[Senate Report 110-153]
[From the U.S. Government Publishing Office]
Calendar No. 351
110th Congress Report
SENATE
1st Session 110-153
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PREVENT ALL CIGARETTE TRAFFICKING ACT OF 2007
_______
September 11, 2007.--Ordered to be printed
_______
Mr. Leahy, from the Committee on the Judiciary, submitted the following
R E P O R T
[To accompany S. 1027]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to which was referred the
bill (S. 1027), to prevent tobacco smuggling, to ensure the
collection of all tobacco taxes, and for other purposes, having
considered the same, reports favorably thereon without
amendment and recommends that the bill do pass.
CONTENTS
Page
I. Purpose of the Prevent All Cigarette Trafficking Act.............1
II. Background and Need for the Legislation..........................2
III. History of the Bill and Committee Consideration..................8
IV. Section-by-Section and Summary of the Bill.......................9
V. Congressional Budget Office Cost Estimate.......................17
VI. Regulatory Impact Evaluation....................................20
VII. Conclusion......................................................20
VIII.Changes to Existing Law Made by the Bill, as Reported...........20
I. Purpose of the Prevent All Cigarette Trafficking Act of 2007
Senators Kohl, Specter, Leahy, Kyl and Schumer introduced
the Prevent All Cigarette Trafficking Act (PACT Act), S. 1027,
on March 29, 2007, to help combat cigarette trafficking by
updating existing anti-trafficking laws and introducing new
tools to combat illegal remote sales, such as those conducted
over the Internet.
The bill would: (1) expand the Jenkins Act to cover
smokeless tobacco; (2) increase penalties under the Jenkins Act
from a misdemeanor to a felony; (3) make it a federal offense
for any seller making a ``delivery sale'' to fail to comply
with all state excise tax, sales tax licensing, and tax
stamping laws; (4) empower state Attorneys General and others
to bring an action in federal court seeking injunctive relief
and civil penalties against out-of-state sellers who violate
state or federal requirements; (5) utilize a list enforcement
scheme to ensure common carriers will not deliver tobacco
products for those who violate federal and state laws; (6)
require Internet and other remote sellers to require sellers to
use a method of delivery that requires the persons accepting
delivery to verify that they are old enough to purchase tobacco
and sign for the delivery; (7) make cigarettes and smokeless
tobacco nonmailable matter for purposes of the United States
Postal Service; (8) grant the Bureau of Alcohol, Tobacco,
Firearms and Explosives broad record inspection authority for
distributors of large quantities of tobacco products; and (9)
clarify that it is not intended to modify specified agreements
or limitations regarding the collection of taxes on cigarettes
or smokeless tobacco sold in Indian country.
II. Background and Need for the Legislation
A. TERRORIST FINANCING GENERALLY
Shortly after the September 11, 2001, terrorist attacks on
the World Trade Center and the Pentagon, President George W.
Bush declared: ``Money is the lifeblood of terrorist operations
today. We're asking the world to stop payment.'' \1\
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\1\ ``President Freezes Terrorist Assets: Remarks by the President,
Secretary of the Treasury O'Neill, and Secretary of State Powell on
Executive Order.'' EMediaMillworks Inc., September 25, 2001.
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Since the 2001 terrorist attacks, it has been widely
recognized that an indispensable part of our strategy for
defeating al Qaeda and protecting this country from the threat
of terrorism is to deny terrorist organizations the very things
they need to survive, including financial support. The
September 2002 National Security Strategy of the United States
declared:
The United States will continue to work with our
allies to disrupt the financing of terrorism. We will
identify and block the sources of funding for
terrorism, freeze the assets of terrorists and those
who support them, deny terrorists access to the
international financial system, protect legitimate
charities from being abused by terrorists, and prevent
the movement of terrorists' assets through alternative
financial networks.
To that end, the United States, in conjunction with its
allies around the world, has undertaken a broad effort to
freeze, seize, and intercept the flow of funds to terrorist
groups, including the al Qaeda terrorist network that was
responsible for the 9/11 attacks.
According to the Government Accountability Office (GAO),
terrorists continue to raise money ``through illicit trade in
myriad commodities, such as drugs, weapons, cigarettes, and
systems, such as charities, owing to their profitability.'' \2\
The 9/11 stated: ``Counterterrorism investigations often
overlap or are cued by other criminal investigations, such as
money laundering or the smuggling of contraband [emphasis
added]. In the field, the close connection to criminal work has
many benefits.'' \3\ The PACT Act is an effort to provide
better tools with respect to criminal enforcement of cigarette
smuggling laws.
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\2\ Government Accountability Office, U.S. Agencies Should
Systematically Assess Terrorists' Use of Alternative Financing
Mechanisms, GAO-04-163, 2003.
\3\ The 9/11 Commission Report, p. 424.
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B. NORTH CAROLINA SMUGGLING RING: FIRST EXAMPLE OF GROWING LINK BETWEEN
TERRORISM AND CIGARETTE TRAFFICKING
One area which continues to be exploited by terrorists and
other organized criminal enterprises to raise significant
amounts of money is tobacco smuggling. While cigarette
trafficking is a global problem, much of it is happening in the
United States. A truckload of cigarettes contains approximately
800 cases, and it can generate as much as $2 million for a
smuggler. According to William Billingslea, an intelligence
analyst with the Bureau of Alcohol, Tobacco, Firearms and
Explosives (ATF), ``[w]ith huge profits--and low penalties for
arrest and conviction--illicit cigarette trafficking now has
begun to rival drug trafficking as a funding choice for
terrorist groups.'' \4\
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\4\ Sari Horwitz, Cigarette Smuggling Linked to Terrorism, Wash.
Post, June 8, 2004 at A1.
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The first case of documented links between a terrorist
organization and cigarette smuggling was uncovered a decade
ago. In 1996, ATF began a joint investigation with the Iredell
County Sheriff Department into illegal cigarette trafficking in
Charlotte, North Carolina. Law enforcement focused their
attention on this group when it was discovered that they were
purchasing large pallets full of cigarettes from local
distributors, and paying for everything in cash.
Their business model involved moving large amounts of
cigarettes across state lines, where they would be sold for a
substantial profit in states with higher tobacco tax rates. In
North Carolina, where they purchased the cigarettes, the tax
was 50 cents per carton. They would then load the cigarettes
onto large trucks and drive them to Michigan in vans and moving
trucks, where they would sell them to local convenience store
owners. In Michigan, the tax was $7.50 per carton, but those
taxes were never paid. By avoiding Michigan's tobacco tax, it
is estimated that these individuals were able to make anywhere
from $3,000 to $10,000 on each trip. According to court
documents, ``the conspiracy involved a quantity of cigarettes
valued at roughly $7.5 million and that the state of Michigan
was deprived of $3 million in tax revenues.''
In 1999, the Federal Bureau of Investigation (FBI) notified
ATF that a Hezbollah cell was raising funds and procuring
equipment in Charlotte. Mohamad Hammoud led the fundraising
efforts for the cell, and he was also a prime suspect in the
cigarette smuggling ring identified by ATF in 1996. The most
troubling aspect of this case is what happened to the profits
from this illegal smuggling operation. Hammoud transferred
funds generated by the cigarette trafficking scheme, as well as
money raised from other sources, back to Lebanon to support
Hezbollah, a designated foreign terrorist organization. That
support included cash and dual use equipment, such as night
vision goggles, high-end computers, ultrasonic dog repellers,
and global positioning systems.
On July 21, 2000, special agents from the FBI, as part of
``Operation Smokescreen,'' arrested 18 members of the
organization for contraband cigarette trafficking, money
laundering, and immigration violations. This investigation
lasted approximately six and one half years. In the end,
Hammoud was convicted of cigarette trafficking, providing
material support to a foreign terrorist organization, and other
charges.
In September 2003, in a separate case, Hassan Moussa Makki
pleaded guilty to charges of cigarette smuggling, racketeering,
and providing material support to a foreign terrorist
organization. From 1996 to 2002, Makki and his co-conspirators
would obtain low-tax cigarettes from the Cattaraugus Indian
Reservation in New York and North Carolina and sell them for a
substantial profit in Detroit. According to ATF, Hassan Makki
was trafficking between $36,000 and $72,000 of contraband
cigarettes per month between 1997 and 1999. It was later
discovered that one of Makki's sources for cheap cigarettes was
Hammoud's North Carolina smuggling ring, and like Hammoud,
Makki would then remit the proceeds from these illegal tobacco
sales to Hezbollah.
This is only one example of a vast, interstate conspiracy
to engage in cigarette smuggling operations inside the United
States and funnel the proceeds to a designated foreign
terrorist organization. Neither the problem of cigarette
trafficking nor the links between tobacco smuggling and the
funding of terrorist organizations is new, however. According
to a November 2003 GAO report, ``[ATF] officials told us that
as of August 20, 2003, they were investigating at least six
such cases with ties to terrorist groups. [ATF] officials also
believe that there are several other investigations under way
that may produce evidence linking them to terrorist groups.''
\5\ In the two years after that report was published, the
number of active tobacco investigations by ATF increased from
50 to 450. It has been reported that cigarette smuggling
investigations have been linked to Hamas, Hezbollah, al Qaeda,
and other designated foreign terrorist organizations in recent
years.\6\
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\5\ GAO Report, Supra note 4.
\6\ Bureau of Alcohol, Tobacco, Firearms and Explosives, Illicit
Cigarette Trafficking and the Funding of Terrorism, July 22, 2003.
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C. STATE TAX RESOURCES BEING DIVERTED TO TERRORISTS AND OTHER CRIMINAL
ENTERPRISES; PROFITABILITY FUELS GROWTH OF ILLEGAL TOBACCO TRADE
In addition to the links to designated foreign terrorist
organizations, cigarette smuggling is depleting state and local
resources. In 2005, ATF used data from the Center for Disease
Control (CDC), the United States Department of Agriculture
(USDA), and the Tax and Trade Bureau (TTB) to assess the scope
of this problem. It found that the total loss of federal and
state taxes amounted to somewhere between $3.5 billion and $3.8
billion in 2004. New York alone lost approximately $1.1
billion. Other states at the top of the list in terms of lost
tax revenue were California, New Jersey, Pennsylvania,
Washington, Massachusetts, Illinois, and Michigan.
For state governments, the problem will only get worse if
left unaddressed. As for terrorists and others in the business
of smuggling tobacco, their efforts will become more lucrative.
In 2004, Texas had a tax rate of 41 cents per pack. That year,
the state lost nearly $118 million in tobacco tax revenue.
Today, Texas's cigarette tax is $1.41 per pack. This increase
gives smugglers a greater incentive to flood the state with
contraband tobacco products, since they can make more money on
each pack they sell. A number of other states have either
raised, or are seeking toraise, their tobacco tax rates as
well. The more money that can be made by smuggling tobacco, law
enforcement see a greater number of illegal sellers enter the market.
In fact, there is evidence that the problem of illegal
tobacco smuggling is already getting worse. Today, according to
one expert, the number of cigarette vendors has risen from 88
in January 2000 to 772 in 2006.\7\ According to ATF, there are
more than 372 websites worldwide that offer tax-free cigarettes
to consumers in the United States. The proliferation of these
websites has resulted in a dramatic increase of investigations
and prosecutions of tobacco smuggling. Only 10 cigarette
smuggling investigations were initiated by ATF in 1998. In
Fiscal Year 2005, ATF had 425 active tobacco diversion
investigations.
