son shall deliver or mail tobacco products unless the 
tax imposed by this chapter with respect to such 
product has been paid and the unique identification 
marking required under this section is affixed to or 
forms part of the package containing such product. 
‘‘(2) SYSTEM SPECIFICATIONS.— 
‘‘(A) The Secretary shall design such sys-
tem to coordinate and avoid interference with 
State and local tax stamps and markings, facili-
tate collection of the tax imposed by this chap-
ter, impede contraband tobacco trafficking, 
minimize counterfeit marking, allow for more 
effective tracking and tracing of tobacco prod-
ucts, facilitate the enforcement of related Fed-
eral 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 unique iden-
tification markings are to be distributed, pur-
chased, and applied to or made part of tobacco 
product packages, and may provide for the can-
cellation of such markings. 
‘‘(C) The unique identification marking 
must provide the following information: 
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‘‘(i) The denominated value of the 
marking. 
‘‘(ii) A unique serial number or track-
ing code. 
‘‘(iii) The name and address of the 
person purchasing the marking (and, if dif-
ferent, of the person ensuring the marking 
is affixed to or made part of the package). 
‘‘(iv) The date the marking was pur-
chased and when it was affixed to or made 
part of the package. 
‘‘(v) The name and address of the 
first unrelated person purchasing or other-
wise receiving the tobacco product from 
the person who ensures the marking is af-
fixed to or made part of the package 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 sub-
paragraph (C) shall, to the extent practicable— 
‘‘(i) be cryptographically encrypted, 
and 
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‘‘(ii)(I) be readable by a portable 
scanning device (or similar device) to be 
utilized by law enforcement officials at the 
time and place of inspection, or 
‘‘(II) be otherwise accessible remotely 
at such time and place. 
‘‘(E) Tax reporting information shall be 
held on a secure government-controlled data-
base to monitor tobacco production and for 
tracking and tracing the product from the point 
of production through the supply chain to the 
retailer. 
‘‘(3) UNRELATED
PERSON.—For purposes of 
this subsection, the term ‘unrelated person’ means a 
person other than a related person within the mean-
ing of section 267(b) or 707(b)(1).’’. 
(b) DEFINITIONS.—Section 5723, as amended by 
subsection (a), is amended by adding at the end the fol-
lowing new subsections: 
‘‘(g) PACKAGE DEFINED.—For purposes of this sec-
tion, the term ‘package’ means the innermost sealed con-
tainer 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 manu-
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facturer and in which such tobacco product is offered for 
sale to a member of the general public. 
‘‘(h) 
UNIQUE
IDENTIFICATION
MARKING
DE-
FINED.—For purposes of this section, the term ‘unique 
identification marking’ means a device in such design and 
denomination as the Secretary authorizes by regulation 
that is affixed to or made part of a package of tobacco 
product as evidence that the tax imposed by this chapter 
is paid. Such markings shall contain overt security fea-
tures for public authentication and covert security features 
embedding a unique, secure, encrypted identifier onto the 
marking, enabling law enforcement authentication, pro-
duction control, and tracking and tracing of the product 
bearing the marking.’’. 
(c) REGULATIONS.—The Secretary of the Treasury 
shall consult with the Secretary of Health and Human 
Services as may be appropriate to carry out the purposes 
of subsection (f), and paragraphs (1), (2), and (3) of sub-
section (b), of section 5723 of the Internal Revenue Code 
of 1986. 
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SEC. 104. WHOLESALERS AND MANUFACTURERS, IMPORT-
ERS, AND SELLERS OF TOBACCO PRODUC-
TION MACHINES REQUIRED TO HAVE PER-
MIT. 
(a) WHOLESALERS.—Section 5712 (relating to appli-
cation for permit) is amended by inserting ‘‘, wholesaler,’’ 
after ‘‘manufacturer’’. 
(b) MANUFACTURERS, IMPORTERS, AND SELLERS OF 
TOBACCO
PRODUCTION
MACHINES.—Section 5712 is 
amended by striking ‘‘or as an export warehouse propri-
etor’’ and inserting ‘‘, as an export warehouse proprietor, 
or as a manufacturer, seller, or importer of tobacco pro-
duction machines (as defined in section 5762(b)(5))’’. 
