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[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 2696 Introduced in Senate (IS)]

106th CONGRESS
  2d Session
                                S. 2696

To prevent evasion of United States excise taxes on cigarettes and for 
                            other purposes.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                              June 8, 2000

  Mr. Conrad (for himself, Ms. Collins, and Mr. Robb) introduced the 
 following bill; which was read twice and referred to the Committee on 
                                Finance

_______________________________________________________________________

                                 A BILL

 
To prevent evasion of United States excise taxes on cigarettes 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.

    This Act may be cited as the ``Gray Market Cigarette Compliance Act 
of 2000''.

SEC. 2. FINDINGS.

    Congress finds that additional legislation is necessary to prevent 
evasion of United States taxes on cigarettes, to ensure that the 
packages of all cigarettes sold or distributed in the United States 
bear the health warnings required by Federal law, to ensure compliance 
with applicable Federal ingredient reporting requirements, and to 
improve the enforcement of existing United States trademark laws so as 
to prevent consumer confusion and deception. In support of this 
finding, Congress has determined that:
            (1) Prevention of federal tax evasion.--
                    (A) Cigarettes manufactured in the United States 
                that are labeled and shipped for export are not subject 
                to the excise taxes that otherwise would be payable 
                with respect to such products when removed from the 
                premises of the manufacturer.
                    (B) Enforcement difficulties are created for the 
                authorities charged with ensuring that proper taxes are 
                paid whenever export-labeled cigarettes are sold or 
                distributed in the United States.
                    (C) The Balanced Budget Act of 1997 imposed 
                restrictions on the domestic sale or distribution of 
                export-labeled cigarettes, but such provisions have not 
                been adequate to prevent continued evasion of United 
                States taxes on cigarettes.
                    (D) Enforcement of Federal cigarette tax laws will 
                be enhanced substantially if cigarettes manufactured in 
                the United States and labeled for export are not sold 
                or distributed in the United States.
            (2) Ensuring compliance with federal health warnings and 
        ingredient reporting requirements.--
                    (A) Congress has required that specified warnings 
                appear on the packages of all cigarettes manufactured, 
                packaged, or imported for sale or distribution in the 
                United States.
                    (B) Congress has required that each person who 
                manufactures, packages, or imports cigarettes for sale 
                or distribution in the United States annually provide 
                the Secretary of Health and Human Services with a list 
                of the ingredients added to tobacco in the manufacture 
                of such cigarettes.
                    (C) The public health objectives of the foregoing 
                requirements will be advanced by adopting additional 
                mechanisms for ensuring that these requirements are met 
                with respect to all cigarettes for sale or distribution 
                in the United States.
            (3) Enforcement of federal trademark laws.--
                    (A) Cigarettes manufactured for sale abroad have 
                characteristics that differentiate them in material 
                respects from cigarettes that bear the same trademarks 
                but that are manufactured for sale in the United 
                States.
                    (B) Such material differences may include tar and 
                nicotine yields, incentive programs, and quality 
                assurances with respect to distribution and storage.
                    (C) When cigarettes bearing trademarks registered 
                in the United States are manufactured for sale or 
                distribution outside the United States but are diverted 
                or reimported for sale or distribution in the United 
                States, there is a substantial risk of consumer 
                confusion and deception. Stickers and other similar 
                devices are inadequate to prevent such confusion and 
                deception.
                    (D) In order to effectuate the purposes of the 
                United States trademark laws, including the prevention 
                of consumer confusion and deception, additional 
                legislation is necessary to allow United States 
                trademark holders to enforce fully their rights against 
                infringing cigarettes whether such cigarettes were 
                manufactured in the United States or abroad.

SEC. 3. RESTRICTIONS ON TOBACCO PRODUCTS INTENDED FOR EXPORT.

    (a) Restrictions on Tobacco Products Intended for Export.--Section 
5754 of the Internal Revenue Code of 1986 is amended to read as 
follows:

``SEC. 5754. RESTRICTIONS ON TOBACCO PRODUCTS INTENDED FOR EXPORT.

