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PREVENT ALL CIGARETTE TRAFFICKING ACT OF 

2007, AND THE SMUGGLED TOBACCO PREVENTION ACT OF 2008 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CRIME, TERRORISM, 

AND HOMELAND SECURITY 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

ON

H.R. 4081 and H.R. 3689 

MAY 1, 2008 

Serial No. 110–147 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

LINDA T. SA ́ NCHEZ, California 

STEVE COHEN, Tennessee 

HANK JOHNSON, Georgia 

BETTY SUTTON, Ohio 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

ARTUR DAVIS, Alabama 

DEBBIE WASSERMAN SCHULTZ, Florida 

KEITH ELLISON, Minnesota 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

CHRIS CANNON, Utah 

RIC KELLER, Florida 

DARRELL ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

PERRY APELBAUM, Staff Director and Chief Counsel 

SEAN MCLAUGHLIN, Minority Chief of Staff and General Counsel 

SUBCOMMITTEE ON CRIME, TERRORISM, AND HOMELAND SECURITY

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia, Chairman 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

JERROLD NADLER, New York 

HANK JOHNSON, Georgia 

ANTHONY D. WEINER, New York 

SHEILA JACKSON LEE, Texas 

ARTUR DAVIS, Alabama 

TAMMY BALDWIN, Wisconsin 

BETTY SUTTON, Ohio 

LOUIE GOHMERT, Texas 

J. RANDY FORBES, Virginia 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

BOBBY VASSAR, Chief Counsel 

MICHAEL VOLKOV, Minority Counsel 

(III) 

C O N T E N T S 

MAY 1, 2008 

Page 

TEXT OF THE BILLS 

H.R. 4081, the ‘‘Prevent All Cigarette Trafficking Act of 2007,’’ or ‘‘PACT 

Act’’ ........................................................................................................................ 152 

H.R. 5689, the ‘‘Smuggled Tobacco Prevention Act of 2008’’ ................................ 165 

OPENING STATEMENTS 

The Honorable Robert C. ‘‘Bobby’’ Scott, a Representative in Congress from 

the State of Virginia, and Chairman, Subcommittee on Crime, Terrorism, 

and Homeland Security ....................................................................................... 1 

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, and Chairman, Committee on the Judiciary ..................... 4 

The Honorable Lamar Smith, a Representative in Congress from the State 

of Texas, and Ranking Member, Committee on the Judiciary ......................... 5 

The Honorable Howard Coble, a Representative in Congress from the State 

of North Carolina, and Member, Subcommittee on Crime, Terrorism, and 

Homeland Security ............................................................................................... 6 

WITNESSES 

The Honorable Anthony Weiner, a Representative in Congress from the State 

of New York 

Oral Testimony ..................................................................................................... 7 

Prepared Statement ............................................................................................. 10 

The Honorable Dale E. Kildee, a Representative in Congress from the State 

of Michigan 

Oral Testimony ..................................................................................................... 11 

Prepared Statement ............................................................................................. 13 

Mr. William Hoover, Assistant Director, Office of Field Operations, Bureau 

of Alcohol, Tobacco, Firearms and Explosives (ATFE), U.S. Department 

of Justice, Washington, DC 

Oral Testimony ..................................................................................................... 39 

Prepared Statement ............................................................................................. 41 

Mr. Matthew L. Myers, President, Campaign for Tobacco-Free Kids, Washington, DC 

Oral Testimony ..................................................................................................... 50 

Prepared Statement ............................................................................................. 52 

Mr. Steven Rosenthal, New York State Association of Wholesale Marketers, 

New York 

Oral Testimony ..................................................................................................... 56 

Prepared Statement ............................................................................................. 57 

Mr. John W. Colledge, III, Independent Consultant, Sparks, NV 

Oral Testimony ..................................................................................................... 62 

Prepared Statement ............................................................................................. 64 

Mr. Arlan Melendez, Chairman, Reno-Sparks Indian Colony, Reno, NV 

Oral Testimony ..................................................................................................... 69 

Prepared Statement ............................................................................................. 71 

Page

IV 

Mr. David S. Lapp, Chief Counsel, Tobacco Enforcement Unit, Office of the 

Attorney General of Maryland, Baltimore, MD 

Oral Testimony ..................................................................................................... 78 

Prepared Statement ............................................................................................. 80 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable Louie Gohmert, a Representative in 

Congress from the State of Texas, and Ranking Member, Subcommittee 

on Crime, Terrorism, and Homeland Security ................................................... 3 

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, and Chairman, Committee on 

the Judiciary ......................................................................................................... 3 

Prepared Statement of the Honorable Lloyd Doggett, a Representative in 

Congress from the State of Texas ....................................................................... 16 

Report by Peter T. King, a Representative in Congress from the State of 

New York, submitted by the Honorable Daniel E. Lungren, a Representative in Congress from the State of California .................................................... 22 

Letter from Richard E. Nephew, Council Chairman and Co-Chair, Foreign 

Relations Committee, submitted by the Honorable Louie Gohmert, a Representative in Congress from the State of Texas, and Ranking Member, 

Subcommittee on Crime, Terrorism, and Homeland Security .......................... 84 

Prepared Statement of Charles N. Whitaker, Vice President, Compliance and 

Brand Integrity, Altria Client Services, submitted on behalf of Philip Morris 

USA ....................................................................................................................... 95 

APPENDIX 

Material Submitted for the Hearing Record .......................................................... 113 

(1) 

PREVENT ALL CIGARETTE TRAFFICKING ACT 

OF 2007, AND THE SMUGGLED TOBACCO 

PREVENTION ACT OF 2008 

THURSDAY, MAY 8, 2008 

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON CRIME, TERRORISM,

AND HOMELAND SECURITY

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:02 a.m., in 

Room 2237, Rayburn House Office Building, the Honorable Robert 

C. (Bobby) Scott (Chairman of the Subcommittee) presiding. 

Present: Representatives Conyers, Scott, Johnson, Weiner, Jackson Lee, Smith, Gohmert, Sensenbrenner, Coble, Chabot, and Lungren. 

Staff present: Bobby Vassar, Majority Chief Counsel; Ameer 

Gopalani, Majority Counsel; Mario Dispenza (Fellow), ATF 

Detailee; Veronica Eligan, Majority Professional Staff Member; 

Carolyn Lynch, Minority Counsel; Kimani Little, Minority Counsel; 

and Kelsey Whitlock, Minority Staff Assistant. 

Mr. SCOTT. Good morning. The Subcommittee will now come to 

order. I am pleased to welcome you today to the hearing before the 

Subcommittee on Crime, Terrorism, and Homeland Security on 

H.R. 4081, the ‘‘Prevent All Cigarette Trafficking Act of 2007,’’ and 

H.R. 5689, the ‘‘Smuggled Tobacco Prevention Act of 2008.’’ 

Tobacco smuggling is a global problem with some estimates of 

trafficking numbering 600 billion cigarettes worldwide. Tobacco 

smuggling contributes to the availability of cheap cigarettes and 

not only deprives governments of needed tax revenue, but also 

harms the health of our citizens. 

The lost revenue from smuggling ranges in the billions. For example, the tax loss to States from cigarette trafficking is estimated 

to be $1 billion per year. Those who engage in this trade use a 

number of deceitful and illegal practices for financial gain. For example, the trafficker buys a large volume of cigarettes in States 

where the cigarette tax is low and takes them to States with higher 

taxes, selling them without paying those taxes at a significant discount. 

Traditional tobacco smuggling can be prosecuted under current 

Federal laws, but we need to explore whether these laws are appropriately enforced and sufficient to address the problem. The Jenkins Act at 15 USC 375 requires cigarette vendors who sell and 

2 

ship cigarettes to another State to anyone other than a licensed 

distributor to report the sale to the buyer’s home State tobacco collection officials. The act prescribes misdemeanor penalties for violations. 

The Contraband Cigarette Trafficking Act at 18 USC 2342 was 

passed in 1978 and makes it illegal for any person to knowingly 

transport, receive, possess or purchase contraband cigarettes or 

smokeless tobacco. The act contains penalties of up to 5 years in 

prison. 

The bills before us today attempt to close apparent gaps in the 

current law by using two different approaches. The bill introduced 

by the gentleman from New York, Mr. Weiner, the PACT Act, enhances State and Federal law enforcement authority to go after 

out-of-State sellers engaged in illicit behavior and cutting off their 

method of delivery. The bill increases criminal penalties under the 

Jenkins Act from a misdemeanor to a felony, and also makes tobacco non-mailable through the U.S. Postal Service and imposes 

shipping and recordkeeping requirements on delivery carriers of 

cigarettes and smokeless tobacco. 

Legislation introduced by the gentleman from Texas, Mr. 

Doggett, the STOP Act, focuses on labeling, tracing and recordkeeping requirements on manufacturers and wholesalers. The bill 

requires individual cigarette packages to be marked with a Federal 

high-tech stamp similar to the one currently used in California. 

This legislation then imposes a number of criminal penalties for 

failing to abide by the necessary labeling and recordkeeping requirements. 

Both bills, however, allow State actions in Federal court for the 

collection of State cigarette taxes. Although the bills sound clearcut, there are many dimensions to the smuggling problem. For example, smuggling and tax evasion are prohibited under State law, 

but many States fail to enforce their own laws. Moreover, there are 

allegations that wholesalers and manufacturers either facilitate or 

are complicit in smuggling operations. 

Finally, there are concerns expressed by a number of groups to 

the approaches taken in the bills. Tribal governments question the 

authority of creating State enforcement actions in Indian Country 

and the necessity of such actions in light of existing State and tribal government agreements relating to taxation. 

A number of common carriers have indicated that the shipping 

and recordkeeping requirements in H.R. 4081 are extremely burdensome. They say that even if they could identify the bad actors 

and locate smuggled packages, they would have no way of knowing 

the contents of the individual package and whether the package 

contained cigarettes, without opening and inspecting each individual package. 

So I look forward to the witnesses and I hope this hearing will 

identify the nature of the problem and how we can effectively combat tobacco smuggling, while balancing the various interests at 

stake. 

I will now recognize the gentleman from California, Mr. Lungren, 

who is sitting in for our Ranking Member. 

Mr. LUNGREN. Thank you very much, Mr. Chairman. Thank you 

for holding these hearings. 

3 

I have Mr. Gohmert’s statement, and I stayed up all night practicing the delivery. Unfortunately, by this morning I realized I 

couldn’t in any way duplicate Mr. Gohmert, so I would ask unanimous consent that his statement be considered a part of the record. 

Mr. SCOTT. Without objection, so ordered. 

[The prepared statement of Mr. Gohmert follows:] 

PREPARED STATEMENT OF THE HONORABLE LOUIE GOHMERT, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF TEXAS, AND RANKING MEMBER, SUBCOMMITTEE ON

CRIME, TERRORISM, AND HOMELAND SECURITY

Thank you, Chairman Scott. I thank you for holding this hearing today on the 

important issue of tobacco smuggling. 

Tobacco smuggling has become one of the most prevalent forms of smuggling in 

recent years. And its effects are felt not only here in America, but around the world. 

The World Health Organization estimates that illegal cigarettes account for 10.7 

percent, or approximately 600 billion cigarettes, of the more than 5.7 trillion cigarettes sold globally each year. 

According to a study by the World Bank, cigarettes are appealing to smugglers 

because taxes typically account for a large portion of the price, making it highly 

profitable to smuggle for resale at a reduced price. 

Tobacco smuggling traditionally involves the diversion of large quantities of cigarettes from wholesale distribution onto the black market. This typically occurs during transit of the cigarettes, thus allowing the smugglers to avoid most if not all 

of the taxes that will be imposed at retail. 

The profits from tobacco smuggling, like other forms of smuggling, can be and 

likely are used to finance other illegal activities such as organized crime and drug 

trafficking syndicates. In addition, the sale of smuggled tobacco on the black market 

deprives states of significant amounts of tax revenue each year. 

Over the last fifteen years, cigarette taxes have increased more than 65 percent 

across America. Yet, during this same time period, states’ tax revenues increased 

by only 35 percent. 

I look forward to hearing from our witnesses today and I yield back the balance 

of my time. 

Mr. SCOTT. The Chairman of the full Committee, Mr. Conyers. 

Mr. CONYERS. Thank you, Mr. Chairman. I ask unanimous consent to put my statement in the record. 

Mr. SCOTT. Without objection, so ordered. 

[The prepared statement of Mr. Conyers follows:] 

PREPARED STATEMENT OF THE HONORABLE JOHN CONYERS, JR., A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MICHIGAN, AND CHAIRMAN, COMMITTEE ON THE

JUDICIARY

Every year, tens of billions of cigarettes are trafficked throughout the world. This 

smuggling harms public health and tax policies, and is a deterrent to those smokers 

who otherwise might quit. This illicit smuggling also helps finance criminal groups 

and drastically reduces government tax revenue that is an important source for 

funding state public health programs. 

H.R. 4081, the ‘‘Prevent All Cigarette Trafficking Act of 2007’’ and H.R. 5689, the 

‘‘Smuggled Tobacco Prevention Act of 2008’’ take different approaches to the problems caused by the sale of smuggled or counterfeit tobacco products. The bills are 

a good start and I hope any bill that we consider in this Committee addresses three 

main areas. 

First, tobacco smuggling legislation must address the bleeding of state revenue 

funds that smuggling causes. The amount of tax revenue lost is shocking. For example, smuggling, including the illegal sale of tobacco products over the internet, resulted in an estimated $3.8 billion dollar loss of state and federal tax revenue in 

2004. Losses from smuggling fall on our public health programs, not on tobacco 

manufacturers or wholesalers that control the distribution system. There is simply 

less money available to fund tobacco prevention programs and other public health 

initiatives. 

Second, we need to dedicate more resources to fighting this problem and to ensure 

that the criminal code has adequate penalties to punish smugglers. Our initiatives 

in this area must keep up with advancing technology. Illegal internet sales of cigaVerDate Aug 31 2005 13:14 Jan 08, 2009 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6621 H:\WORK\CRIME\050108\42120.000 HJUD1 PsN: 42120
4 

rettes and other tobacco products are growing, particularly to underage buyers. The 

majority of internet tobacco product sellers do not require any age or ID verification. 

The PACT Act introduced by Representative Weiner focuses primarily on illegal 

internet sales of tobacco. The bill increases federal penalties for cigarette trafficking 

from a misdemeanor to a felony offense. The bill effectively places much needed restrictions on Internet sellers by making cigarettes and smokeless tobacco non-malleable matter through the U.S. mails. The bill also establishes a system that would 

block illegal Internet sellers from using any other delivery service. 

Finally, any legislation on tobacco smuggling should carefully address the various 

allegations, facets and concerns expressed by different groups on this issue. For example, tribes have expressed concern that the legislative approaches before us today 

may infringe on tribal regulatory authority or existing state-tribal tobacco tax agreements. We should look examine the substance and nature of these concerns. Another concern comes with the role of cigarette manufacturers. If we find that cigarette companies have been involved in facilitating smuggling, we need to further explore the issue and legislation should be designed to require companies to firmly 

control smuggling of their cigarettes. 

The problem of tobacco smuggling and tax evasion will not go away. Cigarette 

smuggling is a multibillion dollar phenomenon and is getting worse. I look forward 

to hearing from the witnesses on how to effectively combat smugglers and I yield 

back. 

Mr. CONYERS. I want to talk about the importance of this hearing 

not particularly from the legislative point of view. As a cosponsor, 

I usually go on anything Weiner and Kildee come up with, so I assume I am already on the bill. But what I am going to put in the 

record is two things. One is the health consequences of smoking. 

I just want to tell you that this is not just an American problem, 

and I hope some of our friends from the tobacco industry are here 

in the room that will want to work with me on this. 

This thing is killing people all around the world, this tobacco 

problem. It is a health problem. Fortunately, I happen to have a 

medical doctor on my staff, which kind of helps me get the thing 

down. If I started reading this medical thing, you would think I 

was going to school at night trying to get credit somewhere. So that 

is one part of it. 

The other part that I am putting in the record is the incredible 

lengths to which the tobacco industry has gone to conceal the fact 

or how damaging and destructive their product is. So you can see 

that I am for getting on top of this enforcement provision that our 

leaders in Congress are urging us to do to get a tighter grip on this 

thing. 

But I want to make it understood to everybody the incredible 

links over the years that the tobacco industry almost in total—and 

there are some that are very outstanding in this deception and the 

concealment and the liability that they have incurred—have gone 

to conceal this fact that they owe I think it is billions, but certainly 

safely millions of dollars are being paid to try to make up for this 

incredible harm that has been visited upon the American people. 

I describe that, and I will be available to talk about it more. 

Now, when you say, Chairman Scott, you want to balance the 

various interests of the parties, I am very anxious to know who 

these parties are you want to balance any interests for. 

Mr. SCOTT. If the gentleman would yield? 

Mr. CONYERS. With pleasure. 

Mr. SCOTT. One of the interests was the common carriers who 

would have to inspect some of the packages so whether or not the 

bills that are presented to us can effectively work. That is what we 

are talking about. 

5 

Mr. CONYERS. Okay, the mechanical part of it, how we make this 

thing operate? 

Mr. SCOTT. Right. 

Mr. CONYERS. Because some of these interests, and when you 

find out what they are doing, this may need another hearing in the 

Crime Committee, Chairman Scott. We might want to just listen 

and learn what this industry has been doing overseas. It is even 

less flattering than what goes on inside the United States. Those 

are the only comments I wanted to make to accompany my statement. Thank you very much. 

Mr. SCOTT. I thank the gentleman. 

I would point out that our jurisdiction is limited to the criminal 

code. The bills before us involve criminal sanctions against smuggling of cigarettes. Some of the health concerns I think would probably be the subject of jurisdiction in other Committees and Subcommittees. 

Mr. CONYERS. I think you are right, but I think the crimes that 

may not have been revealed yet are within our jurisdiction. I don’t 

mind us getting a little health information on the Crime Committee as we go along. 

Mr. SCOTT. I thank the gentleman. 

The Ranking Member of the full Committee, the gentleman from 

Texas, Mr. Smith. 

Mr. SMITH. Thank you, Mr. Chairman. 

Mr. Chairman, on the basis of what I have heard so far, it seems 

to me that there is nearly unanimous agreement on the nature of 

the problem as ably described by our Chairman, Mr. Conyers. 

There may be some disagreement on their legislative vehicle that 

achieves the goals we want to achieve, but I think this is nice to 

see such a bipartisan agreement on the nature of the problem. 

I want to thank you for scheduling this hearing on efforts to combat cigarette trafficking, which of course is a growing problem in 

America. Taxes on cigarettes vary greatly from State to State. This 

difference in tax rates creates a market for criminals and organized 

criminal syndicates to purchase cigarettes in one State and smuggle them to another State to re-sell them below market value and 

without paying local taxes. 

Cigarette trafficking is an issue that the Committee and the 

manufacturers have worked together on in the past and continue 

to address today. Along with Mr. Weiner of New York, who is getting ready to testify momentarily, I am pleased to be a cosponsor 

of H.R. 4081, the ‘‘Prevent All Cigarette Trafficking,’’ or ‘‘PACT 

Act,’’ one of the bills we are considering today. 

This bipartisan legislation closes loopholes in current tobacco 

trafficking laws and provides law enforcement officials with new 

tools to combat the innovative methods being used by cigarette 

traffickers to distribute their products. A recent case demonstrates 

how criminal syndicates engage in the highly lucrative enterprise 

of cigarette smuggling and deprive Federal and State governments 

of millions in tax revenues. 

In 2005 in my home State of Texas, Jorge Abraham pleaded 

guilty to leading a cigarette smuggling organization that brought 

over 11,000 cases of contraband cigarettes into markets across the 

United States for illegal sale. According to the Federal prosecutor 

6 

in this case, the sale of these smuggled and counterfeit cigarettes 

resulted in a loss of $9 million in tax revenue to the Federal Government and the State governments of New York, California and 

Texas. 

Illegal cigarette smuggling virtually impacts State revenues. 

California officials estimate that taxes are unpaid on about 15 percent of all tobacco sold in its markets at a cost of $276 million per 

year. In a recently released study, the State of New York put its 

losses at more than $576 million each year. 

A few months ago, Texas raised its cigarette taxes. This increase is expected to generate an additional $800 million in revenue for 

our State. This bill helps ensure that Texans will receive that revenue. First, the legislation strengthens the Jenkins Act, a longstanding law that requires vendors who sell cigarettes to out-ofState buyers to report those sales to the buyer State tobacco tax 

administrator. However, many Internet vendors do not report these 

sales. 

The PACT Act makes it a Federal felony for anyone who makes 

a sale via telephone, the mail or the Internet, and fails to comply 

with all relevant State tax laws. The PACT Act also requires Internet cigarette sellers to verify the purchaser’s age and identity 

through easily accessible databases. This measure protects children 

and ensures that they cannot anonymously purchase cigarettes 

from the Internet. 

The PACT Act empowers the attorney general to compile a list 

of delivery sellers who fail to comply with State tax laws. Any seller who lands on that list will be prohibited from using the U.S. 

Postal Service or common carriers like FedEx or DHL to deliver 

their products. 

The PACT Act prevents, in summary, the loss of tax revenue, 

combats cigarette smuggling, and limits children’s access to cigarettes. So I urge my colleagues to support this bill which, as I see 

it, does all kinds of good and no harm. 

I yield back. Thank you, Mr. Chairman. 

Mr. SCOTT. Thank you. 

The gentleman from North Carolina, do you have a statement, 

very briefly? 

Mr. COBLE. Thank you, Mr. Chairman. 

Mr. SCOTT. Since everybody else has had an opportunity to 

speak. 

Mr. COBLE. Thank you, Mr. Chairman. I will be brief. 

In 2003, Mr. Chairman, a group of operatives were convicted of 

buying cigarettes in my home State of North Carolina and then 

selling them in Michigan. They were using the proceeds, I am told, 

for this operation to fund the activities of Hezbollah. Lorillard Tobacco Company, Mr. Chairman, is headquartered in the heart of 

my district, and Lorillard does not participate in Internet sales, so 

they are largely unaffected by this bill. 

However, Lorillard does use the mail to ship their cigarettes to 

various facilities for testing. These shipments do not involve sales 

to consumers, and certainly not to children. I am curious to know 

if the prohibition would apply to the use of mails, particularly Mr. 

Weiner, that would exclusively reserve for testing purposes. If this 

prohibition would apply in that instance, I would hope that the bill 

7 

would be amended to not apply to mail shipment as it applies to 

testing purposes only, Mr. Chairman. That is my concern. 

I yield back. 

Mr. SCOTT. Thank you. 

The gentleman from Georgia has joined us. Do you have a statement you want to put in the record? Okay. Thank you. I ask unanimous consent that your statement be placed in the record. Without 

objection, any statements will be placed in the record. 

Our first panel of witnesses is comprised of Members who have 

an interest in the legislation before us. The first witness is the gentleman from New York, the Honorable Anthony Weiner, sponsor of 

H.R. 4081. He is a Member of the Judiciary Committee, and also 

sits on the Energy and Commerce Committee, and is part of the 

Democratic leadership team. He is a graduate of State University 

of New York at Plattsburgh. 

The next witness will be the gentleman from Michigan, the Honorable Dale Kildee, who currently serves as a senior Member of the 

House Committee on Education and Labor. He is also a Member 

of the House Committee on Natural Resources, and was elected by 

his colleagues in 1997 to serve as co-chair of the Native American 

Caucus. He is a graduate of Sacred Heart Seminary. 

Gentlemen, your entire statements will be made part of the 

record in their entirety. We would ask you to summarize your testimony at this point. 

Mr. Weiner? 

TESTIMONY OF THE HONORABLE ANTHONY D. WEINER, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW 

YORK 

Mr. WEINER. Thank you, Mr. Chairman. I won’t be presenting 

my formal testimony. I just want to give a summary of it, and then 

join you and answer some questions. I am honored to be here with 

Mr. Kildee and all of you. 

You know, this is pretty clear that the problem that we have 

here of a dramatic explosion in the amount of smuggling of tobacco 

products was created by the confluence of something that we did 

as governors and as policymakers, and something that the tobacco 

industry did. 

The thing that we did is have dramatic and different price structures for the product based on the amount that we were taxing 

them, with different taxes in different States. Taxes have been rising in some States, rising faster in some States than others. Fortyfour States over the last several years have gone to the tobacco tax 

as a way to raise revenue. We in the Federal Government, we in 

the House of Representatives have tax increases in bills to do 

things like SCHIP and fund improvements at the FDA. 

As you have rising taxes that are disparate from State to State, 

you are going to have an incentive for people to become scofflaws 

to try to evade that tax. You have it in the most extreme case in 

places that have no tax, meaning Indian reservations, but you have 

it in places like North Carolina. So you have this disparity that 

creates the incentive for people to sometimes travel great distances 

or go on the Internet, or try to find ways to elude that tax. 

8 

The second part was something that we didn’t do, but frankly 

this product is addictive. People are going to try to get it. They are 

going to try to get it in large amounts. What we have had in the 

combination of those two things is that we have had a dramatic increase in the number of cigarettes that are being sold in ways that 

frankly amount to smuggling and contraband. 

It not only has an impact on our ability to raise taxes, which is 

most obvious. We are seeing something in New York City, for example, that is being seen around the country. We project use of 

cigarettes, how much we tax, and we come up with a number and 

we are finding every year, year after year, we are missing that 

number. 

Now, some people can cheer and say, well maybe less people are 

smoking or fewer people are smoking, when in fact what we are 

seeing is the number of cigarettes being shipped from the manufacturers is falling some, but not by that amount. So it is clear that 

people are getting them elsewhere and we are losing a great deal 

of the tax revenue. 

Obviously, this problem creates a deleterious impact on our 

health. We want to discourage smoking. One of the ways we do it 

is by charging higher cigarette tax to discourage the activity. One 

of the ways we fund health programs is with the tobacco tax, so 

the fact that we are losing it has an impact on health. 

But as mentioned by my colleague, Mr. Coble, we are also finding 

that there are such margins and such revenue to be gained from 

this activity that it is not only going to neighborhood scofflaws who 

are trying to sell a case or two to a bodega in a corner. It is also 

being used by international and national crime syndicates. The 

Government Accountability Office found that Hezbollah has profited from the sales of illegal tobacco. 

I always complain when my colleagues testify that the charts are 

illegible. Now, I have done it. North Carolina, the case that they 

followed was a case where North Carolina cigarettes were purchased, shipped to Michigan, sold in Michigan, cash money was 

made on the tax margin, that was then used to fund Hezbollah. 

So what is the solution? Well, Congressman Smith is exactly 

right. We have already structured a way to try to deal with this 

in something called the Jenkins Act. The Jenkins Act says that if 

you sell cigarettes to someone, if you ship them to someone, you 

have to document and report to the State who is getting them. 

So if someone orders 20 cases or 30 cases, whether it be by phone 

or the Internet, there is a requirement by anyone selling that product to report it to the State of Hawaii, to the State of Texas, to the 

State of South Carolina that this person received this, to alert the 

tax agencies to go and collect the taxes that are required, because 

the requirement is where the person buys the cigarettes, not where 

it was sent from. 

The problem is not that it is being followed rarely. It is never 

being followed. No one ever is doing that type of thing because it 

kind of undermines their business. So people are going on the business, buying it, and not paying taxes. What my bill would do is 

strengthen the Jenkins Act to say, you know, these are not misdemeanors. We are going to make them felonies. 

9 

Now, U.S. attorneys, now ATF, now prosecutors are going to say, 

you know what? Maybe I will go after this case because it is really 

worth the while and not just a misdemeanor the person is going 

to plead to and leave. It will be a much more serious thing. 

We do a couple of other things. One, if you look at the mechanism by which this smuggling is happening, it is happening by the 

Internet, quite frankly. Something like 90 percent of all the smuggled cigarettes are shipped via 10 or 15 or 20 Web sites. You can 

go right now and find someone advertising tax-free cigarettes, and 

you will be able to get them. 

So what we do is we don’t say you can’t advertise. We don’t say 

you can’t sell it. You just can’t ship it the way that you can now. 

Now, I want to say that Mr. Scott, you correctly summed up some 

of the complications here, but I want to also point out that UPS, 

DHL, and FedEx have entered into agreements to do just the thing 

that some of them say they can’t do now, which is they have agreed 

in an agreement with New York state that is now being followed 

throughout the country, they have agreed not to ship this tobacco 

product. 

Some companies, as Mr. Coble mentioned, have some concern. 

They have specialty brands that they sell, or they have testing. I 

am open to having conversations about carving exemptions for 

that. We are not looking to cut down on that. Some shippers have 

said, oh well, maybe we are going to have problems with this in 

the future. Let’s see. Right now, the only one that is carrying it, 

ironically, is the United States Postal Service. So the only one who 

would actually be covered by this in a real practical sense is the 

United States Postal Service. Everyone else would already be following their status quo operations. 

