II

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.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Gray Market Cigarette

5 Compliance Act of 2000’’.

6 SEC. 2. FINDINGS.

7 Congress finds that additional legislation is necessary

8 to prevent evasion of United States taxes on cigarettes,

9 to ensure that the packages of all cigarettes sold or dis10 tributed in the United States bear the health warnings re-
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1 quired by Federal law, to ensure compliance with applica2 ble Federal ingredient reporting requirements, and to im3 prove the enforcement of existing United States trade4 mark laws so as to prevent consumer confusion and decep5 tion. In support of this finding, Congress has determined

6 that:

7 (1) PREVENTION OF FEDERAL TAX EVASION.—

8 (A) Cigarettes manufactured in the United

9 States that are labeled and shipped for export

10 are not subject to the excise taxes that other11 wise would be payable with respect to such

12 products when removed from the premises of

13 the manufacturer.

14 (B) Enforcement difficulties are created

15 for the authorities charged with ensuring that

16 proper taxes are paid whenever export-labeled

17 cigarettes are sold or distributed in the United

18 States.

19 (C) The Balanced Budget Act of 1997 im20 posed restrictions on the domestic sale or dis21 tribution of export-labeled cigarettes, but such

22 provisions have not been adequate to prevent

23 continued evasion of United States taxes on

24 cigarettes.
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1 (D) Enforcement of Federal cigarette tax

2 laws will be enhanced substantially if cigarettes

3 manufactured in the United States and labeled

4 for export are not sold or distributed in the

5 United States.

6 (2) ENSURING COMPLIANCE WITH FEDERAL

7 HEALTH WARNINGS AND INGREDIENT REPORTING

8 REQUIREMENTS.—

9 (A) Congress has required that specified

10 warnings appear on the packages of all ciga11 rettes manufactured, packaged, or imported for

12 sale or distribution in the United States.

13 (B) Congress has required that each per14 son who manufactures, packages, or imports

15 cigarettes for sale or distribution in the United

16 States annually provide the Secretary of Health

17 and Human Services with a list of the ingredi18 ents added to tobacco in the manufacture of

19 such cigarettes.

20 (C) The public health objectives of the

21 foregoing requirements will be advanced by

22 adopting additional mechanisms for ensuring

23 that these requirements are met with respect to

24 all cigarettes for sale or distribution in the

25 United States.
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1 (3) ENFORCEMENT OF FEDERAL TRADEMARK

2 LAWS.—

3 (A) Cigarettes manufactured for sale

4 abroad have characteristics that differentiate

5 them in material respects from cigarettes that

6 bear the same trademarks but that are manu7 factured for sale in the United States.

8 (B) Such material differences may include

9 tar and nicotine yields, incentive programs, and

10 quality assurances with respect to distribution

11 and storage.

12 (C) When cigarettes bearing trademarks

13 registered in the United States are manufac14 tured for sale or distribution outside the United

15 States but are diverted or reimported for sale

16 or distribution in the United States, there is a

17 substantial risk of consumer confusion and de18 ception. Stickers and other similar devices are

19 inadequate to prevent such confusion and de20 ception.

21 (D) In order to effectuate the purposes of

22 the United States trademark laws, including the

23 prevention of consumer confusion and decep24 tion, additional legislation is necessary to allow

25 United States trademark holders to enforce
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1 fully their rights against infringing cigarettes

2 whether such cigarettes were manufactured in

3 the United States or abroad.

4 SEC. 3. RESTRICTIONS ON TOBACCO PRODUCTS INTENDED

5 FOR EXPORT.

6 (a) RESTRICTIONS ON TOBACCO PRODUCTS IN7 TENDED FOR EXPORT.—Section 5754 of the Internal Rev8 enue Code of 1986 is amended to read as follows:

9 ‘‘SEC. 5754. RESTRICTIONS ON TOBACCO PRODUCTS IN10 TENDED FOR EXPORT.

