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FedEx Accused of Conspiracy to Distribute Prescription Drugs for Online Pharmacies

A FedEx truck enters a distribution center on March 20, 2013 in San Rafael, California.Justin Sullivan / Getty Images

Federal Express was indicted Thursday on federal charges alleging that it distributed prescription drugs and other controlled substances to people that the company knew had no prescriptions on behalf of illegal Internet pharmacies.

An 11-count indictment handed down by a grand jury in San Francisco names FedEx Corp. and subsidiaries FedEx Express, Inc. and FedEx Corporate Services, Inc., charges that the firm conspired with two separate but related Internet pharmacy groups identified in the 27-page document as the Chhabra-Smoley Organization and Superior Drugs.

The indictment, which comes amid an epidemic of prescription drug abuse across the nation, alleges that FedEx illegally distributed controlled substances and pharmaceuticals -- including phendimetrazine, Ambien, phentermine, diazepam (Valium) and Alprazolam (Xanax). The drugs were delivered to customers that prosecutors said "had no legitimate medical need" for them. The invalid prescriptions were issued by doctors who were acting "outside the usual course of professional practice," it said.

"The advent of Internet pharmacies allowed the cheap and easy distribution of massive amounts of illegal prescription drugs to every corner of the United States, while allowing perpetrators to conceal their identities through the anonymity the Internet provides," U.S. Attorney Melinda Haag said in a statement. "This indictment highlights the importance of holding corporations that knowingly enable illegal activity responsible for their role in aiding criminal behavior."

In a statement, FedEx said it "will defend against this attack on the integrity and good name of FedEx and its employees."

The company says it repeatedly had asked the government for a list of illegal online pharmacies and offered to immediately turn off shipping for them. So far, it says, the government has declined to provide such a list.

"We want to be clear what's at stake here: The government is suggesting that FedEx assume criminal responsibility for the legality of the contents of the millions of packages that we pick up and deliver every day," said Patrick Fitzgerald, a senior FedEx official. "We are a transportation company -- we are not law enforcement. We have no interest in violating the privacy of our customers. We continue to stand ready and willing to support and assist law enforcement. We cannot, however, do the job of law enforcement ourselves."

FedEx has been ordered to appear in federal court in San Francisco on July 29. If convicted, the corporate defendants face a maximum sentence of five years' probation, $2.5 million in fines or a financial penalty that is double profits from the illegal activity -- estimated in the indictment to be $820 million.

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As early as 2004, the indictment alleges, FedEx knowingly began delivering drugs to dealers and addicts, even as the delivery giant's couriers in three states -- Kentucky, Tennessee, and Virginia -- expressed safety concerns to FedEx senior management, the indictment alleges. Couriers described delivering to addresses that included parking lots, schools and vacant homes. Some reported that their trucks were stopped on the road by online pharmacy customers demanding their packages, it said.

Later, the company changed its procedures to ensure Internet pharmacy packages from "problematic shippers" were held for pick up at stations instead of routed for delivery to a specific address, it said.

But the indictment alleges that the company continued to distribute controlled substances and prescription drugs on behalf of the Chhabra-Smoley Organization and Superior Drugs. They did so even after officials knew they had been closed down by state and federal law enforcement agencies and that their owners, operators, pharmacists, and doctors had been indicted, arrested and convicted of illegally distributing drugs, it said.

Fed-Ex conspired with Chhabra-Smoley between 2000 and 2008 and Superior Drugs from 2002 through 2010, the indictment said. Prosecutors noted that, Drug Enforcement Agency, Food and Drug Administration and Congress had informed FedEx that illegal Internet pharmacies were violating state and federal law by using its shipping services to distribute controlled substances.