The impact of this, and I think Congressman Smith put it best, 

there are a lot of challenges we are going to face. The States have 

to figure out how to deal with the Native American tribes that are 

in their districts. There is a problem with people pulling up to the 

Seneca Reservation, loading them in the back of a truck with taxfree cigarettes, and driving off into the night. Those are complicated issues. 

I want to make it clear to my colleagues, we do not try to litigate 

those issues in the context of my bill. What we basically say is take 

the existing laws, and Congressman Smith and I and others have 

said, listen, let’s just merely give the ATF, who is going to testify 

here, give the U.S. attorneys the tools that they need. 

One final point I would make here is there are a couple of other 

little minor things that could have dramatic impacts. One, we allow 

the States attorneys general to go and bring civil actions. They 

might not be able to do it against the tribes because of sovereignty 

issues, but if an independent guy sets up in their State and says 

we are going to start operating, the States attorneys general, who 

now basically have to sit on their hands and hope the Federal Government comes in, they will be able to act. 

Also, we grant the ATF further authority in going and taking a 

look at the records of this. There are a lot of traditional bad guys 

here. For the most part, I would say to you, Mr. Conyers and others, the tobacco companies haven’t been the bad guys. Most of them 

10 

are supporting this legislation. A couple who have technical reasons are not. 

Most of the shippers have already agreed to stop this activity. 

Just about every State I can think of would wind up benefiting in 

their tax revenues. It is something that we can do on the incremental side that I believe in the era of pay-go, I believe, Mr. Scott, 

we will be able to say that this not only doesn’t cost money, but 

it is going to wind up saving the treasury a great deal of money. 

I thank you for letting me go a little over time. 

[The prepared statement of Mr. Weiner follows:] 

PREPARED STATEMENT OF THE HONORABLE ANTHONY D. WEINER, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF NEW YORK

Mr. Chairman, thank you for calling this hearing on the Prevent All Cigarette 

Trafficking (or PACT) Act. I have introduced this legislation to correct a number of 

the deficiencies in current law that have allowed tobacco smuggling to become a 

multibillion annual industry in the United States. Cigarette smuggling offers criminals potential for high profits with little risk to get caught. 

Tobacco smuggling costs federal, state and local governments billions in lost tax 

revenue, puts law abiding businesses at a tremendous competitive disadvantage to 

those who flaunt the law, and literally puts cigarettes at the fingertips of American 

youth who can purchase them online. And most troubling, we know that many of 

the proceeds from these illegal transactions are being used to fund terrorist activities around the world. 

There is a dramatic difference between the price of legally taxed cigarettes and 

illegal cigarettes. For example, consumers can purchase a carton of Marlboro’s online for $31.95. That same carton of cigarettes would sell for $70 in New York City. 

Over the last 12 months, there were over 1.1 billion cigarettes sold on-line. This represents billions of dollars lost in state and local revenue. New York City has estimated that they lose at least $40 million each year due to cigarette smuggling. 

Since 2000, 44 states, the District of Columbia and New York City have increased 

their excise tax on cigarettes by an average of $.83. Just earlier this month, my 

home state of New York chose to increase the state excise tax by $1.25 to a total 

of $2.75 per pack. The national average is now $1.14 per pack. 

The PACT Act would address these devastating economic, health and security 

consequences of this illicit tobacco trade by taking the following steps: 

• Strengthening the Jenkins Act by making violations of the Act a felony rather 

than a misdemeanor, and making it a federal offense for failure to comply 

with all state tax laws governing the sale of cigarettes via telephone, the 

mails, or the Internet. 

• Furthermore, State Attorneys General and local governments that have cigarette excise taxes can seek injunctive relief and civil penalties against out-ofstate sellers. 

• Prohibiting the shipment of cigarettes and smokeless tobacco products 

through the U.S. Postal Service. 

• Empowering the U.S. Attorney General to compile a list of delivery sellers 

who fail to comply with act or states’ tax laws. Common carriers and the 

USPS would then be prohibited from delivering for non-compliant sellers on 

the list. 

• Granting ATF records inspection authority for distributors of cigarettes, and 

creating a penalty for those who refuse inspection. 

• Requiring Internet and other remote sellers to verify a purchaser’s age and 

identity through easily accessible databases. 

Mr. Chairman, you will hear from witnesses this morning on the need for this legislation, to help address the economic, health and security implications of tobacco 

smuggling in the United States. 

I would like to focus specifically on the link to terrorism, which we know to be 

real. 

• The GAO has estimated that from 1996–2000 Hezbollah alone profited $1.5 

million from the sale of illegal tobacco in the United States. 

• The largest single case to date was in 1996, in which millions of dollars of 

cigarettes were smuggled to Michigan from North Carolina. Authorities seized 

11 

cigarettes, property, and currency worth $2 million, and found evidence of 

proceeds being transferred to bank accounts in Beirut. Three defendants were 

ultimately found guilty of providing material support to Hezbollah. 

• The infamous Lackawanna Seven received funding from an individual named 

Aref Ahmed for their travel from Buffalo, NY to Afghanistan to attend an al 

Qaeda training camp. Ahmed was convicted in 2004 on charges of conspiracy 

to commit money laundering and smuggling contraband cigarettes. 

I look forward to hearing from the witnesses today to hear their thoughts on the 

issue of cigarette smuggling and on the PACT Act. 

Mr. SCOTT. Thank you. 

The gentleman from Michigan. 

TESTIMONY OF THE HONORABLE DALE E. KILDEE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. KILDEE. Thank you very much, Mr. Chairman. Thank you 

for inviting me to testify on H.R. 4081 and H.R. 5689. 

While I do not oppose the primary goals and objectives of these 

bills, my goal in testifying today is to urge the Committee to give 

ample opportunity for input from tribal governments to safeguard 

State and tribal government agreements relating to State taxation 

in Indian Country, and to avoid unnecessary State enforcement action against tribal governments. 

The issue of State taxation authority on Indian land is a delicate 

matter. U.S. Supreme Court rulings relating to the collection of 

State tobacco taxes on sales by an Indian seller to a non-Indian or 

non-member Indian buyers are complex and often are the subject 

of interpretational differences of opinion. 

In general, tribal government sales of tobacco products to tribal 

members cannot be taxed by a State. However, a State may collect 

taxes on tobacco product sales to non-Indian and non-member Indians subject to certain qualifications that I will examine here. 

A negative result of these rulings is that tribal governments are 

not inclined to implement their own tax systems because dual taxation would hinder their economic opportunities. Because Indian 

tribes are sovereign governments, and enjoy sovereign immunity, 

the U.S. Supreme Court in listing options for the collection of State 

tax, encourages intergovernmental agreements with tribal governments to avoid further disputes over State taxation authority and 

the enforcement of State taxes. 

Unfortunately, special interest groups that have long been attempting to undermine tribal self-government and erode the sovereign immunity of tribal governments use Federal legislation to 

undermine these State-tribe agreements. Previous measures considered by this Committee would have created unprecedented new 

State authorities by allowing State governments to enforce the Federal Jenkins Act against tribal governments. 

In addition, this provision would only serve to disrupt State-tribal agreements where enforcement is addressed. H.R. 4081, which 

amends the Jenkins Act, does not include this type of provision. I 

prefer that approach in H.R. 4081. 

Mr. Chairman, I strongly oppose inclusion of this type of provision in any measure as it would reverse more than 200 years of 

Federal-Indian policy designed to protect the government-to-government relationship between tribes and the Federal Government. 

12 

I want to be clear that tribal governments are not asking to be 

exempted from application of the Jenkins Act. They simply assert 

that enforcement of Federal law should remain within the province 

of the Federal Government, and that Federal legislation should 

preserve existing agreements between a State and tribe. I believe 

that H.R. 4081 achieves those objectives. 

H.R. 5689 would establish a system for requiring codes on packages of tobacco products for the purpose of tracking the collection 

of taxes through distribution systems under the authority of the 

Treasury Secretary. Manufacturers would be required to print a 

unique serial number on all packages of tobacco. A specific provision of the bill would also require that each package of a tobacco 

product that is sold on Indian reservations shall be visibly and 

prominently labeled as such. 

Due to the varied taxation arrangements that State and tribal 

governments have established, a generally applied one-size-fits-all 

approach to tracking the collection of taxes may have the unintended effect of undermining intergovernmental agreements as is 

the case in the State of Michigan. 

Presently, 8 out of the 12 federally recognized Indian tribes in 

Michigan have entered into a comprehensive tax agreement with 

the State of Michigan that among other things provides a clearer 

understanding of the application of Michigan taxes in Indian Country. 

Except for the land areas described for each tribe, these agreements are boilerplate and include six areas of State taxation: sales 

and use taxes, motor fuel taxes, income taxes, Michigan single 

business tax, and tobacco taxes. Each agreement describes in great 

detail the exemptions, enforcement, administration, and termination. 

With regard to tobacco products, a tribe chooses one of two systems to acquire tobacco products for tribal and tribal members’ use. 

The tribe may choose a quota system or a refund system. Most 

tribes have opted for the quota system which requires a tribe and 

a State to agree on a cap or a quota of tobacco products that a tribe 

may purchase tax-free from a pre-identified wholesaler. The refund 

method requires a tribe to pre-pay State taxes on tobacco and request a refund from the State. 

In general, implementation of the tax agreements in the State of 

Michigan imposes substantial administrative responsibilities on the 

tribe. The agreements require the tribe to stamp tobacco products 

for the purpose of using the quota method, maintain a record of 

sales, reporting and enforcement duties. The State has the right to 

inspect tribal facilities. Disputes are resolved by binding arbitration. 

I have oversimplified, perhaps, the tax agreements in Michigan, 

as they are quite complicated. But there is great good faith between the State of Michigan and the tribes. Another tribe now is 

in the process of entering an agreement with the State on these 

issues. 

I want to thank the Chairman for the willingness to ensure the 

participation of a tribal leader at this hearing. I commend you for 

supporting Federal policies designed to advance tribal self-determination and economic self-sufficiency. I look forward to working 

13 

with you. I have on my own staff a Cherokee Indian, Kim Tehee, 

who is an attorney, and she would be most happy to share her 

great wisdom and history on this issue with you. 

I know Mr. Lungren has a great experience as former attorney 

general of the State of California. I and my staff are willing to 

work with you. I do think that the bill, H.R. 4081, is the better approach to addressing the problem that exists, without interfering 

with Indian sovereignty. 

I thank you very much for this opportunity to testify. 

[The prepared statement of Mr. Kildee follows:] 

PREPARED STATEMENT OF THE HONORABLE DALE E. KILDEE, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF MICHIGAN

I. INTRODUCTION

MR. CHAIRMAN, THANK YOU FOR INVITING ME TO TESTIFY AT THE 

HEARING THIS MORNING. AS DEMOCRATIC CO-CHAIRMAN OF THE HOUSE 

NATIVE AMERICAN CAUCUS, I AM PLEASED TO EXPRESS MY VIEWS ON 

H.R. 4081, THE ‘‘PREVENT ALL CIGARETTE TRAFFICKING ACT OF 2007 AND 

H.R. 5689, THE ‘‘SMUGGLED TOBACCO PREVENTION ACT OF 2008.’’ 

WHILE I DO NOT OPPOSE THE PRIMARY GOALS AND OBJECTIVES OF 

THESE BILLS, MY GOAL IN TESTIFYING TODAY IS TO URGE THIS COMMITTEE, AS IT PROCEEDS IN CONSIDERING TOBACCO RELATED LEGISLATION, TO GIVE AMPLE OPPORTUNITY FOR INPUT FROM TRIBAL GOVERNMENTS, TO SAFEGUARD STATE AND TRIBAL GOVERNMENT AGREEMENTS 

RELATING TO STATE TAXATION IN INDIAN COUNTRY, AND TO AVOID UNNECESSARY STATE ENFORCEMENT ACTIONS AGAINST TRIBAL GOVERNMENTS. 

II. BROAD OVERVIEW OF STATE TAXATION AUTHORITY OF TOBACCO PRODUCTS

SOLD ON INDIAN LAND

THE ISSUE OF STATE TAXATION AUTHORITY ON INDIAN LAND IS A 

DELICATE MATTER. U.S. SUPREME COURT RULINGS RELATING TO THE 

COLLECTION OF STATE TOBACCO TAXES ON SALES BY AN INDIAN SELLER 

TO NON-INDIAN OR NONMEMBER INDIAN BUYERS ARE COMPLEX AND 

OFTEN ARE THE SUBJECT OF INTERPRETATIONAL DIFFERENCES OF 

OPINION. 

IN GENERAL, TRIBAL GOVERNMENT SALES OF TOBACCO PRODUCTS TO 

TRIBAL MEMBERS CANNOT BE TAXED BY A STATE. HOWEVER, A STATE 

MAY COLLECT TAXES ON TOBACCO PRODUCT SALES TO NON-INDIAN AND 

NONMEMBER INDIANS, SUBJECT TO CERTAIN QUALIFICATIONS THAT I 

WILL NOT EXAMINE HERE. A NEGATIVE RESULT OF THESE RULINGS IS 

THAT TRIBAL GOVERNMENTS ARE NOT INCLINED TO IMPLEMENT THEIR 

OWN TAX SYSTEMS BECAUSE DUAL TAXATION WOULD HINDER THEIR 

ECONOMIC OPPORTUNITIES. 

BECAUSE INDIAN TRIBES ARE SOVEREIGN GOVERNMENTS AND ENJOY 

SOVEREIGN IMMUNITY, THE U.S. SUPREME COURT IN LISTING OPTIONS 

FOR THE COLLECTION OF THE STATE TAX ENCOURAGES INTERGOVERNMENTAL AGREEMENTS WITH TRIBAL GOVERNMENTS TO AVOID FURTHER 

DISPUTES OVER STATE TAXATION AUTHORITY AND ENFORCEMENT OF 

STATE TAXES. 

UNFORTUNATELY, SPECIAL INTEREST GROUPS THAT HAVE LONG BEEN 

ATTEMPTING TO UNDERMINE TRIBAL SELF-GOVERNMENT AND ERODE 

THE SOVEREIGN IMMUNITY OF TRIBAL GOVERNMENTS USE FEDERAL 

LEGISLATION TO UNDERMINE THOSE STATE-TRIBE AGREEMENTS. 

PREVIOUS MEASURES CONSIDERED BY THIS COMMITTEE WOULD HAVE 

CREATED UNPRECEDENTED NEW STATE AUTHORITIES BY ALLOWING 

STATE GOVERNMENTS TO ENFORCE THE FEDERAL JENKINS ACT AGAINST 

TRIBAL GOVERNMENTS. IN ADDITION, THIS PROVISION WOULD ONLY 

SERVE TO DISRUPT STATE/TRIBAL AGREEMENTS WHERE ENFORCEMENT 

IS ADDRESSED. H.R. 4081, WHICH AMENDS THE JENKINS ACT, DOES NOT 

INCLUDE THIS TYPE OF PROVISION. 

MR. CHAIRMAN, I STRONGLY OPPOSE INCLUSION OF THIS TYPE OF PROVISION IN ANY MEASURE AS IT WOULD REVERSE MORE THAN 200 YEARS 

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TO-GOVERNMENT RELATIONSHIP BETWEEN TRIBES AND THE FEDERAL 

GOVERNMENT. I WANT TO BE CLEAR THAT TRIBAL GOVERNMENTS ARE 

NOT ASKING TO BE EXEMPTED FROM APPLICATION OF THE JENKINS ACT; 

THEY SIMPLY ASSERT THAT ENFORCEMENT OF FEDERAL LAW SHOULD 

REMAIN WITHIN THE PROVINCE OF THE FEDERAL GOVERNMENT. 

AND, THAT FEDERAL LEGISLATION SHOULD PRESERVE EXISTING 

AGREEMENTS BETWEEN A STATE AND TRIBE. I BELIEVE THAT H.R. 4081 

ACHIEVES THOSE OBJECTIVES. 

H.R. 5689 WOULD ESTABLISH A SYSTEM FOR REQUIRING CODES ON 

PACKAGES OF TOBACCO PRODUCTS FOR THE PURPOSE OF TRACKING THE 

COLLECTION OF TAXES THROUGH THE DISTRIBUTION SYSTEM UNDER 

THE AUTHORITY OF THE TREASURY SECRETARY. MANUFACTURERS 

WOULD BE REQUIRED TO PRINT A UNIQUE SERIAL NUMBER ON ALL 

PACKAGES OF TOBACCO. A SPECIFIC PROVISION OF THE BILL WOULD 

ALSO REQUIRE THAT ‘‘EACH PACKAGE OF A TOBACCO PRODUCT THAT IS 

SOLD ON AN INDIAN RESERVATION . . . SHALL BE VISIBLY AND PROMINENTLY LABELED AS SUCH.’’ 

DUE TO THE VARYING TAXATION ARRANGEMENTS THAT STATE AND 

TRIBAL GOVERNMENTS HAVE ESTABLISHED, A GENERALLY APPLIED 

‘‘ONE SIZE FITS ALL’’ APPROACH TO TRACKING THE COLLECTION OF 

TAXES MAY HAVE THE UNINTENDED EFFECT OF UNDERMINING INTERGOVERNMENTAL AGREEMENTS, AS THE CASE MAY BE IN THE STATE OF 

MICHIGAN. 

III. TAX AGREEMENTS IN MICHIGAN

PRESENTLY, 8 OUT OF THE 12 FEDERALLY RECOGNIZED INDIAN TRIBES 

IN MICHIGAN HAVE ENTERED INTO COMPREHENSIVE TAX AGREEMENTS 

WITH THE STATE OF MICHIGAN THAT, AMONG OTHER THINGS, PROVIDES 

A CLEAR UNDERSTANDING OF THE APPLICATION OF MICHIGAN TAXES IN 

INDIAN COUNTRY. 

EXCEPT FOR THE LAND AREAS DESCRIBED FOR EACH TRIBE, THESE 

AGREEMENTS ARE BOILERPLATE, AND INCLUDE SIX AREAS OF STATE 

TAXATION: SALES AND USE TAXES, MOTOR FUEL TAXES, INCOME TAXES, 

MICHIGAN SINGLE BUSINESS TAX, AND TOBACCO TAXES. EACH AGREEMENT DESCRIBES IN GREAT DETAIL THE EXEMPTIONS, ENFORCEMENT, 

ADMINISTRATION, AND TERMINATION. 

WITH REGARD TO TOBACCO PRODUCTS, A TRIBE CHOOSES ONE OF TWO 

SYSTEMS TO ACQUIRE TOBACCO PRODUCTS FOR TRIBAL AND TRIBAL 

MEMBER USE. THE TRIBE MAY CHOOSE A QUOTA SYSTEM OR A REFUND 

SYSTEM. MOST TRIBES HAVE OPTED FOR THE QUOTA SYSTEM WHICH REQUIRES A TRIBE AND STATE TO AGREE ON A CAP OR QUOTA OF TOBACCO 

PRODUCTS THAT A TRIBE MAY PURCHASE TAX FREE FROM A PRE-IDENTIFIED WHOLESALER. THE REFUND METHOD REQUIRES A TRIBE TO PREPAY STATE TAXES ON TOBACCO AND REQUEST A REFUND FROM THE 

STATE. 

IN GENERAL, IMPLEMENTATION OF THE TAX AGREEMENTS IN THE 

STATE OF MICHIGAN IMPOSES SUBSTANTIAL ADMINISTRATIVE RESPONSIBILITIES ON THE TRIBE. THE AGREEMENTS REQUIRE THE TRIBE TO 

STAMP TOBACCO PRODUCTS FOR THE PURPOSES OF USING THE QUOTA 

METHOD, MAINTAIN A RECORD OF SALES, REPORTING AND ENFORCEMENT DUTIES. THE STATE HAS THE RIGHT TO INSPECT TRIBAL FACILITIES. DISPUTES ARE RESOLVED BY BINDING ARBITRATION. THE AGREEMENTS ARE PERPETUAL, BUT MAY BE TERMINATED BY EITHER PARTY 

UPON NOTICE. 

I HAVE OVERSIMPLIFIED THE TAX AGREEMENTS IN MICHIGAN AS THEY 

ARE QUITE COMPLICATED. MY POINT, HOWEVER, IS TO EMPHASIZE THE 

IMPORTANCE OF PRESERVING INTERGOVERNMENTAL TAX AGREEMENTS. 

IV. CONCLUSION

I WANT TO THANK THE CHAIRMAN FOR HIS WILLINGNESS TO ENSURE 

THE PARTICIPATION OF A TRIBAL LEADER AT THIS HEARING. I COMMEND 

YOU FOR SUPPORTING FEDERAL POLICIES DESIGNED TO ADVANCE TRIBAL SELF-DETERMINATION AND ECONOMIC SELF-SUFFICIENCY. 

I LOOK FORWARD TO WORKING WITH THIS COMMITTEE TO ADDRESS 

CONCERNS OF TRIBAL GOVERNMENTS TO AVOID UNINTENDED IMPACTS 

ON INTERGOVERNMENTAL AGREEMENTS AND TO CLEAR UP ANY AMBIGUITY WITH RESPECT TO ENFORCEMENT. 

15 

THANK YOU. 

Mr. SCOTT. Thank you very much. 

I thank both of our witnesses for testifying. 

Are there any burning questions from the Members? If not, we 

thank you for your testimony today. 

At this point, I ask unanimous consent to introduce for the 

record a statement from the gentleman from Texas, Mr. Doggett, 

who is the chief sponsor of H.R. 5689. The statement begins with, 

‘‘Only because of a broken leg am I submitting this written testimony instead of participating personally. H.R. 5689, the ‘‘Smuggled 

Tobacco Prevention Act of 2008,‘‘ the STOP Act, is a sensible public 

health and law enforcement approach to preventing the smuggling 

of tobacco.’’ 

I would ask that the complete statement be made part of the 

record. Without objection, so ordered. 

[The prepared statement of Mr. Doggett follows:] 

16 

PREPARED STATEMENT OF THE HONORABLE LLOYD DOGGETT, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF TEXAS


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Mr. SCOTT. Our second panel, if the witnesses could come forward? I will begin the introductions as they come forward. 

The gentleman from California? 

Mr. LUNGREN. Mr. Chairman, I ask unanimous consent that a report by Mr. King of New York about tobacco and the connection 

with terrorist organizations might be made a part of the record, including a diagram describing the particular matter in the State of 

New York. 

Mr. SCOTT. Without objection, so ordered. 

[The information referred to follows:] 

22 

REPORT BY PETER T. KING, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF

NEW YORK, SUBMITTED BY THE HONORABLE DANIEL E. LUNGREN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA


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Mr. LUNGREN. Thank you. 

Mr. SCOTT. Thank you. 

Our first witness on the second panel will be William Hoover, the 

assistant director of the Bureau of Alcohol, Tobacco, Firearms and 

Explosives. His current duties include the oversight of all field operations comprising regulatory and criminal enforcement, which 

constitutes the majority of ATF’s resources and workforce. He is a 

graduate of Shepherd College. 

The next witness will be Matthew Myers, president of the Campaign for Tobacco-Free Kids, a privately funded organization established to reduce tobacco use and its devastating consequences in 

the United States and around the world. Over the last 25 years, 

he has participated in virtually every major national tobacco-related legislative effort and has worked with State tobacco prevention advocates and officials around the country. 

Next will be Mr. Steve Rosenthal, a consultant to and past president of the New York State Association of Wholesale Marketers, 

whose members are New York’s cigarette tax stamping agents. Mr. 

Rosenthal has been involved in the tobacco business for 37 years, 

during which time he owned one of the largest cigarette distribution companies in the Northeast. 

Next, we will have John Colledge, who is currently an independent consultant advising clients on matters such as international cigarette and liquor smuggling, trafficking, counterfeit 

merchandise, anti-laundering and other customs and law enforcement matters. He recently retired with more than 20 years of service as a criminal investigator with the U.S. Customs Service and 

the Department of Homeland Security. He is a graduate of Arizona 

State University. 

I was about to say we hadn’t gotten biographical information, but 

that is not the case right now. Just in time. 

Mr. Arlan Melendez is chairman of the Reno-Sparks Indian Colony of Nevada. He has been chairman for the past 17 years. He is 

chairman of the Taxation Committee of the National Congress of 

American Indians. He is a past president of the Intertribal Council 

of Nevada and the past Phoenix-area vice chairman of the National 

Congress of American Indians. Senator Reid appointed Mr. 

Melendez as a member of the United States Commission on Civil 

Rights. He is only the second American Indian to serve on that 

commission. 

Our final witness is the chief counsel of the Tobacco Enforcement 

Unit of the Office of the Attorney General of Maryland, Mr. David 

Lapp. 

We will begin with Mr. Hoover. 

Mr. HOOVER. Thank you, Chairman Scott. 

Mr. SCOTT. Before you begin, there is a lighting device at your 

table which will start off green and go to yellow with 1 minute left 

of the 5 minutes in your testimony, and red when the 5 minutes 

are up. So I would ask you to summarize your testimony in 5 minutes or less. Your entire written statement will be made part of the 

record in its entirety. 

Thank you. Excuse me, Mr. Hoover. 

39 

TESTIMONY OF WILLIAM HOOVER, ASSISTANT DIRECTOR, OFFICE OF FIELD OPERATIONS, BUREAU OF ALCOHOL, TOBACCO, FIREARMS AND EXPLOSIVES (ATFE), U.S. DEPARTMENT OF JUSTICE, WASHINGTON, DC 

Mr. HOOVER. Thank you, Chairman Scott and distinguished 

Members of the Subcommittee. I am William Hoover, assistant director for field operations of ATF. I have been an agent with ATF 

since 1987. In my current position, I oversee the operations of all 

of the bureau’s field offices. ATF appreciates the interest of this 

Subcommittee and of Representatives Weiner and Doggett in addressing the growing problem of cigarette trafficking. We appreciate the opportunity to speak to this Committee on this important 

issue. 

ATF has the primary jurisdiction in the United States over the 

interstate trafficking of cigarettes, pursuant to the Contraband Cigarette Trafficking Act which was enacted in 1978. Its purpose is to 

prevent criminal networks from profiting by transporting and selling cigarettes in interstate commerce without first paying the applicable State excise tax. 

The CCTA makes it unlawful for any person to sell, possess or 

purchase more than 10,000 cigarettes which bear no evidence of 

State tax payment in the State in which the cigarettes are found, 

if that State requires a stamp or other indicia of evidence of payment of taxes. The maximum penalty for violating this statute is 

5 years in prison. 

As the agency with primary jurisdiction over the CCTA, ATF has 

achieved great success in our contraband cigarette investigations. 

Trafficking in contraband cigarettes, as mentioned previously, is a 

global problem and it is believed that cigarettes are the number 

one illegally trafficked legal commodity in the world. 

Cigarette diversion schemes are growing on every continent. It 

has been estimated by some that the illicit worldwide trade in cigarettes accounts for approximately 11 percent of all cigarettes sold, 

or about 600 million cigarettes. Estimates of the worldwide tax loss 

to governments are between $40 billion and $50 billion each year. 

Illicit tobacco trafficking is primarily the result of tax disparities. 

Congressman Weiner, I, too, am guilty of maybe not making my 

chart large enough, but what you see on the chart that we have 

provided you today are the different tax structures from the States 

across the country. 

This pricing difference creates an opportunity for criminal networks to reap huge profits by avoiding Federal and/or State excise 

taxes. The large-scale trafficking in cigarettes involves a structured 

business model which mirrors the movement of cigarettes in legitimate markets, and this involves either genuine or counterfeit products. You must have a source, a warehousing system, a shipping 

network, and finally a retail outlet. 

A number of studies regarding the estimated tax loss to the 

United States have been conducted. For example, the GAO has 

cited studies that estimate in 2005 the tax loss to States from cigarette trafficking at $1 billion. I am also aware of estimates which 

indicate that New York state loses approximately $500 million and 

California loses approximately $100 million annually due to the diversion of cigarettes. 

40 

Throughout the years, ATF has seen the development and advancement of this criminal activity due to the potential for enormous profits. Let me give you an example. The Federal excise tax 

on a carton of cigarettes amounts to $3.90, while State and local 

excise taxes can be as high as $30 per carton. Therefore, a person 

who avoids paying these expenses on 3,000 cartons of contraband 

cigarettes, which is roughly a minivan full load, and sells them in 

New York City at the same price as a legal vendor could reap as 

much as $115,000 more dollars in profit than that legal vendor. 

In the simplest form, cigarette trafficking is an easy way for 

criminals to make money. It is therefore no surprise that criminal 

groups such as outlaw motorcycle gangs, organized crime and drug 

cartels have become involved in cigarette trafficking. These 

schemes include traditional State-to-State trafficking, elaborate 

counterfeiting of cigarettes and tax stamps, and the illicit manufacturing of cigarettes. Historically, ATF has seen these schemes conducted at the wholesale or stamping agent level, down to the retail 

outlets. 

Additionally, Federal law requires all cigarettes manufactured in 

the United States for export to bear a marking on the individual 

pack stating that it is tax exempt for sale outside of the United 

States. If the cigarettes are brought back into the U.S. for sale, 

they must go back to the manufacturer for re-packaging and the 

payment of the Federal excise tax. 

