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Freighters Fined For Cartel Crimes?

| June 29, 2011

One of Nebraska’s largest companies, Union Pacific Railroad, now owes the federal government $400 million, according to an AP article. The railroad is not liable because of bailouts, loans, or back taxes owed, but because drug cartels have become quite skilled at hiding drugs on Union Pacific’s trains.  The fines stem from the Tariff Act of 1930, designed to penalize freighters for having inaccurate shipping manifests.

The law has now been expanded to penalize freighters for every ounce of illegal drugs that are smuggled into the United States.  Regardless of intent, knowledge, or negligence, a freight company such as Union Pacific is fined $500 per ounce of marijuana, and $1,000 per ounce of heroin, opiates, or cocaine that is found on board.

The merits behind the original legislation are sensible enough: make sure you know what’s in your shipment and exercise some care in preventing illicit goods from reaching American markets.  But the law fails to address the broad range of potential violations because it does not consider any element of intent or negligence.

Suppose, for example, that a freighter negligently ignores his duty to inspect his cargo, which is littered with explosives, drugs, and unregistered firearms.  A fine may be perfectly reasonable.  But Union Pacific spends $3.6 million a year on officers to search for contraband, and it has spent some $72.5 million to aid federal officers on the border.  Nevertheless, it faces the same fines as the negligent freighter.  This leaves Union Pacific in a lose-lose situation.  It can ignore its inspection duties entirely and face huge fines or it can make a good-faith effort to inspect and secure its rail lines, spending millions of dollars, and still face fines.  This has created a perverse incentive for inaction.

The doctrine’s failure to recognize any sort of intent or negligence element is its downfall.  While it is fair to expect freighters to examine their cargo for dangerous or illegal contraband, it is not fair to expect them to find everything.  Drug smuggling earns around $25 billion a year, giving smugglers motivation to circumvent inspections.  X-ray scanners, drug sniffing dogs, and visual inspections are evaded every day by smugglers, and it is unreasonable to force Union Pacific to pay extreme fines because it is unable to solve this difficult political problem.

Union Pacific says that it cannot be expected to “send unarmed personnel into Mexico to battle Mexican drug cartels that maliciously murder and wage a war against the Mexican military.”  The Justice Department says that the rail company is wholly responsible for controlling Mexican train traffic.  Litigation is now pending in federal district court in Nebraska (along with additional suits in Texas and California), and the courts will decide who is right.

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