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\7\ Ribisl KM, Kim AE, Williams RS. Sales and Marketing of
Cigarettes on the Internet: Emerging Threats to Tobacco Control and
Promising Policy Solutions. In: Bonnie RJ, Stratton K, Wallace RB, eds.
Ending the Tobacco Problem: A Blueprint for the Nation. Washington,
D.C.: The National Academies Press; 2007.
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D. STATE AND LOCAL LAW ENFORCEMENT LACK SUFFICIENT TOOLS
In its final report, the 9/11 Commission recognized the
importance of combating terrorist financing to our broader
effort to secure this country from terrorist attacks. In one of
its staff monographs, the 9/11 Commission found that ``making
it harder for terrorists to get money is a necessary * * *
component of our overall strategy'' and called it ``a critical
part of the overall campaign against al Qaeda.'' \8\
Neutralizing terrorist financing efforts is merely one tool,
albeit a very important one, that must be utilized to secure
the nation from terrorist threats. To be effective, we must
continue to adapt along with the terrorists if our
counterterrorism efforts are to be truly effective. There are a
number of areas where the U.S. government's efforts to
eliminate methods of terrorist financing have succeeded, but
there are other known fundraising methods, such as tobacco
smuggling, that have been identified where our efforts to
combat them need to be strengthened.
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\8\ U.S. National Commission on Terrorist Attacks Upon the United
States, Staff Monograph on Terrorist Financing, Staff Report to the
Commission, p. 1. Available at [http://www.9-11commission.gov/
staff_statements/911_TerrFin_Monograph.pdf].
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If we have knowledge that terrorist organizations are
exploiting a particular commodity, or gaps in our enforcement
efforts, to raise funds, actions must be taken to combat those
efforts. To turn a blind eye to the problem would be
inexcusable. While the PACT Act is not, nor does it claim to
be, a panacea to the overall problem of terrorist financing, it
will enable law enforcement officials to disrupt their ability
to raise funds through illegal tobacco smuggling operations.
State and local governments are directly affected by
tobacco smuggling. They have an incentive to bring enforcement
actions. To combat these schemes, the states have taken an
aggressive, multi-faceted approach to stopping these illegal
sales. For example, states have brought enforcement actions
against online retailers; obtained agreements from the major
credit card companies, common carriers (not including the US
Postal Service) and two tobacco manufacturers to stop
facilitating these sales; and one state (New York) obtained an
Assurance of Discontinuance against a third party service
provider used to facilitate these sales.
States' enforcement authority is severely limited, however.
Cigarette trafficking is, by its very nature, an interstate
problem. Smugglers make money by moving tobacco products--
either through the mail or by the truckload--from low-tax
states to high-tax states. Therefore, smugglers base their
operations in low-tax states, where they have easy access to
cheap cigarettes and smokeless tobacco. Though state
enforcement officials can often identify out-of-state sellers
who are violating their tobacco tax laws, the high-tax states'
ability to enforce their laws against out-of-state sellers is
limited because of the jurisdictional limitations of their
state courts. As a result, our state and local governments are
often helpless to address this problem and have to rely on
federal law enforcement officials to pursue these cases.
E. FEDERAL ENFORCEMENT EFFORTS EXPANDING, BUT INSUFFICIENT AUTHORITIES
LIMIT EFFECTIVENESS
Tobacco smuggling is inherently an interstate and
international problem. Unless we enhance the reach of state
enforcement officials, the involvement of federal law
enforcement is often critical to the success of an
investigation. There are a variety of federal criminal statutes
that can be used to prosecute tobacco smugglers. The primary
federal law governing interstate sales of tobacco products is
commonly referred to as the Jenkins Act,\9\ which requires out-
of-state tobacco sellers to register with state tobacco tax
collectors and report all sales into a state to that state's
tax collection officials. The Contraband Cigarette Trafficking
Act (CCTA) prohibits the purchase, sale, shipment or
distribution of large amounts of cigarettes and smokeless
tobacco across state lines.\10\ Amendments to strengthen the
CCTA were included in earlier versions of the PACT Act, and
during the 109th Congress, they were enacted as part of H.R.
3199, a bill to reauthorize the USA PATRIOT Act. Similar
language was included in section 121 of the Conference Report
to accompany H.R. 3199, House Report 109-333. The Conference
Report passed the House on December 14, 2005, and the Senate on
March 2, 2006. It was signed into law on March 9, 2006.
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\9\ 15 U.S.C. Sec. Sec. 375-78.
\10\ 18 U.S.C. Sec. 2341.
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Depending on the facts of the case, a variety of other
tools have been used to prosecute individuals who engage in the
illegal sale of tobacco products. For example, convictions have
been obtained under the Racketeer Influenced and Corrupt
Organization (RICO) Act,\11\ as well as pursuant to money
laundering \12\ and material support statutes.\13\ Additional
authorities that have been used to prosecute smugglers include
statutes prohibiting wire fraud,\14\ mail fraud,\15\
trafficking in counterfeit goods,\16\ and trafficking in
counterfeit stamps.\17\
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\11\ 18 U.S.C. Sec. 1962.
\12\ 18 U.S.C. Sec. Sec. 1956, 1957.
\13\ 18 U.S.C. Sec. 2339.
\14\ 18 U.S.C. Sec. 1343.
\15\ 18 U.S.C. Sec. 1341.
\16\ 18 U.S.C. Sec. 2320.
\17\ 18 U.S.C. Sec. 2314.
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As already noted, federal tobacco smuggling enforcement has
increased dramatically in recent years, using all of these
tools. While past cases--including those in North Carolina and
Detroit--and the increasing number of investigations are
pointed to as successes, there are a number of obstacles that
limit the effectiveness of federal enforcement efforts to
curtail cigarette trafficking, and to eliminate it as a
lucrative method of financing terrorist organizations and their
operations. Over time, tobacco smuggling cases have become
increasingly complex. They take longer andrequire more
resources to resolve, and the enforcement tools on the books are not
always sufficient to deal with the problem.
First, the penalties for violating some of the laws
governing tobacco smuggling are not strong enough to deter
violators. A 2002 study by the GAO found that 78 percent of the
websites reviewed did not comply with the Jenkins Act, and the
other 22 percent gave no indication one way or the other
whether they complied with the Act. A violation of the primary
federal law governing the payment of state tobacco taxes is a
misdemeanor. None of those websites identified by the GAO in
2002 had been penalized for violating federal law. Federal
officials have little incentive to enforce this law today,
unless more serious charges can be pursued.
Second, ATF's record inspection authority in this area is
much different from its authority to inspect licensed firearms
manufacturers and dealers. This limits ATF's ability to ensure
compliance with the Jenkins Act and other federal laws
governing tobacco sellers.
F. INTERNET SALES POSE UNIQUE CHALLENGE TO FEDERAL, STATE AND LOCAL
ENFORCEMENT EFFORTS
In addition, many of the existing law enforcement tools
were not designed to meet the challenges posed by today's
illegal tobacco vendors, particularly those who conduct sales
over the Internet. There are a large number of illegal tobacco
vendors who conduct sales over the Internet, and still more who
do so by phone, fax, and mail order. These vendors are mobile,
making it difficult for law enforcement to locate them. The
Internet, in particular, helps illegal vendors to operate with
near impunity. Even those who are identified and the subject of
enforcement actions are able to close up shop and quickly
reappear with a new name and website.
Since illegal vendors can easily elude traditional
enforcement actions, one obvious point of disruption is at the
point of delivery. Illegal remote sellers of cigarettes and
smokeless tobacco have, to date, been very successful at
evading compliance with existing federal and state laws by
conducting sales by making their cigarette and smokeless
tobacco deliveries to their customers by mail. Conducting sales
in this manner allows lawbreaking tobacco vendors to escape
federal and state enforcement efforts. Without gaining the
cooperation of delivery services, whether it is the United
States Postal Service (USPS) or private carriers, law
enforcement officials have had limited impact on remote
sellers. While some progress has been made with respect to
private carriers, most of whom prohibit the use of their
services to ship cigarettes, it is a reality that both private
carriers and the USPS continue to serve as the delivery arm for
illegal tobacco vendors.
III. History of the Bill and Committee Consideration
108TH CONGRESS
On June 6, 2003, Senators Hatch and Kohl introduced the
Prevent All Cigarette Trafficking (PACT) Act of 2003 (S. 1177).
The bill was taken up by the Senate Committee on the Judiciary
on July 31, 2003, and reported without objection. On December
9, 2003, the PACT Act was amended and passed the Senate by
unanimous consent.
109TH CONGRESS
On July 21, 2005, the House of Representatives passed H.R.
3199, a bill to reauthorize the USA PATRIOT Act. Section 123 of
that bill was substantially similar to Section 4 of the PACT
Act, S. 1177 in the 108th Congress. It amended the Contraband
Cigarette Trafficking Act (``CCTA,'' 18 U.S.C. Sec. 2341 et
seq.), which makes it unlawful for any person knowingly to
ship, possess, sell, distribute or purchase contraband
cigarettes. It amended the CCTA by: (1) extending its
provisions to cover contraband smokeless tobacco; (2) reducing
the number of cigarettes that trigger application of the CCTA
from 60,000 to 10,000; (3) imposing reporting requirements on
persons, except for tribal governments, who engage in delivery
sales of more than 10,000 cigarettes or 500 single-unit cans or
packages of smokeless tobacco in a single month; (4) requiring
the destruction of cigarettes and smokeless tobacco seized and
forfeited under the CCTA; and (5) authorizing State and local
governments, and certain persons who hold Federal tobacco
permits, to bring causes of action against violators of the
CCTA. It also amends section 2344(c), the contraband cigarette
forfeiture provisions, by adding ``contraband smokeless
tobacco'' to items subject to forfeiture and by removing the
reference to the Internal Revenue Code, which became outdated
after the enactment of the Civil Asset Forfeiture Reform Act of
2000. This language was included in section 121 of the
Conference Report to accompany H.R. 3199, House Report 109-333.
The Conference Report passed the House on December 14, 2005,
and the Senate on March 2, 2006. It was signed into law on
March 9.
On August 3, 2006, the Prevent All Cigarette Trafficking
(PACT) Act of 2006 (S. 3810), was introduced by Senators Kohl
and Schumer. The bill was referred to the Committee on the
Judiciary, but no further action was taken.
110TH CONGRESS
On March 29, 2007, S. 1027, the Prevent All Cigarette
Trafficking (PACT) Act was introduced by Senator Kohl. The bill
had four cosponsors: Senators Specter, Leahy, Kyl, and Schumer.
The bill was placed on the agenda for the Judiciary Committee
business meeting on May 17, 2007, and the Committee reported
the bill favorably and without amendment. After being approved
by the Judiciary Committee, on May 21, 2007, Senator Collins
was added as a cosponsor.
IV. Section-by-Section and Summary of the Bill
The following is a section-by-section analysis and
explanation of the Prevent All Cigarette Trafficking Act of
2007.
