[Senate Report 110-153]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 351
110th Congress                                                   Report
                                 SENATE
 1st Session                                                    110-153
======================================================================
 
             PREVENT ALL CIGARETTE TRAFFICKING ACT OF 2007

                                _______
                                

               September 11, 2007.--Ordered to be printed

                                _______
                                

Mr. Leahy, from the Committee on the Judiciary, submitted the following

                              R E P O R T

                         [To accompany S. 1027]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to which was referred the 
bill (S. 1027), to prevent tobacco smuggling, to ensure the 
collection of all tobacco taxes, and for other purposes, having 
considered the same, reports favorably thereon without 
amendment and recommends that the bill do pass.

                                CONTENTS

                                                                   Page
  I. Purpose of the Prevent All Cigarette Trafficking Act.............1
 II. Background and Need for the Legislation..........................2
III. History of the Bill and Committee Consideration..................8
 IV. Section-by-Section and Summary of the Bill.......................9
  V. Congressional Budget Office Cost Estimate.......................17
 VI. Regulatory Impact Evaluation....................................20
VII. Conclusion......................................................20
VIII.Changes to Existing Law Made by the Bill, as Reported...........20


    I. Purpose of the Prevent All Cigarette Trafficking Act of 2007

    Senators Kohl, Specter, Leahy, Kyl and Schumer introduced 
the Prevent All Cigarette Trafficking Act (PACT Act), S. 1027, 
on March 29, 2007, to help combat cigarette trafficking by 
updating existing anti-trafficking laws and introducing new 
tools to combat illegal remote sales, such as those conducted 
over the Internet.
    The bill would: (1) expand the Jenkins Act to cover 
smokeless tobacco; (2) increase penalties under the Jenkins Act 
from a misdemeanor to a felony; (3) make it a federal offense 
for any seller making a ``delivery sale'' to fail to comply 
with all state excise tax, sales tax licensing, and tax 
stamping laws; (4) empower state Attorneys General and others 
to bring an action in federal court seeking injunctive relief 
and civil penalties against out-of-state sellers who violate 
state or federal requirements; (5) utilize a list enforcement 
scheme to ensure common carriers will not deliver tobacco 
products for those who violate federal and state laws; (6) 
require Internet and other remote sellers to require sellers to 
use a method of delivery that requires the persons accepting 
delivery to verify that they are old enough to purchase tobacco 
and sign for the delivery; (7) make cigarettes and smokeless 
tobacco nonmailable matter for purposes of the United States 
Postal Service; (8) grant the Bureau of Alcohol, Tobacco, 
Firearms and Explosives broad record inspection authority for 
distributors of large quantities of tobacco products; and (9) 
clarify that it is not intended to modify specified agreements 
or limitations regarding the collection of taxes on cigarettes 
or smokeless tobacco sold in Indian country.

              II. Background and Need for the Legislation


                    A. TERRORIST FINANCING GENERALLY

    Shortly after the September 11, 2001, terrorist attacks on 
the World Trade Center and the Pentagon, President George W. 
Bush declared: ``Money is the lifeblood of terrorist operations 
today. We're asking the world to stop payment.'' \1\
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    \1\ ``President Freezes Terrorist Assets: Remarks by the President, 
Secretary of the Treasury O'Neill, and Secretary of State Powell on 
Executive Order.'' EMediaMillworks Inc., September 25, 2001.
---------------------------------------------------------------------------
    Since the 2001 terrorist attacks, it has been widely 
recognized that an indispensable part of our strategy for 
defeating al Qaeda and protecting this country from the threat 
of terrorism is to deny terrorist organizations the very things 
they need to survive, including financial support. The 
September 2002 National Security Strategy of the United States 
declared:

          The United States will continue to work with our 
        allies to disrupt the financing of terrorism. We will 
        identify and block the sources of funding for 
        terrorism, freeze the assets of terrorists and those 
        who support them, deny terrorists access to the 
        international financial system, protect legitimate 
        charities from being abused by terrorists, and prevent 
        the movement of terrorists' assets through alternative 
        financial networks.