11 ‘‘(a) EXPORT-LABELED TOBACCO PRODUCTS.—To12 bacco products and cigarette papers and tubes manufac13 tured in the United States and labeled or shipped for ex14 portation under this chapter—

15 ‘‘(1) may be transferred to or removed from the

16 premises of a manufacturer or an export warehouse

17 proprietor only if such articles are being transferred

18 or removed without tax in accordance with section

19 5704;

20 ‘‘(2) except as provided in subsection (b), may

21 be imported or brought into the United States, after

22 their exportation, only if—

23 ‘‘(A) the requirements of section 4 of the

24 Gray Market Cigarette Compliance Act of 2000

25 are satisfied; and
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1 ‘‘(B) such articles either are eligible to be

2 released from customs custody with the partial

3 duty exemption provided in section 5704(d) or

4 are returned to the original manufacturer of

5 such article as provided in section 5704(c); and

6 ‘‘(3) may be sold or held for sale for domestic

7 consumption in the United States only if such arti8 cles are removed from their export packaging and

9 repackaged by the original manufacturer or its au10 thorized agent into new packaging that does not

11 contain the mark, label, or notice required by section

12 5704(b) and complies with all other domestic law

13 applicable to such article.

14 This section shall apply to articles labeled for export by

15 the original manufacturer even if the packaging or the ap16 pearance of such packaging to the consumer of such arti17 cles has been modified or altered by a person other than

18 the original manufacturer or its authorized agent so as

19 to remove or conceal or attempt to remove or conceal (in20 cluding by the placement of a sticker over) any mark,

21 label, or notice required by section 5704(b). For purposes

22 of this section, sections 5704(d) and 5761, and such other

23 provisions as the Secretary may specify by regulations,

24 references to exportation shall be treated as including a
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1 reference to shipment to the Commonwealth of Puerto

2 Rico.

3 ‘‘(b) EXCEPTIONS FOR EXPORT-LABELED TOBACCO

4 PRODUCTS FOR PERSONAL USE.—The restrictions of sub5 section (a)(2) and the penalty and forfeiture provisions in

6 section 5761(c) shall not apply to personal use quantities

7 of tobacco products and cigarette papers and tubes, as de8 fined in section 555(b)(8)(G) of the Tariff Act of 1930

9 (19 U.S.C 1555(b)(8)(G)).

10 ‘‘(c) CROSS REFERENCE.—Section 5761(c) contains

11 civil penalties related to violations of this section. Section

12 5762(b) contains a criminal penalty applicable to any vio13 lation of this section. Section 5763(a)(3) contains for14 feiture provisions related to violations of this section.’’.

15 (b) CLARIFICATION OF REIMPORTATION RULES.—

16 Section 5704(d) of the Internal Revenue Code of 1986 (re17 lating to tobacco products and cigarette papers and tubes

18 exported and returned) is amended by—

19 (1) striking ‘‘a manufacturer of ’’ and inserting

20 ‘‘the original manufacturer, or its authorized agent,

21 of such’’; and

22 (2) inserting ‘‘authorized by such manufacturer

23 to receive such articles’’ after ‘‘proprietor of an ex24 port warehouse’’.

25 (c) CONFORMING AMENDMENTS.—
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1 (1) Section 5761(e) is amended by adding at

2 the end the following: ‘‘For an exception to the ap3 plication of the penalty under subsection (c), see sec4 tion 5754(b).’’.

5 (2) Section 5763(a) of the Internal Revenue

6 Code of 1986 is amended by adding at the end the

7 following new paragraph:

8 ‘‘(3) EXPORT-LABELED TOBACCO PRODUCTS OR

9 CIGARETTE PAPERS OR TUBES.—Any tobacco prod10 uct, cigarette paper, or tube that was imported or

11 brought into the United States, or is sought to be

12 imported or brought into the United States in viola13 tion of section 5754(a)(2), or that is sold or being

14 held for sale in violation of section 5754(a)(3), shall

15 be forfeited to the United States. Notwithstanding

16 any other provision of law, any product forfeited to

17 the United States pursuant to this section shall be

18 destroyed.’’.

19 (d) CLERICAL AMENDMENT.—The item relating to

20 section 5754 in the table of sections for subchapter F of

21 chapter 52 of the Internal Revenue Code of 1986 is

22 amended to read as follows:

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

23 SEC. 4. REQUIREMENTS APPLICABLE TO CIGARETTE

24 IMPORTS.

25 (a) DEFINITIONS.—As used in this section:
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1 (1) SECRETARY.—Except as otherwise indi2 cated, the term ‘‘Secretary’’ means the Secretary of

3 the Treasury.

4 (2) PRIMARY PACKAGING.—The term ‘‘primary

5 packaging’’ refers to the permanent packaging inside

6 of the innermost cellophane or other transparent

7 wrapping and labels, if any. Warnings or other

8 statements shall be deemed ‘‘permanently im9 printed’’ only if printed directly on such primary

10 packaging and not by way of stickers or other simi11 lar devices.