Section 1. Short title; findings; purposes
Section 2. Collection of state cigarette and smokeless tobacco taxes
Section 2(a). Definitions
Subsection (a) replaces the entire definitions section of
the existing Jenkins Act. It redefines the term ``cigarette''
to include ``roll-your-own'' tobacco products. It adds a
definition of ``deliverysale'' to ensure that the provisions of
the Jenkins Act apply to all remote sellers, whether they conduct sales
by telephone, fax, Internet, or through the mail. This section also
adds definitions for the following: ``Attorney General''; ``common
carrier''; ``consumer''; ``delivery sale''; ``delivery seller'';
``Indian country''; ``Indian tribe''; ``interstate commerce''; and
``smokeless tobacco''. It redefines the term ``person'' to include
State, local and Indian tribal governments, and it expands the
definition of ``use'' to include the consumption, storage, handling or
disposal of smokeless tobacco, in addition to cigarettes. This section
also amends the definition of ``tobacco tax administrator'' to include
local or tribal officials duly authorized to collect and administer the
tobacco tax in addition to the State official.
Section 2(b). Reporting requirements
Subsection (b) enhances the existing reporting requirements
under the Jenkins Act, which currently requires interstate
sellers of tobacco products to register with state tobacco tax
collectors and report all sales into a state to that state's
tax collection officials.
Specifically, subsection (b) expands the scope of reporting
requirements to apply to: (1) the sale or advertising for sale
of smokeless tobacco products; (2) persons who ship or transfer
cigarettes and smokeless tobacco products; and (3) the shipment
of cigarettes or smokeless tobacco into localities or Indian
country that tax the sale or use of such products. While
current law requires sellers to file reports with the tobacco
tax administrator of a state, locality or Tribal government,
this subsection would also require them to file those reports
with the Attorney General of the United States. It also
requires vendors to provide additional identifying information
in those reports to ensure that law enforcement officials can
locate them for inspection and enforcement purposes. Subsection
(b) clearly states that any information provided in these
reports can only be used for purposes of enforcing the Jenkins
Act or the collection of any cigarette or smokeless tobacco
sales taxes owed.
Section 2(c). Regulation of ``delivery sellers'' and list
enforcement
Subsection (c) adds a new section, Section 2A, to the
Jenkins Act to provide for better enforcement of the Act's
requirements against illegal Internet and other remote sellers,
defined as ``delivery sellers'' under the bill, by requiring
them to comply with three basic requirements.
First, a delivery seller would be required to comply with
the shipping requirements outlined in the PACT Act. The
delivery seller would have to place a label on the outside of
all packages to indicate that it contains cigarettes or
smokeless tobacco, providing notice to a common carrier or
other delivery service that the package contains tobacco
products. If the package containing tobacco is not properly
labeled, it is to be treated as nonmailable matter.
The shipping requirements impose a weight limit on delivery
sales of tobacco products, prohibiting a delivery seller from
selling, offering or delivering a package containing more than
10 pounds of cigarettes and smokeless tobacco in a single sale
or single delivery.
Finally, it prohibits a delivery seller from selling
tobacco products to a person under the minimum age required for
the legal sale or purchase of tobacco at the place of delivery,
and requires a delivery seller to ensure that its customers are
of legal age to purchase tobacco. To ensure that tobacco
products are not being sold to minors, the subsection requires
the delivery seller to: (1) obtain identifying information from
the customer at the time of sale and verify through a
commercially available database, consisting primarily of
information from government sources, that the customer is old
enough to purchase tobacco and (2) use a method of delivery
that requires the recipient to sign for delivery and provide a
valid, government-issued identification showing the person is
old enough to purchase tobacco.
Second, delivery sellers would be required to keep records
of all delivery sales made for at least four years. These
records would have to be made available to state, local, tribal
and federal officials for enforcement purposes.
Third, subsection (c) requires delivery sellers to comply
with all state, local, tribal and other laws applicable to the
sale of tobacco products, including excise taxes; licensing and
stamping requirements; restrictions on sales to minors; and
other legal requirements relating to the sale, distribution, or
delivery of cigarettes or smokeless tobacco. In addition, it
prohibits delivery sellers from selling or delivering
cigarettes or smokeless tobacco into a state or locality unless
the seller has paid all applicable excise taxes and affixed all
required stamps or other indicia to the cigarettes or smokeless
tobacco in advance of completing the sale or delivery.
Subsection (c) also ensures that the legitimate delivery
services of private common carriers, such as UPS, FedEx and
DHL, will not be exploited by cigarette traffickers to deliver
their illegal products while avoiding detection. To do so, the
PACT Act adopts a novel approach similar to one that has been
employed by the State of Maine, sometimes referred to as a list
enforcement scheme.
Through negotiations with common carriers over the course
of a year, the sponsors of the bill have worked to ensure that
the list enforcement scheme can be implemented effectively, and
without imposing an unreasonable burden on common carriers. A
great number of changes were made to previous iterations of the
legislation to ensure its workability and to empower delivery
services to prevent illegal tobacco products from being shipped
through their companies.
To do so, subsection (e) of Section 2A of the Jenkins Act
would authorize the Attorney General of the United States to
compile a list of unauthorized delivery sellers. The list would
include any delivery seller who has not registered with the
Attorney General, as required under the Jenkins Act, or has
failed to comply with any of the requirements of the Jenkins
Act or the Prevent All Cigarette Trafficking Act of 2007. The
list would be compiled with the input of federal law
enforcement officials and the attorney general, tax
administrator, or chief law enforcement official of each state,
local or tribal government that levies a tobacco tax. The list
would be updated at least every four months to include
additional delivery sellers, or remove those who have come into
compliance with all of the necessary requirements.
Under subsection (e)(1)(B), the list would contain, to the
extent known, the following information for each delivery
seller included in the list: (1) all names the delivery seller
uses in the transaction of its business or on packages
delivered to customers; (2) all addresses from which the
delivery seller does business or ships cigarettes or smokeless
tobacco; (3) the websiteaddresses, primary e-mail addresses,
and phone number of the delivery seller; and (4) any other information
the Attorney General determines would facilitate compliance with the
list enforcement scheme.
Both the initial list and any updates would be distributed
to the attorney general and tax administrator of every state
and all common carriers and other delivery services, including
the United States Postal Service. This section also permits the
Attorney General to distribute the list to other persons if he
or she determines that doing so will enhance enforcement
efforts. The subsection also allows people receiving the list
to deliver it to a government official or common carrier for
enforcement purposes, or to discuss a delivery seller's
inclusion on this list with the delivery seller, but otherwise
requires the list to be kept confidential.
Subsection (e)(2) of Section 2A would prohibit any common
carrier from knowingly completing the delivery of any package
for a person whose name and other identifying information is
included on any list, or its updates, distributed by the
Attorney General of the United States.
The inclusion of detailed identifying information on the
initial list and all of the updates is intended to accomplish
two objectives. First, it will ensure that common carriers and
other delivery services will have adequate information to
identify which of their customers are using their services to
violate state and federal tax laws and avoid detection by law
enforcement.
Second, the language of this subsection clarifies that
common carriers are not required to act as an investigative arm
of the government. Common carriers would simply be prohibited
from delivering packages for those people whose identifying
information appears on the list, and would not be required to
determine whether packages not containing this identifying
information were actually being shipped by individuals
identified on the lists. Subsection (e)(8)(A) of Section 2A of
the Jenkins Act would clarify that any list is accurate or
complete, determine whether a customer who appears on that list
is in compliance with the PACT Act, or open or inspect a
package to determine whether it contains tobacco products.
The subsection accommodates concerns raised about the
ability of common carriers to maintain compliance immediately
after the distribution of the initial list and any updates.
Subsections (e)(2)(A) and (B) of Section 2A of the Jenkins Act
would allow 60 days after the distribution of the list, and 30
days after the distribution of any updates, for common carriers
and other delivery services to stop shipping packages for
customers identified on those lists.
Subsection (e)(3)(B) of Section 2A of the Jenkins Act would
require common carriers to maintain, for a period of five
years, any records kept in the ordinary course of business
relating to deliveries that were interrupted for purposes of
compliance with the PACT Act.
To ensure that common carriers will not be penalized for
complying with the requirements of the Act, subsection
(e)(8)(C) of Section 2A of the Jenkins Act would clarify that a
common carrier will not be penalized under section 14101(a) of
Title 49, United States Code, for not completing the delivery
of a package because of reasonable efforts to comply with the
requirements of the Act. If a delivery service encounters a
package from an individual identified on the list, subsection
(e)(3)(A)(ii) of Section 2A requires the common carrier or
other delivery service to provide the package to law
enforcement officials or destroy it.
One criticism of earlier versions of the PACT Act focused
on creating federal regulations of the delivery of tobacco
products, when a large number of states have already passed
laws in this area. Common carriers and other delivery services
believed that it would be burdensome to comply with the various
federal and state requirements in this area.
To lessen these concerns, subsection (e)(4) was added to
the new Section 2A of the Jenkins Act. This subsection preempts
a limited number of state laws in this area, namely those types
of laws that are being replaced by the strong federal
regulatory scheme in the PACT Act. Specifically, subsection
(e)(4) preempts state, local and tribal laws regulating the
delivery of cigarettes or smokeless tobacco to consumers that:
(1) require common carriers or delivery services to verify the
age or identity of the consumer accepting delivery of the
package using a government-issued identification; (2) require
the common carrier or delivery service to obtain a signature
from the person accepting the package; (3) require the common
carrier or delivery service to verify that all applicable taxes
were paid; (4) require packages delivered by the common carrier
or delivery service to contain particular labels, notices, or
markings; or (5) prohibit common carriers or delivery services
from making deliveries based on whether the delivery seller is
identified on a list maintained or distributed by anyone other
than the Federal government.
New York has adopted regulations, however, that do not in
any way conflict with the PACT Act's provisions. New York has
enacted a law that completely prohibits the delivery sale of
tobacco products to individual consumers. Because New York's
law entirely prohibits the delivery sale, shipment and delivery
of cigarettes to consumers, rather than regulating how such
delivery sale, shipment or delivery should be effected, there
is no need to preempt New York's law, or other similar state
statutes. As a result, subsection (e)(4)(C) was included to
clarify that state laws prohibiting the delivery sale, and
those prohibiting the shipment or delivery pursuant to a
delivery sale, of cigarettes and smokeless tobacco to
individual consumers are not preempted by the PACT Act. This is
intended to preserve New York's existing law and ensure that
other states are able to adopt similar laws in the future.
Subsection (e)(7) of Section 2A of the Jenkins Act would
provide protection for law abiding delivery sellers. This
subsection requires the Attorney General to make a reasonable
attempt to provide notice to delivery sellers who will be
included on the list of noncompliant delivery sellers at least
14 days in advance of the distribution of such a list. This
provides sufficient time for a delivery seller to challenge the
determination by federal, state, local or tribal officials that
they have not complied with applicable laws.
Section 2(d). Enhanced penalties
Subsection (2)(d) replaces Section 3 of the Jenkins Act to
enhance existing penalties and provide for punishment of any
violation of the new requirements added to the Jenkins Act by
the Prevent All Cigarette Trafficking Act.