    To that end, the United States, in conjunction with its 
allies around the world, has undertaken a broad effort to 
freeze, seize, and intercept the flow of funds to terrorist 
groups, including the al Qaeda terrorist network that was 
responsible for the 9/11 attacks.
    According to the Government Accountability Office (GAO), 
terrorists continue to raise money ``through illicit trade in 
myriad commodities, such as drugs, weapons, cigarettes, and 
systems, such as charities, owing to their profitability.'' \2\ 
The 9/11 stated: ``Counterterrorism investigations often 
overlap or are cued by other criminal investigations, such as 
money laundering or the smuggling of contraband [emphasis 
added]. In the field, the close connection to criminal work has 
many benefits.'' \3\ The PACT Act is an effort to provide 
better tools with respect to criminal enforcement of cigarette 
smuggling laws.
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    \2\ Government Accountability Office, U.S. Agencies Should 
Systematically Assess Terrorists' Use of Alternative Financing 
Mechanisms, GAO-04-163, 2003.
    \3\ The 9/11 Commission Report, p. 424.
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B. NORTH CAROLINA SMUGGLING RING: FIRST EXAMPLE OF GROWING LINK BETWEEN 
                  TERRORISM AND CIGARETTE TRAFFICKING

    One area which continues to be exploited by terrorists and 
other organized criminal enterprises to raise significant 
amounts of money is tobacco smuggling. While cigarette 
trafficking is a global problem, much of it is happening in the 
United States. A truckload of cigarettes contains approximately 
800 cases, and it can generate as much as $2 million for a 
smuggler. According to William Billingslea, an intelligence 
analyst with the Bureau of Alcohol, Tobacco, Firearms and 
Explosives (ATF), ``[w]ith huge profits--and low penalties for 
arrest and conviction--illicit cigarette trafficking now has 
begun to rival drug trafficking as a funding choice for 
terrorist groups.'' \4\
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    \4\ Sari Horwitz, Cigarette Smuggling Linked to Terrorism, Wash. 
Post, June 8, 2004 at A1.
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    The first case of documented links between a terrorist 
organization and cigarette smuggling was uncovered a decade 
ago. In 1996, ATF began a joint investigation with the Iredell 
County Sheriff Department into illegal cigarette trafficking in 
Charlotte, North Carolina. Law enforcement focused their 
attention on this group when it was discovered that they were 
purchasing large pallets full of cigarettes from local 
distributors, and paying for everything in cash.
    Their business model involved moving large amounts of 
cigarettes across state lines, where they would be sold for a 
substantial profit in states with higher tobacco tax rates. In 
North Carolina, where they purchased the cigarettes, the tax 
was 50 cents per carton. They would then load the cigarettes 
onto large trucks and drive them to Michigan in vans and moving 
trucks, where they would sell them to local convenience store 
owners. In Michigan, the tax was $7.50 per carton, but those 
taxes were never paid. By avoiding Michigan's tobacco tax, it 
is estimated that these individuals were able to make anywhere 
from $3,000 to $10,000 on each trip. According to court 
documents, ``the conspiracy involved a quantity of cigarettes 
valued at roughly $7.5 million and that the state of Michigan 
was deprived of $3 million in tax revenues.''
    In 1999, the Federal Bureau of Investigation (FBI) notified 
ATF that a Hezbollah cell was raising funds and procuring 
equipment in Charlotte. Mohamad Hammoud led the fundraising 
efforts for the cell, and he was also a prime suspect in the 
cigarette smuggling ring identified by ATF in 1996. The most 
troubling aspect of this case is what happened to the profits 
from this illegal smuggling operation. Hammoud transferred 
funds generated by the cigarette trafficking scheme, as well as 
money raised from other sources, back to Lebanon to support 
Hezbollah, a designated foreign terrorist organization. That 
support included cash and dual use equipment, such as night 
vision goggles, high-end computers, ultrasonic dog repellers, 
and global positioning systems.
    On July 21, 2000, special agents from the FBI, as part of 
``Operation Smokescreen,'' arrested 18 members of the 
organization for contraband cigarette trafficking, money 
laundering, and immigration violations. This investigation 
lasted approximately six and one half years. In the end, 
Hammoud was convicted of cigarette trafficking, providing 
material support to a foreign terrorist organization, and other 
charges.
    In September 2003, in a separate case, Hassan Moussa Makki 
pleaded guilty to charges of cigarette smuggling, racketeering, 
and providing material support to a foreign terrorist 
organization. From 1996 to 2002, Makki and his co-conspirators 
would obtain low-tax cigarettes from the Cattaraugus Indian 
Reservation in New York and North Carolina and sell them for a 
substantial profit in Detroit. According to ATF, Hassan Makki 
was trafficking between $36,000 and $72,000 of contraband 
cigarettes per month between 1997 and 1999. It was later 
discovered that one of Makki's sources for cheap cigarettes was 
Hammoud's North Carolina smuggling ring, and like Hammoud, 
Makki would then remit the proceeds from these illegal tobacco 
sales to Hezbollah.
    This is only one example of a vast, interstate conspiracy 
to engage in cigarette smuggling operations inside the United 
States and funnel the proceeds to a designated foreign 
terrorist organization. Neither the problem of cigarette 
trafficking nor the links between tobacco smuggling and the 
funding of terrorist organizations is new, however. According 
to a November 2003 GAO report, ``[ATF] officials told us that 
as of August 20, 2003, they were investigating at least six 
such cases with ties to terrorist groups. [ATF] officials also 
believe that there are several other investigations under way 
that may produce evidence linking them to terrorist groups.'' 
\5\ In the two years after that report was published, the 
number of active tobacco investigations by ATF increased from 
50 to 450. It has been reported that cigarette smuggling 
investigations have been linked to Hamas, Hezbollah, al Qaeda, 
and other designated foreign terrorist organizations in recent 
years.\6\
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    \5\ GAO Report, Supra note 4.
    \6\ Bureau of Alcohol, Tobacco, Firearms and Explosives, Illicit 
Cigarette Trafficking and the Funding of Terrorism,  July 22, 2003.
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C. STATE TAX RESOURCES BEING DIVERTED TO TERRORISTS AND OTHER CRIMINAL 
    ENTERPRISES; PROFITABILITY FUELS GROWTH OF ILLEGAL TOBACCO TRADE

