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Wire Fraud Charged in Air Cargo RICO Lawsuit

A New York freight forwarder is accusing a carrier owned by DHL Express and Atlas Air of racketeering in a case underscoring the competitive dynamics of the air cargo business.

The case, filed in New York district court last week, involves eight counts made by Cargo On Demand (COD) against Polar Air Cargo Worldwide. The allegations include RICO violations, fraud, conspiracy and breach of contract. COD is demanding the matter go to a jury trial. 

COD, a New York based freight forwarder self-described as a “small” business, details in its complaint a seven-year relationship with Polar involving a scheme COD alleges encompassed tax evasion and wire fraud that has remained hidden to its shareholders. 

DHL Express took a 49 percent equity stake in Polar in 2007 after it struck a strategic alliance with Polar parent Atlas Air. DHL and Atlas did not respond to requests for comment on the lawsuit Wednesday. Meanwhile, attorneys for Polar have not yet filed a response in court to the complaint. 

Companies such as COD serve as the middlemen in facilitating transportation of cargo for their customers with carriers such as Polar.  

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COD and Polar began working together in 2014, with an agreement that secured a set amount of cargo space at certain rates to COD’s customers, according to court documents. 

COD described the relationship between the two as “mutually beneficial,” in which it secured the lowest possible rates while helping market Polar’s services to a number of its Asia-based customers. 

COD alleges “in order to actually utilize its cargo space allotment, COD was told by members of Polar management that it was required to also pay Polar (via Polar management), and certain third-party consulting companies connected to Polar, additional ‘consulting fees’ separate and apart from the [Blocked Space Agreement, or BSA],” according to the company’s lawsuit. 

Those fees totaled roughly $4 million paid out between 2014 and 2021. 

COD said in its lawsuit some of Polar’s management team were also principals of the consulting companies those third-party fees were paid out to from the time the two companies began working together. Those additional fees ranged from 25 cents to 50 cents per kilo of tonnage, according to court documents. 

COD said the fees were typically invoiced each month, usually from Polar vice president Abilash Kurien, and directed the company to pay out each consulting company. COD said the money was transferred each month via wire. One email filed with the lawsuit showed Kurien specifying the payouts to management in an email from a Gmail address. 

“To COD, such fees seemed akin to a hotel ‘resort fee,’” COD’s lawsuit said. “In other words, a mandatory fee that is not included (or not prominently included) in the quoted rate, yet mandatorily charged at either a flat amount or percentage basis in the final bill.” 

COD said, due to the thin-margin nature of the business, it took on the third-party fees instead of passing it on to the customer. 

“As a result, COD absorbed the cost of the consulting fees in the form of reduced profit (or no profit at all) on associated cargo shipments,” the lawsuit said. 

In 2021, the final year the two worked together, COD agreed to participate in Polar’s Partner Incentive Program, which promised “more favorable cargo rates” if the company “placed all (or nearly all) of its cargo with Polar and shared confidential customer information with Polar,” the lawsuit said. 

COD would go on to share customer identities and business partner information with Polar. 

“Thinking the parties were acting in partnership for their mutual benefit, COD also directed nearly all of its customers’ cargo traffic to Polar, thereby increasing Polar’s revenue and profits,” the company alleges. 

That all came to an end when Polar COO Lars Winkelbauer directed COD to cease making the consulting fee payments. Winkelbauer left Polar not long after that directive was sent, according to COD. 

After the consulting fee payments stopped, Polar notified COD it was severing its space agreement and working to revise the contract’s terms. COD said Polar subsequently began trimming cargo capacity to the company. It also moved COD to a cash account, meaning it had to front payment for its customers’ shipments as opposed to paying Polar after COD’s customers paid.  

The freight forwarder raised the possibility of a pattern of misconduct on the part of Polar in its legal complaint. COD would later be contacted by Florida-based FATO LLC, another freight forwarder, which informed the company of a similar experience with Polar. 

“Polar also appears to have sent materially-identical termination communications to the other freight forwarders known to COD—after poaching all, or nearly all, of their customers—on or around the exact same dates as the communications to COD.” 

COD in April of this year confronted Polar for its “wrongful actions” and received a response from the company’s attorney denying any wrongdoing and offering a different take on the reason for the third-party fees being paid.

The legal letter sent in October to COD argued, “Polar is under no obligation to do business with COD. Polar terminated its business with COD because COD made illicit payments to members of Polar management in order to obtain favorable treatment from Polar. Polar has not harmed COD.”