Most importantly, it would create a new subsection (a)(1)
of the Jenkins Act, which would ensure that violators of the
Jenkins Act are guilty of a felony, punishable by up to three
years in prison and a fine. As mentioned previously in this
Report, studies have shown that virtually all Internet tobacco
vendors are not in compliance with Jenkins Act requirements,
but enforcement actions have not been taken against them under
this law because the penalties are insufficient. The Department
of Justice and the Bureau of Alcohol, Tobacco, Firearms and
Explosives believe that making violations of the Jenkins Act a
felony will encourage U.S. Attorneys' Offices to prosecute
violators of the Jenkins Act.\18\
---------------------------------------------------------------------------
\18\ Government Accountability Office, Internet Cigarette Sales:
Giving ATF Investigative Authority May Improve Reporting and
Enforcement, GAO-02-743, 2002.
---------------------------------------------------------------------------
Subsection (a)(2) of Section 3 of the Jenkins Act would
place two limitations on the applicable criminal penalties.
First, it clarifies that state, local and tribal governments
are not subject to criminal penalties. Second, it provides that
common carriers, independent delivery services, and their
employees are subject to criminal penalties only if the
violation was committed intentionally, either for economic gain
or to assist a delivery seller in violating the Act.
As amended by the PACT Act, subsection (b) of Section 3 of
the Jenkins Act would define the applicable civil penalties for
violations of the Act. It provides that delivery sellers who
violate the Jenkins Act will be fined the greater of $5,000 for
a first violation and $10,000 for any subsequent violation, or
two percent of the gross sales of cigarettes or smokeless
tobacco sold during the one year period ending on the date of
the violation.
This subsection also provides that a common carrier or
other delivery service that violates the Jenkins Act will be
subject to a civil fine for violating the Act. Any fine of a
common carrier or other delivery service will not exceed $2,500
for a first violation, and $5,000 for any subsequent violation
within one year of a prior violation.
The subsection also provides that any civil penalties
imposed against either a delivery seller or a delivery service
are in addition to other damages, equitable relief, or
injunctive relief that can be awarded by the court.
The subsection includes an additional limitation on civil
penalties with respect to common carriers and other delivery
services. It would add subsection (b)(3)(B) to Section 3 of the
Jenkins Act, which exempts the delivery service from civil
liability if it ``has implemented and enforces effective
policies and practices for complying with the requirements'' of
the Jenkins Act. The Committee's intention is to place great
emphasis on the word ``effective.'' UPS, FedEx, and other large
delivery services currently have elaborate systems to track
packages and ensure compliance with their own internal
regulations, including prohibitions or limitations on the
shipment of alcohol, hazardous materials, and by non-paying
customers. The regulations of the PACT Act can be incorporated
into that compliance system quite easily. This provision is not
intended to diminish the requirements placed on delivery
services. Rather, it is expected to yield substantial results.
It is the Committee's intention that this provision will
absolve delivery services of civil liability only when, despite
their best efforts to create a fool proof system, packages slip
through the cracks or cannot reasonably be detected by their
compliance system.
Section 2(e). Enhanced enforcement authorities
Subsection (2)(e) includes critically important new
authorities for state, local and tribal law enforcement
officials. Currently, the ability of state and local law
enforcement officials to reach out-of-state cigarette
traffickers through enforcement actions in their own state
courts is limited. To extend the reach of these officials, this
subsection provides jurisdiction to United States District
Courts to prevent and restrain violations of this Act, as well
as to award injunctive or equitable relief, including money
damages, for such violations. While the United States Attorney
General will continue to have primary enforcement authority
under the Jenkins Act, this subsection clarifies that state,
local and tribal enforcement officials have standing to bring
actions in U.S. District Courts to enforce the Jenkins Act.
Subsection (2)(e) allows states, localities, and tribes who
levy excise taxes to provide evidence to the Attorney General
of violations of the Jenkins Act for enforcement purposes.
Subsection (2)(e) also establishes a PACT Anti-Trafficking
Fund in the Treasury. Fifty percent of penalties collected by
the Federal government through PACT enforcement efforts would
be transferred into the PACT Anti-Trafficking Fund and made
available to the Attorney General for use in connection with
enforcement of the Jenkins Act and other tobacco product anti-
contraband laws. Fifty percent of those funds must be made
available to the Department of Justice agencies and offices
responsible for the investigations leading to the collection of
the penalty.
Like all areas of law enforcement, cooperation between all
levels of government--federal, state, local and tribal--is
essential to an efficient allocation of resources and a
successful outcome. To that end, subsection (2)(e) encourages
state, local, and tribal officials who bring an enforcement
action in U.S. District Court to inform the Attorney General.
Section 3. Treatment of cigarettes and smokeless tobacco as nonmailable
matter
Illegal remote sellers of cigarettes and smokeless tobacco
have been incredibly successful at evading compliance with
existing federal and state laws relating to interstate tobacco
sales simply by delivering cigarettes and smokeless tobacco to
their customers by mail. Using the mails has allowed them to
evade detection and operate with near impunity.
Section 1716 of Title 18, United States Code, provides that
alcohol, poisons, weapons, and other materials shall be treated
as nonmailable matter by the United States Postal Service.
Section 3 of the PACT Act amends that section to add cigarettes
and smokeless tobacco to the list of nonmailable matter. This
would make it illegal for delivery sellers to deposit tobacco
products in the U.S. mails, and it would prohibit the U.S.
Postal Service from accepting for delivery, or delivering,
packages its employees know or have reason to believe contain
cigarettes or smokeless tobacco. As mentioned earlier in this
section, the list of noncompliant sellers compiled by the
Attorney General of the United States will be transmitted to
the United States Postal Service. This list will provide vital
information to the Postal Service for the enforcement of this
section. In addition, this section clarifies that the phrase
``reasonable cause to believe'' includes notification by the
Attorney General, a U.S. Attorney, or a state Attorney General
that a person is primarily engaged in the business of
transmitting nonmailable cigarettes or smokelesstobacco. It is
our intent that the language of Section 3 be interpreted by the U.S.
Postal Service and other federal law enforcement agencies to achieve
the most effective means possible to stop any and all prohibited
mailings of cigarettes and smokeless tobacco into or within the United
States.
Section 3 includes a geographic exception to the
nonmailable matter provision. This exception was included to
allow mailings of cigarettes and smokeless tobacco to persons
located in remote areas of Hawaii or Alaska, where individuals
are forced to rely exclusively on the mails to obtain groceries
and other consumables.
Section 3 requires tobacco products seized and forfeited
pursuant to this section to either be destroyed or retained by
the government for law enforcement purposes and then destroyed.
In the event that a delivery seller violates the
nonmailable matter provision, Section 3 of the PACT Act
provides for a fine of as much as ten times the retail value of
the nonmailable cigarettes or smokeless tobacco, in addition to
any unpaid taxes.
Section 3 also establishes, within the Treasury, the PACT
Postal Service Fund. This provision requires fifty percent all
fines imposed for violations of the nonmailability provisions
to be transferred into the PACT Postal Service Fund for use by
the Postmaster General for enforcement of the nonmailability
provision.
Section 4. Compliance with model statute or qualifying statute
In 1998, 46 states, Puerto Rico, the U.S. Virgin Islands,
American Samoa, the Northern Mariana Islands, Guam, the
District of Columbia, the Brown & Williamson Tobacco
Corporation, Lorillard Tobacco Company, Philip Morris
Incorporated, R.J. Reynolds Tobacco Company, Commonwealth
Tobacco, and Liggett & Myers entered into what is called the
Master Settlement Agreement (MSA). The MSA imposed a variety of
restrictions on the advertising, marketing and promotion of
cigarettes. In addition to avoiding taxes, an important way in
which cigarette traffickers are able to raise money and compete
with legitimate sellers is to avoid compliance with the Model
Statute, which requires manufacturers who are not party to the
MSA to pay money into an escrow fund. The vast majority of
delivery sellers who violate the Model Statute and the MSA are
foreign entities, many of which are known to engage in illegal
cigarette trafficking.
Section 4 would make it a felony for a manufacturer or
importer to sell or deliver tobacco products into a state that
is a party to the MSA if the cigarettes or smokeless tobacco
are produced by a manufacturer that is not complying with the
Model statute or Qualifying Statute enacted by a state.
Subsection (b) provides that United States District Courts
shall have jurisdiction to prevent and restrain violations of
this section, and it allows states, through their attorneys
general, to bring suit in U.S. District Courts for violations
of the compliance provisions and to recover attorneys fees from
persons found to have willfully and knowingly violated this
section. Subsection (b)(5) clarifies that the Attorney General
of the United States also has authority to administer and
enforce this section of the PACT Act.
Section 5. Inspection by Bureau of Alcohol, Tobacco, Firearms, and
Explosives of records of certain cigarette and smokeless
tobacco sellers
Section 5 authorizes the Bureau of Alcohol, Tobacco,
Firearms and Explosives to inspect the premises and records of
delivery sellers who transfer more than ten thousand cigarettes
or more than five hundred single-unit cans or packages of
smokeless tobacco in a single month.
In the event that a delivery seller or other tobacco vendor
refuses to comply with a request by law enforcement officials
to inspect records, Section 5 allows U.S. District Courts to
compel inspections in a civil action. Any failure to maintain
records or allow inspection under this section would result in
a fine of as much as $10,000 for each violation.
Section 6. Exclusions regarding Indian tribes and tribal matters
Subsection (a)(1) provides that nothing in the PACT Act is
intended to affect, amend or modify any agreements, compacts or
other intergovernmental arrangements between Indian tribes and
any State or local government relating to the collection of
taxes on cigarettes or smokeless tobacco.
Subsection (a)(3) clarifies that nothing in the PACT Act or
its amendments should be construed to affect, amend, or modify
limitations under existing federal law, including federal
common law and treaties, on state, local and tribal tax and
regulatory authority with respect to the sale, use or
distribution of cigarettes and smokeless tobacco by or to
Indian tribes or tribal members in Indian country.
Subparagraphs (4) and (5) of subsection (a) clarify that
the PACT Act and its amendments will not have any impact on the
current state of law regarding Tribal sovereignty. Subparagraph
(4) clarifies that the PACT Act does not affect, amend, or
modify State jurisdiction over tribal governments, members, or
reservations. Subparagraph (5) states that the PACT Act does
not affect, amend, or modify any existing authority of state or
local governments to bring enforcement actions against persons
in Indian country. However, subsection (b) preserves any
agreements or pacts between Indian tribes and state or local
governments to allow for the enforcement of tobacco laws and
regulations.
Subsection (c) affirms that nothing in this Act, including
authorities provided to state and local governments to bring
enforcement actions in U.S. District Courts, are intended to
``authorize, deputize, or commission States or local
governments as instrumentalities of the United States.''
Subsection (d) clarifies that nothing in the PACT Act or
its amendments is intended to prohibit, limit or restrict the
enforcement authority of the Attorney General within Indian
country.
Section 7. Effective date
Section 7 provides that Section 5 of the Act, dealing with
Bureau of Alcohol, Tobacco, Firearms, and Explosives authority,
shall take effect on the date of enactment. All other sections
of the PACT Act will take effect ninety days after the date of
enactment.
Section 8. Severability
Section 8 provides that the invalidation of any provision
of the PACT Act or its application will not affect the other
provisions included in the Act, or their application to any
other person or circumstance.
V. Congressional Budget Office Cost Estimate
The Committee sets forth, with respect to the bill, S. 879,
the following estimate and comparison prepared by the Director
of the Congressional Budget Office under section 402 of the
Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, July 20, 2007.