    In addition to the links to designated foreign terrorist 
organizations, cigarette smuggling is depleting state and local 
resources. In 2005, ATF used data from the Center for Disease 
Control (CDC), the United States Department of Agriculture 
(USDA), and the Tax and Trade Bureau (TTB) to assess the scope 
of this problem. It found that the total loss of federal and 
state taxes amounted to somewhere between $3.5 billion and $3.8 
billion in 2004. New York alone lost approximately $1.1 
billion. Other states at the top of the list in terms of lost 
tax revenue were California, New Jersey, Pennsylvania, 
Washington, Massachusetts, Illinois, and Michigan.
    For state governments, the problem will only get worse if 
left unaddressed. As for terrorists and others in the business 
of smuggling tobacco, their efforts will become more lucrative. 
In 2004, Texas had a tax rate of 41 cents per pack. That year, 
the state lost nearly $118 million in tobacco tax revenue. 
Today, Texas's cigarette tax is $1.41 per pack. This increase 
gives smugglers a greater incentive to flood the state with 
contraband tobacco products, since they can make more money on 
each pack they sell. A number of other states have either 
raised, or are seeking toraise, their tobacco tax rates as 
well. The more money that can be made by smuggling tobacco, law 
enforcement see a greater number of illegal sellers enter the market.
    In fact, there is evidence that the problem of illegal 
tobacco smuggling is already getting worse. Today, according to 
one expert, the number of cigarette vendors has risen from 88 
in January 2000 to 772 in 2006.\7\ According to ATF, there are 
more than 372 websites worldwide that offer tax-free cigarettes 
to consumers in the United States. The proliferation of these 
websites has resulted in a dramatic increase of investigations 
and prosecutions of tobacco smuggling. Only 10 cigarette 
smuggling investigations were initiated by ATF in 1998. In 
Fiscal Year 2005, ATF had 425 active tobacco diversion 
investigations.
---------------------------------------------------------------------------
    \7\ Ribisl KM, Kim AE, Williams RS. Sales and Marketing of 
Cigarettes on the Internet: Emerging Threats to Tobacco Control and 
Promising Policy Solutions. In: Bonnie RJ, Stratton K, Wallace RB, eds. 
Ending the Tobacco Problem: A Blueprint for the Nation. Washington, 
D.C.: The National Academies Press; 2007.
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        D. STATE AND LOCAL LAW ENFORCEMENT LACK SUFFICIENT TOOLS