    ``(a) Export-Labeled Tobacco Products.--Tobacco products and 
cigarette papers and tubes manufactured in the United States and 
labeled or shipped for exportation under this chapter--
            ``(1) may be transferred to or removed from the premises of 
        a manufacturer or an export warehouse proprietor only if such 
        articles are being transferred or removed without tax in 
        accordance with section 5704;
            ``(2) except as provided in subsection (b), may be imported 
        or brought into the United States, after their exportation, 
        only if--
                    ``(A) the requirements of section 4 of the Gray 
                Market Cigarette Compliance Act of 2000 are satisfied; 
                and
                    ``(B) such articles either are eligible to be 
                released from customs custody with the partial duty 
                exemption provided in section 5704(d) or are returned 
                to the original manufacturer of such article as 
                provided in section 5704(c); and
            ``(3) may be sold or held for sale for domestic consumption 
        in the United States only if such articles are removed from 
        their export packaging and repackaged by the original 
        manufacturer or its authorized agent into new packaging that 
        does not contain the mark, label, or notice required by section 
        5704(b) and complies with all other domestic law applicable to 
        such article.
This section shall apply to articles labeled for export by the original 
manufacturer even if the packaging or the appearance of such packaging 
to the consumer of such articles has been modified or altered by a 
person other than the original manufacturer or its authorized agent so 
as to remove or conceal or attempt to remove or conceal (including by 
the placement of a sticker over) any mark, label, or notice required by 
section 5704(b). For purposes of this section, sections 5704(d) and 
5761, and such other provisions as the Secretary may specify by 
regulations, references to exportation shall be treated as including a 
reference to shipment to the Commonwealth of Puerto Rico.
    ``(b) Exceptions for Export-Labeled Tobacco Products for Personal 
Use.--The restrictions of subsection (a)(2) and the penalty and 
forfeiture provisions in section 5761(c) shall not apply to personal 
use quantities of tobacco products and cigarette papers and tubes, as 
defined in section 555(b)(8)(G) of the Tariff Act of 1930 (19 U.S.C 
1555(b)(8)(G)).
    ``(c) Cross Reference.--Section 5761(c) contains civil penalties 
related to violations of this section. Section 5762(b) contains a 
criminal penalty applicable to any violation of this section. Section 
5763(a)(3) contains forfeiture provisions related to violations of this 
section.''.
    (b) Clarification of Reimportation Rules.--Section 5704(d) of the 
Internal Revenue Code of 1986 (relating to tobacco products and 
cigarette papers and tubes exported and returned) is amended by--
            (1) striking ``a manufacturer of'' and inserting ``the 
        original manufacturer, or its authorized agent, of such''; and
            (2) inserting ``authorized by such manufacturer to receive 
        such articles'' after ``proprietor of an export warehouse''.
    (c) Conforming Amendments.--
            (1) Section 5761(e) is amended by adding at the end the 
        following: ``For an exception to the application of the penalty 
        under subsection (c), see section 5754(b).''.
            (2) Section 5763(a) of the Internal Revenue Code of 1986 is 
        amended by adding at the end the following new paragraph:
            ``(3) Export-labeled tobacco products or cigarette papers 
        or tubes.--Any tobacco product, cigarette paper, or tube that 
        was imported or brought into the United States, or is sought to 
        be imported or brought into the United States in violation of 
        section 5754(a)(2), or that is sold or being held for sale in 
        violation of section 5754(a)(3), shall be forfeited to the 
        United States. Notwithstanding any other provision of law, any 
        product forfeited to the United States pursuant to this section 
        shall be destroyed.''.
    (d) Clerical Amendment.--The item relating to section 5754 in the 
table of sections for subchapter F of chapter 52 of the Internal 
Revenue Code of 1986 is amended to read as follows:

                              Sec. 5754. Restrictions on tobacco 
                                        products intended for export.

SEC. 4. REQUIREMENTS APPLICABLE TO CIGARETTE
              IMPORTS.