Hon. Patrick J. Leahy,
Chairman, Committee on the Judiciary,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 1027, the Prevent
All Cigarette Trafficking Act of 2007.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Mark
Grabowicz (for federal cost), Melissa Merrell (for the state,
local, and tribal impact), and Jacob Kuipers (for the private-
sector impact).
Sincerely,
Peter R. Orszag.
Enclosure.
Summary: S. 1027 would require individuals and businesses
who make interstate sales of cigarettes or smokeless tobacco to
comply with state tax laws and register with the Bureau of
Alcohol, Tobacco, Firearms, and Explosives (ATF). The bill
would permit ATF to inspect the premises of anyone who
distributes or sells in interstate commerce more than 10,000
cigarettes or 500 cans or packages of smokeless tobacco in a
month via telephone, the mail, or the Internet. S. 1027 also
would increase penalties, including criminal and civil fines,
for violations of the laws relating to taxation of cigarettes
and smokeless tobacco.
CBO estimates that implementing S. 1027 would cost about
$120 million over the 2008-2012 period for ATF to enforce the
bill's provisions, assuming appropriation of the necessary
amounts. Enacting the bill could affect direct spending and
receipts, but we estimate that any such effects would not be
significant.
S. 1027 would impose both intergovernmental and private-
sector mandates, as defined in the Unfunded Mandates Reform Act
(UMRA), on certain tobacco sellers and individuals. The bill
also would preempt certain state, local, and tribal laws
regulating the delivery of tobacco products. CBO expects that
the direct costs to comply with those mandates would not be
significant and would not exceed the annual thresholds
established in UMRA for intergovernmental and private-sector
mandates ($66 million and $131 million respectively in 2007,
adjusted annually for inflation).
Estimated cost to the Federal Government: The estimated
budgetary impact of S. 1027 is shown in the following table.
The costs of this legislation fall within budget function 750
(administration of justice). In addition to the costs shown
below, enacting S. 1027 could affect direct spending and
receipts. However, we estimate that any such effects would be
less than $500,000 in any year.
----------------------------------------------------------------------------------------------------------------
By fiscal year, in million of dollars--
-----------------------------------------------------
2007 2008 2009 2010 2011 2012
----------------------------------------------------------------------------------------------------------------
SPENDING SUBJECT TO APPROPRIATION
ATF Spending Under Current Law:
Estimated Authorization Level \1\..................... 979 1,014 1,046 1,078 1,113 1,148
Estimated Outlays..................................... 976 1,011 1,043 1,075 1,110 1,145
Proposed Changes:
Estimated Authorization Level......................... 0 18 25 26 27 28
Estimated Outlays..................................... 0 16 24 26 27 28
ATF Spending Under S. 1027:
Estimated Authorization Level......................... 979 1,032 1,071 1,104 1,140 1,176
Estimated Outlays..................................... 976 1,027 1,067 1,101 1,137 1,173
----------------------------------------------------------------------------------------------------------------
\1\ The 2007 level is the amount appropriated for that year for ATF activities. The estimated authorization
levels for 2008 through 2012 are CBO baseline estimates that adjust the amount appropriated for 2007 for
anticipated inflation.
Basis of estimate: CBO estimates that implementing S. 1027
would increase ATF operating costs by about $120 million over
the 2008-2012 period. For this estimate, CBO assumes that the
necessary amounts will be appropriated near the start of each
fiscal year and that spending will follow historical patterns
for similar activities conducted by ATF. In addition, the bill
would have an insignificant effect on direct spending and
receipts.
Spending subject to appropriation
S. 1027 would permit the Bureau of Alcohol, Tobacco,
Firearms, and Explosives to inspect the premises of businesses
that distribute or sell more than 10,000 cigarettes or 500 cans
or packages of smokeless tobacco each month via telephone, the
mail, or the Internet. Under the bill, the agency expects that
it would need to conduct inspections for about 7,500 businesses
each year. The ATF anticipates that it would need to hire about
130 new employees, including inspectors, agents, auditors, and
necessary support personnel, to carry out inspections and any
subsequent investigations into illegal activity. Once fully
phased in, CBO estimates that the costs of additional employees
under the bill would reach $25 million annually, including
salaries, benefits, training, equipment, upgraded computer
systems, and support costs. For this estimate, we assume that
the new positions would be fully staffed by fiscal year 2009.
Direct spending and revenues
Enacting S. 1027 could increase collections of civil and
criminal fines for violations of the bill's provisions relating
to the sale of cigarettes and smokeless tobacco. CBO expects
that any additional collections would not be significant
because of the relatively small number of additional cases
likely to be affected. The receipt of criminal and civil fines
is recorded as additional revenue.
Under the bill's provisions, some of those fines would not
be available for spending, some would be deposited in the Crime
Victims fund and later spent, and others would be deposited in
new funds established by the bill and later spent from those
funds. (Deposits into one of those new funds would be spent by
the U.S. Postal Service and thus would be classified as off-
budget.) CBO estimates that spending of fines collected under
S. 1027 would not be significant.
Intergovernmental and private-sector impact
Mandates
S. 1027 contains both intergovernmental and private-sector
mandates, as defined in UMRA. It would impose new requirements
on certain sales of tobacco products by private and tribal
entities and pre-empt certain state, local, and tribal laws.
According to ATF and industry sources, most of those business
entities already perform many of the duties imposed by this act
and the additional requirements would impose minimal costs. CBO
expects that the preemption would impose minimal costs on
state, local, or tribal governments. Consequently CBO estimates
that the total direct costs to comply with the requirements of
the bill would fall well below the annual thresholds
established by UMRA for intergovernmental and private-sector
mandates ($66 million and $131 million respectively in 2007,
adjusted annually for inflation).
Requirements on Delivery Sales of Tobacco. S. 1027 would
require delivery sellers of tobacco products to comply with
certain requirements regarding reporting, shipping, record
keeping, and tax collection. Delivery sellers include those
businesses that sell or deliver tobacco products purchased
online, by catalog, or by phone. The bill also would prohibit
importers and interstate tobacco sellers from selling certain
cigarettes that are not in full compliance with the terms of
the tobacco settlement agreement between states and tobacco
manufacturers and sellers. The requirements would be both
intergovernmental and private-sector mandates because tobacco
delivery sales are conducted by both private-sector and tribal
entities.
S. 1027 also would require common carriers to keep records
for five years of any business relating to a delivery that has
been interrupted because the service determines or has reason
to believe that the person ordering the delivery is in
violation of this act. In addition, the bill would affect
individuals who currently send or receive tobacco products in
the mail by prohibiting the mailing of such tobacco products in
the continental United States through the U.S. Postal Service.
Preemption of State, Local, and Tribal Laws. The bill also
would preempt certain state, local, and tribal laws that
require common carriers and delivery services to verify the age
and require the signature of the individual accepting a tobacco
delivery or place other restrictions on those services.
Other impacts on state, local, and tribal governments
S. 1027 would benefit state governments by expanding their
authority to enforce cigarette tax collection through the
Jenkins Act. This expanded authority would allow states'
attorney generals to file charges in U.S. district courts
against sellers or deliverers who violate this law. This bill
also would preserve existing agreements between states and
tribal governments regarding cigarette taxes.
Estimate prepared by: Federal Spending: Mark Grabowicz;
Impact on State, Local, and Tribal Governments: Melissa
Merrell; Impact on the Private Sector: Jacob Kuipers.
Estimate approved by: Peter H. Fontaine, Deputy Assistant
Director for Budget Analysis.
VI. Regulatory Impact Evaluation
In compliance with rule XXVI of the Standing Rules of the
Senate, the Committee finds that no significant regulatory
impact will result from the enactment of S. 1027.
VII. Conclusion
Passage and enactment of the Prevent All Cigarette
Trafficking (PACT) Act of 2007, S. 1027, is long overdue. This
bipartisan legislation closes loopholes in current tobacco
trafficking laws, enhances penalties for violations, and
provides law enforcement with new tools to combat the
innovative new methods being used by cigarette traffickers to
distribute their products. Unfortunately, the criminal laws and
investigative authorities available to law enforcement to
combat tobacco smuggling are insufficient. By strengthening
criminal laws governing cigarette trafficking, and empowering
federal, state and local law enforcement with the powers to
investigate and prosecute the cigarette traffickers of the 21st
Century, the PACT Act can help disrupt terrorist groups and
other organized criminal enterprises. The PACT Act was
carefully crafted to address each of the shortcomings in our
existing laws that have been identified. For more than a
decade, terrorist and other criminal organizations have been
engaging in tobacco smuggling as a means of generating
significant amounts of revenue. As the problem continues to
worsen, and these dangerous groups continue to raise more and
more money through tobacco smuggling to finance their
activities, it is imperative that we act quickly to provide law
enforcement officials with the tools they need to combat
cigarette trafficking.
VIII. Changes to Existing Law Made by the Bill, as Reported
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, changes in existing law made by
S. 119, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, and existing law in which no
change is proposed is shown in roman):
UNITED STATES CODE
TITLE 15--COMMERCE AND TRADE
CHAPTER 10A--COLLECTION OF STATE CIGARETTE TAXES
* * * * * * *
SEC. 375. [DEFINITIONS.
[For the purposes of this chapter--
[(1) The term ``person'' includes corporations,
companies, associations, firms, partnerships,
societies, and joint stock companies, as well as
individuals.
[(2) The term ``cigarette'' means any roll for
smoking made wholly or in part of tobacco, irrespective
of size or shape and whether or not such tobacco is
flavored, adulterated, or mixed with any other
ingredient, the wrapper or cover of which is made of
paper or any other substance or material except
tobacco.
[(3) The term ``distributor licensed by or located in
such State'' means--
[(A) in the case of any State which by State
statute or regulation authorizes the
distribution of cigarettes at wholesale or
retail, any person so authorized, or
[(B) in the case of any other State, any
person located in such State who distributes
cigarettes at wholesale or retail; but such
term in no case includes a person who acquires
cigarettes for purposes other than resale.
[(4) The term ``use'', in addition to its ordinary
meaning, means the consumption, storage, handling, or
disposal of cigarettes.
[(5) The term ``tobacco tax administrator'' means the
State official duly authorized to administer the
cigarette tax law of a State.
[(6) The term ``State'' includes the District of
Columbia, Alaska, Hawaii, and the Commonwealth of
Puerto Rico.
[(7) The term ``transfers for profit'' means any
transfer for profit or other disposition for profit,
including any transfer or disposition by an agent to
his principal in connection with which the agent
receives anything of value.]
DEFINITIONS
As used in this Act, the following definitions apply:
(1) Attorney general.--The term ``attorney general'',
with respect to a State, means the attorney general or
other chief law enforcement officer of the State, or
the designee of that officer.
(2) Cigarette.--
(A) In general.--For purposes of this Act,
the term ``cigarette'' shall--
(i) have the same meaning given that
term in section 2341 of title 18,
United States Code; and
(ii) include ``roll-your-own
tobacco'' (as that term is defined in
section 5702 of the Internal Revenue
Code of 1986).
(B) Exception.--For purposes of this Act, the
term ``cigarette'' does not include a ``cigar''
as that term is defined in section 5702 of the
Internal Revenue Code of 1986.
