FedEx Indicted On Drug ‘Conspiracy’ Charges

A FedEx delivery truckThe Justice Department last year announced it would selectively enforce federal marijuana laws in order to use “its limited investigative and prosecutorial resources to address the most significant threats in the most effective, consistent and rational way.” Like targeting FedEx for drug trafficking?

After a nine-year investigation, the U.S. Attorney for the Northern District of California last month indicted the package delivery company on 15 criminal counts for shipping prescription drugs from fly-by-night online pharmacies. FedEx is fighting the charges but could be dunned $1.6 billion if convicted.

FedEx Indictment

The indictment claims that FedEx “conspired” with Internet pharmacies to distribute prescription drugs that were sold in violation of the Controlled Substances Act. The DEA has been playing whack-a-mole with online pharmacies that fill orders without valid prescriptions.

DEA has shut down dozens of illegally operating pharmacies and drug fulfillment centers, but affiliates crop up under different domain names and recruit new partners. One example was the RxNetwork, whose leader Vincent Chhabra was arrested in 2003 even as his business partners continued to operate.

The U.S. Attorney alleges that FedEx employees knew that the “Chhabra-Smoley Organization”—which encompassed the RxNetwork and its offshoots—was illegally selling prescription drugs and “knew of the connection between these Internet and fulfillment pharmacies and RxNetwork and Chhabra as demonstrated by the principals, company names, shipping addresses and billing addresses that were initially connected to Chhabra and RxNetwork.”

Translation: FedEx employees should have connected the dots. But if it’s so easy, why didn’t the DEA do it? The truth is that unmasking the bad guys would have required an extensive metadata analysis of customer data that is not FedEx’s job.

The indictment also notes that FedEx workers visited the premises of the illegally operating fulfillment center Superior Drugs and observed its “operations, including the filling of orders for controlled substances.” But Superior’s operations wouldn’t look any different from a law-abiding online pharmacy. The only difference is that its orders would be based on invalid prescriptions.

The indictment also claims that FedEx knew it was dealing with shady operators because it placed all online pharmacies on restricted credit terms. Yet FedEx didn’t know who the bad guys were. That’s why FedEx imposed credit restrictions on all online pharmacies. Think about it: Would FedEx knowingly risk doing business with illegal operators that might not pay their bills?

FedEx has promised to cut off illegal operators if the government provides a list. To date, DEA hasn’t. Another alternative is to stop shipping all meds ordered on the Internet, but this would hurt law-abiding pharmacies and consumers. Meantime, online peddlers could continue to ship contraband via the U.S. Postal Service and UPS.

Speaking of which: UPS last year signed a “nonprosecution agreement” with the Justice Department to resolve a similar investigation. In addition to forking over $40 million, UPS agreed to beef up its “compliance policies.” This suggests Justice’s real aim is to coerce FedEx into doing DEA’s police work.

FedEx has a strong defense on the facts and on the law because the Controlled Substances Act protects “common contract carriers” that are “acting in the usual and lawful course of business” from criminal liability. This looks like a case of bad prosecutorial judgment trying to compensate for the government’s drug enforcement’s failures.

Wall Street Journal


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