    In its final report, the 9/11 Commission recognized the 
importance of combating terrorist financing to our broader 
effort to secure this country from terrorist attacks. In one of 
its staff monographs, the 9/11 Commission found that ``making 
it harder for terrorists to get money is a necessary * * * 
component of our overall strategy'' and called it ``a critical 
part of the overall campaign against al Qaeda.'' \8\ 
Neutralizing terrorist financing efforts is merely one tool, 
albeit a very important one, that must be utilized to secure 
the nation from terrorist threats. To be effective, we must 
continue to adapt along with the terrorists if our 
counterterrorism efforts are to be truly effective. There are a 
number of areas where the U.S. government's efforts to 
eliminate methods of terrorist financing have succeeded, but 
there are other known fundraising methods, such as tobacco 
smuggling, that have been identified where our efforts to 
combat them need to be strengthened.
---------------------------------------------------------------------------
    \8\ U.S. National Commission on Terrorist Attacks Upon the United 
States, Staff Monograph on Terrorist Financing, Staff Report to the 
Commission, p. 1. Available at [http://www.9-11commission.gov/
staff_statements/911_TerrFin_Monograph.pdf].
---------------------------------------------------------------------------
    If we have knowledge that terrorist organizations are 
exploiting a particular commodity, or gaps in our enforcement 
efforts, to raise funds, actions must be taken to combat those 
efforts. To turn a blind eye to the problem would be 
inexcusable. While the PACT Act is not, nor does it claim to 
be, a panacea to the overall problem of terrorist financing, it 
will enable law enforcement officials to disrupt their ability 
to raise funds through illegal tobacco smuggling operations.
    State and local governments are directly affected by 
tobacco smuggling. They have an incentive to bring enforcement 
actions. To combat these schemes, the states have taken an 
aggressive, multi-faceted approach to stopping these illegal 
sales. For example, states have brought enforcement actions 
against online retailers; obtained agreements from the major 
credit card companies, common carriers (not including the US 
Postal Service) and two tobacco manufacturers to stop 
facilitating these sales; and one state (New York) obtained an 
Assurance of Discontinuance against a third party service 
provider used to facilitate these sales.
    States' enforcement authority is severely limited, however. 
Cigarette trafficking is, by its very nature, an interstate 
problem. Smugglers make money by moving tobacco products--
either through the mail or by the truckload--from low-tax 
states to high-tax states. Therefore, smugglers base their 
operations in low-tax states, where they have easy access to 
cheap cigarettes and smokeless tobacco. Though state 
enforcement officials can often identify out-of-state sellers 
who are violating their tobacco tax laws, the high-tax states' 
ability to enforce their laws against out-of-state sellers is 
limited because of the jurisdictional limitations of their 
state courts. As a result, our state and local governments are 
often helpless to address this problem and have to rely on 
federal law enforcement officials to pursue these cases.