(3) Common carrier.--The term ``common carrier''
means any person (other than a local messenger service
or the United States Postal Service) that holds itself
out to the general public as a provider for hire of the
transportation by water, land, or air of merchandise,
whether or not the person actually operates the vessel,
vehicle, or aircraft by which the transportation is
provided, between a port or place and a port or place
in the United States.
(4) Consumer.--The term ``consumer'' means any person
that purchases cigarettes or smokeless tobacco, but
does not include any person lawfully operating as a
manufacturer, distributor, wholesaler, or retailer of
cigarettes or smokeless tobacco.
(5) Delivery sale.--The term ``delivery sale'' means
any sale of cigarettes or smokeless tobacco to a
consumer if--
(A) the consumer submits the order for such
sale by means of a telephone or other method of
voice transmission, the mails, or the Internet
or other online service, or the seller is
otherwise not in the physical presence of the
buyer when the request for purchase or order is
made; or
(B) the cigarettes or smokeless tobacco are
delivered by use of a common carrier, private
delivery service, or the mails, or the seller
is not in the physical presence of the buyer
when the buyer obtains possession of the
cigarettes or smokeless tobacco.
(6) Delivery seller.--The term ``delivery seller''
means a person who makes a delivery sale.
(7) Indian country.--The term ``Indian country'' has
the meaning given that term in section 1151 of title
18, United States Code, except that within the State of
Alaska that term applies only to the Metlakatla Indian
Community, Annette Island Reserve.
(8) Indian tribe.--The term ``Indian tribe'',
``tribe'', or ``triba'' refers to an Indian tribe as
defined in section 4(e) of the Indian Self-
Determination and Education Assistance Act (25 U.S.C.
450b(e)) or as listed pursuant to section 104 of the
Federally Recognized Indian Tribe List Act of 1994 (25
U.S.C. 479a-1).
(9) Interstate commerce.--The term ``interstate
commerce'' means commerce between a State and any place
outside the State, commerce between a State and any
Indian country inthe State, or commerce between points
in the same State but through any place outside the State or through
any Indian country.
(10) Person.--The term ``person'' means an
individual, corporation, company, association, firm,
partnership, society, State government, local
government, Indian tribal government, governmental
organization of such government, or joint stock
company.
(11) State.--The term ``State'' means each of the
several States of the United States, the District of
Columbia, the Commonwealth of Puerto Rico, or any
territory or possession of the United States.
(12) Smokeless tobacco.--The term ``smokeless
tobacco'' means any finely cut, ground, powdered, or
leaf tobacco, or other product containing tobacco, that
is intended to be placed in the oral or nasal cavity or
otherwise consumed without being combusted.
(13) Tobacco tax administrator.--The term ``tobacco
tax administrator'' means the State, local, or tribal
official duly authorized to collect the tobacco tax or
administer the tax law of a State, locality, or tribe,
respectively.
(14) Use.--The term ``use'', in addition to its
ordinary meaning, means the consumption, storage,
handling, or disposal of cigarettes or smokeless
tobacco.
SEC. 376. REPORTS TO STATE TOBACCO TAX ADMINISTRATOR.
(a) Contents._ Any person who sells [or transfers],
transfers, or ships for profit [cigarettes] cigarettes or
smokeless tobacco in interstate commerce, whereby such
[cigarettes] cigarettes or smokeless tobacco are shipped into a
State, locality, or Indian country of an Indian tribe taxing
the sale or use of [cigarettes] cigarettes or smokeless
tobacco, [to other than a distributor licensed by or located in
such State,] or who advertises or offers [cigarettes]
cigarettes or smokeless tobacco for such a sale [or transfer
and shipment,] transfer, or shipment shall--
(1) first file [with the tobacco tax administrator of
the State] with the Attorney General of the United
States and with the tobacco tax administrators of the
State and place into which such shipment is made or in
which such advertisement or offer is disseminated a
statement setting forth his name and trade name (if
any), and the address of his principal place of
business and of any other place of business[; and], as
well as telephone numbers for each place of business, a
principal electronic mail address, any website
addresses, and the name, address, and telephone number
of an agent in the State authorized to accept service
on behalf of such person;
(2) not later than the 10th day of each calendar
month, file with the tobacco tax administrator of the
State into which such shipment is made, a memorandum or
a copy of the invoice covering each and every shipment
of [cigarettes] cigarettes or smokeless tobacco made
during the previous calendar month into such State; the
memorandum or invoice in each case to include the name
and address of the person to whom the shipment was
made, the brand, [and the quantity thereof.] the
quantity thereof, and the name, address, and phone
number of the person delivering the shipment to the
recipient on behalf of the delivery seller, with all
invoice or memoranda information relating to specific
customers to be organized by city or town and by zip
code; and
(3) with respect to each memorandum or invoice filed
with a State under paragraph (2), also file copies of
such memorandum or invoice with the tobacco tax
administrators and chief law enforcement officers of
the local governments and Indian tribes operating
within the borders of the State that apply their own
local or tribal taxes on cigarettes or smokeless
tobacco.
(b) Presumptive Evidence._The fact that any person ships or
delivers for shipment any [cigarettes] cigarettes or smokeless
tobacco shall, if such shipment is into a State in which such
person has filed a statement with the tobacco tax administrator
under subsection (a)(1) of this section, be presumptive
evidence
[(1) that] that such [cigarettes] cigarettes or
smokeless tobacco were sold, or transferred for profit,
by such person[, and
[(2) that such sale or transfer was to other than a
distributor licensed by or located in such State.].
(c) Use of Information.--A tobacco tax administrator or
chief law enforcement officer who receives a memorandum or
invoice under paragraph (2) or (3) of subsection (a) shall use
such memorandum or invoice solely for the purposes of the
enforcement of this Act and the collection of any taxes owed on
related sales of cigarettes and smokeless tobacco, and shall
keep confidential any personal information in such memorandum
or invoice not otherwise required for such purposes.
SEC. 376A. DELIVERY SALES.
(a) In General.--With respect to delivery sales into a
specific State and place, each delivery seller shall comply
with--
(1) the shipping requirements set forth in subsection
(b);
(2) the recordkeeping requirements set forth in
subsection (c);
(3) all State, local, tribal, and other laws
generally applicable to sales of cigarettes or
smokeless tobacco as if such delivery sales occurred
entirely within the specific State and place, including
laws imposing--
(A) excise taxes;
(B) licensing and tax-stamping requirements;
(C) restrictions on sales to minors; and
(D) other payment obligations or legal
requirements relating to the sale,
distribution, or delivery of cigarettes or
smokeless tobacco; and
(4) the tax collection requirements set forth in
subsection (d).
(b) Shipping and Packaging.--
(1) Required statement.--For any shipping package
containing cigarettes or smokeless tobacco, the
delivery seller shall include on the bill of lading, if
any, and on the outside of the shipping package, on the
same surface as the delivery address, a clear and
conspicuous statement providing as follows:
``CIGARETTES/SMOKELESS TOBACCO: FEDERAL LAW REQUIRES
THE PAYMENT OF ALL APPLICABLE EXCISE TAXES, AND
COMPLIANCE WITH APPLICABLE LICENSING AND TAX-STAMPING
OBLIGATIONS''.
(2) Failure to label.--Any shipping package described
in paragraph (1) that is not labeled in accordance with
that paragraph shall be treated as nondeliverable
matter by a common carrier or other delivery service,
if the common carrier or other delivery service knows
or should know the package contains cigarettes or
smokeless tobacco. If a common carrier or other
delivery service believes a package is being submitted
for delivery in violation of paragraph (1), it may
require the person submitting the package for delivery
to establish that it is not being sent in violation of
paragraph (1) before accepting the package for
delivery. Nothing in this paragraph shall require the
common carrier or other delivery service to open any
package to determine its contents.
(3) Weight restriction.--A delivery seller shall not
sell, offer for sale, deliver, or cause to be delivered
in any single sale or single delivery any cigarettes or
smokeless tobacco weighing more than 10 pounds.
(4) Age verification.--
(A) In general.--Notwithstanding any other
provision of law, a delivery seller who mails
or ships tobacco products--
(i) shall not sell, deliver, or cause
to be delivered any tobacco products to
a person under the minimum age required
for the legal sale or purchase of
tobacco products, as determined by the
applicable law at the place of
delivery;
(ii) shall use a method of mailing or
shipping that requires--
(I) the purchaser placing the
delivery sale order, or an
adult who is at least the
minimum age required for the
legal sale or purchase of
tobacco products, as determined
by the applicable law at the
place of delivery, to sign to
accept delivery of the shipping
container at the delivery
address; and
(II) the person who signs to
accept delivery of the shipping
container to provide proof, in
the form of a valid,
government-issued
identification bearing a
photograph of the individual,
that the person is at least the
minimum age required for the
legal sale or purchase of
tobacco products, as determined
by the applicable law at the
place of delivery; and
(iii) shall not accept a delivery
sale order from a person without--
(I) obtaining the full name,
birth date, and residential
address of that person; and
(II) verifying the
information provided in
subclause (I), through the use
of a commercially available
database or aggregate of
databases, consisting primarily
of data from government
sources, that are regularly
used by government and
businesses for the purpose of
age and identity verification
and authentication, to ensure
that the purchaser is at least
the minimum age required for
the legal sale or purchase of
tobacco products, as determined
by the applicable law at the
place of delivery.
(B) Limitation.--No database being used for
age and identity verification under
subparagraph (A)(iii) shall be in the
possession or under the control of the delivery
seller, or be subject to any changes or
supplementation by the delivery seller.
(c) Records.--
(1) In general.--Each delivery seller shall keep a
record of any delivery sale, including all of the
information described in section 2(a)(2), organized by
the State, and within such State, by the city or town
and by ZIP code, into which such delivery sale is so
made.
(2) Record retention.--Records of a delivery sale
shall be kept as described in paragraph (1) in the year
in which the delivery sale is made and for the next 4
years.
(3) Access for officials.--Records kept under
paragraph (1) shall be made available to tobacco tax
administrators of the States, to local governments and
Indian tribes that apply their own local or tribal
taxes on cigarettes or smokeless tobacco, to the
attorneys general of the States, to the chief law
enforcement officers of such local governments and
Indian tribes, and to the Attorney General of the
United States inorder to ensure the compliance of
persons making delivery sales with the requirements of this Act.
(d) Delivery.--
(1) In general.--Except as provided in paragraph (2),
no delivery seller may sell or deliver to any consumer,
or tender to any common carrier or other delivery
service, any cigarettes or smokeless tobacco pursuant
to a delivery sale unless, in advance of the sale,
delivery, or tender--
(A) any cigarette or smokeless tobacco excise
tax that is imposed by the State in which the
cigarettes or smokeless tobacco are to be
delivered has been paid to the State;
(B) any cigarette or smokeless tobacco excise
tax that is imposed by the local government of
the place in which the cigarettes or smokeless
tobacco are to be delivered has been paid to
the local government; and
(C) any required stamps or other indicia that
such excise tax has been paid are properly
affixed or applied to the cigarettes or
smokeless tobacco.
(2) Exception.--Paragraph (1) does not apply to a
delivery sale of smokeless tobacco if the law of the
State or local government of the place where the
smokeless tobacco is to be delivered requires or
otherwise provides that delivery sellers collect the
excise tax from the consumer and remit the excise tax
to the State or local government, and the delivery
seller complies with the requirement.