    (a) Definitions.--As used in this section:
            (1) Secretary.--Except as otherwise indicated, the term 
        ``Secretary'' means the Secretary of the Treasury.
            (2) Primary packaging.--The term ``primary packaging'' 
        refers to the permanent packaging inside of the innermost 
        cellophane or other transparent wrapping and labels, if any. 
        Warnings or other statements shall be deemed ``permanently 
        imprinted'' only if printed directly on such primary packaging 
        and not by way of stickers or other similar devices.
    (b) Requirements for Entry of Cigarettes.--
            (1) General rule.--Except as provided in paragraph (2), 
        cigarettes (whether originally manufactured in the United 
        States or in a foreign country) may be imported or brought into 
        the United States only if--
                    (A) the manufacturer of those cigarettes has timely 
                submitted, or has certified that it will timely submit 
                to the Secretary of Health and Human Services the lists 
                of the ingredients added to the tobacco in the 
                manufacture of such cigarettes as described in section 
                7 of the Federal Cigarette Labeling and Advertising Act 
                (15 U.S.C. 1335a);
                    (B) the precise warning statements in the precise 
                format specified in section 4 of such Act (15 U.S.C. 
                1333) are permanently imprinted on both--
                            (i) the primary packaging of all those 
                        cigarettes; and
                            (ii) any other pack, box, carton, or 
                        container of any kind in which those cigarettes 
                        are to be offered for sale or otherwise 
                        distributed to consumers;
                    (C) the manufacturer or importer of those 
                cigarettes is in compliance as to those cigarettes 
                being imported or brought into the United States with a 
                rotation plan approved by the Federal Trade Commission 
                pursuant to section 4(c) of such Act (15 U.S.C. 
                1333(c));
                    (D) those cigarettes do not bear a trademark 
                registered in the United States for cigarettes, or if 
                those cigarettes do bear a trademark registered in the 
                United States for cigarettes, the owner of such United 
                States trademark registration for cigarettes (or a 
                person authorized to act on behalf of such owner) has 
                consented to the importation of such cigarettes into 
                the United States; and
                    (E) the importer has submitted at the time of entry 
                all of the certificates described in paragraph (3).
            (2) Exemptions.--Cigarettes satisfying the conditions of 
        any of the following subparagraphs shall not be subject to the 
        requirements of paragraph (1):
                    (A) Personal-use cigarettes.--Cigarettes that are 
                imported or brought into the United States in personal 
                use quantities as defined in section 555(b)(8)(G) of 
                the Tariff Act of 1930 (19 U.S.C. 1555(b)(8)(G)).
                    (B) Cigarettes brought into the united states for 
                analysis.--Cigarettes that are imported or brought into 
                the United States solely for the purpose of analysis in 
                quantities suitable for such purpose, but only if the 
                importer submits at the time of entry a certificate 
                signed, under penalties of perjury, by the consignee 
                (or a person authorized by such consignee) providing 
                such facts as may be required by the Secretary to 
                establish that such consignee is a manufacturer of 
                cigarettes, a Federal or State government agency, a 
                university, or is otherwise engaged in bona fide 
                research and stating that such cigarettes will be used 
                solely for analysis and will not be sold in domestic 
                commerce in the United States.
                    (C) Cigarettes intended for noncommercial use, 
                reexport, or repackaging.--Cigarettes--
                            (i) that are being imported or brought into 
                        the United States for delivery to the original 
                        manufacturer of such cigarettes, or to a 
                        cigarette manufacturer or an export warehouse 
                        authorized by such original manufacturer;
                            (ii) that do not bear a trademark 
                        registered in the United States for cigarettes, 
                        or if those cigarettes do bear a trademark 
                        registered in the United States for cigarettes, 
                        cigarettes for which the owner of such United 
                        States trademark registration for cigarettes 
                        (or a person authorized to act on behalf of 
                        such owner) has consented to the importation of 
                        such cigarettes into the United States; and
                            (iii) for which the importer submits a 
                        certificate signed by the manufacturer or 
                        export warehouse (or a person authorized by 
                        such manufacturer or export warehouse) to which 
                        such cigarettes are to be delivered (as 
                        provided in clause (i)) stating, under 
                        penalties of perjury, with respect to those 
                        cigarettes, that it will not distribute those 
                        cigarettes into domestic commerce unless prior 