SEC. 105. 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 im-
porter of tobacco products or processed tobacco, as 
an export warehouse proprietor, or as a manufac-
turer, seller, or importer of tobacco production ma-
chines (as defined in section 5762(b)(5)) without a 
permit to engage in such business. Such permit, con-
ditioned upon compliance with this chapter and reg-
ulations issued thereunder, shall be issued in such 
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form and in such manner as the Secretary shall by 
regulation prescribe, to every person properly quali-
fied under section 5711 and 5712. Any entity grant-
ed such a permit is not eligible to provide any serv-
ices the Secretary may elect to procure to facilitate 
the purposes of section 5723. Permit holders shall 
automatically count output and register, record, and 
transmit the quantities measured, in the form, con-
ditions, and time limits established by the Secretary. 
A new permit may be required at such other time 
as the Secretary shall by regulation prescribe. 
‘‘(2) CONDITIONS.—The Secretary shall not 
issue a permit under this section unless— 
‘‘(A) the applicant is in compliance with 
the requirements of— 
‘‘(i) this chapter, 
‘‘(ii) chapter 114 of title 18, United 
States Code, 
‘‘(iii) the Act of October 19, 1949 (15 
U.S.C. 375 et seq.; commonly referred to 
as the ‘Jenkins Act’), 
‘‘(iv) the Fair and Equitable Tobacco 
Reform Act of 2004, and any amendments 
made thereby, 
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‘‘(v) the Family Smoking Prevention 
and Tobacco Control Act, and any amend-
ments made thereby, and 
‘‘(vi) any related regulations there-
under, and 
‘‘(B) the applicant certifies that the appli-
cant is in compliance with all other Federal and 
State laws relating to the taxation, manufac-
ture, importation, exportation, distribution, 
marketing, sale, or transportation of tobacco 
products, processed tobacco, or tobacco produc-
tion machines. 
‘‘(C) the applicant identifies in the applica-
tion any violation of a law described in subpara-
graph (A) or (B) by the applicant resulting in 
a penalty under any such law during the 5-year 
period ending on the date of the application.’’. 
SEC. 106. RECORDS TO BE MAINTAINED. 
(a) IN GENERAL.—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,’’, 
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(3) by striking ‘‘such records’’ and inserting 
‘‘records concerning the chain of custody of the to-
bacco products (including the foreign country of 
final destination for packages marked for export) 
and the serial numbers, marks, labels, and notices 
required under section 5723, and such other 
records’’, and 
(4) by adding at the end the following new sub-
sections: 
‘‘(b) RETAILERS.—Retailers shall maintain records 
of receipt, and any non-retail sale or delivery, of tobacco 
products. 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 to-
bacco products were received, and the quantity of tobacco 
products received (or, in the case of non-retail sale or de-
livery, the date of sale or delivery, to whom the tobacco 
products were sold or delivered, and the quantity of the 
tobacco products sold or delivered). The preceding provi-
sions of this subsection shall not be construed to limit or 
preclude other recordkeeping requirements imposed on 
any retailer. 
‘‘(c) RECORDS CONCERNING MARKS AND CHAIN OF 
CUSTODY.—Records concerning the chain of custody and 
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the marks, labels, and notices required under section 5723 
shall be made available to Federal and State law enforce-
ment officials for inspection and audit upon request.’’. 
(b) CONSULTATION WITH HEALTH
AND HUMAN 
SERVICES.—The Secretary of the Treasury shall consult 
with the Secretary of Health and Human Services as may 
be appropriate to carry out the purposes of section 5741 
of the Internal Revenue Code of 1986. 
SEC. 107. 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 sub-
section: 
‘‘(b) REPORTS
BY EXPORT WAREHOUSE PROPRI-
ETORS.— 
‘‘(1) IN GENERAL.—Prior to exportation of to-
bacco products from the United States, the export 
warehouse proprietor shall submit a report (in such 
manner and form as the Secretary may by regula-
tion prescribe) to enable the Secretary to identify 
the shipment and assure that it reaches its intended 
destination. 
‘‘(2) AGREEMENTS
WITH
FOREIGN
GOVERN-
MENTS.—Notwithstanding section 6103 of this title, 
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the Secretary is authorized to enter into agreements 
with foreign governments to exchange or share infor-
mation 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 pro-
visions of this chapter or regulations pro-
mulgated thereunder, or 
‘‘(ii) preventing or detecting violations 
of the provisions of this chapter or regula-
tions promulgated thereunder, and 
‘‘(B) the Secretary obtains written assur-
ances from such government that the informa-
tion 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. 108. FRAUDULENT OFFENSES. 