ATF has encountered numerous schemes where cigarettes are 

sent out to foreign trade zones, Customs warehouses, and foreign 

ports and then reintroduced into the United States without the 

payment of this Federal excise tax, and subsequently the applicable 

State tax. Criminals then illegally sell them with either the exportonly stamp on the pack or repackaged without the stamp. 

Intelligence suggests that these criminal enterprises involved in 

these schemes build into their pricing model a figure which reflects 

that one in ten containers will be detected by Customs. To the best 

of our knowledge, counterfeit products that have been seized by domestic law enforcement have not been manufactured in the United 

States. Most counterfeit cigarettes are manufactured in clandestine 

labs and have been found to create a substantially higher health 

risk than the genuine product. ATF laboratory personnel have examined counterfeit cigarettes containing bird feces, bird feathers 

and plastic shavings. 

Now, in my long statement, there are examples of investigations 

that we have conducted that I would like to share with you, but 

I can see that I am out of time, so I will cut my statement at this 

point. 

[The prepared statement of Mr. Hoover follows:] 

41 

PREPARED STATEMENT OF WILLIAM HOOVER


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Mr. SCOTT. Thank you, Mr. Hoover. 

Mr. Myers? 

TESTIMONY OF MATTHEW L. MYERS, PRESIDENT, 

CAMPAIGN FOR TOBACCO-FREE KIDS, WASHINGTON, DC 

Mr. MYERS. Thank you, Mr. Chairman. It is a genuine pleasure 

to be here. It is also a genuine pleasure to be here on a Committee 

where the Chairman, Mr. Conyers, and the Ranking minority 

Member, Mr. Smith, demonstrate the bipartisan nature of both the 

problem and the solutions. 

I also want to very much commend Congressman Weiner for taking the lead on providing us with an opportunity to do something, 

and to do something we can do today that will make a fundamental 

difference in the health of our children. 

And Mr. Doggett for tackling the broader problem. I think all of 

us know that only a broken leg could have kept Mr. Doggett away 

from here today. His long-time commitment to this issue and finding practical solutions to this is extraordinarily important. 

The Campaign for Tobacco-Free Kids and all of the other major 

public health organizations in this nation strongly support both the 

PACT Act and the STOP Act. As the Members of this Committee 

are well aware, smuggling and tax evasion are criminal acts that 

reduce government revenue and hurt honest business. That should 

be reason enough to tackle these problems. 

But the reason we are here is because they also have a direct impact on the health of our nation and the health of our children. 

Counterfeit and smuggled cigarettes and other cigarettes sold free 

of applicable State and Federal taxes are sold at prices far lower 

than legally sold cigarettes. Cheap cigarettes mean more people 

smoking and more people smoking more. Most importantly, what 

they mean is more children smoking because children are most 

price-responsive. 

There is another reason for acting on these bills. Black market 

vendors and other illegal sellers are also much more likely to sell 

to underage buyers. The vast majority of Internet tobacco product 

sellers do not do any age or ID verification. A New York study 

found that in 2004 and 2005, more than 5 percent of the ninthgraders had bought cigarettes online. 

To make matters worse, some Internet sellers require minimum 

purchase sale, so kids who purchase cigarettes end up purchasing 

more of them and themselves become re-sellers. 

There is another reason to be concerned. The reduction in revenue hurts State revenue and the decrease in State revenue means 

there is less money to fund important public health prevention programs, including tobacco prevention programs. The problem also 

reduces State revenues in another way. The master settlement 

agreement entered into between 46 States and the tobacco industry 

gears those payments to legal tobacco sales. The greater the illegal 

sales, the less money the States have for legitimate and important 

public health purposes. 

Lastly, the tobacco industry uses the existence of illegal sales to 

argue against important tobacco tax increases, just as New York 

recently increased its tax by $1.25. When States increase their tobacco taxes as New York and Texas have done, what we see is deVerDate Aug 31 2005 13:14 Jan 08, 2009 Jkt 000000 PO 00000 Frm 00054 Fmt 6633 Sfmt 6601 H:\WORK\CRIME\050108\42120.000 HJUD1 PsN: 42120
51 

creased consumption, increased State revenue, and more money 

available for important public health programs. The tobacco industry uses the failure to have proper systems to implement these 

laws to fight these taxes. 

Let me briefly talk about the two bills, if I may do that. The 

PACT Act introduced by Representative Weiner focuses primarily 

on Internet sales as we know. It is the result of years of careful 

negotiation between all of the interested parties. At present, neither the Federal Government nor the State governments have the 

tools to address a problem that everybody agrees needs to be addressed. This bill represents an extraordinarily careful balance. It 

will help and protect honest businessmen. It will only impose a 

burden on those who are selling illegally. 

Trying to stop illegally operated Internet sellers through traditional enforcement lawsuits on a case-by-case basis simply doesn’t 

work. While the States have entered into what I think are innovative agreements with the common carriers, (a) it doesn’t necessarily 

apply to new common carriers who come on board; (b) it could be 

overturned any day; and (c) it is contingent upon New York state 

law. If New York state laws were challenged, there is a possibility 

that that voluntary agreement will no longer be in existence. The 

existence of the voluntary agreement, however, demonstrates that 

the common carriers can do precisely what this act asks them to 

do. 

Another key element here is the non-mailable matter provision. 

Recent surveys have shown that the mails are the primary means 

of transmitting illegally sold—and I want to underline the words 

‘‘illegally sold’’ cigarettes. This bill would prevent that. 

There are two recommendations that we make with regard to 

changes that are needed that we believe. One is that section 

(j)(1)(B) currently reads that the notice to the attorney general impacts those businesses that are only primarily engaged in the sale 

of cigarettes. It should be ‘‘regularly’’ engaged in the sale of cigarettes. There are some very large sellers out there who also sell 

other products. There is no reason to exempt them. 

Similarly, the provision that is properly in the legislation to protect sales within Hawaii and Alaska contains the phrase ‘‘or into,’’ 

so they would allow interstate sales. That was I think unintentional and should also be addressed. 

On balance, the PACT Act is one of those pieces of legislation 

that has been carefully crafted to address I think all of the interests of the parties. I know that there have been extensive negotiations with the tribes in order to address those issues, and explicit 

provisions to guarantee the tribal sovereignty is honored in this. 

Hopefully, this is a piece of legislation that we can move quickly. 

The STOP Act is equally important. Let me just briefly address 

it. It contains vitally important provisions to deal with the problem 

of smuggled cigarettes. High-tech tax stamps, which are in existence, technically available, don’t discriminate against any sellers, 

could make an enormous difference in the sale of the illegal cigarettes. It is something that we can do today. We can do it cheaply 

and it won’t negatively impact anybody in the legal sale of tobacco 

products. It is incredibly important. 

52 

It is also important to understand that while the STOP Act does 

not specifically speak in terms of tribal sovereignty, it is neutral 

and would not impinge on issues of tribal sovereignty. However, 

the issues that have been raised are very important, and I think 

everybody involved is prepared to talk about ways to affirmatively 

State in the legislation the importance of protecting tribal sovereignty, as is done in the PACT Act. 

Let me just briefly conclude by saying cigarette smuggling is a 

matter of honesty, fairness, criminal law, but it is also one of those 

issues that we have solutions that can not only raise government 

revenue, decrease illegal activity, protect honest businesses, and it 

will save lives. 

Thank you. 

[The prepared statement of Mr. Myers follows:] 

PREPARED STATEMENT OF MATTHEW L. MYERS

Mr. Chairman, Thank you for inviting me to testify today on the problem of tobacco product smuggling and tax evasion and, more particularly, on the Prevent All 

Cigarette Trafficking or PACT Act (H.R. 4081), introduced by Representative 

Weiner, and the Smuggled Tobacco Prevention Act (H.R. 5689), introduced by Representative Doggett. 

The Campaign for Tobacco-Free Kids and other public health organizations—such 

as the American Cancer Society, the American Lung Association, and the American 

Heart Association—strongly support the passage of both bills. Each is a carefully 

crafted piece of legislation that addresses different aspects of the problem caused 

by the sale of smuggled or counterfeit tobacco products or other tobacco products 

on which taxes have not been paid. Together, they offer an effective way to supplement and improve existing federal laws to prevent and reduce domestic and international aspects of tobacco product smuggling, tax evasion and illegal sales to youth. 

As the members of this Committee are well aware, smuggling and tax evasion are 

criminal activities that reduce government revenues and hurt honest businesses. 

That is reason enough to want to minimize the problem. But tobacco product smuggling and tax evasion also have serious public health consequences. 

Counterfeit and smuggled cigarettes and other cigarettes sold free of applicable 

federal or state taxes are offered to consumers at prices far lower than the prices 

charged by lawful tobacco product retailers. The sales of these illegally tax-free 

products undermine ongoing state and local efforts to reduce tobacco use by increasing tobacco tax rates. Studies show, for example, that every 10% increase in real 

cigarette prices will reduce overall use by approximately three or four percent and 

reduce the number of youth smokers by six or seven percent. The corollary has also 

been proven true—decreases in cigarette prices—in this case from illegal cigarettes—increase tobacco use. The availability of cheap cigarettes therefore increases 

overall tobacco use, thereby leading to higher levels of tobacco-caused disease, 

deaths and costs. By reducing the easy access to contraband tobacco products and 

other tobacco products on which taxes have not been paid, these bills will assist in 

the effort to reduce tobacco use and its harms, especially among youth and lowerincome persons. 

Another key public health problem from contraband tobacco product trafficking is 

sales to kids. Black market vendors and other illegal sellers are much more likely 

to sell to underage buyers than legally operating retailers. This problem is especially clear with illegal Internet sales of cigarettes and other tobacco products. 

• The vast majority of Internet tobacco product sellers do not do any age or ID 

verification. 

• Studies show that kids can easily buy—70 to 90 percent are successful with 

no ID checks. 

• The last nationwide survey of the problem, in 2001, showed that more than 

three percent of youth smokers aged 12 to 17 (more than 100,000 kids) had 

recently purchased cigarettes from the Internet. 

• Since then, a New York study found that in 2004 and 2005 more than 5% 

of just 9th graders (14 and 15 year olds) had bought cigarettes online—more 

than three times as many as in 2001—and purchase rates are even higher 

among older kids. 

53 

Since then, the problem has become even worse. Put simply, more kids are gaining access to computers and the Internet, more kids are getting their own credit 

cards and debit cards, and more kids are getting comfortable making purchases over 

the Internet. To make matters worse, some Internet sellers require minimum purchases of at least one or two cartons. So kids who buy over the Internet can become 

suppliers for their friends and classmates. 

The sale of contraband tobacco products and other tobacco products on which no 

taxes have been paid also hurts public health by reducing the amount of government tobacco tax revenues available to fund tobacco prevention programs and other 

public health initiatives. 

This problem is exacerbated by the fact that contraband cigarette trafficking can 

also reduce the annual tobacco settlement payments to the states. Those settlement 

payments are supposed to be adjusted downward based on U.S. cigarette consumption declines—but the MSA formulas are based solely on changes to legal cigarette 

sales. When smokers shift to illegal cigarettes, consumption does not actually decline, but payments to the states do. 

The illegal sale of tobacco products also opens the door to the sale of tobacco products that don’t always have the required health warnings and may contain pesticide 

levels that exceed those permitted on legally grown domestic tobacco, a problem that 

will become more significant once the pending federal FDA tobacco legislation becomes law, even more so once FDA sets product standards for cigarettes. 

There is another public health reason to institute effective measures to minimize 

tobacco product smuggling and tax evasion. As mentioned earlier, tobacco tax rate 

increases are an especially effective way to increase tobacco product prices and, consequently, reduce tobacco use and its many harms and costs. But the tobacco industry and its allies regularly argue against any significant tobacco tax rate increases, 

claiming that they will drive more smokers to illegal cigarettes. The legislation before this Committee offers the proper response to this tobacco industry argument. 

Rather than just allow the criminal activity to continue—and forgo the important 

health and fiscal benefits from increasing the tobacco tax rates—these two bills 

would implement effective measures to minimize the problem of illegal tobacco product sales. 

For all these reasons, minimizing tobacco product smuggling and tax evasion is 

good fiscal policy and good for public health. 

These measures can be quickly implemented. They will stop criminals from profiting from contraband tobacco product trafficking. The provisions in H.R. 5689 and 

H.R. 4081 will protect honest businesses from illegal competition, increase revenues 

at all levels of government, and significantly improve public health. 

THE PREVENT ALL CIGARETTE TRAFFICKING ACT (PACT ACT, H.R. 4081)

The PACT Act introduced by Representative Weiner focuses primarily on one part 

of the tobacco product smuggling and tax evasion problem: illegal Internet and other 

mail-order sales. 

Illegal Internet sales take money away from all levels of government, and provide 

a distribution and sales network for sellers to who don’t pay taxes and sell counterfeit cigarettes and other black market tobacco products. As I already noted, this 

makes it possible for illegal Internet sellers to charge lower prices than legal sellers, 

and cheaper cigarettes increase overall tobacco use. One recent study found that 

adult smokers who purchased cheaper cigarettes from the Internet significantly increased their consumption over time compared to smokers who reported paying fullprice at traditional bricks-and-mortar retail stores. 

As mentioned before, tobacco products are also typically sold over the Internet 

without any effective safeguards against sales to kids. This means that minors who 

find it hard to purchase cigarettes from bricks and mortar retailers can simply go 

to the Internet instead. 

At present neither the federal government, nor the states have the tools to adequately address these problems. The only federal law available today to stop illegal 

Internet sales of tobacco products is the Jenkins Act, which was passed decades ago 

to stop mail order cigarette sales that evade state taxation. The Jenkins Act requires mail-order vendors to report their cigarette sales into a state to the state’s 

tax administrator. Many don’t do so. 

Only federal officials can enforce the Jenkins Act, and enforcing the Act is, to say 

the least, very difficult. Consequently, federal enforcement efforts have been minimal. In fact, a U.S. General Accounting Office report of a few years ago found that 

more than three-quarters of all Internet-selling websites explicitly indicate that they 

do not comply with the Jenkins Act. The same report found that state efforts to 

prompt compliance by Internet sellers have not been successful. 

54 

Without this legislation, state governments cannot address this problem adequately on their own. Trying to stop illegally operating Internet sellers through traditional enforcement lawsuits on a case-by-case basis does not work because of the 

large number of illegal Internet sellers, with many based overseas or in other hardto-reach jurisdictions, the ease with which new Internet sellers can appear, and the 

ability of illegal Internet sellers to evade enforcement by closing down and then reopening at another location or website. 

States have entered into innovative settlement agreements with common carriers, 

credit card companies and others in an effort to interrupt the ability of illegal Internet sellers to sell and deliver their products. But the illegal Internet sellers can still 

largely evade compliance by using the U.S. mails over which states have no authority. In addition, all of these agreements are based on New York’s law prohibiting 

deliveries of cigarettes to consumers in the state. If that law is found invalid or otherwise overturned, all the agreements terminate, a concern that is heightened by 

the recent U.S. Supreme Court ruling that federal law preempts state laws dealing 

with common carrier deliveries of tobacco products. 

Stopping illegal Internet tobacco product sales will require stronger and more sophisticated federal legislation—and that is what the PACT Act (H.R. 4081) offers. 

Because federal laws can reach further than state laws, the PACT Act would succeed where the states have failed. It not only places needed restrictions and requirements on Internet sellers but also provides for their quick and effective enforcement. 

A key element of the legislation is that it makes cigarettes and smokeless tobacco 

non-mailable matter and establishes a system that would block illegal Internet sellers from obtaining any other delivery services. Any effort to eliminate or curtail the 

non-mailable matter provision or the so-called common carrier list-enforcement 

mechanism would make the act unenforceable, and so should be rejected by the 

Committee. 

While the PACT Act is primarily directed at stopping contraband tobacco product 

trafficking and tax evasion via the Internet, it also contains constructive provisions 

to require age and ID verification before tobacco products are sold or delivered. 

These provisions can help to stop cigarette and smokeless tobacco sales to kids. 

The PACT Act has been continuously revised since 2003 to stop illegal Internet 

sales of cigarettes and smokeless tobacco much more effectively and efficiently. As 

a result, it is a carefully crafted piece of legislation that has benefited from the 

thoughtful input of state enforcement officials, Indian Tribes, common carriers, the 

U.S. Postal Service, and the Bureau of Alcohol, Tobacco, Firearms and Explosives 

(BATFE), as well as the public health community. Numerous substantive changes 

have been made to address the concerns of many groups and to eliminate any unnecessary burdens or complications—all without weakening the PACT Act’s ability 

to address and reduce the problem of Internet-based contraband tobacco product 

trafficking. 

As a further step in that process, we would like to recommend to the Committee 

that the following changes be made to strengthen the nonmailable matter section: 

• Revise Section (j)(1)(B) that reads ‘‘primarily engaged in the business of 

transmitting cigarettes or smokeless tobacco made nonmailable by this section’’ so that it reads ‘‘regularly engaged in the business . . .’’. This change 

would ensure that the bill reaches large-scale mailers of cigarettes or smokeless products which also have other unrelated business activities that are 

their primary business. Such businesses would include bricks-and-mortar 

multi-product retailers that also sell cigarettes by mail; Internet sellers that 

sell and mail cigarettes but primarily sell other products; and foreign-based 

Internet sellers that use the mail for sales to the U.S. but primarily use common carriers or other delivery services for sales to other countries. 

• Revise Section (j)(1)(D) to delete the text ‘‘or into.’’ This change is necessary 

to stop mailings of cigarettes or smokeless into Alaska or Hawaii from outside 

of those states by illegal operating Internet sellers. The revised text will still 

maintain an exception allowing mailings entirely within Alaska or Hawaii by 

in-state grocery stores to consumers who rely on the mails for supplies— 

which is the reason that has been given for this exemption. 

THE SMUGGLED TOBACCO PREVENTION ACT (STOP ACT, H.R. 5689)

While effectively addressing the problem of illegal Internet tobacco product sales 

would be extremely constructive by itself, more also needs to be done to address the 

many other aspects of the overall contraband tobacco product trafficking problem. 

Representative Doggett’s bill—H.R. 5689—does just that. 

H.R. 5689 is the latest version of legislation that was introduced in prior Congresses and has undergone continuous improvement. Among other things, it takes 

55 

full advantage of the lessons learned from growing efforts worldwide to address the 

problem of cigarette and other tobacco product smuggling that crosses international 

borders and the problem of counterfeit tobacco products and counterfeit tax stamps. 

At the same time, H.R. 5689 also offers effective measures to reduce the special 

characteristics of the smuggling and tax evasion problem within the United States. 

The common sense principles behind H.R. 5689 are simple and effective: 

1) Make sure that it is difficult for illegal vendors to sell counterfeit tobacco products or make or sell counterfeit tax stamps and easy for 

enforcement officials and others to distinguish legal from illegal tobacco products. H.R. 5689 does that by requiring clear markings on tobacco product packages that identify the manufacturer and show where the 

products may be legally sold. The legislation requires new, readily available 

high-tech tax stamps that establish legality and cannot be effectively counterfeited, and it includes provisions to keep tobacco product manufacturing 

and tax-stamping machinery from getting into the hands of counterfeiters. 

2) Make it easier to track and trace tobacco products as they are transported from one business to another so that diversion to illegal distribution channels is more difficult and easier to spot. H.R. 5689 requires reasonable reporting and record-keeping requirements by businesses 

throughout the distribution and delivery chain; adds tobacco product distributors into the federal permit system that now applies to manufacturers, 

exporters and importers (creating a closed system of authorized legal businesses that can sell and deliver tobacco products to each other); provides for 

encrypted information on the high-tech tax stamps to identify not only the 

entities applying the tax stamp but also subsequent recipients; and establishes a system of export bonds to ensure that the tobacco products actually 

end up in legal markets where they are reportedly destined. 

3) Prohibit transactions that serve only to supply contraband trafficking. H.R. 5689 blocks sales of tobacco products that exceed the amount 

needed for personal use. For example, the bill stops the sale of more than 

5,000 cigarettes (250 packs) to any single retail customer at any one time. 

Those kinds of large retail sales are needed only by those engaged in illegal 

smuggling and re-sales, and this bill would stop them. 

4) Untie the hands of federal enforcement officials. To help enforcement 

efforts, the legislation creates clearer and more extensive federal jurisdiction 

over contraband trafficking. For example, H.R. 5689 makes the definition of 

contraband tobacco product clearer and more comprehensive. It includes all 

tobacco products for the first time, and would also enable federal enforcement officials to stop and prosecute any contraband trafficking of more than 

2,000 cigarettes (rather than the current jurisdictional minimum of 10,000 

cigarettes). 

5) Protect citizens who report criminal trafficking acts. H.R. 5689 does 

that by providing new whistleblower protections for civic minded workers 

who witness contraband trafficking activity while on the job. 

6) Establish strong new financial incentives for good behavior and appropriately large financial disincentives for bad behavior. Rep. 

Doggett’s legislation establishes new export bond requirements that would 

penalize exporters for allowing their shipments to be diverted from the reported legal destinations; provides clearer standards for proper behavior; establishes clearer descriptions of wrongful acts, and subjects lawbreakers to 

higher fines and penalties. 

These examples of some of the measures in H.R. 5689 provide a quick overview 

of this comprehensive and carefully thought-out legislation. Once passed into law, 

we believe it will operate effectively to reduce contraband trafficking both within the 

United States and across its borders. H.R. 5689—both by itself and particularly if 

supplemented by the PACT Act—offers a model that the world’s nations could follow 

both in the current development of the Illicit Trade Protocol of the Framework Convention on Tobacco Control (FCTC) (which the United States has signed but not yet 

ratified) and in subsequent efforts by individual countries to comply with the FCTC 

international treaty by passing their own stronger and more comprehensive national 

laws. 

Mr. Chairman, passing the STOP Act and the PACT Act would not only cap current tobacco product smuggling and tax evasion preventing it from getting any larger in the United States, but would also make the problem much smaller. These 

measures would increase the costs and reduce the profits from smuggling and tobacco-product related tax evasion. They would also close down lucrative opportuniVerDate Aug 31 2005 13:14 Jan 08, 2009 Jkt 000000 PO 00000 Frm 00059 Fmt 6633 Sfmt 6621 H:\WORK\CRIME\050108\42120.000 HJUD1 PsN: 42120
56 

ties for criminal and terrorist organizations. They protect honest businesses from illegal competition and increase public revenues at all levels of government. 

For all the reasons I outlined at the beginning of my testimony, passing these two 

pieces of legislation would also work directly to improve public health by helping 

to reduce tobacco use and the horrible toll it takes on our country. 

Thank you, again, for this opportunity to testify before this Committee. I would, 

of course, be happy to answer any questions. 

Mr. SCOTT. Thank you, Mr. Myers. 

Mr. Rosenthal? 

TESTIMONY OF STEVEN ROSENTHAL, NEW YORK STATE 

ASSOCIATION OF WHOLESALE MARKETERS, NEW YORK 

Mr. ROSENTHAL. Thank you, Chairman Scott and Ranking Member Gohmert and the rest of the Committee. 

I have been a distributor. I have spent my whole life in distribution in New York. I understand the distribution business well. I 

would like to impart some of that knowledge today. 

There are basically two channels of distribution in New York, 

which has a major, major problem when it comes to counterfeit 

cigarettes. The first channel is the legitimate channel. The cigarette manufacturer sells cartons of cigarettes to licensed tax-stamping agents throughout the State. They in turn sell to retailers at 

minimum pricing by law and the consumer pays a minimum price 

for those cigarettes. 

The second channel is certain distributors have taken advantage 

of the fact that New York state, in spite of its 2006 law, because 

of the fact that New York state does not enforce its laws regarding 

the sales of stamped cigarettes, certain distributors have chosen to 

sell unstamped cigarettes to reservation stores in New York to the 

tune of 30 million to 40 million cartons a year. 

Now, all of the revenue that New York derives from taxed cigarettes only comes to about 55 million cartons a year. And yet, including cross-bordering and some Internet sties from out of State, 

practically one out of every two cigarettes in New York remains 

untaxed by New York, and that is in violation of New York law. 

In 1994, New York won the rights in the Supreme Court of the 

United States for its taxing plan to tax the non-Indian Indian sales 

to those who do not live on the reservation. That plan was put into 

effect and immediately through terrorism certain elements within 

the tribes closing the New York State Thruway and burning tires, 

the State decided to stop enforcing its laws and haven’t to date. As 

a result of that, we now have 30 million to 40 million cartons of 

cigarettes going through that channel. 

Now, there are only about 2,500 adult smokers in the Indian 

tribes throughout all of New York state. This amounts to less than 

100,000 cartons a year, or less than 1 percent of that which is 

being purchased by the Indian reservation stores. These stores 

therefore are selling 99.44 percent of their product illegally to nonIndians, and they do it in several ways. 

The major way that it is happening is through the Internet. The 

association is very, very much in favor of Mr. Weiner’s bill, which 

will stop the Internet because it will stop the U.S. mails from distributing this product. However, there remains an open door, and 

that open door is those terrorist organizations and those complicit 

retailers within those organizations that are purchasing the stamps 

57 

in truckloads from the stores in the Indian reservations and then 

bringing them to counterfeit operations that we see all over the city 

of New York in particular, and distributing them not just in New 

York City, but interstate into Michigan and into New Jersey and 

into other high-tax jurisdictions. 

We maintain that the largest single source of counterfeit contraband cigarettes throughout the United States is New York state’s 

Indian stores. 

Now, the sovereignty of American Natives and the treaties that 

we have in place are sacrosanct and should be respected as such. 

But let’s understand that every population has its good guys and 

bad guys. No better example can be found than the saga of Rodney 

Morrison, the owner of the Peace Pipe Smoke Shop on the 

Poospatuck reservation on Long Island. Mr. Morrison, who married 

into the tribe, is on trial for a reign of terror including arson, extortion, murder and multiple violations of the Contraband Cigarette 

Trafficking Act. 

To understand the scope of Morrison’s criminal operation from illegal cigarette sales, it is important to note that he offered $56 million in cash for bail. While this is a staggering figure for most 

criminals, it was a pittance when compared to the $35 million a 

month profits from the sales of contraband cigarettes. 

Now, Phillip Morris has stopped the distributors from selling 

their products to the Poospatuck reservation store. However, none 

of the other manufacturers have. And the biggest single product 

sold in New York City, particularly in the economically disadvantaged areas where the incidence of smoking is highest, happens to 

be Newport. Lorillard has not stopped selling to these stores, nor 

have any of the manufacturers stopped selling to any of the stores. 

With knowledge, what is happening is the manufacturer is allocating the cigarettes to the wholesaler. Every week the wholesaler 

is reporting exactly where these cartons are going per agreements. 

They go to the Indian reservations where everyone knows that less 

than 1 percent of them are being smoked legally by the Indians, 

and the other 99 percent of it is going to front terrorism and criminality and evasion of taxes, and youth smoking. And yet, nobody, 

nobody seems to want to stop that. 

I thank the Committee for allowing me to speak today, and I remain here to answer any questions. 

[The prepared statement of Mr. Rosenthal follows:] 

PREPARED STATEMENT OF STEVEN ROSENTHAL

Thank you Chairman Scott and Ranking Member Gohmert for allowing me to appear today. My name is Steven Rosenthal and I am testifying on behalf of the New 

York Association of Wholesalers Marketers. 

I will begin by saying that the legislation before the subcommittee today is both 

essential and gratefully endorsed by the cigarette tax agents in New York. 

It is important to understand the channel of distribution of cigarettes and the aberrations that lead to contraband sales. 

The cigarette manufacturers are licensed federally and upon removal from their 

bonded warehouses, pay the US excise tax of $3.90 per carton. 

The state licensed tax stamping agent, (distributor) orders cigarettes from the 

manufacturer based upon an allocation. 

The distributor buys tax stamps from its state and applies the stamps to each 

pack of cigarettes. In New York this stamp includes pre-collected sales tax as well 

as excise tax. 

58 

The licensed retail dealers then purchase from the distributor and pay the required price per carton which includes their jurisdiction’s taxes. In New York and 

30 other states, the minimum pricing all the way to the consumer is determined 

by statute. 

As the accompanying chart illustrates, the pricing in New York City also includes 

the addition of New York City excise taxes. 

Contraband cigarettes arise in several different ways. 

The distributor may sell to a retail establishment in a low taxed jurisdiction that 

engages in advertising internet sales into highly taxed jurisdictions causing local 

taxes to be avoided. 

The distributor, based on its state laws, may sell to a Native American store 

unstamped cigarettes and therefore at profit margins of $1 or less. 

The internet establishment may buy cigarettes illegally from untaxed Native 

American stores or through foreign smuggling. 

The Native American or smuggling operations may be counterfeiters and apply 

phony tax stamps and sell this contraband through to complicit retailers, internet 

sellers or street merchants. Usually however, the criminal or terrorist operatives are 

separate organizations buying from these untaxed sources. 

Using New York City as an example: 

The legitimate licensed retailer pays $62 for a carton of cigarettes. 

The consumer pays $67. 

