Photo: Polar Air Cargo

A US judge has dismissed the lawsuit filed by forwarder Cargo on Demand (CoD) which alleged racketeering and fraud at Polar Air Cargo.

Ten Polar Air Cargo executives have been charged with fraud, and another took his own life, but the judge granted Polar’s motion to dismiss CoD’s case, arguing in essence that Polar itself was not at fault.

Cargo on Demand claimed it had been forced to pay $4m in “third party consulting fees” to companies with ties to some of Polar’s management, at a rate of between $0.25 and $0.50 per kg on top of its BSA deal, over seven years. But it only complained when Polar discovered the illicit payments, and put a stop to them – as well as to CoD’s custom.

CoD then sued Polar under the complex US Racketeer Influenced and Corrupt Organizations Act (RICO).

But the judge claimed the case, as it stood, had no merit, as Polar itself didn’t enter into any illicit agreements.

“The fact that Polar uncovered the scheme after the fact, however, does not support an inference of Polar’s knowledge of, let alone agreement with, the scheme at the time it was happening,” noted Judge Jesse Furman.

“At most, CoD alleges that the consulting fee requirement continued even when the executives employed in leadership positions changed, suggesting that there was a widespread understanding of the scheme.

“But the complaint lacks any details about when such changes in leadership happened and how the consulting fee requirement continued to be communicated to CoD. Put simply, CoD seems to assume Polar’s knowledge of the enterprise by virtue of its executives’ participation in the scheme. But CoD provides no basis for this assumption.

“The complaint appears to rely on a theory that Polar is vicariously liable for the acts of its executives.”

He added: “Most importantly, CoD does not allege any particularised basis for why it believed that it was required to pay the additional fees, let alone why it believed they were legitimate consulting fees rather than illicit payments. The complaint does not, for example, establish who from Polar told CoD about the consulting fees, when CoD first learned about the fee requirement, and what Polar management told CoD, to misrepresent the illicit nature of the fees.”

The judge added that the case had not proved “a pattern of racketeering activity”, and that its allegations of tax fraud were “most easily rejected”. He also rejected allegations of money laundering.

The court has, however, given CoD 30 days to amend its complaint, but the judge noted: “The court is skeptical that CoD can cure the defects in its claims (especially insofar as the subsequent indictment raises the possibility that CoD was complicit in, rather than a victim of, any fraud by executives at Polar). Moreover, CoD was already given one opportunity to amend, which it did not use.”

The dismissal will come as great relief to Polar shareholders Atlas Air and DHL, which have remained silent over the case.

However, the companies may still have a case to answer when their executives, including former DHL employees, face felony charges including wire fraud, conspiracy and money laundering, before the same judge. Industry observers have expressed surprise that, despite the payments being an “open secret” in the market, no action was taken by the shareholders until last year.

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