E. FEDERAL ENFORCEMENT EFFORTS EXPANDING, BUT INSUFFICIENT AUTHORITIES 
                          LIMIT EFFECTIVENESS

    Tobacco smuggling is inherently an interstate and 
international problem. Unless we enhance the reach of state 
enforcement officials, the involvement of federal law 
enforcement is often critical to the success of an 
investigation. There are a variety of federal criminal statutes 
that can be used to prosecute tobacco smugglers. The primary 
federal law governing interstate sales of tobacco products is 
commonly referred to as the Jenkins Act,\9\ which requires out-
of-state tobacco sellers to register with state tobacco tax 
collectors and report all sales into a state to that state's 
tax collection officials. The Contraband Cigarette Trafficking 
Act (CCTA) prohibits the purchase, sale, shipment or 
distribution of large amounts of cigarettes and smokeless 
tobacco across state lines.\10\ Amendments to strengthen the 
CCTA were included in earlier versions of the PACT Act, and 
during the 109th Congress, they were enacted as part of H.R. 
3199, a bill to reauthorize the USA PATRIOT Act. Similar 
language was included in section 121 of the Conference Report 
to accompany H.R. 3199, House Report 109-333. The Conference 
Report passed the House on December 14, 2005, and the Senate on 
March 2, 2006. It was signed into law on March 9, 2006.
---------------------------------------------------------------------------
     \9\ 15 U.S.C. Sec. Sec. 375-78.
    \10\ 18 U.S.C. Sec. 2341.
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    Depending on the facts of the case, a variety of other 
tools have been used to prosecute individuals who engage in the 
illegal sale of tobacco products. For example, convictions have 
been obtained under the Racketeer Influenced and Corrupt 
Organization (RICO) Act,\11\ as well as pursuant to money 
laundering \12\ and material support statutes.\13\ Additional 
authorities that have been used to prosecute smugglers include 
statutes prohibiting wire fraud,\14\ mail fraud,\15\ 
trafficking in counterfeit goods,\16\ and trafficking in 
counterfeit stamps.\17\
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    \11\ 18 U.S.C. Sec. 1962.
    \12\ 18 U.S.C. Sec. Sec. 1956, 1957.
    \13\ 18 U.S.C. Sec. 2339.
    \14\ 18 U.S.C. Sec. 1343.
    \15\ 18 U.S.C. Sec. 1341.
    \16\ 18 U.S.C. Sec. 2320.
    \17\ 18 U.S.C. Sec. 2314.
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    As already noted, federal tobacco smuggling enforcement has 
increased dramatically in recent years, using all of these 
tools. While past cases--including those in North Carolina and 
Detroit--and the increasing number of investigations are 
pointed to as successes, there are a number of obstacles that 
limit the effectiveness of federal enforcement efforts to 
curtail cigarette trafficking, and to eliminate it as a 
lucrative method of financing terrorist organizations and their 
operations. Over time, tobacco smuggling cases have become 
increasingly complex. They take longer andrequire more 
resources to resolve, and the enforcement tools on the books are not 
always sufficient to deal with the problem.
    First, the penalties for violating some of the laws 
governing tobacco smuggling are not strong enough to deter 
violators. A 2002 study by the GAO found that 78 percent of the 
websites reviewed did not comply with the Jenkins Act, and the 
other 22 percent gave no indication one way or the other 
whether they complied with the Act. A violation of the primary 
federal law governing the payment of state tobacco taxes is a 
misdemeanor. None of those websites identified by the GAO in 
2002 had been penalized for violating federal law. Federal 
officials have little incentive to enforce this law today, 
unless more serious charges can be pursued.
    Second, ATF's record inspection authority in this area is 
much different from its authority to inspect licensed firearms 
manufacturers and dealers. This limits ATF's ability to ensure 
compliance with the Jenkins Act and other federal laws 
governing tobacco sellers.