The smuggler pays $30 + $1 for counterfeit stamps = $31 

The complicit retailer pays $45.00 and sells to the unsuspecting consumer for 

$67. 

Terrorists are able to make $14 ($45 - $31) per carton. 

The internet buyer pays $30 vs. $67 buying directly from untaxed sites. 

The sovereignty of our Native American and the treaties that we have in place 

are sacrosanct and must be respected as such. But let’s understand that every population has its good guys and bad guys and those treaties are being corrupted by the 

vast fortunes that are profiteered by a few illegal sellers, providing only insignificant support to the tribes, while instead, funding criminals and terrorists while they 

accumulate vast, untaxed fortunes. 

New York’s Native American retailers sell over 30 million cartons of untaxed cigarettes annually. Current law allows states to impose taxes on all sales of cigarettes 

and other products sold by a tribe that are to non-Native Americans. Yet, it is estimated that there are just 2,500 adult Native American smokers, so clearly the vast 

majority of cigarettes are being untaxed. 

As a result, the largest source of contraband in the Northeast is supplied by New 

York’s Native American stores, often owned by multi millionaires. No better example can be found than the saga of Rodney Morrison, the owner of the Peace Pipe 

smoke shop on the Poospatuck reservation on Long Island. Mr. Morrison who married into the Unkechaug Nation tribe is on trial for ’a reign of terror’, including 

arson, extortion, murder and multiple violations of the Contraband Cigarette Trafficking Act. To understand the scope of Morrison’s criminal operation from illegal 

cigarette sales, it is important to note that he offered $56 million in cash for bail. 

While this is a staggering figure for most criminals, it was a pittance when compared to his $35 million per month profits from the sales of contraband cigarettes. 

Phillip Morris has discontinued the allotments of all of its brands of cigarettes to 

any distributor that sells to the Peace Pipe smoke shop. However, none of the other 

major manufacturers have stopped those sales and all the cigarette manufacturers 

still continue to allocate the tens of millions of cartons that go to New York’s other 

Native stores. 

The major cigarette manufacturers require that each of their distributors report 

all of their sales by customer, brand and packing each week. But curiously, they 

continue to ship these irrational quantities to Native Americans with that knowledge. 

There are basically three methods to these sales: 

1. Face to face sales at their locations with consumers. 

2. Internet/mail orders with consumers and complicit retailers, both in New 

York State and throughout the US and Canada. Because of their advertised 

low untaxed pricing, these sales are a major contributor to the incidence of 

both adult and youth smoking. 

(In 2005, a group of upstate New York teenagers in collaboration with law enforcement conducted an experiment to see if they could get cigarettes over the InterVerDate Aug 31 2005 13:14 Jan 08, 2009 Jkt 000000 PO 00000 Frm 00062 Fmt 6633 Sfmt 6621 H:\WORK\CRIME\050108\42120.000 HJUD1 PsN: 42120
59 

net. Half of their orders were successfully delivered and 90 percent of those were 

delivered by the United States Postal Service.) 

3. Bulk sales to illegal re-sellers. This is a major source of contraband that goes 

to counterfeit stamping operations and terrorist organizations. 

The single driving force behind each of these sales is ’the differential’. For example, including the latest excise tax increase, a legitimately taxed pack of cigarettes 

in a licensed New York City store will cost about $9.00 and if purchased untaxed, 

(in two or more carton quantities), will come to $3.00 per pack! For the average 

smoker, this is a yearly saving of $3,000 per person. 

Although some transactions are directly with consumers, that quantity can be 

dwarfed by the truck loads of product that are purchased by smugglers and redistributed to counterfeit stamping operations, street merchants and school yard pushers. Many of the criminals that have been apprehended have ties to terrorist organizations. Earlier this month, the largest seizure in New York history of counterfeit 

stamps and product occurred in Brooklyn and Rafea Al-Nablisi, a Jordanian, was 

indicted. 

Counterfeit stamps serve no purpose without the untaxed/unstamped cartons of 

cigarettes that easily come from the Native American stores in manageable quantities for illegal affixing. It is much more difficult to obtain and distribute a container load of 50,000 cartons of foreign product. Foreign product is therefore best 

used for blending within established large scale networks such as our Native American outlets. A Native American store in Western New York was found guilty of 

such illegal selling after apprehension by the Bureau of Alcohol, Tobacco, Firearms 

and Explosives. 

PACT ACT

The Prevent All Cigarette Trafficking Act (HR 4081) is a common-sense approach 

at eliminating the ability of Internet sites to sell cigarettes and we wholeheartedly 

support the bill and urge that it be enacted. Some of the key provisions include: 

• Strengthening penalties under the Jenkins Act from a misdemeanor to a felony; 

• Making tobacco non-mailable through the US Postal Service; 

• Empowering each state to enforce federal law against out-of-state sellers who 

are shipping cigarettes into the state. 

In particular, we feel that making tobacco products non-mailable will have a tremendous affect on cigarette smuggling. Currently, common carriers, such as UPS 

and DHL, have agreed to not ship cigarettes through an agreement with the New 

York State Attorney General’s office. As a result, tobacco sales over the Internet will 

cease to exist once the PACT Act is passed, since there will be no means of shipping 

cigarettes to consumers. 

STOP ACT

The Smuggled Tobacco Prevention Act of 2008 Act (STOP Act) will create a needed audit trail that will assist cigarette manufacturers and law enforcement in the 

interdiction of foreign contraband and thereby, add to both federal and local taxation while nourishing our economy. 

Other recommendation 

When the PACT Act becomes law and tobacco is prohibited through the US Postal 

Service, I believe that there will be an increase in the demand for cheaper cigarettes. These sales sometimes involve counterfeit tax stamps and are distributed 

through street merchants and complicit retail outlets. 

If the cigarettes going to all New York outlets were tax stamped as New York 

law requires and the Native Americans given access to legitimate quantities of 

untaxed product for reservation consumption, this main source of cigarette funding 

for terrorism would cease. The 1994 Supreme Court ruling has upheld New York’s 

right to this very taxing plan. 

We therefore believe that the Contraband Cigarette Trafficking Act needs to be 

amended to require states taxing cigarettes to identify that taxes have been paid 

with tax stamps applied to every pack. This requirement will greatly assist law enforcement in controlling cross-bordering activities, illicit interstate commerce, and 

internet sales in violation of PACT. 

It is ironic that the Federal Government is called upon to increase state funding 

for anti-terrorism programs while New York State passes up one billion dollars annually in excise, sales and ancillary taxes with the unintended consequences of 

60 

funding terrorists; adding to the very costs of these efforts. If highway funding can 

be withheld for a state’s failure to enforce speed limits and minimum age drinking, 

(South Dakota v. Dole) then why cannot homeland security funding be withheld to 

the extent of these costs? 

In conclusion, I would like to thank Chairman Scott, Ranking Member Gohmert, 

and the rest of the committee for allowing me to appear before you today on behalf 

of NYSAWM. In summary, the association would like to express its strong support 

for both measures and urge their adoption. I would be happy to answer any questions that you may have. Thank you for your important efforts. 

61 

ATTACHMENT 


Rosen.eps
62 

Mr. SCOTT. Thank you very much. 

Mr. Colledge? 

TESTIMONY OF JOHN W. COLLEDGE, III, 

INDEPENDENT CONSULTANT, SPARKS, NV 

Mr. COLLEDGE. Chairman Scott and Representative Gohmert, it 

is a pleasure to appear before you today to express my support for 

Representative Doggett’s Smuggled Tobacco Prevention Act of 

2008. Tobacco smuggling is criminal. It is often racketeering activity and it is a funding source for international terrorist organizations. I would like to provide the Committee with some background 

on tobacco smuggling in the United States and how I believe the 

Doggett bill will greatly reduce the illicit trade in tobacco as it relates to the United States. 

My opinions are my own and based upon more than 33 years of 

law enforcement and specifically more than 20 years of experience 

at enforcing U.S. Customs laws, with 14 of those years enforcing 

and studying matters directly related to cigarette smuggling and 

transnational organized crime. I will address some of the specific 

provisions of the Doggett bill. 

By way of background, transnational criminal groups and international terrorists recognize the advantages of shared land borders, 

disputed territories, failed States, ethnicity, inadequate law enforcement resources, wavering political leadership, corruption, 

transport infrastructure, free or foreign trade zones, weak transit 

systems, tax disparities, and the active and knowing participation 

of elements of the business community. 

The lack of understanding of the scope and the impact of international tobacco smuggling continues to aid transnational groups 

and international terrorist in their pursuits of these lucrative economic crimes. 

Tobacco is but one commodity smuggled by transnational criminal groups. These groups are as diversified as many legitimate 

multinational corporations. They often smuggle drugs, weapons, 

humans, counterfeit and other merchandise of every description. 

Tobacco smuggling is market-driven. Cigarette smokers are brandor blend-loyal, meaning that particular brands or tobacco blends 

are targeted directly at given countries and sometimes even subgroups within those countries. 

The criminal groups engaged in the illicit tobacco trade study 

markets, supply, national, State or provincial and local laws and 

regulations, and make their business decisions based upon these 

factors. The increased legal market in other tobacco products, particularly smokeless tobacco, is rapidly creating a parallel contraband smuggling trade in the United States. 

The United States has been a source and transshipment country 

for contraband cigarettes for approximately 50 years. In my written 

testimony, I cited former United States Customs Commissioner 

Raymond W. Kelly’s prepared testimony before the Senate Appropriations Committee in March, 2000, which contained several important points. 

International cigarette smuggling is big business and it is very 

profitable. International cigarette smuggling has been linked to 

transnational organized crime and international terrorism. The 

63 

United States is an important source and transshipment country 

for contraband cigarettes. Financial institutions in the United 

States have been involved and may still be involved in the laundering of proceeds of cigarette smuggling. 

Since March, 2000, interstate trafficking in all forms of contraband tobacco products has increased dramatically in the United 

States. These products include those smuggled into the United 

States and those manufactured domestically. Several groups of the 

Italian mafia, Russian and Asian organized criminal groups, and 

Colombian narco traffickers are or have been involved in tobacco 

smuggling in Europe, Asia, North and Latin America. 

Nontraditional organized criminal groups operating between the 

United States and Canada are currently involved in the contraband 

trade in tobacco, including illicit manufacturing, smuggling, and 

money laundering. 

In addition to producing counterfeit cigarettes, illegally manufactured other cigarettes, and trafficking in contraband cigarettes, 

criminal organizations have used cigarettes as a commodity to 

launder the proceeds of other criminal activity and to facilitate various international trade fraud schemes. These organized crime 

groups operate through corruption and intimidation and are not 

afraid to use violence to further their business goals. 

The terrorist organizations referred to in Mr. Kelly’s testimony 

were the Real Irish Republican Army and the Kurdistan Workers 

Party, also known as the PKK. The Real IRA and other factions of 

the IRA have smuggled cigarettes and other commercial products 

to fund terrorist activity in Northern Ireland and the United Kingdom for decades. In the United States, we saw people in North 

Carolina linked to Hezbollah convicted of offenses related to trafficking in contraband cigarettes in schemes to provide material 

support to terrorism. The PKK was linked to cigarette smuggling 

into Iraq that benefited the family of Saddam Hussein. The Real 

IRA, Hezbollah and the PKK are internationally recognized as terrorist organizations. 

Mr. Hoover already covered the sources of illicit tobacco, so I will 

move on to the unique serial numbers and other marks. 

We recognize that currency has value, but it also has serial numbers. Yet a commodity that is a recognized substitute for currency 

in correctional facilities and in various international trade fraud 

schemes is virtually untraceable. Historically, law enforcement has 

lacked the ability to trace contraband tobacco products. Invoices 

frequently describe container shipments of cigarettes simply as 

American-made without identifying the brand. The shipments were 

sold several times while the cigarettes were in transit. The invoices 

were faxed or otherwise transmitted many times, resulting in critical data blurred in transition or possibly altered between transmissions. 

The export bonds are covered in Mr. Doggett’s bill. For nearly 50 

years cigarettes manufactured in the United States have been exported to brokers who introduced these cigarettes into the black 

market. The export bonds I believe would reduce some of that illegal export. 

The wholesale permits; it is important that all manufacturers, 

wholesalers and importers and export warehouse proprietors have 

64 

1 U.S. Congress, Senate, 2001, Committee on Appropriations, Subcommittee on Treasury and 

General Government, 106th Congress, 2nd Session, 30 March 2000, Internet, http:// 

frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=2001lsappltrel1&docid=f:62810.wais, 

accessed: 17 March 2008. 

an appropriate permit to conduct business related to tobacco products. It is a reasonable expectation that those businesses engaged 

in the tobacco trade be law-abiding. The conditions listed in the 

Doggett bill for granting a permit bring the most important requirements necessary to combat the illicit trade in tobacco into one 

statute. The permits are important in ensuring due diligence in the 

supply chain. 

Touching on the manufacturing equipment, illegal manufacturing 

has increased in the past 8 years in the United States and throughout the world. That loophole needs to be closed to control the illicit 

manufacturing. 

Recordkeeping, again the requirements in the Doggett bill are 

not requiring anything that most businesses are not doing at the 

present time. 

The creation of a right of action for State tax administrators simply provides State tax administrators the opportunity to enter U.S. 

District Court and pursue what is an interstate and international 

business. 

Thank you very much. 

[The prepared statement of Mr. Colledge follows:] 

PREPARED STATEMENT OF JOHN W. COLLEDGE, III 

INTRODUCTION

Chairman Scott, it is a pleasure to submit these remarks in support of the proposed ‘‘Smuggled Tobacco Prevention Act of 2008.’’ I would like to provide the Committee with some background on tobacco smuggling in the United States and how, 

I believe, this Act will greatly reduce the illicit trade in tobacco as it relates to the 

United States. My opinions are my own, and based upon more than 33 years in law 

enforcement and specifically, more than 20 years experience in enforcing U.S. customs laws, with 14 of those years enforcing and studying matters directly related 

to cigarette smuggling and transnational organized crime. I will discuss some of the 

specifics of this proposed legislation and provide some background on the illicit 

trade in tobacco. 

BACKGROUND

The United States has been a source and transshipment country for contraband 

cigarettes for approximately 50 years. I would like to quote from the prepared remarks that were submitted to the Senate Appropriations Committee in March 2000, 

by then U.S. Customs Commissioner Raymond W. Kelly: 

International cigarette smuggling has grown to a multi-billion dollar a year illegal 

enterprise linked to transnational organized crime and international terrorism. Profits from cigarette smuggling rival those of narcotic trafficking. The United States 

plays an important role as a source and transshipment country. Additionally, large 

sums of money related to cigarette smuggling flow through U.S. financial institutions.1

Since March 2000, the illicit trade in all tobacco products has increased dramatically in the United States. The contraband products include those smuggled into the 

United States, those legally manufactured domestically and diverted to the illicit 

market, and those illegally manufactured in the United States. 

CIGARETTE PACKAGING

Please allow me to briefly describe tobacco packaging so everyone can understand 

the issues: 

• Pack = 20 cigarettes (internationally 5, 10, 25 cigarette packs exist). 

• Carton = 10 Packs, 200 cigarettes. 

65 

2 Europa, Press Room, Press Releases, EU coherent strategy against fiscal fraud—Frequently 

Asked Questions Brussels, 31 May 2006, Internet, available from: http://europa.eu/rapid/ 

pressReleasesAction.do?reference=MEMO/06/221, accessed 28 April 2008. 3FinCEN, Advisory Issue 12, June 1999, Internet, available from: http://www.fincen.gov/ 

advis12.html, accessed: 28 April 2008. 4Financial Action Task Force on Money Laundering, TRADE BASED MONEY LAUNDERING, 23 June 2006, Internet, http://www.fatf-gafi.org/dataoec/60/25/ 37038272.pdf, accessed 

12 November 2007. 

• Master Case = 10,000 cigarettes (internationally 12,000 cigarettes). 

• 40 Foot Container = 1,000 master cases, 10 million cigarettes. 

SOURCES OF ILLICIT TOBACCO

Tobacco is a legal commodity that is traded throughout the world, but price differences between nations and domestically, between states and provinces, have created a demand for contraband tobacco products. These cigarettes fall into several 

categories: 

• Cigarettes purchased in nations, states, or provinces with low tax rates and 

smuggled into nations, states, or provinces with higher tax rates. 

• Counterfeit cigarettes. 

• Illicitly manufactured cigarettes. 

• Cigarettes fraudulently diverted from Export Warehouses, Customs Bonded 

Warehouses, Foreign and Free Trade Zones. 

• Stolen cigarettes, ranging from store burglaries to thefts of container-sized 

shipments in foreign, interstate or interprovincial commerce. 

TOBACCO SMUGGLING OVERVIEW

Several groups of the Italian Mafia, Russian and Asian Organized criminal 

groups, Colombian narco-traffickers are or have been involved in tobacco smuggling 

in Europe, Asia, North and Latin America. Non-traditional organized criminal 

groups operating between the United States and Canada are currently involved in 

the contraband trade in tobacco, including illicit manufacturing, smuggling, and 

money laundering. 

In addition to producing counterfeit cigarettes, illegally manufacturing other cigarettes, and trafficking in contraband cigarettes, criminal organizations have used 

cigarettes as a commodity to launder the proceeds of other criminal activity and to 

facilitate various international trade fraud schemes. In Europe, some of these trade 

fraud schemes are known as Value Added Tax (VAT) Carousel Fraud.2 Cigarettes 

have been used to launder large cocaine and other drug smuggling proceeds in what 

is known as the Black Market Peso Exchange.3 Trade Based Money Laundering was 

described in detail in a Financial Action Task Force report that was published in 

June 2006.4 These organized crime groups operate through corruption and intimidation and are not afraid to use violence to further their business goals. 

The terrorist organizations referred to in Mr. Kelly’s testimony were the Real 

Irish Republican Army (IRA), and the Kurdistan Workers Party (PKK). The Real 

IRA and other factions of the IRA have smuggled cigarettes and other commercial 

products to fund terrorist activity in Northern Ireland and the United Kingdom for 

decades. In the United States, we have seen persons linked to Hezbollah convicted 

of offenses related to trafficking in contraband cigarettes in schemes to provide material support to terrorism. The PKK was linked to cigarette smuggling into Iraq 

that benefited the family of Saddam Hussein. The Real IRA, Hezbollah, and the 

PKK are internationally recognized as terrorist organizations. 

Here are some examples of ongoing or long-term smuggling of tobacco products 

that directly impacted or are currently affecting the United States: 

Case Studies—North America 

The Saint Regis—Mohawk Reservation or Reserve, also known as the Akwasasne, 

straddles the international border between the United States and Canada. In 1997, 

an organized smuggling group with links to Italian and Russian organized crime 

that operated on the Akwasasne smuggled large volumes of cigarettes and liquor 

into Canada from the United States in violation of the laws of both countries. The 

money laundering case was the largest ever in the Northern District of New York 

66 

5 U.S. Department of Justice, Distinguished Service Commemorative Presented to John 

Colledge United States Customs Service, re: United States v. Miller et. al., Syracuse, New York, 

30 November 2000. 6 Ibid. 

7The Criminal Intelligence Service Canada, 2005 Annual Report on Organized Crime in Canada, Ottawa, 20-21, available from: http://www.cisc.gc.ca/annuallreports/ annuallreport2005/ 

document/annuallreportl2005le.pdf, Internet, accessed: 15 January 2008. 8 Ibid. 

9The Criminal Intelligence Service Canada, 2004 Annual Report on Organized Crime in Canada, Ottawa, 21, available from: http://www.cisc.gc.ca/annualreports/annuallreport2004/ document/ciscl2004lannuallreport.pdf, Internet, accessed: 15 January 2008. 10The Criminal Intelligence Service Canada, 2003 Annual Report on Organized Crime in Canada, Ottawa, 19, available from: http://www.cisc.gc.ca/annuallreports/annuallreport2003/Document/cisclannuallreportl2003.pdf, accessed: 15 January 2008. 11 U.S. Department of Justice, U.S. Attorney’s Office, Western District of Texas, Press Release, 

11 April 2005, Internet, available from: www.usdoj.gov/usao/txw/presslreleases/2005/Abraham.sen.pdf, accessed: 28 April 2008. 12 Ibid. 13 Ibid. 

and involved criminal transactions that totaled more than $687 million.5 This case 

resulted in the first guilty plea from a major tobacco manufacturer when Northern 

Brands International, a subsidiary of RJ Reynolds Company, pled guilty to violating 

Customs laws and forfeited $10 million and paid a fine of $5 million.6

The smuggling activity continued along the border between the United States and 

Canada. The Criminal Intelligence Service Canada (CISC), 2005 Annual Report on 

Organized Crime in Canada, was the most recent CISC report to specially address 

the illicit tobacco trade and the role of organized crime in that trade.7 The report 

made reference to tobacco products manufactured illegally in the United States, 

packaged in plastic bags, and smuggled to Canada for sale.8 The plastic bag packaging is a growing trend worldwide, which makes tracking and tracing cigarettes 

even more difficult. The 2004 report specifically linked the Hells Angels motorcycle 

gang and Asian Organized Crime to commodity smuggling conducted by organized 

crime groups operating along the international border between Canada and the 

United States.9 The 2003 report listed the origins of illicit tobacco products as the 

United States, South America, Asia and the Middle East.10

In 2002, a criminal investigation led by U.S. Immigration and Customs Enforcement resulted in criminal charges of several people in Texas, New York, and California. The group was charged with distributing 2,313 master cases of counterfeit 

cigarettes with a retail value of approximately $5.4 million.11 The indictment also 

alleged that 5,616 master cases of cigarettes were shipped by the organization with 

a total lose of revenue to the federal and state governments of approximately $9.2 

million.12 The following excerpt from the press release from the U.S. Attorney’s Office for the Western District of Texas described the scheme: 13

The Organization employed different techniques to smuggle and introduce into 

the commerce of the United States contraband and counterfeit cigarettes. These 

included, but were not limited to, the manipulation of the Customs in-bond system. The defendants attempted to achieve this by making false and fraudulent 

material statements and representations to U.S. Customs authorities by presenting altered and falsified documents and by submitting fraudulent 

‘‘pedimentos’’, Mexican Customs documents. 

These pedimentos reflected that the contraband cigarettes had been exported 

from the United States to Mexico when, in truth, the contraband cigarettes had 

been smuggled and introduced into the commerce of the United States. The various documents used by the defendants were intended to convince anyone who 

inspected these documents that taxes and duties were not due and owing to 

U.S. Customs authorities, and/or the states of Texas, California and New York, 

on any cigarettes associated with these documents. The Organization modified 

and adapted its smuggling techniques in direct response to any measurable success by law enforcement in curtailing its illegal activities. 

The investigation revealed that the counterfeit cigarettes were shipped in containers on international waters from Asia to the United States. It is known that 

at least two containers of counterfeit cigarettes arrived at the port of entry in 

Long Beach, California. To prevent detection by U.S. Customs authorities, the 

defendants caused the shipments of counterfeit cigarettes to be manifested as 

other merchandise, for example ‘‘toys’’ and ‘‘plastic goods.’’ When the counterfeit 

cigarettes arrived at the port of entry, the members of the organization attempted to unload, smuggle and distribute the counterfeit cigarettes in the 

United States. 

67 

14 Behan, Tom. The Camorra, 43–44, London: Routledge, 1996. 15 Ibid. 16 Center for Public Integrity. Tobacco Companies Linked to Criminal Organizations in Cigarette Smuggling, Italy. available from: http://www.publicintegrity.org/report.aspx?aid=354; Internet; accessed 14 January 2008. 17 Ibid. 18SE Times, Italian prosecutors to charge former Montenegrin officials with cigarette smuggling, 24 June 2007, Internet, http://www.balkantimes.com/ocoon/setimes/xhtml/enlGB/features/ 

setimes/newsbriefs/2007/06/24/nb-04, accessed 10 January 2008. 19 Reuters, Milosevic widow, son in cigarette smuggling probe, 11 June 2007, Internet, http:// 

www.reuters.com/article/worldNews/idUSL1181733220070611, accessed 10 January 2008. 

Some of the elements in the Doggett bill would have greatly assisted in the investigation and prosecution of this and other cases. The export bonds, wholesaler’s permits, and more uniform record keeping may well have prevented this scheme. 

Case Study—Europe 

In 1961 the free port in Tangiers, Morocco was closed and the cigarette smuggling 

operations that operated there for a decade were moved to the former Yugoslavia 

and Albania.14 This relocation greatly benefited the Camorra, an Italian organized 

crime group from the Naples area.15 When those states failed in the early 1990s, 

the Camorra and other criminal groups quickly took advantage of the instability in 

the region and again expanded their criminal enterprises in the region. 

In 1999, a report issued by the Italian Anti Mafia Commission, identified Albania 

as major transshipment point for cigarettes smuggled to Italy and various countries 

in the Middle East.16 Reports from multiple sources stated that the Prime Minster 

of Montenegro at that time, Milo Djukanovic, granted smuggling rights to several 

people in exchange for substantial bribes. Djukanovic was implicated in cigarette 

smuggling in testimony in an Italian court by a leading figure in Italian cigarette 

smuggling with links to the Camorra who claimed that he personally negotiated cigarette smuggling rights from Montenegro with Djukanovic.17 Milo Djukanovic was 

recently re-elected as the Prime Minister of Montenegro. 

The Balkans region remains deeply involved in cigarette smuggling and criminal 

investigations into illicit activities dating back into the 1990s. In June 2007, a story 

in the SE Times reported that Italian prosecutors were about to charge Milo 

Djukanovic and others for their participation in a criminal enterprise involved cigarette smuggling and money laundering from 1994 to 2002.18 Also in June 2007, it 

was reported that Serbia’s special organized crime prosecutor announced that they 

began an investigation of Mira Markovic, Slobadan Milosevic’s widow, and her son, 

Marko Milosevic, for cigarette smuggling between 1996 and 2001 that reportedly 

earned them tens of millions of Euros.19

The situation in the Balkans impacted not only Europe, but also the United 

States. Some of the smuggled cigarettes were manufactured in the United States 

and proceeds from the illicit activity were laundered in the United States. High 

level government corruption and failed states are a cause for concern of all nations. 

UNIQUE SERIAL NUMBERS AND OTHER MARKS

Historically, law enforcement has lacked the ability to trace contraband tobacco 

products. Invoices frequently described container shipments of cigarettes simply as: 

‘‘American Made,’’ without identifying the brand. The shipments were sold several 

times while the cigarettes were in transit, the invoices were faxed or otherwise 

transmitted many times, resulting in critical data being blurred in transmission or 

possibly altered between transmissions. The cigarette packages and cartons lacked 

unique serial numbers that were readable by law enforcement authorities. The 

unique numbers found on master cases were often removed by traffickers to hinder 

law enforcement efforts to trace the cigarettes. The requirement of the Doggett bill 

to mark individual packages with unique serial numbers and markings will make 

it easier to distinguish diverted or stolen cigarettes from those legally introduced 

into commerce. 

The unique serial numbers and high tech stamp described in the Doggett bill will 

significantly aid law enforcement authorities in the United States and our international partners to track and trace cigarettes that originated in the United States. 

The State of California and the countries of Brazil, Malaysia, and Turkey have introduced marking regimes similar to those described in the Doggett bill. Canada recently contracted for a comparable system. California has publicly reported a reduction in contraband trafficking and increased revenue collection with a high tech 

stamping system, which has paid for itself. The loss of revenue to the United States, 

state and local governments (depending on the state and locality) for one 40 foot 

container of cigarettes can easily exceed one million dollars. 

68 

EXPORT BONDS

For nearly 50 years cigarettes manufactured in the United States have been exported to brokers who introduced these cigarettes into the black market. The lack 

of enforcement and financial accountability by the exporters fueled this illicit trade. 

The export bonds required by the Doggett bill would force exporters to exercise more 

due diligence in ensuring their products are not smuggled back into the United 

States or into another country. 

WHOLESALE PERMITS

It is important that all manufacturers, wholesalers, importers, and export warehouse proprietors have an appropriate permit to conduct business related to tobacco 

products. The permits are important in ensuring due diligence in the supply chain. 

A permit system would aid law enforcement agencies in their efforts to identify 

criminal elements in the tobacco trade who might seek a permit in the United 

States to smuggle tobacco products into, through or from the United States. The information sharing provisions in the Doggett bill would allow the exchange of this 

data with international regulatory and law enforcement partners, thus enhancing 

law enforcement efforts directed at transnational organized crime groups. 

CONTROL OF MANUFACTURING EQUIPMENT

Increasingly sophisticated equipment is being used in illicit cigarette manufacturing in the United States and throughout the world. The equipment is used to 

produce counterfeit and other tobacco products. The mechanisms to control the 

equipment utilized in the manufacturing and application of cigarette tax stamps 

would be an important tool in suppressing both the counterfeiting and illicit manufacturing of tobacco products and will make it more difficult to illicitly manufacture 

cigarettes. The Doggett bill is not intended to control devices that an individual 

would use to make cigarettes for their personal use, but rather that equipment, 

which has commercial applications. 

