Polar Air Cargo (PO, New York JFK) is being sued by small New York-based air freight forwarder Cargo on Demand (COD) for USD18 million plus costs on eight counts, namely racketeering, fraud, conspiracy, aiding and abetting, unfair trade practices, common law conspiracy, breach of contract, and tortious interference with prospective contractual relations.

A subsidiary of two of the largest global transport companies - Atlas Air Worldwide Holdings (51%) and DHL Express (49%) - Polar Air Cargo is being accused of violations under the Racketeer Influenced and Corrupt Organisations (RICO) Act by COD, which demands a jury trial, according to the docket seen by ch-aviation. Polar, through its former senior leadership, is accused of "gross fraud", "wantonness", "maliciousness", "repeated violations of federal wire fraud", and a "tax evasion scheme" that lasted at least seven years.

Damages claimed include more than USD4 million in alleged sweeteners paid by COD as part of an illicit payment scheme allegedly devised by Polar management, plus loan interest accrued by COD, lost profits, loss of goodwill, loss of business reputation, and the company's loss of anticipated future profits.

Polar management implicated include former Chief Operating Officer Lars Winkelbauer; former Vice President of Sales and Marketing Thomas Betenia; former Vice President of Marketing, Revenue Management and Network Planning Abilash Kurien; former Vice President of Operations Systems Performance and Quality Carlton Llewellyn; former Senior Director, Customer Service & Capacity Robert Schirmer; and former Global Senior Sales Director Frank Filimaua.

According to the charge sheet, COD and Polar entered into a Blocked Space Agreement (BSA) in 2014, by which Polar promised to provide COD with a specified allotment of cargo space on specified routes at specified rates. The term of the agreement was extended annually until 2021 and occasionally amended to reflect changes in pricing and routing.

However, since 2014, COD was required to also pay sweeteners to former Polar managers and a host of third-party consulting firms to actually ship goods with Polar. These included Georgia-based Peryton Consulting; Louisiana-based 51 Entertainment; Wyoming-based Banya LLC; Wilton-based Bizmind LLC; New York-based Chantalle LLC and MAAZ Consulting LLC. "In certain instances, Polar management was among the principals of these consulting companies," COD alleged.

The "consulting fees" were calculated on the monthly tonnage for all goods that COD shipped with Polar, typically varying between USD0.25-USD0.50 per kilo of tonnage in addition to the agreed BSA rates. The sweeteners allowed Polar to generate additional cargo revenue by giving the appearance of offering lower rates in comparison to competitors than if Polar had quoted the full (all costs and fees included) cost. Given the air freight forwarding industry's highly competitive nature, COD said it could not pass this extra cost on to its customers, resulting in reduced profits and high-interest-rate loans for the forwarder.

Between 2014 and 2021, COD paid nearly USD4 million in these so-called consulting fees to Polar management and consulting companies.

It said the customary procedure was that Polar management would email COD a spreadsheet identifying all shipments and the total amount of the monthly "consulting fee" due. COD would be informed by email or phone how to apportion the extra payments amongst the various consulting firms and Polar managers. Payments were made by interstate wire transfers.

In late 2021, Polar and COD entered into an incentive partnership. This entailed more favourable cargo rates if COD placed all its cargo with Polar and shared confidential customer information with the airline. In the Summer of 2021, Polar COO Lars Winkelbauer directed COD to stop paying the extra fees and then left the airline. In August 2021, Polar sent COD a 60-day cancellation notice terminating the agreed BSA pricing for certain flights to Asia, purportedly due to Covid-19. Polar also reduced COD's cargo space, wrongfully reported payment defaults to IATA's cargo accounts settlement systems (CASS), and prohibited COD from using Polar's e-booking platform, increasing the forwarder's costs by up to 20%. In October 2021, Polar placed COD on a cash account, resulting in an additional 5% charge and handling fee on cargo placed with Polar. To meet these extra requirements, COD had to take out a USD1 million loan to remain in business. Through the cash hold, handling fee, and termination of BSA rates, Polar ensured that COD could not offer competitive rates to its customers and effectively eliminated COD as a competitor in the air freight market.

Then, on December 20, 2021, Polar gave COD 11 days' notice that it would terminate their partnership and remove COD's cargo space from December 31, 2021. Having directed all its business to Polar and shared confidential customer information, COD now lost virtually all of its customer freight volume, was forced to reduce its operations drastically and was unable to repay the USD1 million loan with accruing interest.

COD claims that several other freight forwarders had experienced the same Polar tactics: incentives to exclusively use the airline, which then poached all their customers and manufactured a series of impediments to make performance practically impossible.

In answer to an April 2022 complaint from COD seeking redress, Polar allegedly admitted that its management and the consulting companies were found to have engaged in an "illicit payment scheme" linked to an account controlled by Winkelbauer. Still, the airline did not report the scheme to law enforcement, took no legal action against the former COO or the consultancies, nor did its publicly-traded parent companies disclose the ill-doings.

COD claims the scheme allowed Polar to compensate its senior executives above what was disclosed to shareholders and allowed the airline to wrongfully avoid significant payroll tax liability on this executive compensation. It accuses the airline of allowing its managers to commit wire fraud and tax evasion from 2014 until 2021. It charges that Polar management - being engaged in interstate or foreign commerce - laundered the "consulting fee" payments through the respective consulting companies.

Neither Atlas Air nor Polar Air Cargo were available for comment.