                        to such distribution all steps have been taken 
                        to comply with subparagraphs (A), (B), and (C) 
                        of paragraph (1), and, to the extent 
                        applicable, section 5754(a)(3) of the Internal 
                        Revenue Code of 1986.
        For purposes of this subsection, a trademark is registered in 
        the United States if it is registered in the Patent and 
        Trademark Office under the provisions of title I of the Act of 
        July 5, 1946 (popularly known as the Trademark Act of 1946), 
        and a copy of the certificate of registration of such mark has 
        been filed with the Secretary. The Secretary shall make 
        available to interested parties a current list of the marks so 
        filed.
            (3) Customs certifications required for cigarette 
        imports.--The certificates that must be submitted by the 
        importer of cigarettes at the time of entry in order to comply 
        with paragraph (1)(E) are--
                    (A) a certificate signed by the manufacturer of 
                such cigarettes or an authorized official of such 
                manufacturer stating under penalties of perjury with 
                respect to those cigarettes, that such manufacturer has 
                timely submitted, and will continue to submit timely, 
                to the Secretary of Health and Human Services the 
                ingredient reporting information required by section 7 
                of the Federal Cigarette Labeling and Advertising Act 
                (15 U.S.C. 1335a);
                    (B) a certificate signed by such importer or an 
                authorized official of such importer stating under 
                penalties of perjury that--
                            (i) the precise warning statements in the 
                        precise format required by section 4 of the 
                        such Act (15 U.S.C. 1333) are permanently 
                        imprinted on both--
                                    (I) the primary packaging of all 
                                those cigarettes; and
                                    (II) any other pack, box, carton, 
                                or container of any kind in which those 
                                cigarettes are to be offered for sale 
                                or otherwise distributed to consumers; 
                                and
                            (ii) with respect to those cigarettes being 
                        imported or brought into the United States, 
                        such importer has complied, and will continue 
                        to comply, with a rotation plan approved by the 
                        Federal Trade Commission pursuant to section 
                        4(c) of such Act (15 U.S.C. 1333(c)); and
                    (C) either--
                            (i) a certificate signed by such importer 
                        or an authorized official of such importer 
                        stating under penalties of perjury that those 
                        cigarettes and the packages containing those 
                        cigarettes do not bear a trademark registered 
                        in the United States for cigarettes; or
                            (ii) if those cigarettes do bear a 
                        trademark registered in the United States for 
                        cigarettes--
                                    (I) a certificate signed by the 
                                owner of such United States trademark 
                                registration for cigarettes (or a 
                                person authorized to act on behalf of 
                                such owner) stating under penalties 
of perjury that such owner (or authorized person) consents to the 
importation of such cigarettes into the United States; and
                                    (II) a certificate signed by such 
                                importer or an authorized official of 
                                such importer stating under penalties 
                                of perjury that the consent referred to 
                                in clause (i) is accurate, remains in 
                                effect, and has not been withdrawn.
        The Secretary may provide by regulation for the submission of 
        certifications under this subsection in electronic form if 
        prior to the entry of any cigarettes into the United States, 
        the person required to provide such certifications submits to 
        the Secretary a written statement, signed under penalties of 
        perjury, verifying the accuracy and completeness of all 
        information contained in such electronic submissions.
    (c) Enforcement.--
            (1) Civil penalty.--Any person who violates a provision of 
        subsection (b) shall, in addition to the tax and any other 
        penalty provided by law, be liable for a civil penalty for each 
        violation equal to the greater of $1,000 or 5 times the amount 
        of the tax imposed by chapter 52 of the Internal Revenue Code 
        of 1986 on all cigarettes that are the subject of such 
        violation.
            (2) Forfeitures.--Any tobacco product, cigarette papers, or 
        tube that was imported or brought into the United States or is 
        sought to be imported or brought into the United States in 
        violation of, or without meeting the requirements of, 
        subsection (b) shall be forfeited to the United States. 
        Notwithstanding any other provision of law, any product 
        forfeited to the United States pursuant to this section shall 
        be destroyed.
            (3) Cross reference.--Section 1621 of title 18, United 
        States Code, contains criminal penalties applicable to the 
        commission of perjury under this section.