(e) List of Unregistered or Noncompliant Delivery
Sellers.--
(1) In general.--
(A) Initial list.--Not later than 90 days
after this subsection goes into effect under
the Prevent All Cigarette Trafficking Act of
2007, the Attorney General of the United States
shall compile a list of delivery sellers of
cigarettes or smokeless tobacco that have not
registered with the Attorney General, pursuant
to section 2(a) or that are otherwise not in
compliance with this Act, and--
(i) distribute the list to--
(I) the attorney general and
tax administrator of every
State;
(II) common carriers and
other persons that deliver
small packages to consumers in
interstate commerce, including
the United States Postal
Service; and
(III) at the discretion of
the Attorney General of the
United States, to any other
persons; and
(ii) publicize and make the list
available to any other person engaged
in the business of interstate
deliveries or who delivers cigarettes
or smokeless tobacco in or into any
State.
(B) List contents.--To the extent known, the
Attorney General of the United States shall
include, for each delivery seller on the list
described in subparagraph (A)--
(i) all names the delivery seller
uses in the transaction of its business
or on packages delivered to customers;
(ii) all addresses from which the
delivery seller does business or ships
cigarettes or smokeless tobacco;
(iii) the website addresses, primary
e-mail address, and phone number of the
delivery seller; and
(iv) any other information that the
Attorney General determines would
facilitate compliance with this
subsection by recipients of the list.
(C) Updating.--The Attorney General of the
United States shall update and distribute the
list at least once every 4 months, and may
distribute the list and any updates by regular
mail, electronic mail, or any other reasonable
means, or by providing recipients with access
to the list through a nonpublic website that
the Attorney General of the United States
regularly updates.
(D) State, local, or tribal additions.--The
Attorney General of the United States shall
include in the list under subparagraph (A) any
noncomplying delivery sellers identified by any
State, local, or tribal government under
paragraph (5), and shall distribute the list to
the attorney general or chief law enforcement
official and the tax administrator of any
government submitting any such information and
to any common carriers or other persons who
deliver small packages to consumers identified
by any government pursuant to paragraph (5).
(E) Confidentiality.--The list distributed
pursuant to subparagraph (A) shall be
confidential, and any person receiving the list
shall maintain the confidentiality of the list
but may deliver the list, for enforcement
purposes, to any government official or to any
common carrier or other person that delivers
tobacco products or small packages to
consumers. Nothing in this section shall
prohibit a common carrier, the United States
Postal Service, or any other person receiving
the list from discussing with the listed
delivery sellers the delivery sellers'
inclusion on the list and the resulting effects
on any services requested by such listed
delivery seller.
(2) Prohibition on delivery.--
(A) In general.--Commencing on the date that
is 60 days after the date of the initial
distribution or availability of the list under
paragraph (1)(A), no person who receives the
list under paragraph (1), and no person who
delivers cigarettes orsmokeless tobacco to
consumers, shall knowingly complete, cause to be completed, or complete
its portion of a delivery of any package for any person whose name and
address are on the list, unless--
(i) the person making the delivery
knows or believes in good faith that
the item does not include cigarettes or
smokeless tobacco;
(ii) the delivery is made to a person
lawfully engaged in the business of
manufacturing, distributing, or selling
cigarettes or smokeless tobacco; or
(iii) the package being delivered
weighs more than 100 pounds and the
person making the delivery does not
know or have reasonable cause to
believe that the package contains
cigarettes or smokeless tobacco.
(B) Implementation of updates.--Commencing on
the date that is 30 days after the date of the
distribution or availability of any updates or
corrections to the list under paragraph (1),
all recipients and all common carriers or other
persons that deliver cigarettes or smokeless
tobacco to consumers shall be subject to
subparagraph (A) in regard to such corrections
or updates.
(3) Shipments from persons on list.--
(A) In general.--In the event that a common
carrier or other delivery service delays or
interrupts the delivery of a package it has in
its possession because it determines or has
reason to believe that the person ordering the
delivery is on a list distributed under
paragraph (1)--
(i) the person ordering the delivery
shall be obligated to pay--
(I) the common carrier or
other delivery service as if
the delivery of the package had
been timely completed; and
(II) if the package is not
deliverable, any reasonable
additional fee or charge levied
by the common carrier or other
delivery service to cover its
extra costs and inconvenience
and to serve as a disincentive
against such noncomplying
delivery orders; and
(ii) if the package is determined not
to be deliverable, the common carrier
or other delivery service shall, in its
discretion, either provide the package
and its contents to a Federal, State,
or local law enforcement agency or
destroy the package and its contents.
(B) Records.--A common carrier or other
delivery service shall maintain, for a period
of 5 years, any records kept in the ordinary
course of business relating to any deliveries
interrupted pursuant to this paragraph and
provide that information, upon request, to the
Attorney General of the United States or to the
attorney general or chief law enforcement
official or tax administrator of any State,
local, or tribal government.
(C) Confidentiality.--Any person receiving
records under subparagraph (B) shall use such
records solely for the purposes of the
enforcement of this Act and the collection of
any taxes owed on related sales of cigarettes
and smokeless tobacco, and the person receiving
records under subparagraph (B) shall keep
confidential any personal information in such
records not otherwise required for such
purposes.
(4) Preemption.--
(A) In general.--No State, local, or tribal
government, nor any political authority of 2 or
more State, local, or tribal governments, may
enact or enforce any law or regulation relating
to delivery sales that restricts deliveries of
cigarettes or smokeless tobacco to consumers by
common carriers or other delivery services on
behalf of delivery sellers by--
(i) requiring that the common carrier
or other delivery service verify the
age or identity of the consumer
accepting the delivery by requiring the
person who signs to accept delivery of
the shipping container to provide
proof, in the form of a valid,
government-issued identification
bearing a photograph of the individual,
that such person is at least the
minimum age required for the legal sale
or purchase of tobacco products, as
determined by either State or local law
at the place of delivery;
(ii) requiring that the common
carrier or other delivery service
obtain a signature from the consumer
accepting the delivery;
(iii) requiring that the common
carrier or other delivery service
verify that all applicable taxes have
been paid;
(iv) requiring that packages
delivered by the common carrier or
other delivery service contain any
particular labels, notice, or markings;
or
(v) prohibiting common carriers or
other delivery services from making
deliveries on the basis of whether the
delivery seller is or is not identified
on any list of delivery sellers
maintained and distributed by any
entity other than the Federal
Government.
(B) Relationship to other laws.--Nothing in
this paragraph shall be construed to prohibit,
expand, restrict, or otherwise amend or
modify--
(i) section 14501(c)(1) or
41713(b)(4) of title 49, United States
Code;
(ii) any other restrictions in
Federal law on the ability of State,
local, or tribal governments to
regulate common carriers; or
(iii) any provision of State, local,
or tribal law regulating common
carriers that falls within the
provisions of chapter 49 of the United
States Code, sections 14501(c)(2) or
41713(b)(4)(B).
(C) State laws prohibiting delivery sales.--
Nothing in the Prevent All Cigarette
Trafficking Act of 2007, or the amendments made
by that Act, may be construed to preempt or
supersede State laws prohibiting the delivery
sale, or the shipment or delivery pursuant to a
delivery sale, of cigarettes or smokeless
tobacco to individual consumers.
(5) State, local, and tribal additions.--
(A) In general.--Any State, local, or tribal
government shall provide the Attorney General
of the United States with--
(i) all known names, addresses,
website addresses, and other primary
contact information of any delivery
seller that offers for sale or makes
sales of cigarettes or smokeless
tobacco in or into the State, locality,
or tribal land but has failed to
register with or make reports to the
respective tax administrator, as
required by this Act, or that has been
found in a legal proceeding to have
otherwise failed to comply with this
Act; and
(ii) a list of common carriers and
other persons who make deliveries of
cigarettes or smokeless tobacco in or
into the State, locality, or tribal
lands.
(B) Updates.--Any government providing a list
to the Attorney General of the United States
under subparagraph (A) shall also provide
updates and corrections every 4 months until
such time as such government notifies the
Attorney General of the United States in
writing that such government no longer desires
to submit such information to supplement the
list maintained and distributed by the Attorney
General of the United States under paragraph
(1).
(C) Removal after withdrawal.--Upon receiving
written notice that a government no longer
desires to submit information under
subparagraph (A), the Attorney General of the
United States shall remove from the list under
paragraph (1) any persons that are on the list
solely because of such government's prior
submissions of its list of noncomplying
delivery sellers of cigarettes or smokeless
tobacco or its subsequent updates and
corrections.
(6) Deadline to incorporate additions.--The Attorney
General of the United States shall--
(A) include any delivery seller identified
and submitted by a State, local, or tribal
government under paragraph (5) in any list or
update that is distributed or made available
under paragraph (1) on or after the date that
is 30 days after the date on which the
information is received by the Attorney General
of the United States; and
(B) distribute any such list or update to any
common carrier or other person who makes
deliveries of cigarettes or smokeless tobacco
that has been identified and submitted by
another government, pursuant to paragraph (5).
(7) Notice to delivery sellers.--Not later than 14
days prior to including any delivery seller on the
initial list distributed or made available under
paragraph (1), or on any subsequent list or update for
the first time, the Attorney General of the United
States shall make a reasonable attempt to send notice
to the delivery seller by letter, electronic mail, or
other means that the delivery seller is being placed on
such list or update, with that notice citing the
relevant provisions of this Act.
(8) Limitations.--
(A) In general.--Any common carrier or other
person making a delivery subject to this
subsection shall not be required or otherwise
obligated to--
(i) determine whether any list
distributed or made available under
paragraph (1) is complete, accurate, or
up-to-date;
(ii) determine whether a person
ordering a delivery is in compliance
with this Act; or
(iii) open or inspect, pursuant to
this Act, any package being delivered
to determine its contents.
(B) Alternate names.--Any common carrier or
other person making a delivery subject to this
subsection shall not be required or otherwise
obligated to make any inquiries or otherwise
determine whether a person ordering a delivery
is a delivery seller on the list under
paragraph (1) who is using a different name or
address in order to evade the related delivery
restrictions, but shall not knowingly deliver
any packages to consumers for any such delivery
seller who the common carrier or other delivery
service knows is a delivery seller who is on
the list under paragraph (1) but is using a
different name or address to evade the delivery
restrictions of paragraph (2).
(C) Penalties.--Any common carrier or person
in the business of delivering packages on
behalf of other persons shall not be subject to
any penalty under section 14101(a) of title 49,
United States Code, or any other provision of
law for--
(i) not making any specific delivery,
or any deliveries at all, on behalf of
any person on the list under paragraph
(1);
(ii) not, as a matter of regular
practice and procedure, making any
deliveries, or any deliveries in
certain States, of any cigarettes or
smokeless tobacco for any person or for
any person not in the business of
manufacturing, distributing, or selling
cigarettes or smokeless tobacco; or
(iii) delaying or not making a
delivery for any person because of
reasonable efforts to comply with this
Act.
(D) Other Limits.--Section 2 and subsections
(a), (b), (c), and (d) of this section shall
not be interpreted to impose any
responsibilities, requirements, or liability on
common carriers.