(a) IN GENERAL.—Subsection (a) of section 5762 is 
amended— 
(1) by striking paragraph (1) and redesignating 
paragraphs (2) through (6) as paragraphs (1) 
through (5), respectively, and 
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(2) by striking ‘‘not more than $10,000’’ and 
inserting ‘‘not more than $10,000 or an amount 
equal to 3 times the amount of the tax imposed 
under this chapter on the tobacco product involved 
(whichever is greater)’’. 
(b) OFFENSES RELATING TO DISTRIBUTION OF TO-
BACCO PRODUCTS.— 
(1) IN GENERAL.—Section 5762 (as amended 
by section 102 of this Act) is amended— 
(A) by redesignating subsection (c) as sub-
section (d), and 
(B) by inserting after subsection (b) the 
following new subsection: 
‘‘(c) OFFENSES RELATING TO DISTRIBUTION OF TO-
BACCO PRODUCTS.—It shall be unlawful— 
‘‘(1) for any person to engage in business as a 
manufacturer or importer of tobacco products or cig-
arette papers and tubes, as a wholesaler or an ex-
port warehouse proprietor, or as a manufacturer, 
seller, or importer of tobacco production machines 
without filing the bond and obtaining the permit 
where required by this chapter or regulations there-
under, 
‘‘(2) for a manufacturer, importer, or whole-
saler to knowingly ship, transport, deliver, or receive 
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any tobacco products from or to any person other 
than a person who has obtained the permit required 
by this chapter, a retailer, or a person handling such 
products solely for purposes of shipment or delivery; 
except an importer who has obtained the permit re-
quired by this chapter may receive, from a foreign 
manufacturer or a foreign distributor, foreign to-
bacco products that have not previously entered the 
United States, 
‘‘(3) for a manufacturer of processed tobacco to 
knowingly ship, transport, sell, or deliver processed 
tobacco to any person other than a manufacturer of 
processed tobacco, a manufacturer of tobacco prod-
ucts, or an export warehouse proprietor, 
‘‘(4) for any person (other than the original 
manufacturer of such tobacco products or an export 
warehouse proprietor authorized to receive any to-
bacco products that have previously been exported 
and returned to the United States) to knowingly re-
ceive any tobacco products that have previously been 
exported and returned to the United States, 
‘‘(5) for any export warehouse proprietor to 
knowingly ship, transport, sell, or deliver for sale 
any tobacco products to any person other than the 
original manufacturer of such tobacco products, an-
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‘‘(9) for any person to sell at retail more than 
3,000 cigarettes in a single transaction or in a series 
of related transactions, or, in the case of other to-
bacco products, an equivalent quantity as deter-
mined by regulation. 
Any person violating any of the provisions of this sub-
section shall, upon conviction, be fined as provided in sec-
tion 3571 of title 18, United States Code, or imprisoned 
for not more than 5 years, or both.’’. 
(2) 
CONFORMING
AMENDMENT.—Section 
5762(d) (as so redesignated) is amended by striking 
‘‘and (b)’’ inserting ‘‘, (b), and (c)’’. 
(c) OTHER OFFENSES.—Subsection (d) of section 
5762 (as so redesignated) is amended by striking ‘‘not 
more than $1,000’’ and inserting ‘‘not more than $2,500 
or an amount equal to the tax imposed under this chapter 
on the tobacco product involved (whichever is greater)’’. 
SEC. 109. PENALTIES. 
(a) IN GENERAL.— 
(1) Subsection (a) of section 5761 (relating to 
civil penalties) is amended— 
(A) by striking ‘‘willfully’’ and inserting 
‘‘knowingly’’, and 
(B) by striking ‘‘$1,000’’ and inserting 
‘‘$10,000’’. 
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(2) Subsection (b) of section 5761 (relating to 
failure to pay tax) is amended by striking ‘‘5 per-
cent’’ and inserting ‘‘10 percent’’. 
