Dive Brief:

• UPS has been ordered to pay $247 million in damages and penalties to both New York City and New York State for shipping untaxed cigarettes, Federal Judge Katherine B. Forrest has ruled, the New York Times reported last week.
• The cigarettes in question were shipped between Indian reservations, unlicensed dealers and individuals. Untaxed, they cost the city and state millions of dollars, plus violated an agreement established in 2005 between the state of New York and UPS that disallowed the shipping of cigarettes to any unlicensed recipients.
• The high penalty was handed down to make a strong impression on the companies officials. Judge Forrest cited a problematic corporate culture at UPS, where a lack of responsibility seemed to exist, writing that “the court is convinced that modest penalties would not make a sufficient corporate impact on UPS as a whole." 

Dive Insight:

Although UPS has vigorously protested its fine and has already filed an appeal, Judge Forrest stated that in determining the amount, "significant penalties" were necessary because the company has "largely relied on its size and weak internal procedures to excuse blatantly culpable conduct.  As the Court found in its Liability Opinion, there were many, many people within UPS who consciously avoided the truth, for years."

The matter of company financial health was also considered in establishing the amount of the penalty. To this, Judge Forrest opined that "UPS is a large company with significant assets. Its financial statements are a matter of public record. Not only can it handle a hefty fine, only a hefty fine will impact such a large entity sufficiently to capture the attention of the highest executives in the company — executives who then, in a rational economic move, will cause changes in practice and procedures to be strictly maintained. A fine in line with only the profits and revenues associated with the conduct at issue would not have this deterrent impact."

While UPS still has the legal right to seek a reduced penalty, what we do know is that the price of non-compliance within logistics practice now has a significant monetary precedent. Amazon too has been repeatedly fined for illegal transports for ignoring the rules of safe packaging. It behooves logistics companies who tout the virtues of visibility within the supply chain to also have a practice of following the rules that make visibility meaningful. Otherwise, the window that outside interested parties are looking through will be rose-colored.