12 (b) REQUIREMENTS FOR ENTRY OF CIGARETTES.—

13 (1) GENERAL RULE.—Except as provided in

14 paragraph (2), cigarettes (whether originally manu15 factured in the United States or in a foreign coun16 try) may be imported or brought into the United

17 States only if—

18 (A) the manufacturer of those cigarettes

19 has timely submitted, or has certified that it

20 will timely submit to the Secretary of Health

21 and Human Services the lists of the ingredients

22 added to the tobacco in the manufacture of

23 such cigarettes as described in section 7 of the

24 Federal Cigarette Labeling and Advertising Act

25 (15 U.S.C. 1335a);
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1 (B) the precise warning statements in the

2 precise format specified in section 4 of such Act

3 (15 U.S.C. 1333) are permanently imprinted on

4 both—

5 (i) the primary packaging of all those

6 cigarettes; and

7 (ii) any other pack, box, carton, or

8 container of any kind in which those ciga9 rettes are to be offered for sale or other10 wise distributed to consumers;

11 (C) the manufacturer or importer of those

12 cigarettes is in compliance as to those cigarettes

13 being imported or brought into the United

14 States with a rotation plan approved by the

15 Federal Trade Commission pursuant to section

16 4(c) of such Act (15 U.S.C. 1333(c));

17 (D) those cigarettes do not bear a trade18 mark registered in the United States for ciga19 rettes, or if those cigarettes do bear a trade20 mark registered in the United States for ciga21 rettes, the owner of such United States trade22 mark registration for cigarettes (or a person

23 authorized to act on behalf of such owner) has

24 consented to the importation of such cigarettes

25 into the United States; and
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1 (E) the importer has submitted at the time

2 of entry all of the certificates described in para3 graph (3).

4 (2) EXEMPTIONS.—Cigarettes satisfying the

5 conditions of any of the following subparagraphs

6 shall not be subject to the requirements of para7 graph (1):

8 (A) PERSONAL-USE CIGARETTES.—Ciga9 rettes that are imported or brought into the

10 United States in personal use quantities as de11 fined in section 555(b)(8)(G) of the Tariff Act

12 of 1930 (19 U.S.C. 1555(b)(8)(G)).

13 (B) CIGARETTES BROUGHT INTO THE

14 UNITED STATES FOR ANALYSIS.—Cigarettes

15 that are imported or brought into the United

16 States solely for the purpose of analysis in

17 quantities suitable for such purpose, but only if

18 the importer submits at the time of entry a cer19 tificate signed, under penalties of perjury, by

20 the consignee (or a person authorized by such

21 consignee) providing such facts as may be re22 quired by the Secretary to establish that such

23 consignee is a manufacturer of cigarettes, a

24 Federal or State government agency, a univer25 sity, or is otherwise engaged in bona fide re-
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1 search and stating that such cigarettes will be

2 used solely for analysis and will not be sold in

3 domestic commerce in the United States.

4 (C) CIGARETTES INTENDED FOR NON5 COMMERCIAL USE, REEXPORT, OR REPACK6 AGING.—Cigarettes—

7 (i) that are being imported or brought

8 into the United States for delivery to the

9 original manufacturer of such cigarettes,

10 or to a cigarette manufacturer or an ex11 port warehouse authorized by such original

12 manufacturer;

13 (ii) that do not bear a trademark reg14 istered in the United States for cigarettes,

15 or if those cigarettes do bear a trademark

16 registered in the United States for ciga17 rettes, cigarettes for which the owner of

18 such United States trademark registration

19 for cigarettes (or a person authorized to

20 act on behalf of such owner) has consented

21 to the importation of such cigarettes into

22 the United States; and

23 (iii) for which the importer submits a

24 certificate signed by the manufacturer or

25 export warehouse (or a person authorized
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1 by such manufacturer or export ware2 house) to which such cigarettes are to be

3 delivered (as provided in clause (i)) stat4 ing, under penalties of perjury, with re5 spect to those cigarettes, that it will not

6 distribute those cigarettes into domestic

7 commerce unless prior to such distribution

8 all steps have been taken to comply with

9 subparagraphs (A), (B), and (C) of para10 graph (1), and, to the extent applicable,

11 section 5754(a)(3) of the Internal Revenue

12 Code of 1986.

13 For purposes of this subsection, a trademark is reg14 istered in the United States if it is registered in the

15 Patent and Trademark Office under the provisions

16 of title I of the Act of July 5, 1946 (popularly

17 known as the Trademark Act of 1946), and a copy

18 of the certificate of registration of such mark has

19 been filed with the Secretary. The Secretary shall

20 make available to interested parties a current list of

21 the marks so filed.