(b) USE OF INCREASE IN PENALTIES AND FINES.— 
Subchapter G of chapter 52 is amended by adding at the 
end the following new section: 
‘‘SEC. 5764. USE OF CERTAIN PENALTIES AND FINES. 
‘‘(a) IN GENERAL.—There is established a separate 
account in the Treasury known as the ‘Anti-Contraband 
Tobacco Trafficking Fund’. Amounts equivalent to 50 per-
cent of the increase in revenues from criminal and civil 
penalties and fines collected under this chapter and attrib-
utable to title I of the Smuggled Tobacco Prevention Act 
of 2010 (or the amendments made thereby) shall be trans-
ferred into the Anti-Contraband Tobacco Trafficking 
Fund. Such amounts shall be available, as provided in ap-
propriations Acts, to the Secretary solely for the purpose 
of expanding government efforts and available resources
to enforce this chapter and other laws relating to contra-
band or illegal tobacco products. 
‘‘(b) ALLOCATION
OF FUNDS.—Of the respective 
amounts available to the Secretary under subsection (a), 
not less than 50 percent shall be allocated to the Federal 
departments and agencies that are responsible for the en-
forcement actions (including underlying investigations and 
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administrative and judicial proceedings) in which such 
penalties and fines were imposed.’’. 
(c) PENALTY AMOUNTS ADJUSTED
FOR INFLA-
TION.—Section 5761 of such Code is amended by redesig-
nating subsection (f) as subsection (g) and inserting after 
subsection (e) the following new subsection: 
‘‘(f) INFLATION ADJUSTMENT.— 
‘‘(1) IN GENERAL.—In the case of a calendar 
year beginning after 2011, the penalty dollar 
amounts provided under this chapter shall each be 
increased by an amount equal to— 
‘‘(A) such dollar amount, multiplied by 
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for the calendar 
year, determined by substituting ‘calendar year 
2010’ for ‘calendar year 1992’ in subparagraph 
(B) thereof. 
‘‘(2) ROUNDING.—If any amount as adjusted 
under paragraph (1) is not a multiple of $10, such 
amount shall be rounded to the next highest multiple 
of $10.’’. 
SEC. 110. DEFINITIONS. 
(a) EXPORT WAREHOUSE PROPRIETOR.—Subsection 
(i) of section 5702 (relating to definition of export ware-
house proprietor) is amended by inserting before the pe-
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riod 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 (or series of related transactions) 
more than 3,000 cigarettes, or an equivalent quantity of 
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 sub-
sections: 
‘‘(p) RETAILER.—The term ‘retailer’ means any deal-
er who sells, or offers for sale, any tobacco product at re-
tail. The term ‘retailer’ includes any duty free store that 
sells, offers for sale, or otherwise distributes at retail in 
any single transaction (or series of related transactions) 
3,000 or fewer of cigarettes, or an equivalent quantity of 
other tobacco products as the Secretary shall by regulation 
prescribe. 
‘‘(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.’’. 
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SEC. 111. CONFORMING AMENDMENTS. 
(a) Section 2341 of title 18, United States Code is 
amended— 
(1) in paragraph (2), by inserting ‘‘Federal 
taxes, wherever found, or’’ after ‘‘payment of appli-
cable’’; and 
(2) in paragraph (2)(C), by inserting ‘‘in regard 
to State or local taxes,’’ before ‘‘a person’’. 
(b) Sections 2314 and 2315 of title 18, United States 
Code, are each amended— 
(1) by striking ‘‘STATE’’ in the heading there-
of; and 
(2) by striking ‘‘tax stamps’’ each place it ap-
pears and inserting ‘‘tax stamps or markings’’. 
SEC. 112. EFFECTIVE DATE. 
Except as otherwise provided in this title, the amend-
ments made by this title shall take effect 1 year after the 
date of the enactment of this Act. 
TITLE II—IMPORT FRAUD 
SEC. 201. MAXIMUM PENALTY FOR IMPORTATION OF TO-
BACCO PRODUCTS AND CIGARETTE PAPERS 
AND TUBES BY FRAUDULENT MEANS. 
(a) MAXIMUM PENALTY.—Section 592(c)(1) of the 
Tariff Act of 1930 (19 U.S.C. 1592(c)(1)) is amended— 
(1) by striking ‘‘A fraudulent violation of sub-
section (a)’’ and inserting the following: 
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