SEC. 5. PENALTIES APPLICABLE TO THE SALE OF CIGARETTES NOT IN 
              COMPLIANCE WITH LABELING REQUIREMENTS.

    (a) Civil Penalty.--Any person who sells or holds for sale for 
domestic consumption any cigarettes for which the precise warning 
statements in the precise format required by section 4 of the Cigarette 
Labeling and Advertising Act (15 U.S.C. 1333) are not permanently 
imprinted on both--
            (1) the primary packaging of all those cigarettes; and
            (2) any other pack, box, carton, or container of any kind 
        in which those cigarettes are offered for sale, sold, or 
        otherwise distributed to consumers,
shall, in addition to the tax and any other penalty provided in this 
title, be liable for a penalty for each violation equal to the greater 
of $1,000 or 5 times the amount of the tax imposed by chapter 52 of the 
Internal Revenue Code of 1986 on all cigarettes that are the subject of 
such violation.
    (b) Forfeitures.--Cigarettes that are sold, or are being held for 
domestic sale, in the United States (and not for export or duty-free 
sale) shall be forfeited to the United States if the precise warning 
statements in the precise format required by section 4 of the Federal 
Cigarette Labeling and Advertising Act (15 U.S.C. 1333) are not 
permanently imprinted on both--
            (1) the primary packaging of all those cigarettes; and
            (2) any other pack, box, carton, or container of any kind 
        in which those cigarettes are offered for sale, sold, or 
        otherwise distributed to consumers.
    (c) Enforcement.--The provisions of this section shall be enforced 
by the Secretary of the Treasury through the Bureau of Alcohol, 
Tobacco, and Firearms and such other agencies within the Department of 
the Treasury as the Secretary may determine.
    (d) Treatment of Transfers.--Transfers of cigarettes that meet the 
requirements for transfer or removal free of tax under section 5704 of 
the Internal Revenue Code of 1986 and transfers of cigarettes pursuant 
to section 4(b) of this Act shall not be treated as sales for domestic 
consumption under this section.
    (e) Destruction of Forfeited Articles.--Notwithstanding any other 
provision of law, any article forfeited to the United States pursuant 
to this section shall be destroyed.
    (f) Definitions.--For purposes of this section, the term ``primary 
packaging'' shall refer to the permanent packaging inside of the 
innermost cellophane or other transparent wrapping and labels, if any. 
Warnings or other statements shall be deemed ``permanently imprinted'' 
only if printed directly on such primary packaging and not by way of 
stickers or other similar devices.

SEC. 6. EFFECTIVE DATES.

    (a) In General.--Except as provided in subsection (b), this Act, 
and the amendments made by this Act, shall take effect upon the date of 
enactment of this Act. Nothing in this subsection shall be construed to 
affect the effective date of the provisions of section 9302 of the 
Balanced Budget Act of 1997 (Public Law 105-33).
    (b) Exceptions.--The amendments to sections 5754(a)(3) and 
5763(a)(3) of the Internal Revenue Code of 1986, and the provisions of 
sections 4 and 5 of this Act shall take effect after the date which is 
60 days after the date of enactment of this Act.

SEC. 7. STUDY.

    The Director of the Bureau of Alcohol, Tobacco, and Firearms shall 
study whether the penalties imposed under sections 5761, 5762, and 5763 
of the Internal Revenue Code of 1986 are adequate to enforce the 
provisions of sections 5704(d) and 5754 of such Code and report the 
results of such study to the Committee on Ways and Means of the House 
of Representatives and the Committee on Finance of the Senate within 1 
year of the date of enactment of this Act.

SEC. 8. SEVERABILITY.

    If any provision of this section is held to be invalid as it 
relates to any particular circumstance, such provision shall remain 
valid under all other circumstances, and all other provisions of this 
section shall remain in full force and effect. If any provision of this 
section is held to be invalid in its entirety, all other provisions of 
this section shall remain in full force and effect.

SEC. 9. SAVINGS.

    The civil or criminal penalties and remedies provided by this Act 
and any other civil or criminal penalty and remedy provided by chapter 
52 of the Internal Revenue Code of 1986 and section 4 of this Act that 
are applicable to any violation shall not be exclusive, but shall be in 
addition to any other remedy provided by law.
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