22 (3) CUSTOMS CERTIFICATIONS REQUIRED FOR

23 CIGARETTE IMPORTS.—The certificates that must be

24 submitted by the importer of cigarettes at the time
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1 of entry in order to comply with paragraph (1)(E)

2 are—

3 (A) a certificate signed by the manufac4 turer of such cigarettes or an authorized official

5 of such manufacturer stating under penalties of

6 perjury with respect to those cigarettes, that

7 such manufacturer has timely submitted, and

8 will continue to submit timely, to the Secretary

9 of Health and Human Services the ingredient

10 reporting information required by section 7 of

11 the Federal Cigarette Labeling and Advertising

12 Act (15 U.S.C. 1335a);

13 (B) a certificate signed by such importer

14 or an authorized official of such importer stat15 ing under penalties of perjury that—

16 (i) the precise warning statements in

17 the precise format required by section 4 of

18 the such Act (15 U.S.C. 1333) are perma19 nently imprinted on both—

20 (I) the primary packaging of all

21 those cigarettes; and

22 (II) any other pack, box, carton,

23 or container of any kind in which

24 those cigarettes are to be offered for
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1 sale or otherwise distributed to con2 sumers; and

3 (ii) with respect to those cigarettes

4 being imported or brought into the United

5 States, such importer has complied, and

6 will continue to comply, with a rotation

7 plan approved by the Federal Trade Com8 mission pursuant to section 4(c) of such

9 Act (15 U.S.C. 1333(c)); and

10 (C) either—

11 (i) a certificate signed by such im12 porter or an authorized official of such im13 porter stating under penalties of perjury

14 that those cigarettes and the packages con15 taining those cigarettes do not bear a

16 trademark registered in the United States

17 for cigarettes; or

18 (ii) if those cigarettes do bear a trade19 mark registered in the United States for

20 cigarettes—

21 (I) a certificate signed by the

22 owner of such United States trade23 mark registration for cigarettes (or a

24 person authorized to act on behalf of

25 such owner) stating under penalties of
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1 perjury that such owner (or author2 ized person) consents to the importa3 tion of such cigarettes into the United

4 States; and

5 (II) a certificate signed by such

6 importer or an authorized official of

7 such importer stating under penalties

8 of perjury that the consent referred to

9 in clause (i) is accurate, remains in

10 effect, and has not been withdrawn.

11 The Secretary may provide by regulation for the

12 submission of certifications under this subsection in

13 electronic form if prior to the entry of any cigarettes

14 into the United States, the person required to pro15 vide such certifications submits to the Secretary a

16 written statement, signed under penalties of perjury,

17 verifying the accuracy and completeness of all infor18 mation contained in such electronic submissions.

19 (c) ENFORCEMENT.—

20 (1) CIVIL PENALTY.—Any person who violates

21 a provision of subsection (b) shall, in addition to the

22 tax and any other penalty provided by law, be liable

23 for a civil penalty for each violation equal to the

24 greater of $1,000 or 5 times the amount of the tax

25 imposed by chapter 52 of the Internal Revenue Code
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1 of 1986 on all cigarettes that are the subject of such

2 violation.

3 (2) FORFEITURES.—Any tobacco product, ciga4 rette papers, or tube that was imported or brought

5 into the United States or is sought to be imported

6 or brought into the United States in violation of, or

7 without meeting the requirements of, subsection (b)

8 shall be forfeited to the United States. Notwith9 standing any other provision of law, any product for10 feited to the United States pursuant to this section

11 shall be destroyed.

12 (3) CROSS REFERENCE.—Section 1621 of title

13 18, United States Code, contains criminal penalties

14 applicable to the commission of perjury under this

15 section.