RECORD KEEPING

The Doggett bill does not call for businesses engaged in the tobacco trade to maintain records that they currently do no maintain for federal, state, and local governments. What the bill requires is more specificity in their record keeping. In my experience, if the businesses maintained records; they contained the vague or non-existent references as to country of origin, false or inappropriate harmonized tariff schedule classifications, and incomplete information as to the parties in the transactions. 

Given the fraud that has historically been associated with the tobacco trade, I do 

not believe it is not unreasonable for the government to mandate accurate record 

keeping. 

CREATION OF RIGHT OF ACTION FOR STATE TOBACCO ADMINISTRATORS

FOR FAILURE TO REPORT

State tobacco administrators have the primary responsibility for the collection of 

tobacco taxes and in some instances, state sales taxes. The changes proposed in the 

Doggett bill would provide a legal remedy for the states to take action in the U.S. 

District Courts. Given the interstate and international nature of the tobacco trade, 

this is often the best venue. In addition, the states have been active, and in some 

cases assumed in leading role in the pursuit of criminal organizations involved in 

the illicit tobacco trade. The Doggett bill does not delegate any authority to the 

states, nor does it infringe on tribal sovereignty. 

CONCLUSION

The overview if the tobacco smuggling schemes in North America and the Balkans 

described in these remarks illustrated three of many long-term tobacco smuggling 

scenarios that involved or involve organized criminal groups, allegations of high 

level corruption of national governments in the Balkans, issues that directly affect 

or affected the security and the commerce of the United States and our closest 

friends and allies. The criminal activity associated with tobacco smuggling is not benign. The criminal and terrorists groups involved in this activity are doing so for 

personal enrichment, funding or laundering the proceeds of other criminal activities, 

or to finance terrorist acts. 

Generally speaking, law enforcement in the United States, several states and 

many other nations has been inadequately funded, trained, networked with domestic and international partners, conflicted with ever-changing priorities, or lack the 

69 

legal framework to adequately address the illicit tobacco trade. Many offenses associated with the illicit tobacco trade lack severe penalties associated with drug or 

arms trafficking. Enforcement in the United States and other nations did not receive high priority because the crime was looked upon as ‘‘the other guy’s problem’’ 

or the trans-shipment locations were profiting from foreign or free trade zone activity, freight handling, and associated financial transactions. Transnational organized 

crime, in any form is not ‘‘the other guy’s problem,’’ it is the responsibility of all 

nations. 

The ‘‘Smuggled Tobacco Prevention Act of 2008’’ will eliminate many of these 

short-comings in the United States. Thank you for opportunity to appear before the 

Committee on this important matter. 

Mr. SCOTT. Thank you, Mr. Colledge. 

Mr. Melendez? 

TESTIMONY OF ARLAN MELENDEZ, CHAIRMAN, 

RENO-SPARKS INDIAN COLONY, RENO, NV 

Mr. MELENDEZ. Good morning, Mr. Chairman and honorable 

Members of the Committee. Thank you for the opportunity to testify here this morning. My name is Arlen Melendez, for the record. 

I am the chairman of the Reno-Sparks Indian Colony, Washoe, Paiute and Shoshone Tribes located in the city of Reno, Nevada. I 

have submitted a more detailed statement for the record. 

Indian reservations are subject to a form of dual taxation that no 

other government in the country faces. This is the reason that Indian reservations suffer from the lack of basic infrastructure and 

services. It is also a major disincentive for businesses to locate on 

reservation lands. Dual taxation is where the collection of a State 

tax prevents the tribal government from collecting a tax because 

the double tax would drive customers away. 

On most reservations, tribal members must go off-reservation to 

purchase goods and services. The State gets all those taxes. When 

a non-Indian comes on the reservation, the State gets that tax as 

well. It is a heads-I-win and tails-you-lose situation, unless the 

State agrees to something else. 

I have the honor of serving on the U.S. Commission on Civil 

Rights. Hopefully, when we get the commission straightened out 

one of these days, we can address the issue of discrimination concerning dual taxation. It has for too long contributed to poverty on 

most Indian reservations. 

My tribe, the Reno-Sparks Indian Colony, is located in Nevada 

where gaming is not an option for tribes. My tribe’s source of revenue is generated primarily from sales taxes. In 1983, the State of 

Nevada legislature passed a law that State sales taxes do not apply 

on Indian reservations if the tribal government collects a tax, that 

is equal to the State tax. This applies to any product, whether it 

is a gallon of milk, a loaf of bread, or a pack of cigarettes. 

My tribe has used its taxing authority to create a tax base. Recently, we completed the construction of a new health center that 

provides services to all people in the Reno-Sparks area. We financed the health clinic through issuance of bonds backed by our 

tax revenues. I believe more tribes should have this opportunity. 

The tax agreements in the Nevada are a win-win for all parties. 

Tribal governments get a tax base. The State resolves its tax 

issues. Other retailers get a more level playing field, and the tribal 

governments can contribute to services and economic growth in 

their region. 

70 

However, tribal-State tax agreements are not based only on good 

will, but also on the current state of Federal law. Our primary concerns relate to H.R. 5689 because it appears to have been drafted 

without recognition of tribal tax authority. We are particularly concerned that section 201 of the bill would make it a Federal crime 

to possess more than 10 cartons of cigarettes without a State’s license. State licensing is not applicable on Indian reservations and 

therefore not applicable at tribally owned tobacco retail stores. 

Section 201 of the bill would also make it a Federal crime to possess more than 10 cartons of cigarettes that do not have a State 

tax stamp. Consistent with our agreement with Nevada, we have 

a tribal tax stamp, but there is no reference to tribal tax stamps 

in the legislation. 

Section 102 contains the only reference to Indian tribes and 

would require special labeling for every package of tobacco sold on 

an Indian reservation. Nevada and most other States and tribes 

have already developed tax stamp and labeling requirements within the tribal-State compacts. This would add a burdensome requirement that would conflict with the compacts. 

These provisions need to be addressed, and I strongly urge that 

a comprehensive savings clause be added to protect tribal jurisdiction. However, I am equally concerned about the overall bill. The 

goal of this legislation is to create an electronic tax collection network where the only source of tobacco will be through large distributors under strict electronic surveillance by the State governments. In short, tribal retailers will have no source of inventory not 

already taxed by the State. 

The tax agreements are not written in stone, and some States 

will be tempted to use this new power as leverage to force revenue 

concessions from the tribes. It would reignite litigation where we 

currently have peace. I would urge the Committee to consult with 

tribal governments about the developing Federal law that would 

use the Nevada statute as a model to eliminate dual taxation 

where there is a comparable tribal taxation framework in place. 

This would ensure that tribes can use tax revenues to provide services on the reservation. 

The Campaign for Tobacco-Free Kids has supported this type of 

legislation. I would suggest that Congress consider a level of tribal 

taxes at 80 percent of State tobacco taxes. This should not be a solution forced on the tribes, but as an option for tribes, and as an 

incentive for both States and tribes to resolve any remaining disputes over tobacco taxes. 

On the Prevent All Cigarette Trafficking Act, I have few remarks. In 2004, tribes worked with Congress to address our concerns and the result is found throughout the bill. The legislation 

has changed since 2004 and some modifications may be needed to 

bring the tribal provisions up to date. 

In conclusion, I very much appreciate your consideration of the 

tribal views on this topic. We look forward to working with you. 

Thank you. 

[The prepared statement of Mr. Melendez follows:] 

71 

PREPARED STATEMENT OF ARLAN MELENDEZ


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Mr. SCOTT. Thank you. 

Mr. Lapp? 

TESTIMONY OF DAVID S. LAPP, CHIEF COUNSEL, TOBACCO 

ENFORCEMENT UNIT, OFFICE OF THE ATTORNEY GENERAL 

OF MARYLAND, BALTIMORE, MD 

Mr. LAPP. Good morning, Mr. Chairman and Members of the 

Committee. I appreciate the opportunity to testify today in support 

of the Prevent All Cigarette Trafficking Act. The State attorneys 

general, working jointly through the National Association of Attorneys General, NAAG, are acutely aware of the increasing problems 

caused by illegal tobacco product sales accomplished through the 

Internet, mail order and other remote purchases. We applaud congressional efforts to correct these significant problems through 

comprehensive legislation. 

The PACT Act furthers the important policy of improving accountability for and control of cigarettes and smokeless tobacco 

products shipped in interstate commerce. The act will enable States 

to more effectively protect their citizens from the economic and 

public health problems associated with Internet tobacco sales. Such 

sales allow easy youth access to tobacco and cause States to lose 

significant revenues through tax avoidance. 

There are six aspects of PACT of particular importance to the 

States. First, PACT designates most cigarettes and smokeless tobacco as non-mailable and therefore undeliverable by the U.S. Postal Service. 

Second, PACT requires Internet sellers to comply with all State 

laws regarding the collection of State and local taxes on cigarettes 

and prohibits the distribution of such products unless all applicable 

tobacco excise taxes have been collected and paid. 

Third, PACT requires Internet sellers to use a delivery method 

that allows for age verification to help prevent easy access by youth 

to tobacco. 

Fourth, PACT makes it a felony to sell or cause to be delivered 

products of a tobacco manufacturer that are not in compliance with 

State laws enacted to complement the master settlement agreement. 

Fifth, PACT grants States authority to collect in Federal court 

lost State tax revenues resulting from unlawful Internet sales and 

to enforce the Jenkins Act, the current Federal law which is hardly 

enforced or followed today. 

Sixth, PACT increases from a misdemeanor to a felony violations 

of the Jenkins Act. 

PACT is critical to State efforts to deny youth access to tobacco. 

Cigarettes are highly addictive and profoundly deadly. At greatest 

risk of addiction are young people who lack the judgment necessary 

to resist tobacco marketers and to protect themselves. In Maryland, 

the Office of Attorney General works to limit youth access to cigarettes through our program to reduce youth access to tobacco. This 

program involves working with State and local law enforcement 

agencies to enforce laws denying youth access to cigarettes and 

with retailers who want to adopt policies and practices to reduce 

sales to youth. 

79 

These efforts by Maryland, similar to those of other States to 

deny youth access to tobacco, are impeded by cigarettes that are 

sold through hundreds of Internet sites. This problem was recently 

acknowledged by the Supreme Court. Justice Ginsberg in her concurring opinion in Rowe v. New Hampshire Motor Transport, said, 

‘‘State measures to prevent youth access to tobacco are increasingly 

thwarted by the ease with which tobacco products can be purchased through the Internet.’’ 

Internet sites are a highly attractive means for youth to purchase tobacco products since most Web sites fail to use adequate 

age verification procedures and most all avoid payment of State excise taxes, making cigarettes cheaply available. Indeed, studies 

show that Internet sales of tobacco to youth are increasing at an 

alarming rate. As States work to enforce their retail age 

verification laws and increase their cigarette excise taxes, as Maryland recently did by going from a $1 to a $2 excise tax, Internet 

sales will continue to rise. 

Accordingly, a focus of our efforts in Maryland to limit youth access to tobacco has been to try and stop Internet sales, which are 

prohibited in Maryland and in four other States. Along with other 

State attorneys general, we have attained agreements with retailers, the major credit card companies, and the major delivery companies, including UPS, FedEx and DHL, all to stop Internet sales 

of cigarettes. 

Thus, we have curbed deliveries by all the major carriers except 

one: the U.S. Postal Service, which asserts it has no legal authority 

to refuse cigarette shipments. In Maryland, our Internet stings 

show that the U.S. Postal Service continues unabated in delivering 

cigarettes to Maryland consumers in violation of Maryland law. 

Moreover, some State laws governing delivery of cigarettes may 

be challenged in the wake of the Supreme Court’s recent Rowe decision which struck down Maine’s tobacco delivery law as preempted by Federal law. 

In sum, comprehensive Federal legislation over Internet and 

mail-order cigarette and smokeless tobacco sales is sorely needed 

to enable States to address the problems of tobacco sales to youth 

and to address State excise tax avoidance. As noted by Justice 

Ginsberg, Roe leaves a large regulatory gap, perhaps overlooked by 

Congress, and illustrates the urgent need for the national legislature to fill that gap. 

The PACT Act fills this gap. On behalf of the National Association of Attorneys General, I strongly encourage you to support its 

enactment. Thank you. 

[The prepared statement of Mr. Lapp follows:] 

80 

PREPARED STATEMENT OF DAVID S. LAPP


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Mr. SCOTT. Thank you. 

I thank all of our witnesses for their testimony. We will now 

have questions for the panel. I will recognize myself for 5 minutes. 

Mr. Hoover, is your budget sufficient to do what you think is 

needed to enforce the laws that are on the books? 

Mr. HOOVER. Sir, I can tell you that in our 2008 appropriations, we received 90 FTEs and approximately $19.6 million. In our 2009 

appropriations, we are looking at 90 FTEs and $20.5 million to conduct trafficking investigations regarding contraband cigarettes. 

Mr. SCOTT. If you had additional money for enforcement, would 

the tax revenues go up to offset it? 

Mr. HOOVER. We believe we could have a significant impact if we 

receive more resources in this area, sir. 

Mr. SCOTT. Do you have any evidence that the cigarette industry 

is involved in any trafficking or tax evasion? 

Mr. HOOVER. No, sir. 

Mr. SCOTT. I don’t know who should answer this, but several 

have indicated problems with the labeling of individual cigarette 

packages, and some others have suggested that is going on in California now. Is it feasible to require each cigarette pack to have an 

individual serial number? Mr. Myers? 

Mr. MYERS. Yes, the technology exists right now to be able to do 

that. There are jurisdictions that do that. You have testimony that 

has been presented in written form by companies that are capable 

of producing such tax stamps. In that testimony, it references a 

number of jurisdictions that already do it. 

Let’s be candid here. 

Mr. SCOTT. What is the cost? 

Mr. MYERS. The cost is actually fairly reasonable. These new 

high-tech tax stamps are not difficult to put on. They are not significantly more expensive than tax stamps that exist today, and 

they will return investment. In California, when they put the hightech tax stamp on, they saw tax revenues increase, and their estimate was $100 million. Whether that is plus or minus a little bit 

doesn’t really make much difference. What the evidence shows is 

that they captured an enormous part of a market that was literally 

an underground market simply by having a tax stamp. 

The technology has emerged a great deal over the last decade. 

We now have the capability of doing it. Let’s be honest. The tobacco 

industry already tracks where their products go. They know it. The 

only people who don’t know it are the government officials who are 

trying to collect the taxes on it. 

Mr. SCOTT. You mentioned it could be done at a reasonable price. 

Do you have a number? 

Mr. MYERS. I don’t, but the written testimony by one of the companies that makes it, they deal with that issue and we can get that 

for you. 

Mr. SCOTT. And could you, Mr. Myers, state what the status quo 

is on shipping cigarettes and what difference these bills will make? 

Mr. MYERS. I think these bills will make an enormous difference. 

Let’s separate them out pretty quickly if we can. A good deal of the 

domestic tax evasion problem occurs over the Internet. We could in 

a rapid form by making tobacco products non-mailable and by ensuring that the common carriers who already have agreements are 

83 

no longer delivering illegally sold cigarettes. It would cut that in 

a very dramatic way, very quickly, at a very low cost. 

This is one of those win-wins. It will produce more revenue for 

States. It will produce more revenue for the Federal Government. 

And for those of us who spend every waking moment trying to figure out how we can reduce the number of kids who start smoking 

and the number of people who die, it can make a dramatic difference in that in a relatively short period of time. 

Mr. SCOTT. How does the carrier know what is in the package? 

Mr. MYERS. The PACT Act is very carefully done and after years 

of negotiations it provides provisions to ensure that it has a labeling requirement on it. The list provision ensures that the carrier 

will know which sellers are authorized and which sellers have not 

registered. 

Mr. SCOTT. But what if you have an unauthorized seller, how do 

you know that he is shipping his tobacco product? 

Mr. MYERS. The list provision that is provided in the PACT Act, 

and Mr. Weiner perhaps can address this as well, is done in such 

a way so that the carrier has easy access to information about 

which sellers have been registered and which the attorney general 

has designated as not registered. If they simply use the information that is made easily available to them, his does not impose a 

burden on them to become law enforcement officers. That is one of 

the balances that has been drawn here now. 

In fact, the carriers are really already doing that, but without 

the assistance of this. By complying with their agreements with the 

New York attorney general, they already have a greater burden 

than they would if this act was enacted because this enactment 

would put in a nationwide system for listing which retailers are not 

authorized. All they would have to do is check that system. The 

system imposes a legal obligation on legal sellers to list which 

packages they are selling are cigarettes and which ones are not. 

If a carrier complied with those fairly easy rules and regulations, 

they would be living up to the law. So in a very real respect, enactment of the PACT Act will ease the carriers’ responsibility, not increase it. 

Mr. SCOTT. Well, we will be hearing from the carriers. We hope 

we hear the same thing. 

The gentleman from Texas, the Ranking Member, Mr. Gohmert. 

Mr. GOHMERT. Thank you, Mr. Chairman. This is an interesting 

topic. It was not at the top of my radar screen as far as pressing 

issues to deal with, but obviously there are a great deal of problems that have arisen around it. 

Mr. Chairman, I ask unanimous consent to enter a letter response from the Seneca Nation of Indians. I don’t know this gentleman. It is a response to you and me about some of the allegations. I don’t vouch for the contents, but it is a response from the 

Seneca Nation and I would ask unanimous consent to enter it in 

the record. 

Mr. SCOTT. Without objection, it will be received with the spirit 

with which it is introduced. [Laughter.] 

[The information referred to follows:] 

84 

LETTER FROM RICHARD E. NEPHEW, COUNCIL CHAIRMAN AND CO-CHAIR, FOREIGN

RELATIONS COMMITTEE, SUBMITTED BY THE HONORABLE LOUIE GOHMERT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS, AND RANKING MEMBER, 

SUBCOMMITTEE ON CRIME, TERRORISM, AND HOMELAND SECURITY


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Mr. GOHMERT. Thank you. 

Mr. SCOTT. I am sure this is a respected organization. I don’t 

want to diminish the significance of it. We will receive it. 

Mr. GOHMERT. And there have been allegations made about them 

and, going back to my judicial background, they deserve a chance 

to be heard to address those. 

I do have some questions. Mr. Myers, you mentioned the study 

regarding adult smokers whose consumption increased with illegal 

cigarette purchases. How was that study conducted? 

Mr. MYERS. We would be happy to provide the Committee with 

a copy of the study. 

Mr. GOHMERT. Does it go into exactly how it was conducted? 

Mr. MYERS. Yes, it does. The methodology is right in there. So 

the easiest way to give it to you in detail would be to provide you 

a copy of the study. We would be happy to do that if the record 

is left open for us to have the opportunity to do so. 

Mr. GOHMERT. Here again, with a judicial background, credibility 

is very important, and how you go about doing studies. 

Mr. MYERS. I couldn’t agree with you more. The study results 

aren’t surprising because there is an enormous amount of research 

that shows that there is a great deal of price elasticity with regard 

to tobacco products. Increases in prices decrease consumptions. 

There have been an equal number of studies that show decreases 

in prices will increase consumption. 

What we have seen is that where cheap cigarettes become available, you in fact see increased consumption. So the results of the 

study aren’t surprising. I would be happy to provide you not only 

that study, but the other studies that talk to the same point so that 

you can take a close look at them as well. 

Mr. GOHMERT. Some of these same arguments are things that we 

have heard for years over the debate on whether or not to legalize 

certain drugs. Well, heck, if you just legalized the drug, or make 

it easier to get, then it takes the criminal aspect out of it, and 

makes it better for our society. 

Mr. MYERS. This is a really quite different discussion than that 

one. What this is is a discussion—— 

Mr. GOHMERT. I understand that, but there are some elements. 

Mr. MYERS. Well, the only thing that is critically important here 

is the United States Surgeon General and virtually every credible 

organization, including the National Cancer Institute, the Institute 

of Medicine of the National Academy of Sciences, have studied the 

issue and found a direct correlation between pricing increases and 

consumption, especially among youth, and price decreases and consumption. 

So it is not surprising that a study that looks at any isolated 

component of that, and in this case we know that those cigarettes 

are sold much cheaper because they are not paying taxes on them, 

would in fact, if they were sold to a concentrated geographic area, 

would result in a change in consumption. 

Mr. GOHMERT. I throw this out for anybody’s comment, an observation about the great irony. We have governmental entities who 

are paying for health care services by high taxes on cigarettes because they want to help people who can’t afford health care, which 

means that the governmental entities taxing cigarettes in order to 

88 

receive revenue to fund things to help people with their health, 

needs people to smoke. 

The more the better because then that means more revenue, and 

then that means we can take care of people. And yet we also, the 

information is pretty undeniable that cigarette smoking causes 

health problems. So it is one of the great ironies that I see in our 

government. 

Mr. MYERS. In practical terms, the irony isn’t as great as you 

think. Because what we have seen is that States that increase tobacco taxes both dramatically decrease the number of people who 

smoke, and therefore help the long-term health issue, and because 

of price elasticity see increased revenues. 

I think we have seen a pretty steady pattern among State officials that they see tobacco tax increases not as hypocritical, but as 

a win-win. It is a way to reduce health care costs, reduce tobaccorelated disease, even while raising revenue. It is one of the very 

few revenue measures that both promotes public health and increases revenue. 

One of the nice things about the PACT Act and the STOP Act 

is they will simply assist State officials, as well as Federal officials, 

to accomplish those non-mutually exclusive goals. 

Mr. GOHMERT. I see my time has expired. I have also seen numbers from rather cold, heartless, seemingly uncaring studies that 

say, well actually if people smoke, then they get cancer and they 

die earlier and therefore the health care costs are reduced. I am 

not an advocate of that plan or proposal, but it just illustrates the 

kind of information that we are fed in trying to deal with these 

issues. 

Mr. MYERS. Fortunately, we do have an independent arbiter even 

on those issues in that the government when it has looked at that 

issue finds that the increased health care costs because of the diseases caused by smoking is so extraordinary that this is one of 

those cases that prolonging life actually saves our nation substantial amounts of money going forward. 

So again, you do hear our people argue, gee, wouldn’t it be great 

if we could just kill everybody off before they were old enough to 

collect Social Security, but in this case there is substantial independent objective documentation that the increased health care 

costs caused by tobacco is an enormous economic burden on our society. 

Mr. GOHMERT. I am telling you, your independence is subject to 

interpretation by other people who say they are just as independent. 

Mr. MYERS. I am not asking you to believe me. It is the surgeon 

general, the National Academy of Sciences—groups that I hope are 

deemed to be fair and objective in our society. 

Mr. SCOTT. The gentleman’s time has expired. 

The gentleman from New York, Mr. Weiner. 

Mr. WEINER. Thank you. Perhaps in future hearings we can look 

at the death stories, Mr. Gohmert, and see if we can address that 

in some way. 

Mr. GOHMERT. You will be on your own on that one. 

Mr. WEINER. I just want to say that in the context of working 

on this bill, I found the tobacco industry for the most part to be 

89 

cooperative. Mr. Scott, who represents a State that is heavily dependent on it, has been very cooperative. 

I just do want to revisit a brief question that you touched on in 

Mr. Scott’s questioning when you said are the tobacco companies 

involved with this problem. I should point out, and Mr. Rosenthal 

touched on it in his testimony, when you have the tobacco companies know they are sending to the Native American tribes X number of cigarettes with absolute certitude they know the exact count. 

And they should be able with a prima facie look at it figure out 

that, hmm, something is wrong here. 

For example, in New York state, 360,145,380 packs of cigarettes 

were sent to Native American tribes. If you do the math based on 

the United States Census about how many residents there are on 

New York state reservations, every adult would have to, if they 

were consuming them on the reservation, have to smoke an average of 44 cigarettes an hour in order to consume that many cigarettes. 

So to some degree, Mr. Rosenthal is correct. The tobacco industry 

knows what is going on. I am curious, if you went to them and 

said, let me have this data, let me show you as a member of the 

ATF how many members are on there, and asked their counsel, 

well, is there some reasonable expectation that you should have 

that this is going to be smuggled based on this data? I think they 

would probably say, it is going somewhere. 

So to say that I think we should be careful about not making it 

seem as if they have been completely helpful here, they could do 

things and say, look, you guys represent X; we know the average 

smoker consumes Y; we will give you a premium of two-times-Y 

and then we are going to stop sending you these cigarettes. So they 

could do more. 

But if you could explain the shortcomings in the law right now. 

Attorney General Lapp did a sting in his home State—and I am 

going to summarize—goes on the Internet, orders it, and then tries 

to find out if the data is reported to the State. Why doesn’t the 

ATF do that? Why don’t you go and do what I and any citizens can 

do, Google tax-free cigarettes, get a bunch of Web sites, most are 

dominated by the first few, order 50 or 60 or 80 cartons, and send 

it to yourself. And then go wait by the mailbox or by the phone at 

your local taxation agency and see what happens. And you will 

learn that it never got reported. You go to the company and say 

you violated the laws, here are your handcuffs, we are going to 

charge you with this. 

Tell me, practically speaking, if this is already illegal to some degree that they would be violating the Jenkins Act by not reporting 

that data? What is the hindrance that you face or that other law 

enforcement agencies, the U.S. attorneys face in going out and 

prosecuting that crime since it is going on in broad daylight to a 

large degree? 

Mr. HOOVER. We do conduct some Internet sales trafficking investigations. The issue for us is resources and priorities. Along 

with violent crime, the issues along the southwest border, and protecting the public from terrorism as it goes to our explosives jurisdiction. We set these priorities in what we do, and we also utilize 

the resources that we have. 

90 

In the past 5 years, we have opened almost 700 tobacco trafficking investigations. We have seized $61 million and more in assets, and we have received 441 convictions out of those—— 

Mr. WEINER. How much of that was Internet-based? 

Mr. HOOVER. I don’t have that information, but we can get that 

for you. 

Mr. WEINER. Just so I can get to the crux of it, are the reporting 

requirements of the Jenkins Act, which my bill goes to, are they 

being followed? I know David Lapp addressed this, but are they 

being followed or are they basically being ignored? And if they are 

being ignored, can you explain why there aren’t more prosecutions? 

Mr. HOOVER. Number one, it is a misdemeanor. Number two, it 

is very difficult for us to track that. 

Mr. WEINER. Gotcha. Is it legal to mail explosives through the 

mail? 

Mr. HOOVER. No, sir. 

Mr. WEINER. Is it legal to mail a handgun through the mail? 

Mr. HOOVER. No, sir. 

Mr. WEINER. It is legal to mail a poisonous snake through the 

mail? 

Mr. HOOVER. I cannot answer that, sir. I would think not. 

[Laughter.] 

Mr. WEINER. Now, with the exception of the poisonous snake, 

which I am sure makes some kind of poisonous-snake-sounding 

sound, there are already ways that you have under your jurisdiction and the carriers have to make some determination about what 

is going on inside the packages that they have, because it is already the law, is it not? 

Mr. HOOVER. Yes, sir. That is correct. 

Mr. WEINER. Are you aware of the agreement that has been entered into by the—actually perhaps Attorney General Lapp can 

speak to this—are you aware of the agreement that has been entered into by DHL, UPS, FedEx to agree not to deliver cigarettes? 

Has it been a success? Has it been something? Has it brought commerce in this country to a standstill? Or is it basically being followed to your knowledge? Is it having some impact? 

Mr. LAPP. To our knowledge, it has been followed. In our experience, we do Internet stings and our experience since those agreements have been entered into is that, I am not sure if it is 100 percent, but it is close, are being delivered by the U.S. Postal Service. 

Mr. WEINER. Thank you. 

Chairman Melendez, do you have an Internet site that sells cigarettes? 

Mr. MELENDEZ. No, we don’t. Actually, it is just the tribe itself 

that operates retail tobacco stores, not individuals, so we don’t really—— 

Mr. WEINER. So you are in competition with tribes that have a 

more sophisticated Internet operation. If there is someone down the 

street in Reno that goes onto the Internet and wants to avoid your 

agreed-upon tax rate—yours, the one you have agreed with the 

State on—and wanted to save a few bucks that way, you would be 

in competition with tribes around the country that have Internet 

delivery systems. Is that right? 

91 

Mr. MELENDEZ. If we were dealing with the Internet. I know that 

right now we are—— 

Mr. WEINER. No. I am saying since you are not, you would be 

competing with someone who wants to mail order, say, from your 

neighborhood there in Reno, you are competing with people who do 

have an Internet presence, are you not? 

Mr. MELENDEZ. Yes, I imagine we were, but just a comment. We 

are working with the State streamline sales tax initiative, and the 

tribes are at the table with the State legislature to try to resolve 

the Internet sales in general. 

Mr. WEINER. Well, I would say, Mr. Chairman, good luck with 

that because unless we here in Congress act, you have very little 

ability to do anything more than govern, and this is the problem 

that Attorney General Lapp has, you are under very little ability 

to govern anything more than a website that operates within Nevada, and even then you are going to have a difficult time doing 

it. 

What we are trying to get at, and I just want to say for the 

record, the Native American tribes as a group have been helpful 

here in crafting the PACT Act. There are a lot of issues that Mr. 