  F. INTERNET SALES POSE UNIQUE CHALLENGE TO FEDERAL, STATE AND LOCAL 
                          ENFORCEMENT EFFORTS

    In addition, many of the existing law enforcement tools 
were not designed to meet the challenges posed by today's 
illegal tobacco vendors, particularly those who conduct sales 
over the Internet. There are a large number of illegal tobacco 
vendors who conduct sales over the Internet, and still more who 
do so by phone, fax, and mail order. These vendors are mobile, 
making it difficult for law enforcement to locate them. The 
Internet, in particular, helps illegal vendors to operate with 
near impunity. Even those who are identified and the subject of 
enforcement actions are able to close up shop and quickly 
reappear with a new name and website.
    Since illegal vendors can easily elude traditional 
enforcement actions, one obvious point of disruption is at the 
point of delivery. Illegal remote sellers of cigarettes and 
smokeless tobacco have, to date, been very successful at 
evading compliance with existing federal and state laws by 
conducting sales by making their cigarette and smokeless 
tobacco deliveries to their customers by mail. Conducting sales 
in this manner allows lawbreaking tobacco vendors to escape 
federal and state enforcement efforts. Without gaining the 
cooperation of delivery services, whether it is the United 
States Postal Service (USPS) or private carriers, law 
enforcement officials have had limited impact on remote 
sellers. While some progress has been made with respect to 
private carriers, most of whom prohibit the use of their 
services to ship cigarettes, it is a reality that both private 
carriers and the USPS continue to serve as the delivery arm for 
illegal tobacco vendors.

          III. History of the Bill and Committee Consideration


                             108TH CONGRESS

    On June 6, 2003, Senators Hatch and Kohl introduced the 
Prevent All Cigarette Trafficking (PACT) Act of 2003 (S. 1177). 
The bill was taken up by the Senate Committee on the Judiciary 
on July 31, 2003, and reported without objection. On December 
9, 2003, the PACT Act was amended and passed the Senate by 
unanimous consent.

                             109TH CONGRESS

    On July 21, 2005, the House of Representatives passed H.R. 
3199, a bill to reauthorize the USA PATRIOT Act. Section 123 of 
that bill was substantially similar to Section 4 of the PACT 
Act, S. 1177 in the 108th Congress. It amended the Contraband 
Cigarette Trafficking Act (``CCTA,'' 18 U.S.C. Sec. 2341 et 
seq.), which makes it unlawful for any person knowingly to 
ship, possess, sell, distribute or purchase contraband 
cigarettes. It amended the CCTA by: (1) extending its 
provisions to cover contraband smokeless tobacco; (2) reducing 
the number of cigarettes that trigger application of the CCTA 
from 60,000 to 10,000; (3) imposing reporting requirements on 
persons, except for tribal governments, who engage in delivery 
sales of more than 10,000 cigarettes or 500 single-unit cans or 
packages of smokeless tobacco in a single month; (4) requiring 
the destruction of cigarettes and smokeless tobacco seized and 
forfeited under the CCTA; and (5) authorizing State and local 
governments, and certain persons who hold Federal tobacco 
permits, to bring causes of action against violators of the 
CCTA. It also amends section 2344(c), the contraband cigarette 
forfeiture provisions, by adding ``contraband smokeless 
tobacco'' to items subject to forfeiture and by removing the 
reference to the Internal Revenue Code, which became outdated 
after the enactment of the Civil Asset Forfeiture Reform Act of 
2000. This language was included in section 121 of the 
Conference Report to accompany H.R. 3199, House Report 109-333. 
The Conference Report passed the House on December 14, 2005, 
and the Senate on March 2, 2006. It was signed into law on 
March 9.
    On August 3, 2006, the Prevent All Cigarette Trafficking 
(PACT) Act of 2006 (S. 3810), was introduced by Senators Kohl 
and Schumer. The bill was referred to the Committee on the 
Judiciary, but no further action was taken.

                             110TH CONGRESS

    On March 29, 2007, S. 1027, the Prevent All Cigarette 
Trafficking (PACT) Act was introduced by Senator Kohl. The bill 
had four cosponsors: Senators Specter, Leahy, Kyl, and Schumer. 
The bill was placed on the agenda for the Judiciary Committee 
business meeting on May 17, 2007, and the Committee reported 
the bill favorably and without amendment. After being approved 
by the Judiciary Committee, on May 21, 2007, Senator Collins 
was added as a cosponsor.

             IV. Section-by-Section and Summary of the Bill

    The following is a section-by-section analysis and 
explanation of the Prevent All Cigarette Trafficking Act of 
2007.

