The United States Department of Justice (DOJ) has just announced that United Airlines will pay $49 million to resolve criminal fraud charges and civil claims relating to fraud on postal service contracts for transportation of international mail.
United Airlines’ international mail scheme
According to the non-prosecution agreement and civil settlement agreement, United Airlines entered into International Commercial Air (ICAIR) contracts with the United States Postal Service (USPS), meaning United transported US mail internationally on behalf of USPS.
United was obligated to provide bar code scans of mail receptacles to USPS when United took possession of mail, and when United delivered the mail to intended recipients abroad. United was entitled to full payment only if accurate mail scans were provided and mail was delivered in a timely fashion.
However, between 2012 and 2015, United engaged in a scheme to defraud USPS by submitting false delivery scan data to make it appear that United was complying with ICAIR requirements, when in fact the airline wasn’t. United submitted automated delivery scans that didn’t correspond to the actual movement of mail.
Because the scans weren’t connected to the actual delivery of mail, United was overpaid — the airline secured millions of dollars in payments from USPS that it wasn’t entitled to.
United also admitted that it had concealed problems related to scanning and mail movements that would have subjected United to financial penalties under the ICAIR contracts. Certain individuals at United works to conceal United’s automation efforts from USPS, knowing the data transmitted was fabricated. Among other things, these people tried to hide the automation practices by revising falsified delivery times to make the automated scans seem less suspicious.
United will pay $49 million to settle this case
United entered into a non-prosecution agreement (NPA), and has agreed to pay:
- $17,271,415 in criminal penalties and disgorgement to resolve the criminal investigation into the fraud scheme
- $32,186,687 as part of a False Claims Act settlement for related conduct
- United has also agreed to report any evidence or allegation of a violation of US fraud laws, and to strengthen its compliance program, especially with reporting requirements
As Acting Assistant Attorney General Nicholas McQuaid of the Justice Department’s Criminal Division describes this:
“United was entrusted by the U.S. Postal Service with fulfilling a critical government function – the transportation of U.S. mail abroad. Instead of performing this duty with transparency, United defrauded the U.S. Postal Service by providing falsified parcel delivery information over a period of years and accepting millions of dollars of payments to which the company was not entitled. Today’s resolution emphasizes that companies that defraud the government – no matter the context, contract, or federal program – will be held accountable.”
It’s worth noting that all of this happened under Jeff Smisek’s tenure as CEO of United (he resigned in late 2015). While he may very well not have known about this specifically, there’s no denying that this was in line with some of the other behavior we saw at the airline.
Smisek’s tenure as CEO of United is marked with a fair bit of corruption. Famously Smisek was involved in a bribery scandal, as United operated a once-weekly flight between Newark and Columbia, South Carolina, for the Chairman of the Port Authority of New York and New Jersey.
Like most major airlines, United Airlines transports international mail on behalf of USPS. Between 2012 and 2015 the company was falsifying its delivery timelines in order to maximize the compensation it got for delivering mail — rather than reporting the actual timeline with which it delivered mail, the airline reported an aspirational timeline that didn’t reflect reality.
A DOJ investigation has now revealed all the details of that, and United is on the hook for $49 million related to fraud charges in this case.
(Tip of the hat to Live and Let’s Fly)