(f) Presumption.--For purposes of this Act, a delivery sale
shall be deemed to have occurred in the State and place where
the buyer obtains personal possession of the cigarettes or
smokeless tobacco, and a delivery pursuant to a delivery sale
is deemed to have been initiated or ordered by the delivery
seller.
SEC. 377. PENALTIES.
[Whoever violates any provision of this chapter shall be
guilty of a misdemeanor and shall be fined not more than
$1,000, or imprisoned not more than 6 months, or both.]
(a) Criminal Penalties.--
(1) In general.--Except as provided in paragraph (2),
whoever violates any provision of this Act shall be
guilty of a felony and shall be imprisoned not more
than 3 years, fined under title 18, United States Code,
or both.
(2) Exceptions.--
(A) Governments.--Paragraph (1) shall not
apply to a State, local, or tribal government.
(B) Delivery violations.--A common carrier or
independent delivery service, or employee of a
common carrier or independent delivery service,
shall be subject to criminal penalties under
paragraph (1) for a violation of section 2A(e)
only if the violation is committed
intentionally--
(i) as consideration for the receipt
of, or as consideration for a promise
or agreement to pay, anything of
pecuniary value; or
(ii) for the purpose of assisting a
delivery seller to violate, or
otherwise evading compliance with,
section 2A.
(b) Civil Penalties.--
(1) In general.--Except as provided in paragraph (3),
whoever violates any provision of this Act shall be
subject to a civil penalty in an amount not to exceed--
(A) in the case of a delivery seller, the
greater of--
(i) $5,000 in the case of the first
violation, or $10,000 for any other
violation; or
(ii) for any violation, 2 percent of
the gross sales of cigarettes or
smokeless tobacco of such person during
the 1-year period ending on the date of
the violation.
(B) in the case of a common carrier or other
delivery service, $2,500 in the case of a first
violation, or $5,000 for any violation within 1
year of a prior violation.
(2) Relation to other penalties.--A civil penalty
under paragraph (1) for a violation of this Act shall
be imposed in addition to any criminal penalty under
subsection (a) and any other damages, equitable relief,
or injunctive relief awarded by the court, including
the payment of any unpaid taxes to the appropriate
Federal, State, local, or tribal governments.
(3) Exceptions.--
(A) Delivery violations.--An employee of a
common carrier or independent delivery service
shall be subject to civil penalties under
paragraph (1) for a violation of section 2A(e)
only if the violation is committed
intentionally--
(i) as consideration for the receipt
of, or as consideration for a promise
or agreement to pay, anything of
pecuniary value; or
(ii) for the purpose of assisting a
delivery seller to violate, or
otherwise evading compliance with,
section 2A.
(B) Other limitations.--No common carrier or
independent delivery service shall be subject
to civil penalties under paragraph (1) for a
violation of section 2A(e) if--
(i) the common carrier or independent
delivery service has implemented and
enforces effective policies and
practices for complying with that
section; or
(ii) an employee of the common
carrier or independent delivery service
who physically receives and processes
orders, picks up packages, processes
packages, or makes deliveries, takes
actions that are outside the scope of
employment of the employee in the
course of the violation, or that
violate the implemented and enforced
policies of the common carrier or
independent delivery service described
in clause (i).
* * * * * * *
SEC. 378. [JURISDICTION TO PREVENT AND RESTRAIN VIOLATIONS]
ENFORCEMENT.
[The United States district courts shall have jurisdiction
to prevent and restrain violations of this Act.]
(a) In General.--The United States district courts shall
have jurisdiction to prevent and restrain violations of this
Act and to provide other appropriate injunctive or equitable
relief, including money damages, for such violations.
(b) Authority of the Attorney General.--The Attorney
General of the United States shall administer and enforce the
provisions of this Act.
(c) State, Local, and Tribal Enforcement.--
(1) In general.--
(A) Standing.--A State, through its attorney
general (or a designee thereof), or a local
government or Indian tribe that levies a tax
subject to section 2A(a)(3), through its chief
law enforcement officer (or a designee
thereof), may bring an action in a United
States district court to prevent and restrain
violations of this Act by any person (or by any
person controlling such person) or to obtain
any other appropriate relief from any person
(or from any person controlling such person)
for violations of this Act, including civil
penalties, money damages, and injunctive or
other equitable relief.
(B) Sovereign immunity.--Nothing in this Act
shall be deemed to abrogate or constitute a
waiver of any sovereign immunity of a State or
local government or Indian tribe against any
unconsented lawsuit under this Act, or
otherwise to restrict, expand, or modify any
sovereign immunity of a State or local
government or Indian tribe.
(2) Provision of information.--A State, through its
attorney general, or a local government or Indian tribe
that levies a tax subject to section 2A(a)(3), through
its chief law enforcement officer (or a designee
thereof), may provide evidence of a violation of this
Act by any person not subject to State, local, or
tribal government enforcement actions for violations of
this Act to the Attorney General of the United States
or a United States attorney, who shall take appropriate
actions to enforce the provisions of this Act.
(3) Use of penalties collected.--
(A) In general.--There is established a
separate account in the Treasury known as the
``PACT Anti-Trafficking Fund''. Notwithstanding
any other provision of law and subject to
subparagraph (B), an amount equal to 50 percent
of any criminal and civil penalties collected
by the United States Government in enforcing
the provisions of this Act shall be transferred
into the PACT Anti-Trafficking Fund and shall
be available to the Attorney General of the
United States for purposes of enforcing the
provisions of this Act and other laws relating
to contraband tobacco products.
(B) Allocation of funds.--Of the amount
available to the Attorney General under
subparagraph (A), not less than 50 percent
shall be made available only to the agencies
and offices within the Department of Justice
that were responsible for the enforcement
actions in which the penalties concerned were
imposed or for any underlying investigations.
(4) Nonexclusivity of remedy.--
(A) In general.--The remedies available under
this section and section 3 are in addition to
any other remedies available under Federal,
State, local, tribal, or other law.
(B) State court proceedings.--Nothing in this
Act shall be construed to expand, restrict, or
otherwise modify any right of an authorized
State official to proceed in State court, or
take other enforcement actions, on the basis of
an alleged violation of State or other law.
(C) Tribal court proceedings.--Nothing in
this Act shall be construed to expand,
restrict, or otherwise modify any right of an
authorized Indian tribal government official to
proceed in tribal court, or take other
enforcement actions, on the basis of an alleged
violation of tribal law.
(D) Local government enforcement.--Nothing in
this Act shall be construed to expand,
restrict, or otherwise modify any right of an
authorized local government official to proceed
in State court, or take other enforcement
actions, on the basis of an alleged violation
of local or other law.
(d) Persons Dealing in Tobacco Products.--Any person who
holds a permit under section 5712 of the Internal Revenue Code
of 1986 (regarding permitting of manufacturers and importers of
tobacco products and export warehouse proprietors) may bring an
action in a United States district court to prevent and
restrain violations of this Act by any person (or by any person
controlling such person) other than a State, local, or tribal
government.
(e) Notice.--
(1) Persons dealing in tobacco products.--Any person
who commences a civil action under subsection (d) shall
inform the Attorney General of the United States of the
action.
(2) State, local, and tribal actions.--It is the
sense of Congress that the attorney general of any
State, or chief law enforcement officer of any locality
or tribe, that commences a civil action under this
section should inform the Attorney General of the
United States of the action.
(f) Public Notice.--
(1) In general.--The Attorney General of the United
States shall make available to the public, by posting
such information on the Internet and by other
appropriate means, information regarding all
enforcement actions undertaken by the Attorney General
or United States attorneys, or reported to the Attorney
General, under this section, including information
regarding the resolution of such actions and how the
AttorneyGeneral and the United States attorney have
responded to referrals of evidence of violations pursuant to subsection
(c)(2).
(2) Reports to congress.--The Attorney General shall
submit to Congress each year a report containing the
information described in paragraph (1).
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TITLE 18--CRIMES AND CRIMINAL PROCEDURE
PART I--CRIMES
CHAPTER 83--POSTAL SERVICE
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SEC. 1716. INJURIOUS ARTICLES AS NONMAILABLE.
* * * * * * *
(i) * * *
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(2) As used in this subsection, the term ``ballistic
knife'' means a knife with a detachable blade that is
propelled by a spring-operated mechanism.
(j) Tobacco Products.--
(1) Prohibition.--
(A) In general.--Except as provided in
subparagraphs (C) and (D), all cigarettes (as
that term is defined in section 1(2) of the Act
of October 19, 1949 (15 U.S.C. 375; commonly
referred to as the ``Jenkins Act'')) and
smokeless tobacco (as that term is defined in
section 1(12) of that Act), are nonmailable and
shall not be deposited in or carried through
the mails. The United States Postal Service
shall not accept for delivery or transmit
through the mails any package that it knows or
has reasonable cause to believe contains any
cigarettes or smokeless tobacco made
nonmailable by this subsection.
(B) Reasonable cause to believe.--For
purposes of this section, notification to the
United States Postal Service by the Attorney
General, a United States attorney, or a State
Attorney General that an individual or entity
is primarily engaged in the business of
transmitting cigarettes or smokeless tobacco
made nonmailable by this section shall
constitute reasonable cause to believe that any
packages presented to the United States Postal
Service by such individual or entity contain
nonmailable cigarettes or smokeless tobacco.
(C) Cigars.--Subparagraph (A) shall not apply
to cigars (as that term is defined in section
5702(a) of the Internal Revenue Code of 1986).
(D) Geographic exception.--Subparagraph (A)
shall not apply to mailings within or into any
State that is not contiguous with at least 1
other State of the United States. For purposes
of this paragraph, ``State'' means any of the
50 States or the District of Columbia.
(2) Packaging exceptions inapplicable.--Subsection
(b) shall not apply to any tobacco product made
nonmailable by this subsection.
(3) Seizure and forfeiture.--Any cigarettes or
smokeless tobacco made nonmailable by this subsection
that are deposited in the mails shall be subject to
seizure and forfeiture, and any tobacco products so
seized and forfeited shall either be destroyed or
retained by Government officials for the detection or
prosecution of crimes or related investigations and
then destroyed.
(4) Additional penalties.--In addition to any other
fines and penalties imposed by this chapter for
violations of this section, any person violating this
subsection shall be subject to an additional penalty in
the amount of 10 times the retail value of the
nonmailable cigarettes or smokeless tobacco, including
all Federal, State, and local taxes.
(5) Use of penalties.--There is established a
separate account in the Treasury known as the ``PACT
Postal Service Fund''. Notwithstanding any other
provision of law, an amount equal to 50 percent of any
criminal and civil fines or monetary penalties
collected by the United States Government in enforcing
the provisions of this subsection shall be transferred
into the PACT Postal Service Fund and shall be
available to the Postmaster General for the purpose of
enforcing the provisions of this subsection.
[(j)](k)(1) Whoever knowingly deposits for mailing or
delivery, or knowingly causes to be delivered by mail,
according to the direction thereon, or at any place at which it
is directed to be delivered by the person to whom it is
addressed, anything declared nonmailable by this section,
unless in accordance with the rules and regulations authorized
to be prescribed by the Postal Service, shall be fined under
this title or imprisoned not more that one year, or both.
[(k)](l) For purposes of this section, the term ``State''
includes a State of the United States, the District of
Columbia, and any commonwealth, territory, or possession of the
United States.
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