Rosenthal, Mr. Myers, and Mr. Colledge talk about, and these are 

tough issues in how you deal with someone who pulls up at the 

Seneca reservation on Long Island with a truck, buys cases and 

cases, and drives to neighborhood bodegas and sells them tax-free. 

These are tough issues. 

The State of New York and the State of Maryland are going to 

have to figure out how we deal with them, and I don’t believe that 

my bill is the be-all and end-all, but as far as you are concerned, 

I believe this legislation protects you as well, because if you go out 

and work out a tax structure with Nevada, it is completely obviated 

by what is going on on the Internet. So I just want to point that 

out. 

Thank you, Mr. Chairman. 

Mr. SCOTT. Thank you. The gentleman’s time has expired. 

The gentleman from Ohio, Mr. Chabot. 

Mr. CHABOT. Mr. Chairman, I just want to know for the record 

that I am the Ranking Member of the Small Business Committee 

and we just finished up on our hearing. That is why I wasn’t here 

earlier. I will review the written testimony of the witnesses. We appreciate their time. 

I am tempted to yield my time to the gentleman from New York 

to find out what items we are not allowed to mail through the mail, 

in addition to poisonous snakes and things, but I will refrain from 

that. [Laughter.] 

Mr. WEINER. Don’t worry, Mr. Chabot. We are not cutting into 

any of your hobbies. Don’t worry. [Laughter.] 

Mr. CHABOT. Thanks for that. 

I yield back. 

Mr. SCOTT. Thank you. 

The gentleman from Georgia, Mr. Johnson. 

Mr. JOHNSON. Thank you, Mr. Chairman. Thank you for holding 

this hearing. This is a very important issue for the health of the 

citizens of this nation, particularly the children and for the criminal part of this which funds a lot of activities that negatively imVerDate Aug 31 2005 13:14 Jan 08, 2009 Jkt 000000 PO 00000 Frm 00095 Fmt 6633 Sfmt 6601 H:\WORK\CRIME\050108\42120.000 HJUD1 PsN: 42120
92 

pact life as we know it. So I am supportive in principle, particularly of the PACT Act. 

I want to ask, however, what is the fundamental difference between cigarettes, smokeless or chewing tobacco, if you will, and cigars, which are not regulated under H.R. 4081? 

Mr. ROSENTHAL. The fundamental difference, I believe, is that 

many, many cigars go stale very, very quickly and they are a very 

high-priced item. They are not generally used for terrorist funding 

or smoked by children. On the other hand, many cigar manufacturers in an effort to get their product to market fresh, cannot count 

on delivering them to warehouses and having those warehouses 

store them and having those warehouses eventually sell them to retail outlets, and having them put them in humidors, and eventually 

selling them through to the public. 

Because of the high-priced inventory and the shelf life, many 

cigar manufacturers use the mails as their only effective means of 

dealing with those rare high-quality cigars. To preclude them from 

using the mails would probably greatly impact their business, 

while having very, very little impact on what it is that Mr. Weiner 

is trying to accomplish. 

Mr. JOHNSON. You have some high-quality cigars and then you 

also have a substantial number of low-quality cigars. Isn’t that correct? 

Mr. ROSENTHAL. Yes, it is. 

Mr. JOHNSON. A lot of cigars are sold in the convenience stores. 

Correct? 

Mr. ROSENTHAL. That is correct. 

Mr. JOHNSON. Probably a major part of the cigar market is the 

low-end cigars. Correct? 

Mr. ROSENTHAL. Especially in New York City, we have a big, big 

problem with low-priced cigars that turn over quickly coming into 

our marketplace and being sold in competition with legitimate 

storekeepers untaxed. You are absolutely right, Mr. Johnson. 

Mr. JOHNSON. And now, I will note also that part of the delivery 

system of marijuana for our young people who partake in it, I have 

heard that—— 

Mr. ROSENTHAL. Some older people do, too. 

Mr. JOHNSON. True, but I think the older people like to kind of 

get the old types, kind of one-point-fives or something and roll 

them up themselves, but younger people like the—that is what I 

have heard anyway. [Laughter.] 

Younger people like to unroll the cheap cigars and put the marijuana in the cigar wrapper and put a little cheap cigar tobacco in 

there and roll it up and smoke that. And that is a big part of the 

cheap tobacco market, I would submit. But is there a problem with 

the trafficking of cheap cigars? 

Mr. ROSENTHAL. There is a very, very large problem with it. The 

OTP tax, the other tobacco products tax in New York is 37.5 percent. It is even higher in New Jersey and several other States. Because of that and the high volume of cigars being used primarily 

for that which you refer to, we have a tremendous amount of tax 

avoidance and it is a big, big problem. 

There are vans running all around New York City with cigars 

that they have picked up elsewhere and brought into New York 

93 

and are selling through to small storekeepers who, in turn, are selling them to children who use the wrappers in order to make spoofs. 

Mr. JOHNSON. Is there any reason why we should exempt cigars 

from H.R. 4081 or H.R. 5689? 

Mr. ROSENTHAL. Personally, I would be very, very happy if it 

were not excluded. However, it is a question now of the effect that 

it would have on premium cigars. That is a decision, of course, I 

can’t make. 

Mr. JOHNSON. Certainly. I know that we are considering giving 

tax breaks to thoroughbred racing horse owners, as opposed to 

quarter horse—— 

Mr. WEINER. It is because they all smoke cigars. 

Mr. JOHNSON. High-end cigars. [Laughter.] 

But now, let me ask also H.R. 4081 would ban the delivery of 

cigarettes and chewing tobacco through the mail. Is that correct? 

And you are nodding your heads affirmatively. Does that mean 

yes? 

Mr. ROSENTHAL. Yes. 

Mr. JOHNSON. Okay. Well, let me ask this. What about through 

UPS or FedEx or some other common carrier? Would a shipper resort to that kind of shipping process as opposed to the mail? 

Mr. MYERS. What it does is it will curtail the illegal shipment 

of cigarettes and smokeless tobacco products, both in terms of—— 

Mr. JOHNSON. Through the mail? 

Mr. MYERS. Through the mail, it would ban it altogether. There 

is really a very practical reason for that. As Mr. Weiner said, given 

the limitations on what the mail service is capable of doing, it is 

really the only way to effectively address that issue. It is not precedent-setting because we do it for a whole host of issues nowhere 

near as exciting as poisonous snakes. 

But through the common carriers, through UPS and FedEx, what 

this would do is cut out the sale of cigarettes that are being sold 

basically illegally, where taxes haven’t been paid, or where inadequate protections are not in place to protect sales to youth. The 

net result of that will in all probability be that they simply won’t 

deliver it, as they are doing right now, which would be an enormous net gain for our society. 

Mr. JOHNSON. All right. Thank you. 

I yield back. 

Mr. SCOTT. Thank you. The gentleman’s time has expired. 

Do any of the Members have additional questions? The gentleman from Texas? 

Mr. GOHMERT. I appreciate everybody being here and providing 

your testimony and insight. This is obviously a problem that we 

need to deal with, and that was really brought home to me by Mr. 

Weiner being gracious enough to take the time to visit with me 

about the issues. It was obvious to me that he had given this a 

great deal of thought, tried to look at it from all sides. 

I remember Mr. Weiner saying something, but I am curious. I 

know you have thought about this, but if I could ask the gentleman 

from New York, on the issue of cigars being sent through the mail, 

what were your thoughts on that and how that may be affected? 

Mr. WEINER. Well, the fundamental arrow in our quiver that we 

have to deal with this on a State-by-State administrative level is 

94 

in the Jenkins Act. The Jenkins Act requires reporting when cigarettes are sold to individual citizens so that the States can then go 

collect the taxes. We don’t have a similar requirement for cigars. 

So what we would have to then go do is not just expand the reach 

of the Jenkins Act with cigarettes, but we would have to go reach 

into cigars and other things as well. 

Look, there are a lot of legitimate concerns about how you go 

about this problem. What we tried to do to the greatest extent possible is cut with a scalpel here, to avoid the difficult issues of Native Americans, to deal with the issues of allowing States to do 

what they can. Basically, what we are seeing overwhelmingly, the 

smuggling that is going on, is a handful of Web sites that are Native American tribes, which now the ATF with higher sanctions 

and the U.S. attorneys with higher sanctions will be able to go 

after, and the Postal Service won’t be able to ship anymore, cut 

them off from that. 

If smaller ones pop up and arise, they are going to be Statebased. So we are also giving the States’ attorneys general the ability to go after the smaller ones which are parochial to individual 

States. 

I would just say to my colleagues who are concerned about cigars, I am interested in trying to figure out a way to work with 

it, but the beauty of the PACT Act is that it takes something we 

have already kind of pre-vetted, which is the Jenkins Act as the 

model. We are just making the sanctions in the Jenkins Act not 

misdemeanors, but felonies. But if we want to add other things to 

the Jenkins Act to be covered under it, I am open to those ideas. 

I think what we need to do to get this passed quickly is to narrow our scope of conflict going right at the actual problem and be 

careful not to get drawn in. But that is a political decision that I 

am open to your counsel on. 

Mr. GOHMERT. I don’t want to have a dog in the cigar fight. I 

kicked the habit of smoking when I was 10. [Laughter.] 

I smoked twice and decided that was it for me and haven’t since. 

But anyway, I appreciate the gentleman’s thoughtful analysis and 

consideration. Thank you. 

Mr. SCOTT. Thank you. 

The gentleman from Ohio? 

The gentleman from Georgia? 

Okay. 

Mr. WEINER. Mr. Chairman, I just have a unanimous consent request. Can I be yielded to for that purpose? 

Mr. SCOTT. The gentleman from New York? 

Mr. WEINER. I request unanimous consent that statements in 

support of the PACT Act submitted by the City of New York, which 

has a great deal of tax loss as a result of this, be accepted in the 

record; similar testimony in support by the president of the American Wholesale Marketers Association; testimony in support by the 

vice president of compliance and brand integrity of Altria Client 

Services on behalf of Phillip Morris; also, Altria has an independent statement; and the National Association of Convenience 

and Petroleum Retailers. 

I ask unanimous consent that all of them be accepted in the 

record. 

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Mr. SCOTT. Without objection, so ordered. 

[The information referred to follows:] 

PREPARED STATEMENT OF CHARLES N. WHITAKER, VICE PRESIDENT, COMPLIANCE

AND BRAND INTEGRITY, ALTRIA CLIENT SERVICES, SUBMITTED ON BEHALF OF PHILIP

MORRIS USA 


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Mr. SCOTT. The gentleman from New York, I didn’t ask you if 

you had any other questions. 

Mr. WEINER. No, thank you, Mr. Chairman. I appreciate your 

forbearance. 

Mr. SCOTT. I thank all of our witnesses for their testimony today. 

Members may have additional written questions for our witnesses 

which we would forward to you and ask that you answer as 

promptly as you can so they may be made part of the record. 

Without objection, the hearing record will remain open for 1 

week for submission of additional materials. 

Without objection, the Subcommittee stands adjourned. 

[Whereupon, at 11:53 a.m., the Subcommittee was adjourned.] 

(113) 

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

PREPARED STATEMENT OF THE HONORABLE SHEILA JACKSON LEE, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF TEXAS, AND MEMBER, SUBCOMMITTEE ON CRIME, TERRORISM, AND HOMELAND SECURITY

Mr. Chairman, thank you for your leadership in convening today’s very important 

hearing legislative proposals before the 110th Congress to amend federal restitution 

laws. I would also like to thank the ranking member, the Honorable Louie Gohmert. 

Welcome to our distinguished panelists. 

During this hearing, the Subcommittee will examine two major issues. First, the 

Subcommittee will examine reports of states losing tax revenue due to tobacco and 

cigarette trafficking. Second, the Subcommittee will also examine arguments in 

favor and against legislation that would enhance law enforcement’s ability to pursue 

tobacco smugglers. 

Every year tens of billions of cigarettes disappear into a lucrative black market 

for tobacco products and are trafficked throughout the world. Smuggling harms public health and minors by undermining tobacco tax policies. Smuggling also makes 

tax-free cigarettes available to minors who might otherwise quit smoking. It is reported that cigarette smuggling also helps finance criminal activity and terrorist organizations. 

By diverting cigarettes while they are in the wholesale distribution chain, largescale smugglers generally avoid all taxes. Increasingly, cigarette smuggling is on the 

rise throughout the United States. The U.S. Bureau of Alcohol, Tobacco, Firearms 

and Explosives (ATF) has reported that the number of ATF tobacco smuggling investigations has increased from 10 in 1998 to 425 in 2005. Some of these investigations and convictions have occurred in Texas. 

Currently, the Jenkins Act, 15 USC 375, requires any person who sells and ships 

cigarettes across a state line to a buyer, other than a licensed distributor, to report 

the sale to the buyer’s state tobacco collection officials. Compliance allows states to 

collect a cigarette excise tax. There are misdemeanor penalties for violation. Smugglers are circumventing the Jenkins Act by virtue of internet-based tobacco sales. 

Sales of tobacco through the internet has resulted in the loss of billions of dollars 

in tax revenue. 

The Contraband Cigarette Trafficking Act, 18 USC 2342, makes it illegal for persons to knowingly ship, transport, receive, possess, sell, distribute, or purchase contraband cigarettes or contraband smokeless tobacco. It also prohibits a person from 

knowingly making any false statement or representation with respect to information 

required by law to be kept in the records of any person who ships, sells, distributes 

cigarettes in excess of 10,000 in a single transaction. 

Cigarette smuggling is on the rise due to the internet and sales to and between 

Native American tribes and others. The PACT Act introduced by the Honorable Anthony Weiner was introduced in November 2007. H.R. 4081 makes it a federal offense for any seller to fail to comply with all state excise tax, sales tax licensing, 

and tax stamping laws. H.R. 4081 also increases the Jenkins Act’s existing penalties 

from a misdemeanor to a felony. It further empowers states to enforce the Jenkins 

Act against out of state sellers sending delivery sales into its territory by giving the 

Attorney General the power to seek injunctive relief and civil penalties. The Act prohibits the shipment of cigarettes and tobacco through the US Postal Service and 

provides the ATF with the ability to inspect a distributor’s business. Refusal to submit to inspection results in additional penalties. Internet sellers are required to 

verify a seller’s age and identity through databases and the person accepting delivery must verify age and identity when signing for delivery. 

The other proposal, HR 5589, Smuggled Tobacco Prevention Act of 2008 STOP 

Act), which requires that all cigarette packages are clearly labeled for export to preVerDate Aug 31 2005 13:14 Jan 08, 2009 Jkt 000000 PO 00000 Frm 00117 Fmt 6601 Sfmt 6621 H:\WORK\CRIME\050108\42120.000 HJUD1 PsN: 42120
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1 U.S. Dep’t of Transp., FMCSA, FY2008 Budget Estimates at 4A–9, available at http:// 

www.fmcsa.dot.gov/?documents?/about/?FMCSA?-FY-08-Budget-Est.pdf. 2 U.S. Census Bureau, 2002 Economic Census, 2002 Commodity Flow Survey, tbl.1a (Dec. 

2004), available at http://www.census?.?gov?/prod/ec02/ec02tcf-us.pdf. 

vent illegal re-entry to the U.S. H.R. 5589 prohibits retaliation against whistleblowers, raises the penalties for violation to $10,000 and allows the State to bring 

civil action for collection of State cigarette tax, and allows agreements between the 

US and foreign countries to enter into information exchange agreements to combat 

the threat of cigarette trafficking. The Act also requires packaging to be marked 

with high tech stamp to expand record keeping in the chain of distribution. The bill 

would add additional criminal offenses for trafficking in tobacco products, including 

up to five years imprisonment. 

These bills demonstrate good fiscal policy and good public health policy. I would 

like to work with the sponsors to ensure passage of these bills. 

I welcome today’s hearing and I look forward to hearing from today’s panelists. 

Thank you. Mr. Chairman, I yield the remainder of my time. 

f 

PREPARED STATEMENT OF THE AMERICAN TRUCKING ASSOCIATIONS, INC. 

The American Trucking Associations, Inc. (‘‘ATA’’) is a trade association of motor 

carriers, state trucking associations, and national trucking conferences created to 

promote and protect the interests of the trucking industry. Directly, and through its 

affiliated organizations, the ATA represents over 30,000 companies and every type 

and class of motor carrier operation in the United States, including parcel delivery 

companies. 

The ATA supports Congress in its endeavor to prevent tobacco smuggling, ensure 

the collection of tobacco taxes, and keep cigarettes out of the hands of minors. The 

ATA’s members have demonstrated their support of these important goals by implementing policies that prohibit shipments of cigarettes to consumers. Testimony before this Subcommittee demonstrates that the carriers’ efforts have been successful. 

The testimony demonstrates that tobacco smugglers do not ship contraband via carriers and instead have taken advantage of a loophole in existing law by shipping 

via the U.S. Postal Service, premised on the Postal Service’s lack of legal authority 

to refuse cigarette shipments. The provision in Section 3 of the Prevent All Cigarette Trafficking Act of 2007 (‘‘PACT Act’’) to make cigarettes and smokeless tobacco 

nonmailable matter will close this loophole. In addition, provisions of the PACT Act 

that make violations of the Jenkins Act felonies, rather than misdemeanors, and 

that allow state and local governments to bring actions in United States district 

courts will strengthen the Jenkins Act by providing meaningful enforcement tools 

for federal, state, and tribal governments, including by providing the means for 

state attorneys general to pursue penalties and injunctive relief from out-of-state tobacco sellers. 

The ATA believes that the provisions in the PACT Act that treat cigarettes and 

smokeless tobacco as nonmailable matter and strengthen enforcement tools against 

tobacco smugglers serve the stated purpose of the Act and will effectively address 

existing problems in preventing tobacco smuggling. In contrast, provisions of the Act 

that are directed to common carriers are unwarranted and will create unnecessary 

burdens and inefficiencies in the transportation of goods. The national trucking industry is of massive size and scope and is an essential pillar of the American economy and lifestyle. The U.S. Department of Transportation’s Federal Motor Carrier 

Safety Administration (‘‘FMCSA’’) estimates that there are almost 685,000 motor 

carriers operating in interstate commerce.1 In 2002, nearly eight billion tons of 

freight (over 2⁄3 of domestic tonnage shipped) with a value of over $6 trillion moved 

by truck.2 Every segment of our economy depends on reliable commercial carriers’ 

transportation and delivery services to deliver packages that have unyielding, timecritical deadlines. The successful development of a national cargo transportation industry that can handle this massive volume of shipments is due in large part to 

Congress’s mandate to eliminate burdensome and inefficient regulation of carriers’ 

services. Cargo carriers rely on that mandate to implement extensive, integrated 

transportation and package-handling networks that use uniform procedures and 

processes that allow carriers to focus on what they do best—moving billions of packages each year across the country to their ultimate destinations. 

The proposed regulations of common carriers in the PACT Act are inconsistent 

with and threaten the efficiencies created by existing federal laws that have deregulated motor carriers’ transportation of property. Accordingly, the ATA urges amendVerDate Aug 31 2005 13:14 Jan 08, 2009 Jkt 000000 PO 00000 Frm 00118 Fmt 6601 Sfmt 6621 H:\WORK\CRIME\050108\42120.000 HJUD1 PsN: 42120
115 

ment of H.R. 4081 to remove proposed regulation of common carriers and to ensure 

that existing preemption of state laws regulating motor carriers’ price, route, or 

service is unaffected by the PACT Act. 

REGULATION OF CARRIERS IS NOT NECESSARY TO ACHIEVE THE PACT ACT’S GOALS AND

PLACES UNWARRANTED BURDENS ON CARRIERS

Consistent with the spirit of the PACT Act, the trucking industry already has 

taken reasonable measures to address the problems sought to be addressed in the 

Act. Carriers uniformly have policies that require shippers to comply with all applicable laws for their shipments. The three major package-delivery companies—UPS, 

Federal Express (‘‘FedEx’’), and DHL—all prohibit customers from using their services to ship cigarettes to consumers. Carriers also have a history of cooperation with 

law enforcement officials (with appropriate legal process) to supply information 

about shipments and deliveries. 

Notably, the major carriers chose to prohibit all shipments of cigarettes to consumers even though many such shipments are lawful, including shipments from 

state-licensed retailers. Carriers chose to implement uniform nationwide policies to 

avoid the burdens and inefficiencies of having to check lists of authorized or unauthorized shippers or recipients that would require them to make determinations 

about whether a particular package could be delivered. 

The evidence before the Subcommittee is that carriers are not the source of the 

problems sought to be addressed in the PACT Act. The Honorable Anthony Weiner, 

a co-sponsor of the Act, stated during the May 1, 2008 hearing on the PACT Act 

and the Smuggled Tobacco Prevention Act of 2008: ‘‘Right now, the only one that 

is carrying it [smuggled cigarettes], ironically, is the United States Postal Service.’’ 

This testimony was confirmed by David S. Lapp, Chief Counsel, Tobacco Enforcement Unit, Office of the Attorney General of Maryland, who testified during the 

same hearing that in regards to shipping cigarettes to consumers: ‘‘In our experience, we do Internet stings and our experience since those agreements [with carriers 

not to deliver cigarettes to consumers] is that, I am not sure if it is 100 percent, 

but it is close, are being delivered by the U.S. Postal Service.’’ Mr. Lapp’s written 

testimony is to the same effect: ‘‘[W]e have curbed deliveries by all the major carriers except one—the U.S. Postal Service, which asserts that it has no legal authority to refuse cigarette shipments.’’ 

Carriers have achieved this remarkable degree of success in curbing deliveries of 

cigarettes to consumers through notifying customers of their policies, making reasonable efforts to intercept packages that appear to be in violation of their policies, 

and disciplining shippers determined to be in violation of their policies. Due to the 

volume of packages being delivered on a daily basis, however, carriers do not and 

cannot determine the contents of each package. 

Notwithstanding the evidence establishing that carriers are not the problem, the 

PACT Act would impose requirements on carriers that go far beyond their current 

efforts to enforce their policies to prohibit shipments of cigarettes to consumers. In 

particular, the Act would create Section 2A(e)(2) of the Jenkins Act, making it unlawful for carriers to knowingly deliver any package from any person whose name 

and address appears on a list compiled by the Attorney General of the United States 

(the ‘‘List’’) unless (1) the carrier had a good faith belief that the package does not 

contain cigarettes or smokeless tobacco, (2) the delivery was made to a person lawfully engaged in the business of manufacturing, distributing, or selling such tobacco, 

or (3) the package weighs more than 100 pounds and the carrier does not know or 

have reason to believe that it contains such tobacco. As explained in more detail 

below, attempting to comply with this prohibition would require extensive efforts 

from carriers to provide special handling for all packages tendered by anyone on the 

List and face the threat of civil and criminal sanctions if they failed to identify and 

intercept a package shipped in violation of the PACT Act’s requirements and the 

carriers’ own policies. These added burdens and requirements are inconsistent with 

Congress’s successful implementation of deregulation of the motor carrier industry, 

which to date, has enabled the development of an efficient transportation network 

that is essential to the Nation’s economy. 

THE PROHIBITION AGAINST DELIVERIES FROM ANYONE ON THE LIST OF UNREGISTERED

OR NONCOMPLIANT DELIVERY SELLERS WOULD BE UNWORKABLE FOR CARRIERS

The prohibition against delivering packages from those who the Attorney General 

places on a list of unregistered or noncompliant delivery sellers would impose extensive burdens on carriers. 

Carriers rely on uniform procedures to process and transport packages. The major 

carriers rely on technology and highly-automated procedures to sort packages based 

116 

on delivery destinations; they do not treat packages differently depending on who 

shipped the package. These uniform procedures are the lifeblood of carriers and essential to their ability to handle the overwhelming number of packages they deliver 

each day. Requiring carriers to give special handling to packages that may be tendered from someone on the Attorney General’s list will create inefficiencies that can 

delay not only packages shipped by persons on the list but all packages in the carrier’s network. 

First, carriers do not have a viable way to identify all packages shipped by a person on the List when the list provides only name and addresses. Once a package 

enters a carrier’s system, the carrier can identify and track that package based only 

on the shipping account number or tracking number used to ship the package. A 

shipping account number may be used for many different addresses and a person 

at a given address may use different account numbers. Thus, even though carriers 

have technology that can track packages in their systems, carriers cannot track or 

locate packages based on the criteria used on the List: the name and address of the 

shipper of the package. 

Second, given their inability to identify all packages in their systems based on the 

name and address of the shipper, the only conceivable way that carriers could attempt to identify packages shipped by someone on the List would be to identify the 

packages at the point that they were picked up from a shipper. To attempt to do 

so, carriers would have to design systems to keep track of the names and addresses 

on the List and to give special handling to all packages tendered from persons 

whose names and addresses are on the List. This would require carriers to train 

each and every driver who might pick up packages from an address on the List as 

to what special procedures to use in picking up packages. Regardless of what procedures were implemented, drivers would have to use judgment in making determinations about how to treat packages shipped by someone whose name was similar but 

not identical to the name on the list (e.g., ‘‘John Jones Ltd.’’ vs. ‘‘John Jones’’). Once 

packages were picked up, the carriers would have to segregate all packages from 

any shipper whose name was on the List so that the carrier could attempt to determine whether or not it believed in good faith that the package contained cigarettes 

or smokeless tobacco and, if so, whether the recipient of the package was lawfully 

engaged in the manufacture or sale of tobacco (and thus that the package could be 

delivered). The carrier also would have to design and implement systems to deal 

with packages that it determined could not be delivered in compliance with the Act. 

Third, carriers could not simply abandon all pick-ups from a specified address as 

they are under an obligation to provide their services ‘‘on reasonable request.’’ 49 

U.S.C. § 14101(a). It would be inconsistent with existing federal policy for carriers 

to refuse to provide all service from any address based on the fact that some packages tendered from the address may contain cigarettes or smokeless tobacco that 

was shipped to an unauthorized recipient. 

Fourth, even if carriers designed and implemented systems to give special handling to all packages picked up from persons whose names and addresses appeared 

on the List, carriers still could not identify all packages shipped by such persons. 

Packages can be introduced into carriers’ transportation networks not only when 

picked up by a driver but also through means such as unstaffed drop boxes, packand-ship stores, or even by handing a package to a driver. As a result, it would be 

impossible for carriers to identify and intercept all packages shipped by any person 

on the List. 

Fifth, carriers also would have to look for markings on packages to determine if 

they might contain cigarettes or smokeless tobacco and give special handling to all 

such packages to determine whether they were shipped by someone on the List and, 

if so, to ensure that they are not delivered to an unauthorized recipient. 

THE PROHIBITION AGAINST DELIVERIES OF UNMARKED PACKAGES THAT CARRIERS

‘‘SHOULD KNOW’’ CONTAIN CIGARETTES OR SMOKELESS TOBACCO WOULD BE UNWORKABLE FOR CARRIERS

As amended by the PACT Act, Section 2A(b)(2) of the Jenkins Act would require 

carriers to treat as ‘‘undeliverable matter’’ any package that the carrier ‘‘knows or 

should know’’ contains cigarettes or smokeless tobacco, if the package is not labeled 

with the statement required by the Act. Complying with this provision would require carriers to design and implement procedures to give special handling to identify packages with any markings that could give rise to an inference that the carrier 

‘‘should know’’ that the package contains cigarettes or smokeless tobacco; evaluate 

whether the package has the precise markings required by the Act; and then prevent delivery of the package if the markings did not comply with the Act. 

117 

THE BURDENS OF ATTEMPTED COMPLIANCE WITH PROHIBITIONS AGAINST DELIVERY

WOULD CAUSE GROSS INEFFICIENCIES

Individually and cumulatively, the steps described above would cause dramatic inefficiencies for the nationwide transportation of property. The special handling required to attempt to identify and intercept packages that may have been shipped 

by someone on the List or that do not have the required markings would require 

extensive efforts that would affect all aspects of carriers’ transportation networks. 

Creating exceptions and special handling for packages that might violate the PACT 

Act would necessarily interfere with the uniform procedures on which carriers rely 

and risk creating delays and bottle-necks for deliveries. Carriers would have to devote significant resources to attempt to comply with the law to avoid potential civil 

and criminal penalties if they failed to intercept a package tendered by a shipper 

determined to thwart the carriers’ efforts. 

THE REQUIREMENTS AND PENALTIES OF THE ACT ARE OVERLY BROAD

Attempted compliance with the prohibitions against delivery would effectively restrict carriers from delivering any package from persons on the List. Thus, if a person is named on the List because of a failure to register or pay taxes in one state, 

a carrier would be prohibited from making deliveries from the person in any state. 

And if a person on the List cures whatever default had caused it to be added to 

the List, it may take as long as four months for updates to the List to be created 

and distributed. Carriers would be prohibited from making any deliveries from the 

person until the updated List was received. 

