[Congressional Record Volume 149, Number 81 (Wednesday, June 4, 2003)]
[Senate]
[Page S7375]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




             PREVENT ALL CIGARETTE TRAFFICKING ACT OF 2003

  Mr. KOHL. Mr. President, I rise today in support of the Prevent All 
Cigarette Trafficking Act, ``PACT Act'' of 2003. This legislation 
addressed the growing problem of cigarette smuggling, and the 
connection between these activities and terrorist funding. According to 
the Bureau of Alcohol, Tobacco, Firearms and Explosives, 10 cigarette 
smuggling cases were initiated in 1998. That has grown to approximately 
160 in 2002.
  Cigarette smuggling can be defined as the movement of cigarettes from 
low-tax areas to high-tax areas in order to avoid the payment of taxes 
when the cigarettes are resold. Smugglers buy cigarettes in low-tax 
States such as North Carolina and Kentucky, and drive or ship the 
product to high-tax States and sell them on the street, to convenience 
stores, or to conspirators without paying the required State taxes. 
Some smugglers affix fraudulent State tax stamps to make it appear they 
have paid the State taxes that are due. The profits for cigarettes 
smuggling can be enormous. In North Carolina, a pack of cigarettes is 
taxed 5 cents. In New York, the State tax is $1.50 and in New York 
City, an additional $1.50 a pack city tax is levied.
  It is clear that cigarette trafficking is becoming a method of 
terrorist financing. In an investigation last month, the AFT arrested 
17 individuals who are alleged to have smuggled more than $20 million 
worth of cigarettes. The ring allegedly purchased cigarettes in 
Virginia, where the state tax is 3 cents and resold them in California 
without paying the California tax, which is 87 cents. In another recent 
investigation, the AFT disrupted a cigarette smuggling scheme between 
North Carolina and Michigan participants allegedly smuggled at least $8 
million worth of cigarettes and sent the proceeds to Hezbollah to 
support terrorist activities.
  The Internet is contributing to the smuggling problem because many 
Internet cigarette retailers are not paying the required taxes when 
shipments are sent to buyers in various States. It is impossible to 
know what happens to these ill-gotten gains. Currently, there are 
hundreds of tobacco retailers on the Internet claiming to sell tax-free 
cigarettes. Several openly proclaim on their websites that they do not 
report internet tobacco sales to any State's tax administrator. This is 
a flagrant violation of the law in every State. A recent Government 
Accounting Office report advised that States will lose approximately 
$1.5 billion in tax revenues by the year 2005 if the current state of 
Internet tobacco sales continues. More than ever, state governments 
need these tax dollars.
  Compounding the problem, counterfeit cigarettes, on which smugglers 
have paid no taxes, are becoming more and more common. In 2001, the 
U.S. Customs Service made 24 seizures of counterfeit cigarettes. In 
2002, they made 255 seizures. Phillip Morris estimates that 100 billion 
counterfeit cigarettes are produced in China alone.
  The PACT Act will combat tobacco smuggling in a number of ways. 
First, in order to assist law enforcement and fight terrorism funding, 
this legislation will make violations of the Jenkins Act a felony 
thereby encouraging more investigations and prosecutions. The Jenkins 
Act, 18 U.S.C. 375, requires any person who sells and ships cigarettes 
across State lines to anyone other than a licensed distributor, to 
report the sale to the buyer's State tobacco tax administrator, thus 
allowing State and local governments to collect the taxes that are 
lawfully due. The current penalty for violating the Jenkins Act is a 
misdemeanor.
  In my State of Wisconsin, in 2001, State authorities referred a 
Jenkins Act violation to the U.S. Attorney who said that this was a 
matter that should be handled administratively. However, Wisconsin and 
most States do not have remedies for these violations and they have 
little recourse against vendors.
  This legislation also amends the Jenkins Act by explicitly expanding 
the definition of ``sales'' to include sales to a consumer via the 
mails, telephone, or the Internet. It will also require both sellers 
and shippers to submit the required reports, even when sales are to a 
licensed distributor. Finally, the ``PACT Act'' will empower State 
Attorneys General, and persons holding a Federal permit to manufacture 
or import cigarettes, to bring civil actions in Federal court to 
restrain violations of the Jenkins Act and to seek civil damages for 
the losses they have incurred. This will allow State Attorneys General 
to stop violators of this Federal law from operating as well as recoup 
their tax losses.
  The PACT Act also strengthens the Contraband Cigarette Trafficking 
Act (``CCTA''), 18 U.S.C. 2342, which makes it unlawful for any person 
to ship, transport, receive, possess, sell, distribute, or purchase 
contraband cigarettes. Under the CCTA, contraband cigarettes is defined 
as 60,000 cigarettes or more which bear no tax stamp. This legislation 
will lower the threshold from 60,000 to 10,000 in order for smuggled 
cigarettes to be considered ``contraband,'' thereby allowing ATF to 
open more investigations and seek more Federal prosecutions of 
cigarette smugglers.
  Finally, the PACT Act will grant ATF the ability to utilize funds 
earned during undercover operations to offset expenses that are 
incurred during those investigations. This will make the ATF's powers 
more comparable to those of other investigative agencies such as that 
the FBI and DEA, may use non-appropriated funds to make undercover 
purchases and pay other investigative expenses. ATF needs this 
authority in part because of the huge costs associated with purchasing 
tens of thousands of cigarettes in undercover investigations.
  Cigarette smuggling is increasing and must be addressed. Enhancing 
the criminal laws to reduce cigarette smuggling will help deny 
terrorists a needed source of funding and help our States collect their 
revenue.

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