[Congressional Record Volume 149, Number 80 (Tuesday, June 3, 2003)]
[Senate]
[Pages S7257-S7258]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HATCH (for himself and Mr. Kohl):
  S. 1177. A bill to ensure the collection of all cigarette taxes, and 
for other purposes; to the Committee on the Judiciary.
  Mr. HATCH. Mr. President, I rise today, with my colleague Senator 
Kohl, to introduce S. 1177, the Prevent All Cigarette Trafficking, PACT 
Act of 2003. I do so because of my concern that contraband cigarettes 
contribute heavily to the profits of organized crime syndicates, 
specifically global terrorist organizations. Furthermore, illegal 
cigarette trafficking has had a damaging impact on the economies of 
numerous States.
  Organized crime syndicates typically purchase cigarettes in States 
with low taxes and transport the product into states wit high taxes to 
illegally sell to small retailers below market costs. The Internet has 
exacerbated this problem. Frequently, these syndicates produce 
counterfeit State and city tax stamps in order to make it less risky 
for these small retailers to sell them to consumers. For example, 
Virginia has a per pack tax of 2.5 cents, while New York City has a per 
pack tax of $3. Organized crime syndicates, such as those affiliated 
with the Lebanon-based terrorist organization, Hezbollah, have been 
known to purchase and transport cigarettes in tractor-trailers up 
Interstate 95 from Virginia to New York for resale. As one can easily 
see, a State such as New York is losing millions of dollars in revenue 
each year because of unpaid taxes on these contraband cigarettes, while 
terrorist organizations are making millions in profits.
  Recent articles in the Washington Post and New York Post revealed 
that a cigarette-smuggling ring, which allegedly purchased over 70,000 
cartons from undercover Federal agents in a sting operation last fall, 
does in fact have ties to Hezbollah. If this group had been successful 
in its racketeering scheme, it would have amounted to a loss of nearly 
$2.4 million in tax revenue for New York and millions in profits for 
Hezbollah, allowing this organization to finance their terrorist 
activities.
  Members of an organized crime syndicate arrested in Charlotte, NC 
last year for smuggling contraband cigarettes from North Carolina to 
Michigan were also using their illegal profits to aid Hezbollah, 
according to the Charlotte Observer. The Buffalo News reported that one 
of the members of the Charlotte syndicate, Mohamad Hammoud, allegedly 
has ties to a recently arrested Detroit-area syndicate, which includes 
two women from the Seneca Nation of Indians' Cattaraugus reservation. 
Because the syndicate transported the cigarettes from North Carolina to 
Michigan for resale, Michigan lost $12.50 per carton in sales and 
excise taxes. These examples illustrate that cigarette smuggling is not 
only a lucrative business for organized crime but also detrimental to 
the budgets of many states.
  The PACT Act attacks the problem of illegal cigarette trafficking by 
these organized crime syndicates through its strengthening of the 
Jenkins Act of 1949, 15 U.S.C. Sec. Sec. 375-378, 2003. In its current 
form, the Jenkins Act requires tobacco vendors to register with each 
State tax administrator in which they sell cigarettes, as well as file 
a monthly report that provides shipment information within each State. 
Failure to do so is a misdemeanor. Compliance with this statute enables 
States to collect cigarette excise, sales and use taxes from consumers. 
This legislation, which the distinguished Senator from Wisconsin and I 
are introducing, strengthens the Act by increasing the reporting 
requirements first established under Jenkins, expressly including 
cigarette orders placed through the Internet, lowering the threshold 
for cigarettes to be treated as contraband from 60,000 to 10,000, 
increasing the criminal penalty for violating the Act to a felony and 
creating a substantial civil penalty.
  The PACT Act will also provide State attorneys general with the 
option to bring actions in federal court, which is a tool desired by 
many states. According to a GAO report from last year on Internet 
cigarette sales, online cigarette sellers simply do not comply with the 
Jenkins Act requirements--in fact most of them defiantly state that 
they do not comply with the Jenkins Act. Many State attorneys general 
realize that this practice is unfair not only to their individual 
States, but also to the brick and mortar retailers located in their 
state, placing these businesses at an unfair commercial disadvantage. 
Providing these state attorneys general with the ability to bring 
actions against these out-of-state Internet vendors for lost revenue is 
crucial in leveling the playing field and collecting the rightful 
revenue for states like Washington, California, New York, Wisconsin, 
Michigan and Rhode Island.
  I ask my colleagues to join Senator Kohl and me in our efforts to 
help stop the funding of global terrorist organizations and ensure that 
States are able

[[Page S7258]]

to recover lost revenue by co-sponsoring and supporting the PACT Act of 
2003.

                          ____________________