United Airlines Will Pay $49 Million To Resolve Criminal Fraud Charges

United Airlines will pay a $49 million fine to the federal government to resolve criminal fraud charges for falsifying records that allowed it to collect payments for transporting U.S. mail on time, when in fact it failed to do so.

United “falsified parcel delivery information…[b]etween 2012 and 2015..by submitting false delivery scan data to make it appear that United and partner airlines with which it worked were complying with the ICAIR requirements, when in fact they were not.”

Instead of providing USPS accurate delivery scans based on the movement of the mail, United submitted automated delivery scans based on aspirational delivery times. These automated scans did not correspond to the actual movement of the mail, as mandated by the contracts. Because this scan data was not tethered to the actual delivery of mail to the foreign recipients, payment was inappropriate under the ICAIR contracts. Through this data automation scheme, United secured millions of dollars in payments from the USPS to which United was not entitled under the ICAIR contacts.

United admitted “that it concealed problems related to scanning and mail movements that, if known, would have subjected United to financial penalties under the ICAIR contracts.” Furthermore ‘certain individuals’ (people are getting off without penalty or even being named here) “worked to conceal United’s automation efforts from the USPS, as they knew that the data being transmitted was fabricated.”

A Fish Rots From The Head Down

The 2012-2015 period where these charges took place was during the era when Jeff Smisek was CEO. Smisek abruptly resigned from the airline amidst corruption charges for offering a flight from Newark to Columbia, South Carolina timed to allow the Chairman of the Port Authority of New York New Jersey (which oversees United’s hub at Newark) to visit his vacation place there. It was a flight that the airport itself couldn’t even understand how they got United to offer.

United sought lower fees in a new lease for their Newark hub. And United offered flights to Atlantic City valued by the Governor as they sought public funding of enhanced transportation to Newark. (United’s cancellation of service there should have triggered certain subsidy repayments, which New Jersey simply let slide.)

The investigation took down the former United lobbyist who was serving as New Jersey Transportation Commissioner who was present at the infamous dinner where the ‘Chairman’s flight’ was requested.

Airline Revenue And Fraud Has Been Wrapped Up With The Post Office For Nearly 100 Years

The 1925 Kelly Act authorized the Postal Service to contract with private airlines to carry the mail. That led to airlines received most of their revenue carrying mail. Often priced to the customer by the piece regardless of weight, with the government charged for weight, airlines were known to mail bricks and other large objects to themselves in other cities to pump up their revenue.

The 1930 Air Mail Act changed how mail was priced and gave broad contracting powers to the Postmaster General. The Postmaster used this power to consolidate contracts under three major airlines, forcing many airlines out of business. This came to fruition out of a 1930 meeting that became known as the ‘Spoils Conference’.

The government had dictated which airlines would survive and prosper, and awarded contracts to airlines that hadn’t been the lowest bidder. When the story of what transpired finally came out it was dubbed the Air Mail Scandal and it led to the cancellation of contracts and to the Roosevelt administration enlisting the US Army Air Corps to carry mail. They weren’t equipped to do this.

Accidents and deaths followed the Air Corps takeover of air mail, and contracts were finally returned to the private sector. None of the executives involved earlier could run airlines obtaining postal contracts and so leadership was jettisoned from the airlines.

None of the incumbent carriers were permitted to carry mail, so airlines changed their names – for instance Eastern Air Transport turned into Eastern Air Lines and Northwest Airways renamed itself Northwest Airlines. In fact all the major carriers who participated in the spoils conference received their old routes back under new contracts except United — which was apparently one of the only ones innocent of collusion — and its holding company which also controlled Boeing, Pratt & Whitney, Sikorsky and more were broken apart. Bill Boeing retired in his early 50s.

United was innocent then, and unfairly punished. It took being taken over by Continental Airlines and installing Jeff Smisek at the helm, it seems, for them to actually become guilty.

(HT: AndyPatterson)

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. @john
    It’s a case involving Illinois and new jersey…nobody goes to jail
    Some disappear once in a while but don’t hold your breath on this case
    What a fucked up corrupted pair of states

  2. And the good news is they will pay the fine with the bail out money , so basically the federal government paid the fine.

  3. Right…US taxpayers will pay the fine. They can use bailout money for the fine and still have enough left over for their electric air taxi boondoggle.

  4. Jeff Smisek – Maybe he should have to pay the fine from his golden parachute. So many things while he was the top dog was corrupt. It is really funny if it’s not sad which it is that when United merged with Continental the the “Continental” employees side were singing “Jeff’s” praises.
    What a joke. Look up the current law suit about profit sharing and pension money that was kept from United employees for 6 years but given to the Continental employees during this time.
    Many more things during “Jeff’s “ reign at Continental/United that if you look back at it really makes current United CEO Kirby look really good. Even the CEO “Oscar” who as a board of director member before coming on as CEO voted against a contract that was agreed to between United’s negotiators and its mechanics. But “Oscar” was viewed as great for the employees. These same boys “Jeff” and
    “Oscar” started gutting retiree’s flight benefits. Talk to some of these retiree’s (I have) I believe some of these action they did are almost criminal and at the least immoral.

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