Controlled Substances Act (CSA), Food, Drug and Cosmetic Act, and numerous state laws.

In a statement, Melinda Haag, U.S. Attorney in Northern California, said the indictment “highlights the importance of holding corporations that knowingly enable illegal activity responsible for their role in aiding criminal behavior.”

The indictment alleges that FedEx knew, as early as 2004, that it was delivering drugs to dealers and addicts. FedEx's couriers in Kentucky, Tennessee, and Virginia expressed safety concerns that were circulated to FedEx senior management, including that FedEx trucks were stopped on the road by online pharmacy customers demanding packages of pills, and that the delivery addresses were parking lots, schools, or vacant homes. In response, FedEx adopted a procedure of having online pharmacy packages from problematic shippers be picked up at specific stations, rather than delivered to the recipient's address.

FedEx is charged in the indictment with conspiring with two separate but related Internet pharmacy organizations: the Chhabra-Smoley Organization, from 2000 through 2008, and Superior Drugs, from 2002 through 2010. In each case, FedEx is alleged to have knowingly and intentionally conspired to distribute controlled substances and prescription drugs in violation of the CSA.

FedEx said it responded to grand jury subpoenas issued in 2008 and 2009, and first disclosed the federal investigation in a regulatory filing in November 2012.

In a Form 8-K, dated July 18, the company stated, “We continue to believe that our employees have acted in good faith at all times and that we have not engaged in any illegal activities. Accordingly, we will vigorously defend ourselves in this matter.”

FedEx has been summoned to appear in federal court in San Francisco on July 29, 2014. If convicted, FedEx could face a fine of between $1 and 2.5 million, or twice the gross gain derived from the offense, alleged in the indictment to be at least $820 million.

UPS Case

FedEx would not be the first shipping company to face charges for distributing controlled substances. In March 2013, rival shipping company UPS entered into a non-prosecution agreement and agreed to forfeit $40 million in payments it has received from illicit online pharmacies.

UPS further agreed to implement a compliance program designed to ensure that illegal online pharmacies will not be able to use UPS's services to distribute drugs. Specifically, UPS agreed to appoint an online pharmacy compliance officer, with overall responsibility for the compliance program.

The compliance officer's role includes, among other responsibilities, developing procedures for employees involved in the transportation of prescription drugs; designing and implementing training programs; ensuring that reports of unlawful activity are reported; and that audits and surveys are carried out.

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