In addition, as amended by the PACT Act, Section 2A(e)(3)(B) of the Jenkins Act 

would require carriers to maintain for a period of five years ‘‘any records kept in 

the ordinary course of business relating to any deliveries interrupted’’ under the Act 

(emphasis added). Carriers have varying types of records for each of the millions 

of packages they deliver each day, across numerous data systems. It would be extraordinarily burdensome to isolate and place a hold on all such ‘‘ordinary course’’ 

records across all data systems that happen to relate to intercepted packages and 

to maintain such records for a five-year period. At most, the record requirement 

should extend to information sufficient to identify any intercepted package and its 

delivery shipper, and the hold should be only for one year. 

Finally, as amended by the PACT Act, Section 3(a)(2)(B)(i) of the Jenkins Act 

would subject a common carrier and its employees to criminal penalties for any violation of the Jenkins Act (e.g. by making a delivery from someone on the List) if 

the violation were committed ‘‘as consideration for’’ the receipt of or promise to pay 

‘‘anything of pecuniary value.’’ Private carriers deliver goods for compensation and 

their employees are paid for the work they do in transporting and delivering property. Thus, every violation could be considered to have been performed for pecuniary 

value and every violation could subject carriers and their employees to criminal penalties. The same is true for civil violations, which also may be imposed against carriers or their employees who act in consideration of ‘‘anything of pecuniary value’’ 

(adding Section 3(b)(3)(i) of the Jenkins Act). 

THE PREEMPTION CLAUSE THREATENS TO WEAKEN EXISTING PREEMPTION PROTECTIONS

FOR CARRIERS

Through the Federal Aviation Administration Authorization Act of 1994, Congress 

has expressly barred states from enforcing laws ‘‘related to a price, route, or service 

of any motor carrier . . . with respect to the transportation of property.’’ 49 U.S.C. 

14501(c)(1). The Supreme Court recently confirmed the broad scope of that preemption. See Rowe v. NH Motor Transport Ass’n, 128 S. Ct. 989 (2008). The addition 

of Section 2A(e)(4)(A) and (C) of the Jenkins Act would undermine FAAAA preemption by suggesting that the FAAAA does not preempt state laws regulating carriers’ 

deliveries and inviting state regulation of carriers’ deliveries. These provisions 

should be deleted so that the PACT Act does not undermine the broad and effective 

scope of preemption. 

CONCLUSION

Common carriers have already proven to be successful in preventing the shipment 

of cigarettes to consumers. The ATA believes that the PACT Act can effectively 

strengthen ongoing efforts to combat tobacco smuggling by making cigarettes and 

smokeless tobacco non-mailable, by increasing the penalties of the Jenkins Act, and 

by allowing states to bring actions for injunctive relief and penalties for violation 

of the Jenkins Act in federal courts. In contrast, those provisions of the PACT Act 

that would impose burdens on carriers and subject carriers and their employees to 

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civil and criminal penalties are unnecessary and would create dramatic inefficiencies in the motor carrier industry. By eliminating the provisions regulating common 

carriers, the PACT Act will be able to accomplish its goals without adversely affecting the transportation of goods that is so vital to our economy. 

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PREPARED STATEMENT OF SCOTT RAMMINGER, PRESIDENT, AMERICAN WHOLESALE

MARKETERS ASSOCIATION

Thank you for providing the opportunity to testify in support of HR 4081, legislation that would address the widespread problem of illegal Internet sales of cigarettes. My name is Scott Ramminger and I am the President of the American 

Wholesale Marketers Association (AWMA). AWMA represents more than 600 member companies in the supply channel—distributors, manufacturers, suppliers, brokers and retailers, all working together to get products to the consumer. Our industry represents product sales of over $85 billion annually nationwide. The products 

they distribute include tobacco, candy, foodservice, general merchandise, snacks and 

health and beauty care to name just a few. 

We thank the Members of the Committee for holding this hearing and for introducing legislation to address the serious problem of illegal Internet sales of cigarettes. In this statement, I will summarize AWMA’s concerns over this issue and 

express our support for HR 4081, the bill now before the Committee. 

AWMA has cited illegal Internet sales of tobacco as one of the most pressing problems facing our industry. In 2005, our Association undertook a study to determine 

just how widespread this problem was and whether various efforts to combat these 

illegal sales were effective. As you know, an agreement was reached between major 

credit card companies, states attorneys general, and the Bureau of Alcohol, Tobacco 

and Firearms to halt the use of credit cards for Internet cigarette sales, and a voluntary effort was also made by various carriers—UPS and FedEx included—to end 

delivery of these products, all in an attempt to crack down on these illegal sales. 

Unfortunately, the results of our own study were very troubling and indicate that 

despite these—and other—efforts to end these transactions, the illegal sale of these 

products continues to flourish. 

As a sampling of what our study found, AWMA easily used a credit card to purchase 14 cartons of cigarettes—eight cartons were within the U.S. and six were from 

foreign countries. Of the 30 random sites used to purchase cigarettes, 53% allowed 

the use of a credit card—Visa, Diners, Mastercard, and/or American Express. And 

none of the cigarettes purchased had any U.S. state tax stamps and in no case were 

taxes collected at the time of purchase. It should be noted, that the AWMA notified 

the Virginia Department of Taxation of the tax stamp omission and paid the appropriate amount of tax to comply with the law. Even more troubling, age verification 

was virtually nonexistent. Most sites simply had a statement on the home page indicating that a purchaser had to be of a certain age to buy cigarettes but nothing beyond to prevent an underage person from buying the cigarettes. Some asked for a 

simple check off that the buyer was over 18. 

It was clear from our informal study that efforts to restrict the illegal cigarette 

sales via the Internet are falling short of the mark. We believe that federal legislation is needed to address this issue and we are supporting HR 4081. 

From our industry’s perspective, every sale of an illegal tobacco product over the 

Internet translates into a loss for responsible, legitimate, law-abiding distributors 

and retailers across the country. And, it’s not just our industry that’s impacted— 

states are losing millions of dollars each year in unpaid excise taxes and enforcement expenses. And, more important, many of the cigarettes sold over the Internet 

are ending up in the hands of under-age smokers because of the lack of safeguards 

inherent in these types of remote sales. 

I commend the Committee for its efforts on behalf of HR 4081 and for its recognition as to the need for federal legislation to address this serious problem. I urge the 

Committee to approve HR 4081 and I appreciate the opportunity to submit this testimony on behalf of the American Wholesale Marketers Association. 

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TEXT OF THE BILL, H.R. 4081, THE ‘‘PREVENT ALL CIGARETTE TRAFFICKING ACT OF

2007,’’ OR ‘‘PACT ACT’’ 

I 

110TH CONGRESS 

1ST SESSION H. R. 4081 

To prevent tobacco smuggling, to ensure the collection of all tobacco taxes, and for 

other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

NOVEMBER 5, 2007 

Mr. WEINER introduced the following bill; which was referred to the Committee on 

the Judiciary 

A BILL 

To prevent tobacco smuggling, to ensure the collection of all tobacco taxes, and for 

other purposes. 

Be it enacted by the Senate and House of Representatives of the United States 

of America in Congress assembled, 

SECTION 1. SHORT TITLE; FINDINGS; PURPOSES. 

(a) SHORT TITLE.—This Act may be cited as the ‘‘Prevent All Cigarette Trafficking Act of 2007’’ or ‘‘PACT Act’’. 

(b) FINDINGS.—Congress finds that— 

(1) the sale of illegal cigarettes and smokeless tobacco products significantly 

reduces Federal, State, and local government revenues, with Internet sales 

alone accounting for billions of dollars of lost Federal, State, and local tobacco 

tax revenue each year; 

(2) Hezbollah, Hamas, al Qaeda, and other terrorist organizations have 

profited from trafficking in illegal cigarettes or counterfeit cigarette tax stamps; 

(3) terrorist involvement in illicit cigarette trafficking will continue to grow 

because of the large profits such organizations can earn; 

(4) the sale of illegal cigarettes and smokeless tobacco over the Internet, 

and through mail, fax, or phone orders, make it cheaper and easier for children 

to obtain tobacco products; 

(5) the majority of Internet and other remote sales of cigarettes and smokeless tobacco are being made without adequate precautions to protect against 

sales to children, without the payment of applicable taxes, and without complying with the nominal registration and reporting requirements in existing 

Federal law; 

(6) unfair competition from illegal sales of cigarettes and smokeless tobacco 

is taking billions of dollars of sales away from law-abiding retailers throughout 

the United States; 

(7) with rising State and local tobacco tax rates, the incentives for the illegal sale of cigarettes and smokeless tobacco have increased; 

(8) the number of active tobacco investigations being conducted by the Bureau of Alcohol, Tobacco, Firearms, and Explosives rose to 452 in 2005; 

(9) the number of Internet vendors in the United States and in foreign 

countries that sell cigarettes and smokeless tobacco to buyers in the United 

States has increased from only about 40 in 2000 to more than 500 in 2005; and 

(10) the intrastate sale of illegal cigarettes and smokeless tobacco over the 

Internet has a substantial effect on interstate commerce. 

(c) PURPOSES.—It is the purpose of this Act to— 

(1) require Internet and other remote sellers of cigarettes and smokeless tobacco to comply with the same laws that apply to law-abiding tobacco retailers; 

(2) create strong disincentives to illegal smuggling of tobacco products; 

153 

(3) provide government enforcement officials with more effective enforcement tools to combat tobacco smuggling; 

(4) make it more difficult for cigarette and smokeless tobacco traffickers to 

engage in and profit from their illegal activities; 

(5) increase collections of Federal, State, and local excise taxes on cigarettes 

and smokeless tobacco; and 

(6) prevent and reduce youth access to inexpensive cigarettes and smokeless 

tobacco through illegal Internet or contraband sales. 

SEC. 2. COLLECTION OF STATE CIGARETTE AND SMOKELESS TOBACCO TAXES. 

(a) DEFINITIONS.—The Act of October 19, 1949 (15 U.S.C. 375 et seq.; commonly 

referred to as the ‘‘Jenkins Act’’) (referred to in this Act as the ‘‘Jenkins Act’’), is 

amended by striking the first section and inserting the following: 

‘‘SEC. 1. 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 ‘tribal’ 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 in the 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. 

154 

‘‘(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.’’. 

(b) REPORTS TO STATE TOBACCO TAX ADMINISTRATORS.—Section 2 of the Jenkins 

Act (15 U.S.C. 376) is amended— 

(1) by striking ‘‘cigarettes’’ each place it appears and inserting ‘‘cigarettes 

or smokeless tobacco’’; 

(2) in subsection (a)— 

(A) in the matter preceding paragraph (1)— 

(i) by inserting ‘‘CONTENTS.—’’after ‘‘(a)’’ 

(ii) by striking ‘‘or transfers’’ and inserting ‘‘, transfers, or ships’’; 

(iii) by inserting ‘‘, locality, or Indian country of an Indian tribe’’ 

after ‘‘a State’’; 

(iv) by striking ‘‘to other than a distributor licensed by or located 

in such State,’’; and 

(v) by striking ‘‘or transfer and shipment’’ and inserting ‘‘, transfer, 

or shipment’’; 

(B) in paragraph (1)— 

(i) by striking ‘‘with the tobacco tax administrator of the State’’ and 

inserting ‘‘with the Attorney General of the United States and with the 

tobacco tax administrators of the State and place’’; and 

(ii) by striking ‘‘; and’’ and inserting the following: ‘‘, 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;’’; 

(C) in paragraph (2), by striking ‘‘and the quantity thereof.’’ and inserting ‘‘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’’; and 

(D) by adding at the end the following: 

‘‘(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.’’; 

(3) in subsection (b)— 

(A) by inserting ‘‘PRESUMPTIVE EVIDENCE.—’’ after ‘‘(b)’’; 

(B) by striking ‘‘(1) that’’ and inserting ‘‘that’’; and 

(C) by striking ‘‘, and (2)’’ and all that follows and inserting a period; 

and 

(4) by adding at the end the following: 

‘‘(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.’’. 

(c) REQUIREMENTS FOR DELIVERY SALES.—The Jenkins Act is amended by inserting after section 2 the following: 

‘‘SEC. 2A. 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); 

155 

‘‘(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, governmentissued 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 

156 

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 in order 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. 

157 

‘‘(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 or smokeless 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.— 

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‘‘(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— 

159 

‘‘(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.’’. 

(d) PENALTIES.—The Jenkins Act is amended by striking section 3 and inserting 

the following: 

‘‘SEC. 3. PENALTIES. 

‘‘(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. 

160 

‘‘(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).’’. 

(e) ENFORCEMENT.—The Jenkins Act is amended by striking section 4 and inserting the following: 

‘‘SEC. 4. ENFORCEMENT. 

‘‘(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. 

161 

‘‘(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 Attorney General 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).’’. 

162 

SEC. 3. TREATMENT OF CIGARETTES AND SMOKELESS TOBACCO AS NONMAILABLE MATTER. 

Section 1716 of title 18, United States Code, is amended— 

(1) by redesignating subsections (j) and (k) as subsections (k) and (l), respectively; and 

(2) by inserting after subsection (i) the following: 

‘‘(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.’’. 

SEC. 4. COMPLIANCE WITH MODEL STATUTE OR QUALIFYING STATUTE. 

(a) IN GENERAL.—A Tobacco Product Manufacturer or importer may not sell in, 

deliver to, or place for delivery sale, or cause to be sold in, delivered to, or placed 

for delivery sale in a State that is a party to the Master Settlement Agreement, any 

cigarette manufactured by a Tobacco Product Manufacturer that is not in full compliance with the terms of the Model Statute or Qualifying Statute enacted by such 

State requiring funds to be placed into a qualified escrow account under specified 

conditions, or any regulations promulgated pursuant to such statute. 

(b) JURISDICTION TO PREVENT AND RESTRAIN VIOLATIONS.— 

(1) IN GENERAL.—The United States district courts shall have jurisdiction 

to prevent and restrain violations of subsection (a) in accordance with this subsection. 

(2) INITIATION OF ACTION.—A State, through its attorney general, may bring 

an action in the United States district courts to prevent and restrain violations 

of subsection (a) by any person (or by any person controlling such person). 

(3) ATTORNEY FEES.—In any action under paragraph (2), a State, through 

its attorney general, shall be entitled to reasonable attorney fees from a person 

found to have willfully and knowingly violated subsection (a). 

163 

(4) NONEXCLUSIVITY OF REMEDIES.—The remedy available under paragraph 

(2) is in addition to any other remedies available under Federal, State, or other 

law. No provision of this Act or any other Federal law shall be held or construed 

to prohibit or preempt the Master Settlement Agreement, the Model Statute (as 

defined in the Master Settlement Agreement), any legislation amending or complementary to the Model Statute in effect as of June 1, 2006, or any legislation 

substantially similar to such existing, amending, or complementary legislation 

hereinafter enacted. 

(5) OTHER ENFORCEMENT ACTIONS.—Nothing in this subsection shall be construed to prohibit an authorized State official from proceeding in State court or 

taking other enforcement actions on the basis of an alleged violation of State 

or other law. 

(6) AUTHORITY OF THE ATTORNEY GENERAL.—The Attorney General of the 

United States may administer and enforce subsection (a). 

(c) DEFINITIONS.—In this section the following definitions apply: 

(1) 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. 

(2) IMPORTER.—The term ‘‘importer’’ means each of the following: 

(A) SHIPPING OR CONSIGNING.—Any person in the United States to 

whom nontaxpaid tobacco products manufactured in a foreign country, 

Puerto Rico, the Virgin Islands, or a possession of the United States are 

shipped or consigned. 

(B) MANUFACTURING WAREHOUSES.—Any person who removes cigars or 

cigarettes for sale or consumption in the United States from a customsbonded manufacturing warehouse. 

(C) UNLAWFUL IMPORTING.—Any person who smuggles or otherwise unlawfully brings tobacco products into the United States. 

(3) MASTER SETTLEMENT AGREEMENT.—The term ‘‘Master Settlement Agreement’’ means the agreement executed November 23, 1998, between the attorneys general of 46 States, the District of Columbia, the Commonwealth of Puerto Rico, and 4 territories of the United States and certain tobacco manufacturers. 

(4) MODEL STATUTE; QUALIFYING STATUTE.—The terms ‘‘Model Statute’’ and 

‘‘Qualifying Statute’’ means a statute as defined in section IX(d)(2)(e) of the 

Master Settlement Agreement. 

(5) TOBACCO PRODUCT MANUFACTURER.—The term ‘‘Tobacco Product Manufacturer’’ has the meaning given that term in section II(uu) of the Master Settlement Agreement. 

SEC. 5. INSPECTION BY BUREAU OF ALCOHOL, TOBACCO, FIREARMS, AND EXPLOSIVES OF 

RECORDS OF CERTAIN CIGARETTE AND SMOKELESS TOBACCO SELLERS. 

(a) IN GENERAL.—Any officer of the Bureau of Alcohol, Tobacco, Firearms, and 

Explosives may, during normal business hours, enter the premises of any person described in subsection (b) for the purposes of inspecting— 

(1) any records or information required to be maintained by such person 

under the provisions of law referred to in subsection (d); or 

(2) any cigarettes or smokeless tobacco kept or stored by such person at 

such premises. 

(b) COVERED PERSONS.—Subsection (a) applies to any person who engages in a 

delivery sale, and who ships, sells, distributes, or receives any quantity in excess 

of 10,000 cigarettes, or any quantity in excess of 500 single-unit consumer-sized 

cans or packages of smokeless tobacco, within a single month. 

(c) RELIEF.— 

(1) IN GENERAL.—The district courts of the United States shall have the authority in a civil action under this subsection to compel inspections authorized 

by subsection (a). 

(2) VIOLATIONS.—Whoever violates subsection (a) or an order issued pursuant to paragraph (1) shall be subject to a civil penalty in an amount not to exceed $10,000 for each violation. 

164 

(d) COVERED PROVISIONS OF LAW.—The provisions of law referred to in this subsection are— 

(1) the Act of October 19, 1949 (15 U.S.C. 375; commonly referred to as the 

‘‘Jenkins Act’’); 

(2) chapter 114 of title 18, United States Code; and 

(3) this Act. 

(e) DELIVERY SALE DEFINED.—In this section, the term ‘‘delivery sale’’ has the 

meaning given that term in 2343(e) of title 18, United States Code, as amended by 

this Act. 

SEC. 6. EXCLUSIONS REGARDING INDIAN TRIBES AND TRIBAL MATTERS. 

(a) IN GENERAL.—Nothing in this Act or the amendments made by this Act is 

intended nor shall be construed to affect, amend, or modify— 

(1) any agreements, compacts, or other intergovernmental arrangements between any State or local government and any government of an Indian tribe (as 

that term is defined in section 4(e) of the Indian Self-Determination and Education Assistance Act (25 U.S.C. 450b(e)) relating to the collection of taxes on 

cigarettes or smokeless tobacco sold in Indian country (as that term is defined 

in section 1151 of title 18, United States Code); 

(2) any State laws that authorize or otherwise pertain to any such intergovernmental arrangements or create special rules or procedures for the collection 

of State, local, or tribal taxes on cigarettes or smokeless tobacco sold in Indian 

country; 

(3) any 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 or in Indian country; 

(4) any existing Federal law, including Federal common law and treaties, 

regarding State jurisdiction, or lack thereof, over any tribe, tribal members, or 

tribal reservations; and 

(5) any existing State or local government authority to bring enforcement 

actions against persons located in Indian country. 

(b) COORDINATION OF LAW ENFORCEMENT.—Nothing in this Act or the amendments made by this Act shall be construed to inhibit or otherwise affect any coordinated law enforcement effort by 1 or more States or other jurisdictions, including 

Indian tribes, through interstate compact or otherwise, that— 

(1) provides for the administration of tobacco product laws or laws pertaining to interstate sales or other sales of tobacco products; 

(2) provides for the seizure of tobacco products or other property related to 

a violation of such laws; or 

(3) establishes cooperative programs for the administration of such laws. 

(c) TREATMENT OF STATE AND LOCAL GOVERNMENTS.—Nothing in this Act or the 

amendments made by this Act is intended, and shall not be construed to, authorize, 

deputize, or commission States or local governments as instrumentalities of the 

United States. 

(d) ENFORCEMENT WITHIN INDIAN COUNTRY.—Nothing in this Act or the amendments made by this Act is intended to prohibit, limit, or restrict enforcement by the 

Attorney General of the United States of the provisions herein within Indian country. 

(e) AMBIGUITY.—Any ambiguity between the language of this section or its application and any other provision of this Act shall be resolved in favor of this section. 

SEC. 7. EFFECTIVE DATE. 

(a) IN GENERAL.—Except as provided in subsection (b), this Act shall take effect 

on the date that is 90 days after the date of enactment of this Act. 

(b) BATFE AUTHORITY.—Section 5 shall take effect on the date of enactment of 

this Act. 

SEC. 8. SEVERABILITY. 

If any provision of this, or an amendment made by this Act or the application 

thereof to any person or circumstance is held invalid, the remainder of the Act and 

the application of it to any other person or circumstance shall not be affected thereby. 

f 

Æ 

165 

TEXT OF THE BILL, H.R. 5689, THE ‘‘SMUGGLED TOBACCO PREVENTION ACT OF 2008’’ 

I 

110TH CONGRESS 

2D SESSION H. R. 5689 

To amend the Internal Revenue Code of 1986 and title 18, United States Code, to 

deter the smuggling of tobacco products into the United States, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 3, 2008 

Mr. DOGGETT (for himself, Mr. ABERCROMBIE, Mr. ACKERMAN, Mr. ALLEN, Mr. AN- DREWS, Mr. ARCURI, Ms. BALDWIN, Mr. BECERRA, Mr. BERMAN, Mr. BLUMENAUER, Mr. BRALEY of Iowa, Ms. GINNY BROWN-WAITE of Florida, Mrs. CAPPS, Mr. 

CAPUANO, Ms. CLARKE, Mr. CUMMINGS, Mr. DAVIS of Illinois, Mrs. DAVIS of California, Mr. DEFAZIO, Ms. DEGETTE, Mr. DELAHUNT, Ms. DELAURO, Mr. ELLISON, Mr. EMANUEL, Ms. ESHOO, Mr. FARR, Mr. FILNER, Mr. FRANK of Massachusetts, 

Mr. GENE GREEN of Texas, Mr. GRIJALVA, Mr. HARE, Mr. HINCHEY, Mr. HINOJOSA, Ms. HIRONO, Mr. HOLT, Mr. HONDA, Ms. HOOLEY, Mr. ISRAEL, Mr. JACKSON of Illinois, Ms. JACKSON-LEE of Texas, Ms. EDDIE BERNICE JOHNSON of Texas, Ms. KAP- TUR, Mr. KENNEDY, Mr. KIND, Mr. KUCINICH, Mr. LANGEVIN, Ms. LEE, Mr. LEVIN, Mr. LEWIS of Georgia, Mr. LIPINSKI, Mr. LOEBSACK, Ms. ZOE LOFGREN of California, Mrs. LOWEY, Mr. LYNCH, Mrs. MALONEY of New York, Mr. MARKEY, Mr. 

MATHESON, Ms. MATSUI, Mrs. MCCARTHY of New York, Mr. MCDERMOTT, Mr. 

MCGOVERN, Mr. MCNULTY, Mr. MEEKS of New York, Mr. GEORGE MILLER of California, Mr. NADLER, Mrs. NAPOLITANO, Mr. NEAL of Massachusetts, Mr. OBER- STAR, Mr. OLVER, Mr. PALLONE, Mr. PASCRELL, Mr. PAYNE, Mr. PLATTS, Ms. RICH- ARDSON, Mr. ROTHMAN, Ms. ROYBAL-ALLARD, Mr. RUSH, Mr. RYAN of Ohio, Ms. 

LINDA T. SA ́ NCHEZ of California, Ms. LORETTA SANCHEZ of California, Mr. SAR- BANES, Ms. SCHAKOWSKY, Mr. SERRANO, Mr. SESTAK, Mr. SHERMAN, Ms. SLAUGH- TER, Mr. SMITH of Washington, Mr. SNYDER, Ms. SOLIS, Mr. STARK, Ms. SUTTON, Mrs. TAUSCHER, Mr. THOMPSON of California, Mr. TIERNEY, Ms. TSONGAS, Mr. 

UDALL of New Mexico, Mr. VAN HOLLEN, Mr. WALZ of Minnesota, Ms. WATERS, 

Ms. WATSON, Mr. WAXMAN, Mr. WEINER, Mr. WELCH of Vermont, Ms. WOOLSEY, 

and Mr. WU) introduced the following bill; which was referred to the Committee 

on Ways and Means, and in addition to the Committee on the Judiciary, for a period to be subsequently determined by the Speaker, in each case for consideration 

of such provisions as fall within the jurisdiction of the committee concerned 

A BILL 

To amend the Internal Revenue Code of 1986 and title 18, United States Code, to 

deter the smuggling of tobacco products into the United States, and for other purposes. 

Be it enacted by the Senate and House of Representatives of the United States 

of America in Congress assembled, 

SECTION 1. SHORT TITLE AND TABLE OF CONTENTS. 

(a) SHORT TITLE.—This Act may be cited as the ‘‘Smuggled Tobacco Prevention 

Act of 2008’’. 

(b) TABLE OF CONTENTS.—The table of contents of this Act is as follows: 

Sec. 1. Short title and table of contents. 

TITLE I—AMENDMENTS TO INTERNAL REVENUE CODE OF 1986 

Sec. 101. Amendment of 1986 code. 

Sec. 102. Improved marking and labeling; export bonds. 

166 

Sec. 103. Wholesalers required to have permit. 

Sec. 104. Conditions of permit. 

Sec. 105. Records to be maintained. 

Sec. 106. Reports. 

Sec. 107. Fraudulent offenses. 

Sec. 108. Civil penalties. 

Sec. 109. Definitions. 

Sec. 110. Effective date. 

TITLE II—AMENDMENTS RELATING TO CONTRABAND CIGARETTE 

TRAFFICKING 

Sec. 201. Expanding scope of penal provisions relating to trafficking in contraband tobacco products. 

Sec. 202. Creating right of action for State tobacco tax administrator for failure 

to report. 

TITLE III—WHISTLEBLOWER PROTECTION PROVISIONS 

Sec. 301. Whistleblower protection. 

TITLE I—AMENDMENTS TO INTERNAL 

REVENUE CODE OF 1986 

SEC. 101. AMENDMENT OF 1986 CODE. 

Except as otherwise expressly provided, whenever in this title an amendment 

or repeal is expressed in terms of an amendment to, or repeal of, a section or other 

provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986. 

SEC. 102. IMPROVED MARKING AND LABELING; EXPORT BONDS. 

(a) IN GENERAL.— (1) Section 5723 (relating to marks, labels, and notices) is amended— 

(A) by striking ‘‘, if any,’’ in subsection (b), 

(B) by adding at the end of subsection (b) the following: ‘‘Such marks, 

labels, and notices shall include marks and notices relating to the following: 

‘‘(1) IDENTIFICATION.—Each person who is a manufacturer or importer of tobacco products shall (in accordance with regulations prescribed by the Secretary) legibly print a unique serial number on all packages of tobacco products 

manufactured or imported by such person for sale or distribution. Such serial 

number shall be designed to enable the Secretary to identify the manufacturer 

of the product (and, in the case of importation, the manufacturer and importer 

of the product), the location and date of manufacture (and, if imported, the location and date of importation), and any other information the Secretary determines necessary or appropriate for the proper administration of the chapter. 

The Secretary shall determine the size and location of the serial number. 

‘‘(2) MARKING REQUIREMENTS FOR EXPORTS.—Each package of a tobacco 

product that is exported, or sold for export, shall be marked for export from the 

United States and shall be marked as to the foreign country which is to be the 

final destination of such product. Such marking shall be visible and prominent 

and shall be in English and in the primary language of such foreign country. 

The Secretary shall promulgate regulations to determine the size and location 

of the mark. 

‘‘(3) ADDITIONAL METHODS OF IDENTIFICATION OR MARKING.—The Secretary 

may by regulation authorize such additional secure methods of identification or 

marking as may be, taking into account available technology, necessary or appropriate to carry out the purposes of this subsection.’’, and 

(C) by adding at the end the following new subsection: 

‘‘(f) ADDITIONAL MARKS.— 

‘‘(1) IN GENERAL.—Not later than 180 days after the date of the enactment 

of the Smuggled Tobacco Prevention Act of 2008, the Secretary shall prescribe 

a system of tobacco tax stamps, meter impressions, or other Federal tax-payment indicia to be affixed by manufacturers and importers of tobacco products 

on all tobacco products subject to tax under this chapter. 

‘‘(2) SYSTEM SPECIFICATIONS.— 

‘‘(A) The Secretary shall design such system to coordinate and avoid interference with State and local tax stamps or markings, facilitate collection 

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of the tax under this chapter, impede contraband tobacco trafficking, minimize counterfeit stamping or meter impressions, allow for more effective 

tracking and tracing of tobacco products, facilitate the enforcement of related Federal laws, and utilize such available technology as may promote 

the purposes of this chapter. 

‘‘(B) The Secretary shall prescribe the method and manner in which 

such stamps, meter impressions, or indicia are to be distributed, purchased, 

and affixed to tobacco product packages, and may provide for the cancellation of such stamps, meter impressions, or indicia. 