16 SEC. 5. PENALTIES APPLICABLE TO THE SALE OF CIGA17 RETTES NOT IN COMPLIANCE WITH LABEL18 ING REQUIREMENTS.

19 (a) CIVIL PENALTY.—Any person who sells or holds

20 for sale for domestic consumption any cigarettes for which

21 the precise warning statements in the precise format re22 quired by section 4 of the Cigarette Labeling and Adver23 tising Act (15 U.S.C. 1333) are not permanently im24 printed on both—
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1 (1) the primary packaging of all those ciga2 rettes; and

3 (2) any other pack, box, carton, or container of

4 any kind in which those cigarettes are offered for

5 sale, sold, or otherwise distributed to consumers,

6 shall, in addition to the tax and any other penalty provided

7 in this title, be liable for a penalty for each violation equal

8 to the greater of $1,000 or 5 times the amount of the

9 tax imposed by chapter 52 of the Internal Revenue Code

10 of 1986 on all cigarettes that are the subject of such viola11 tion.

12 (b) FORFEITURES.—Cigarettes that are sold, or are

13 being held for domestic sale, in the United States (and

14 not for export or duty-free sale) shall be forfeited to the

15 United States if the precise warning statements in the pre16 cise format required by section 4 of the Federal Cigarette

17 Labeling and Advertising Act (15 U.S.C. 1333) are not

18 permanently imprinted on both—

19 (1) the primary packaging of all those ciga20 rettes; and

21 (2) any other pack, box, carton, or container of

22 any kind in which those cigarettes are offered for

23 sale, sold, or otherwise distributed to consumers.

24 (c) ENFORCEMENT.—The provisions of this section

25 shall be enforced by the Secretary of the Treasury through
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1 the Bureau of Alcohol, Tobacco, and Firearms and such

2 other agencies within the Department of the Treasury as

3 the Secretary may determine.

4 (d) TREATMENT OF TRANSFERS.—Transfers of ciga5 rettes that meet the requirements for transfer or removal

6 free of tax under section 5704 of the Internal Revenue

7 Code of 1986 and transfers of cigarettes pursuant to sec8 tion 4(b) of this Act shall not be treated as sales for do9 mestic consumption under this section.

10 (e) DESTRUCTION OF FORFEITED ARTICLES.—Not11 withstanding any other provision of law, any article for12 feited to the United States pursuant to this section shall

13 be destroyed.

14 (f) DEFINITIONS.—For purposes of this section, the

15 term ‘‘primary packaging’’ shall refer to the permanent

16 packaging inside of the innermost cellophane or other

17 transparent wrapping and labels, if any. Warnings or

18 other statements shall be deemed ‘‘permanently im19 printed’’ only if printed directly on such primary pack20 aging and not by way of stickers or other similar devices.

21 SEC. 6. EFFECTIVE DATES.

22 (a) IN GENERAL.—Except as provided in subsection

23 (b), this Act, and the amendments made by this Act, shall

24 take effect upon the date of enactment of this Act. Noth25 ing in this subsection shall be construed to affect the effec-
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1 tive date of the provisions of section 9302 of the Balanced

2 Budget Act of 1997 (Public Law 105–33).

3 (b) EXCEPTIONS.—The amendments to sections

4 5754(a)(3) and 5763(a)(3) of the Internal Revenue Code

5 of 1986, and the provisions of sections 4 and 5 of this

6 Act shall take effect after the date which is 60 days after

7 the date of enactment of this Act.

8 SEC. 7. STUDY.

9 The Director of the Bureau of Alcohol, Tobacco, and

10 Firearms shall study whether the penalties imposed under

11 sections 5761, 5762, and 5763 of the Internal Revenue

12 Code of 1986 are adequate to enforce the provisions of

13 sections 5704(d) and 5754 of such Code and report the

14 results of such study to the Committee on Ways and

15 Means of the House of Representatives and the Committee

16 on Finance of the Senate within 1 year of the date of en17 actment of this Act.

18 SEC. 8. SEVERABILITY.

19 If any provision of this section is held to be invalid

20 as it relates to any particular circumstance, such provision

21 shall remain valid under all other circumstances, and all

22 other provisions of this section shall remain in full force

23 and effect. If any provision of this section is held to be

24 invalid in its entirety, all other provisions of this section

25 shall remain in full force and effect.
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1 SEC. 9. SAVINGS.

2 The civil or criminal penalties and remedies provided

3 by this Act and any other civil or criminal penalty and

4 remedy provided by chapter 52 of the Internal Revenue

5 Code of 1986 and section 4 of this Act that are applicable

6 to any violation shall not be exclusive, but shall be in addi7 tion to any other remedy provided by law.

Æ