By Angela Chen 

United Parcel Service Inc. was accused of shipping more than 136 million contraband cigarettes across New York over the past five years, in a lawsuit filed by the state of New York and New York City.

The suit, filed in federal court in Manhattan, seeks $180 million in damages and penalties. Last year, the state filed a similar suit against FedEx Corp., seeking $70 million for the alleged illegal shipments and $165 million in penalties. The decision in that case is pending.

A spokesperson for UPS denied the allegations.

"Since 2005, UPS has continued to work with regulators on this issue. In fact, UPS agreed to stop delivering cigarettes to consumers nationwide at that time--a policy that went beyond the requirements of federal and state law," the spokesperson said.

The lawsuit accused UPS of shipping nearly 700,000 cigarette cartons between 2010 and 2014, leading to a tax loss of about $5 million for the city and $30 million for the state.

The lawsuit also accused UPS of collaborating with various dealers to traffic the contraband cigarettes, and it said at least 70 packages were marked as having been handed to a child. Under New York law, it is illegal to sell cigarettes to minors.

"We allege that the entities that ship these cigarettes through UPS earn enormous profits by avoiding the payment of required taxes and that the fees collected by UPS to ship these untaxed cigarettes are paid out of these illegal profits," said New York City Corporation Counsel Zachary W. Carter.

Write to Angela Chen at angela.chen@dowjones.com

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