‘‘(C) Any such tax stamp, meter impression, or indicia must provide the 

following information: 

‘‘(i) The denominated value of the stamp, meter impression, or indicia. 

‘‘(ii) A unique serial number or tracking code. 

‘‘(iii) The name and address of the person purchasing (and, if different, of the person affixing) the stamp, meter impression, or indicia. 

‘‘(iv) The date the stamp, meter impression, or indicia was purchased and when it was affixed. 

‘‘(v) The name and address of the person purchasing or otherwise 

receiving the tobacco product from the person who affixes the tax 

stamp, meter impression, or indicia, and the date of such purchase or 

transfer. 

‘‘(vi) Such other information as the Secretary may prescribe to 

carry out the purposes of this chapter. 

‘‘(D) The information described in subparagraph (C) shall, to the extent 

practicable, be cryptographically encrypted and readable by a portable scanning device (or similar device) at the time and place of inspection, and shall 

otherwise be accessible remotely by such a device at such time and place. 

‘‘(E) The Secretary may establish different stamps, meter impressions, 

or indicia for the same type of tobacco product to correspond to different 

jurisdictions of manufacture, distribution, or sale. 

‘‘(F) The Secretary may by regulation authorize such additional secure 

methods of identification or marking as may be, taking into account available technology, necessary or appropriate to carry out the purposes of this 

subsection. 

‘‘(G) No tobacco product may be sold, distributed, or otherwise delivered 

to any consumer in the United States unless the tax stamp, meter impression, or indicia required under regulations prescribed pursuant to this section is affixed to the tobacco product packaging in accordance with such 

regulations.’’. 

(b) SALES ON INDIAN RESERVATIONS; PACKAGE DEFINED.—Section 5723, as 

amended by subsection (a), is amended by adding at the end the following new subsections: 

‘‘(g) SALES ON INDIAN RESERVATIONS.—Each package of a tobacco product that 

is sold on an Indian reservation (as defined in section 403(9) of the Indian Child 

Protection and Family Violence Prevention Act (25 U.S.C. 3202(9)) shall be visibly 

and prominently labeled as such. The Secretary, in consultation with the Secretary 

of the Interior, shall promulgate regulations with respect to such labeling, including 

requirements for the size and location of the label. 

‘‘(h) DEFINITION OF PACKAGE.—For purposes of this section, the term ‘package’ 

means the innermost sealed container visible from the outside of the individual container irrespective of the material from which such container is made, in which a 

tobacco product is placed by the manufacturer and in which such tobacco product 

is offered for sale to a member of the general public.’’. 

(c) REQUIREMENTS FOR TRACKING OF TOBACCO PRODUCTS.— 

(1) IN GENERAL.—Subchapter B of chapter 52 is amended by adding at the 

end the following new section: 

‘‘SEC. 5714. EXPORT BONDS. 

‘‘(a) POSTING OF BOND.— 

‘‘(1) IN GENERAL.—It shall be unlawful for any person to export any tobacco 

product unless such person— 

‘‘(A) has posted with the Secretary a tobacco product bond in accordance with this section for such product that contains a disclosure of the 

country to which such product will be exported; and 

‘‘(B) receives a written statement from the recipient of the tobacco products involved that such person— 

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‘‘(i) will not knowingly and willfully violate or cause to be violated 

any law or regulation of such country, the United States, any State, the 

District of Columbia, or any possession of the United States with respect to such products; and 

‘‘(ii) has never been convicted of any offense with respect to tobacco 

products. 

‘‘(2) REGULATIONS.—The Secretary shall promulgate regulations that determine the frequency and the amount of each bond that must be posted under 

paragraph (1), but in no case shall such amount be less than an amount equal 

to the tax imposed under this chapter on the value of the shipment of the products involved if such products were consumed within the United States. 

‘‘(3) EXPORT.—For purposes of this subsection, property shall be treated as 

exported if it is shipped to a foreign country, Puerto Rico, the Virgin Islands, 

or a possession of the United States, or for consumption beyond the jurisdiction 

of the internal revenue laws of the United States. 

‘‘(b) RETURN OF BOND.—The Secretary shall return a bond posted under subsection (a)— 

‘‘(1) upon a determination by the Secretary (based on documentation provided by the person who posted the bond in accordance with regulations promulgated by the Secretary) that the items to which the bond applies have been 

received in the country of final destination as designated in the bond, or 

‘‘(2) under such other circumstance as the Secretary may specify which is 

consistent with the purposes of this chapter.’’. 

(2) CLERICAL AMENDMENT.—The table of sections for such subchapter B is 

amended by adding at the end the following new item: 

‘‘Sec. 5714. Export bonds.’’. 

SEC. 103. WHOLESALERS REQUIRED TO HAVE PERMIT. 

Section 5712 (relating to application for permit) is amended by inserting ‘‘, 

wholesaler,’’ after ‘‘manufacturer’’. 

SEC. 104. CONDITIONS OF PERMIT. 

Subsection (a) of section 5713 (relating to issuance of permit) is amended to 

read as follows: 

‘‘(a) ISSUANCE.— 

‘‘(1) IN GENERAL.—A person shall not engage in business as a manufacturer, 

wholesaler, or importer of tobacco products or as an export warehouse proprietor without a permit to engage in such business. Such permit shall be issued 

in such form and in such manner as the Secretary shall by regulation prescribe, 

to every person properly qualified under sections 5711 and 5712. A new permit 

may be required at such other time as the Secretary shall by regulation prescribe. 

‘‘(2) CONDITIONS.—The issuance of a permit under this section shall be conditioned upon the compliance with the requirements of— 

‘‘(A) this chapter, 

‘‘(B) chapter 114 of title 18, United States Code, 

‘‘(C) the Act of October 19, 1949 (15 U.S.C. 375 et seq.), 

‘‘(D) any regulations issued pursuant to such statutes, and 

‘‘(E) any other federal laws or regulations relating to the taxation, manufacture, distribution, marketing, sale, or transportation of tobacco products.’’. 

SEC. 105. RECORDS TO BE MAINTAINED. 

Section 5741 (relating to records to be maintained) is amended— 

(1) by inserting ‘‘(a) IN GENERAL.—’’ before ‘‘Every manufacturer’’, 

(2) by inserting ‘‘every wholesaler,’’ after ‘‘every importer,’’, 

(3) by striking ‘‘such records’’ and inserting ‘‘records concerning the chain 

of custody of the tobacco products (including the foreign country of final destination for packages marked for export) and such other records’’, and 

(4) by adding at the end the following new subsection: 

‘‘(b) RETAILERS.—Retailers shall maintain records of receipt of tobacco products, 

and such records shall be available to the Secretary for inspection and audit. An 

ordinary commercial record or invoice shall satisfy the requirements of this subsection if such record shows the date of receipt, from whom tobacco products were 

received, and the quantity of tobacco products received. The preceding provisions of 

this subsection shall not be construed to limit or preclude other recordkeeping requirements imposed on any retailer.’’. 

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SEC. 106. REPORTS. 

Section 5722 (relating to reports) is amended— 

(1) by inserting ‘‘(a) IN GENERAL.—’’ before ‘‘Every manufacturer’’, and 

(2) by adding at the end the following new subsection: 

‘‘(b) REPORTS BY EXPORT WAREHOUSE PROPRIETORS.— ‘‘(1) IN GENERAL.—Prior to exportation of tobacco products from the United 

States, the export warehouse proprietor shall submit a report (in such manner 

and form as the Secretary may by regulation prescribe) to enable the Secretary 

to identify the shipment and assure that it reaches its intended destination. 

‘‘(2) AGREEMENTS WITH FOREIGN GOVERNMENTS.—Notwithstanding section 

6103 of this title, the Secretary is authorized to enter into agreements with foreign governments to exchange or share information contained in reports received from export warehouse proprietors of tobacco products if— 

‘‘(A) the Secretary believes that such agreement will assist in— 

‘‘(i) ensuring compliance with the provisions of this chapter or regulations promulgated thereunder, or 

‘‘(ii) preventing or detecting violations of the provisions of this 

chapter or regulations promulgated thereunder, and 

‘‘(B) the Secretary obtains assurances from such government that the 

information will be held in confidence and used only for the purposes specified in clauses (i) and (ii) of subparagraph (A). 

No information may be exchanged or shared with any government that has violated such assurances.’’. 

SEC. 107. FRAUDULENT OFFENSES. 

(a) IN GENERAL.—Subsection (a) of section 5762 (relating to fraudulent offenses) 

is amended by striking paragraph (1) and redesignating paragraphs (2) through (6) 

as paragraphs (1) through (5), respectively. 

(b) OFFENSES RELATING TO DISTRIBUTION OF TOBACCO PRODUCTS.—Section 5762 

is amended— 

(1) by redesignating subsection (b) as subsection (c), 

(2) in subsection (c) (as so redesignated), by inserting ‘‘or (b)’’ after ‘‘(a)’’, 

and 

(3) by inserting after subsection (a) the following new subsection: 

‘‘(b) OFFENSES RELATING TO DISTRIBUTION OF TOBACCO PRODUCTS.—It shall be 

unlawful— 

‘‘(1) for any person to engage in the business as a manufacturer or importer 

of tobacco products or cigarette papers and tubes, or to engage in the business 

as a wholesaler or an export warehouse proprietor, without filing the bond and 

obtaining the permit where required by this chapter or regulations thereunder; 

‘‘(2) for a manufacturer, importer, or wholesaler permitted under this chapter intentionally to ship, transport, deliver, or receive any tobacco products from 

or to any person other than a person permitted under this chapter or a retailer, 

except a permitted importer may receive foreign tobacco products from a foreign 

manufacturer or a foreign distributor that have not previously entered the 

United States; 

‘‘(3) for any person (other than the original manufacturer of such tobacco 

products or an export warehouse proprietor authorized to receive any tobacco 

products that have previously been exported and returned to the United States) 

to receive any tobacco products that have previously been exported and returned to the United States; 

‘‘(4) for any export warehouse proprietor intentionally to ship, transport, 

sell, or deliver for sale any tobacco products to any person other than the original manufacturer of such tobacco products, another export warehouse proprietor, or a foreign purchaser; 

‘‘(5) for any person (other than a manufacturer or an export warehouse proprietor permitted under this chapter) intentionally to ship, transport, receive, 

or possess, for purposes of resale, any tobacco product in packages marked pursuant to regulations issued under section 5723, other than for direct return to 

a manufacturer for repacking or for re-exportation or to an export warehouse 

proprietor for re-exportation; 

‘‘(6) for any manufacturer, importer, export warehouse proprietor, or wholesaler permitted under this chapter to make intentionally any false entry in, to 

fail willfully to make appropriate entry in, or to fail willfully to maintain properly any record or report that such person is required to keep as required by 

this chapter or the regulations promulgated thereunder; 

‘‘(7) for any person to alter, mutilate, destroy, obliterate, or remove any 

mark or label required under this chapter upon a tobacco product held for sale, 

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except pursuant to regulations of the Secretary authorizing relabeling for purposes of compliance with the requirements of this section or of State law, or to 

create, possess, or apply on any tobacco product or its packaging any counterfeit 

versions of any such marks or labels; and 

‘‘(8) for any person to sell at retail more than 5,000 cigarettes in a single 

transaction or in a series of related transactions, or, in the case of other tobacco 

products, an equivalent quantity as determined by regulation. 

Any person violating any of the provisions of this subsection shall, upon conviction, 

be fined as provided in section 3571 of title 18, United States Code, or imprisoned 

for not more than 5 years, or both.’’. 

(c) INTENTIONALLY DEFINED.—Section 5762 is amended by adding at the end the 

following: 

‘‘(d) DEFINITION OF INTENTIONALLY.—For purposes of this section and section 

5761, the term ‘intentionally’ means doing an act, or omitting to do an act, deliberately, and not due to accident, inadvertence, or mistake, regardless of whether the 

person knew that the act or omission constituted an offense.’’. 

SEC. 108. CIVIL PENALTIES. 

Subsection (a) of section 5761 (relating to civil penalties) is amended— 

(1) by striking ‘‘willfully’’ and inserting ‘‘intentionally’’, and 

(2) by striking ‘‘$1,000’’ and inserting ‘‘$10,000’’. 

SEC. 109. DEFINITIONS. 

(a) EXPORT WAREHOUSE PROPRIETOR.—Subsection (i) of section 5702 (relating to 

definition of export warehouse proprietor) is amended by inserting before the period 

the following: ‘‘or any person engaged in the business of exporting tobacco products 

from the United States for purposes of sale or distribution. Any duty free store that 

sells, offers for sale, or otherwise distributes to any person in any single transaction 

more than 30 packages of cigarettes, or its equivalent for other tobacco products as 

the Secretary shall by regulation prescribe, shall be deemed an export warehouse 

proprietor under this chapter’’. 

(b) RETAILER; WHOLESALER.—Section 5702 is amended by adding at the end the 

following new subsections: 

‘‘(p) RETAILER.—The term ‘retailer’ means any dealer who sells, or offers for 

sale, any tobacco product at retail. The term ‘retailer’ includes any duty free store 

that sells, offers for sale, or otherwise distributes at retail in any single transaction 

30 or fewer packages of cigarettes or its equivalent for other tobacco products. 

‘‘(q) WHOLESALER.—The term ‘wholesaler’ means any person engaged in the 

business of purchasing tobacco products for resale at wholesale, or any person acting 

as an agent or broker for any person engaged in the business of purchasing tobacco 

products for resale at wholesale.’’. 

SEC. 110. EFFECTIVE DATE. 

(a) IN GENERAL.—Except as provided in subsection (b), the amendments made 

by this title shall take effect on January 1, 2009. 

(b) ADDITIONAL TOBACCO MARK SYSTEM.—The amendments made by subparagraph (C) of section 102(a)(1) of this Act shall take effect on the date of the enactment of this Act. 

TITLE II—AMENDMENTS RELATING TO 

CONTRABAND CIGARETTE TRAFFICKING 

SEC. 201. EXPANDING SCOPE OF PENAL PROVISIONS RELATING TO TRAFFICKING IN CONTRABAND TOBACCO PRODUCTS. 

(a) PROVISIONS RELATING TO DEFINITION OF TOBACCO PRODUCTS.— 

(1) IN GENERAL.—Paragraphs (1) and (2) of section 2341 of title 18, United 

States Code, are amended to read as follows: 

‘‘(1) the term ‘tobacco product’ has the meaning given to such term by section 5702 of the Internal Revenue Code of 1986; 

‘‘(2) the term ‘contraband tobacco product’ means any tobacco product if— 

‘‘(A)(i) in the case of cigarettes, such cigarettes are in a quantity in excess of 2,000 cigarettes; or 

‘‘(ii) in the case of a tobacco product other than a cigarette, such product is in a quantity in excess of the equivalent of 2,000 cigarettes as determined under rules made by the Attorney General; 

‘‘(B) such tobacco product is not marked with a Federal tax stamp, 

meter impression, or other Federal tax-payment indicia as required by law; 

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‘‘(C) such tobacco product is marked with a counterfeit, stolen, or unauthorized Federal or State tax stamp, meter impression, or other tax-payment indicia; 

‘‘(D) such tobacco product is a counterfeit tobacco product, including tobacco products having any counterfeit markings, labels, or packaging or 

bearing any unauthorized trademarks; 

‘‘(E) such tobacco product has been brought into the United States illegally; 

‘‘(F)(i) if the State or other jurisdiction in which such tobacco product 

is found requires a stamp, impression, or other indication to be placed on 

packages or other containers of product to evidence payment of tobacco 

taxes, such tobacco product bears no evidence of such payment; or 

‘‘(ii) if such State or other such jurisdiction has no such requirement, 

applicable tobacco taxes are found to be not paid; and 

‘‘(G) such tobacco product is in the possession of any person other 

than— 

‘‘(i) a person holding a permit issued pursuant to chapter 52 of the 

Internal Revenue Code of 1986 as a manufacturer or importer of tobacco products or as an export warehouse proprietor, or a person operating a customs bonded warehouse pursuant to section 311 or 555 of 

the Tariff Act of 1930 (19 U.S.C. 1311 or 1555) or an agent of such person; 

‘‘(ii) a common or contract carrier transporting the tobacco product 

involved under a proper bill of lading or freight bill which states the 

quantity, source, and destination of such product; 

‘‘(iii) a person— 

‘‘(I) who is licensed or otherwise authorized by the State where 

the tobacco product is found to account for and pay tobacco taxes 

imposed by such State; and 

‘‘(II) who has complied with the accounting and payment requirements relating to such license or authorization with respect to 

the tobacco product involved; or 

‘‘(iv) an officer, employee, or other agent of the United States or a 

State, or any department, agency, or instrumentality of the United 

States or a State (including any political subdivision of a State) having 

possession of such tobacco product in connection with the performance 

of official duties;’’. 

(2) CIGARETTES.—Section 2341 of title 18, United States Code, is amended 

by adding at the end the following new paragraph: 

‘‘(8) the term ‘cigarette’ has the meaning given such term by section 5702 

of the Internal Revenue Code of 1986.’’. 

(3) CONFORMING AMENDMENTS.—Section 2341 of title 18, United States 

Code, as amended by paragraph (2), is amended— 

(A) by inserting ‘‘and’’ at the end of paragraph (5); 

(B) by striking paragraphs (6) and (7); and 

(C) by redesignating paragraph (8) as paragraph (6). 

(b) PROVISIONS RELATING TO UNLAWFUL ACTS.—Section 2342 of title 18, United 

States Code, is amended to read as follows: 

‘‘§ 2342. Unlawful acts 

‘‘(a) It shall be unlawful for any person knowingly to ship, transport, receive, 

possess, sell, distribute, or purchase contraband tobacco products. 

‘‘(b) It shall be unlawful for any person knowingly— 

‘‘(1) to make any false statement or representation with respect to the information required by this chapter to be kept in the records or reports of any person who ships, sells, or distributes (in a single transaction or in a series of related transactions) any quantity of tobacco product in excess of the quantity 

specified in or pursuant to section 2341(2)(A) with respect to such product; or 

‘‘(2) to fail to maintain records or reports, alter or obliterate required markings, or interfere with any inspection, required under this chapter, with respect 

to such quantity of tobacco product. 

‘‘(c) It shall be unlawful for any person knowingly to transport tobacco products 

under a false bill of lading or without any bill of lading.’’. 

(c) PROVISIONS RELATING TO RECORDKEEPING, REPORTING, AND INSPECTION REQUIREMENTS.— 

(1) IN GENERAL.—Section 2343 of title 18, United States Code, is amended— 

(A) in subsection (a), by striking ‘‘any quantity of cigarettes in excess 

of 10,000, or’’ and all that follows through ‘‘cans or packages, in a single 

172 

transaction’’ and inserting ‘‘(in a single transaction or in a series of related 

transactions) any quantity of tobacco product in excess of the quantity specified in or pursuant to section 2341(2)(A) with respect to such product’’; 

(B) in subsection (b), by striking ‘‘any quantity in excess of 10,000 cigarettes, or’’ and all that follows through ‘‘smokeless tobacco, or their equivalent’’ and inserting ‘‘any quantity of tobacco product in excess of the quantity specified in or pursuant to section 2341(2)(A) with respect to such product’’; and 

(C) in subsection (c), by striking ‘‘any quantity of cigarettes in excess 

of 10,000 in a single transaction’’ and inserting ‘‘(in a single transaction or 

in a series of related transactions) any quantity of tobacco product in excess 

of the quantity specified in or pursuant to section 2341(2)(A) with respect 

to such product’’. 

(2) CONFORMING AMENDMENTS.—Section 2343 of title 18, United States 

Code, as amended by paragraph (1) of this subsection, is amended— 

(A) in paragraph (2) of subsection (e), by striking ‘‘are’’ and inserting 

‘‘is’’; and 

(B) by striking— 

(i) ‘‘cigarettes’’ each place it appears in subsections (a) and (c); 

(ii) ‘‘cigarettes and cans or packages of smokeless tobacco’’ each 

place it appears in subsection (b); and 

(iii) ‘‘cigarettes or smokeless tobacco’’ each place it appears in subsection (e); 

and inserting ‘‘tobacco product’’. 

(d) PROVISIONS RELATING TO MACHINES USED TO MANUFACTURE OR PACKAGE

CIGARETTES OR OTHER TOBACCO PRODUCTS.—Chapter 114 of title 18, United State 

Code, is amended by inserting after section 2343 the following: 

‘‘§ 2343A. Machines used to manufacture or package cigarettes or other tobacco products 

‘‘(a) Any machine used to manufacture or package tobacco products shall be 

sold, leased, or delivered only to persons lawfully engaged in the sale, lease, or delivery of such machines or lawfully engaged in the manufacture of tobacco products, 

and that have all permits or licenses required to engage in such activities by the 

laws of the country and other jurisdictions where the person is located. 

‘‘(b) Any machine used to apply or affix tax stamps, meter impressions, or other 

tax-payment indicia to packages of tobacco products shall be sold, leased, or delivered only to persons lawfully engaged in the sale, lease, or delivery of such machines or lawfully engaged in the application of such stamps, meter impressions or 

other tax-payment indicia onto tobacco product packages, and that have all permits 

or licenses required to engage in such activities by the laws of the country and other 

jurisdictions where the person is located. 

‘‘(c) No machine used in the manufacture or packaging of tobacco products or 

in the application of tax stamps, meter impressions, or other tax-payment indicia 

to packages of tobacco products shall knowingly be manufactured for or be sold, 

leased, delivered, directly or indirectly, or otherwise made available to any person 

engaged in the manufacture, distribution or sale of counterfeit or contraband tobacco products or counterfeit tax stamps, meter impressions, or other tax-payment 

indicia. 

‘‘(d) Any machine used to manufacture or package tobacco products or to apply 

or affix tax stamps, meter impressions, or other tax-payment indicia to packages of 

tobacco products that is no longer being used or offered for that purpose shall be 

made irreparably inoperable for those purposes before being disposed of or put to 

any other use. This paragraph shall not apply to any such machines being kept solely for display or for historical purposes. 

‘‘(e) Any person manufacturing, selling, leasing, delivering, or disposing of a machine used to manufacture or package tobacco products or to apply or affix tax 

stamps, meter impressions, or other tax-payment indicia to packages of tobacco 

products shall maintain and keep records relating to any transfers of deliveries of 

the machine, including the name, address, and other contact information of any person ordering, buying, leasing, or receiving delivery of the machine. Such reports 

shall be made available to the Secretary and other federal and state government 

law enforcement officials for inspection and audit upon request. An ordinary commercial record or invoice shall satisfy the requirements of this subsection if such 

record describes the transaction and the related machine and provides the date of 

the transaction and the name and contact information of all persons parties to the 

transaction or acting as agents for those parties in regard to the transaction. 

173 

‘‘(f) This section shall not apply to machines meant and expected for use only 

by individual consumers of tobacco products for personal use.’’. 

(e) PROVISIONS RELATING TO PENALTIES.—Section 2344 of title 18, United States 

Code, is amended— 

(1) in subsection (a), by inserting ‘‘or subsection (a), (b), or (c) of section 

2343A’’ after ‘‘section 2342(a)’’, and 

(2) in subsection (b), by striking ‘‘section 2342(b)’’ and inserting ‘‘subsection 

(b) or (c) of section 2342 or subsection (d) or (e) of section 2343A’’. 

(f) PROVISIONS RELATING TO EFFECT ON STATE AND LOCAL LAW.—Section 2345 

of title 18, United States Code, is amended— 

(1) by striking ‘‘cigarette tax laws’’ each place it appears and inserting ‘‘tobacco product tax laws’’; and 

(2) by striking ‘‘cigarettes or smokeless tobacco’’ and inserting ‘‘tobacco 

products’’. 

(g) CLERICAL AMENDMENTS.—(1) The heading for chapter 114 of title 18, United 

States Code, is amended to read as follows: 

‘‘CHAPTER 114—TRAFFICKING IN CONTRABAND TOBACCO 

PRODUCTS’’. 

(2) The table of chapters at the beginning of part I of title 18, United States 

Code, is amended by striking the item relating to section 114 and inserting the following new item: 

‘‘114. Trafficking in contraband tobacco products 

2341’’. 

(3) The table of sections for chapter 114 of title 18, United States Code, is 

amended by inserting after the item relating to section 2343 the following new item: 

‘‘2343A. Machines used to manufacture or package cigarettes or other tobacco 

products.’’. 

SEC. 202. CREATING RIGHT OF ACTION FOR STATE TOBACCO TAX ADMINISTRATOR FOR FAILURE TO REPORT. 

(a) IN GENERAL.—(1) Section 4 of the Act of October 19, 1949 (15 U.S.C. 378) 

is amended by adding at the end the following: ‘‘A State tobacco tax administrator 

may commence a civil action to obtain appropriate relief with respect to a violation 

of this Act.’’. 

(2) Section 1 of such Act is amended by striking paragraph (2) and inserting 

following new paragraph: 

‘‘(2) The term ‘tobacco product’ has the meaning given to such term by section 5702 of the Internal Revenue Code of 1986.’’. 

(b) CONFORMING AMENDMENT.—Such Act is further amended by striking ‘‘cigarette’’ and ‘‘cigarettes’’ each place either appears and inserting ‘‘tobacco product’’ and 

‘‘tobacco products’’, respectively. 

TITLE III—WHISTLEBLOWER PROTECTION 

PROVISIONS 

SEC. 301. WHISTLEBLOWER PROTECTION. 

(a) IN GENERAL.—Chapter 73 of title 18, United States Code, is amended by inserting after section 1514A the following: 

‘‘§ 1514B. Civil action to protect against retaliation in contraband tobacco 

cases 

‘‘(a) WHISTLEBLOWER PROTECTION FOR CONTRABAND TOBACCO.—No person may 

discharge, demote, suspend, threaten, harass, or in any other manner discriminate 

against an employee in the terms and conditions of employment because of any lawful act done by the employee— 

‘‘(1) to provide information, cause information to be provided, or otherwise 

assist in an investigation regarding any conduct which the employee reasonably 

believes constitutes a violation of section 2342 or any other provision of Federal 

law relating to contraband tobacco, when the information or assistance is provided to or the investigation is conducted by— 

‘‘(A) a Federal regulatory or law enforcement agency; 

‘‘(B) any Member of Congress or any committee of Congress; or 

174 

‘‘(C) a person with supervisory authority over the employee (or such 

other person working for the employer who has the authority to investigate, 

discover, or terminate misconduct); or 

‘‘(2) to file, cause to be filed, testify, participate in, or otherwise assist in 

a proceeding filed or about to be filed (with any knowledge of the employer) relating to an alleged violation of section 2342, or any provision of Federal law 

relating to contraband tobacco. 

‘‘(b) ENFORCEMENT ACTION.— 

‘‘(1) IN GENERAL.—A person who alleges discharge or other discrimination 

by any person in violation of subsection (a) may seek relief under subsection (c), 

by— 

‘‘(A) filing a complaint with the Secretary of Labor; or 

‘‘(B) if the Secretary has not issued a final decision within 180 days of 

the filing of the complaint and there is no showing that such delay is due 

to the bad faith of the claimant, bringing an action at law or equity for de 

novo review in the appropriate district court of the United States, which 

shall have jurisdiction over such an action without regard to the amount 

in controversy. 

‘‘(2) PROCEDURE.— 

‘‘(A) IN GENERAL.—An action under paragraph (1)(A) shall be governed 

under the rules and procedures set forth in section 42121(b) of title 49, 

United States Code. 

‘‘(B) EXCEPTION.—Notification made under section 42121(b)(1) of title 

49, United States Code, shall be made to the person named in the complaint and to the employer. 

‘‘(C) BURDENS OF PROOF.—An action brought under paragraph (1)(B) 

shall be governed by the legal burdens of proof set forth in section 42121(b) 

of title 49, United States Code. 

‘‘(D) STATUTE OF LIMITATIONS.—An action under paragraph (1) shall be 

commenced not later than 90 days after the date on which the violation occurs. 

‘‘(c) REMEDIES.— 

‘‘(1) IN GENERAL.—An employee prevailing in any action under subsection 

(b)(1) shall be entitled to all relief necessary to make the employee whole. 

‘‘(2) COMPENSATORY DAMAGES.—Relief for any action under paragraph (1) 

shall include— 

‘‘(A) reinstatement with the same seniority status that the employee 

would have had, but for the discrimination; 

‘‘(B) the amount of back pay, with interest; and 

‘‘(C) compensation for any special damages sustained as a result of the 

discrimination, including litigation costs, expert witness fees, and reasonable attorney fees. 

‘‘(d) RIGHTS RETAINED BY EMPLOYEE.—Nothing in this section shall be deemed 

to diminish the rights, privileges, or remedies of any employee under any Federal 

or State law, or under any collective bargaining agreement.’’. 

(b) CLERICAL AMENDMENT.—The table of sections at the beginning of chapter 73 

of title 18, United States Code, is amended by inserting after the item relating to 

section 1514A the following new item: 

‘‘1514B. Civil action to protect against retaliation in contraband tobacco cases’’. 

Æ