Section 1. Short title; findings; purposes

Section 2. Collection of state cigarette and smokeless tobacco taxes

            Section 2(a). Definitions
    Subsection (a) replaces the entire definitions section of 
the existing Jenkins Act. It redefines the term ``cigarette'' 
to include ``roll-your-own'' tobacco products. It adds a 
definition of ``deliverysale'' to ensure that the provisions of 
the Jenkins Act apply to all remote sellers, whether they conduct sales 
by telephone, fax, Internet, or through the mail. This section also 
adds definitions for the following: ``Attorney General''; ``common 
carrier''; ``consumer''; ``delivery sale''; ``delivery seller''; 
``Indian country''; ``Indian tribe''; ``interstate commerce''; and 
``smokeless tobacco''. It redefines the term ``person'' to include 
State, local and Indian tribal governments, and it expands the 
definition of ``use'' to include the consumption, storage, handling or 
disposal of smokeless tobacco, in addition to cigarettes. This section 
also amends the definition of ``tobacco tax administrator'' to include 
local or tribal officials duly authorized to collect and administer the 
tobacco tax in addition to the State official.
            Section 2(b). Reporting requirements
    Subsection (b) enhances the existing reporting requirements 
under the Jenkins Act, which currently requires interstate 
sellers of tobacco products to register with state tobacco tax 
collectors and report all sales into a state to that state's 
tax collection officials.
    Specifically, subsection (b) expands the scope of reporting 
requirements to apply to: (1) the sale or advertising for sale 
of smokeless tobacco products; (2) persons who ship or transfer 
cigarettes and smokeless tobacco products; and (3) the shipment 
of cigarettes or smokeless tobacco into localities or Indian 
country that tax the sale or use of such products. While 
current law requires sellers to file reports with the tobacco 
tax administrator of a state, locality or Tribal government, 
this subsection would also require them to file those reports 
with the Attorney General of the United States. It also 
requires vendors to provide additional identifying information 
in those reports to ensure that law enforcement officials can 
locate them for inspection and enforcement purposes. Subsection 
(b) clearly states that any information provided in these 
reports can only be used for purposes of enforcing the Jenkins 
Act or the collection of any cigarette or smokeless tobacco 
sales taxes owed.
            Section 2(c). Regulation of ``delivery sellers'' and list 
                    enforcement
    Subsection (c) adds a new section, Section 2A, to the 
Jenkins Act to provide for better enforcement of the Act's 
requirements against illegal Internet and other remote sellers, 
defined as ``delivery sellers'' under the bill, by requiring 
them to comply with three basic requirements.
    First, a delivery seller would be required to comply with 
the shipping requirements outlined in the PACT Act. The 
delivery seller would have to place a label on the outside of 
all packages to indicate that it contains cigarettes or 
smokeless tobacco, providing notice to a common carrier or 
other delivery service that the package contains tobacco 
products. If the package containing tobacco is not properly 
labeled, it is to be treated as nonmailable matter.
    The shipping requirements impose a weight limit on delivery 
sales of tobacco products, prohibiting a delivery seller from 
selling, offering or delivering a package containing more than 
10 pounds of cigarettes and smokeless tobacco in a single sale 
or single delivery.
    Finally, it prohibits a delivery seller from selling 
tobacco products to a person under the minimum age required for 
the legal sale or purchase of tobacco at the place of delivery, 
and requires a delivery seller to ensure that its customers are 
of legal age to purchase tobacco. To ensure that tobacco 
products are not being sold to minors, the subsection requires 
the delivery seller to: (1) obtain identifying information from 
the customer at the time of sale and verify through a 
commercially available database, consisting primarily of 
information from government sources, that the customer is old 
enough to purchase tobacco and (2) use a method of delivery 
that requires the recipient to sign for delivery and provide a 
valid, government-issued identification showing the person is 
old enough to purchase tobacco.
    Second, delivery sellers would be required to keep records 
of all delivery sales made for at least four years. These 
records would have to be made available to state, local, tribal 
and federal officials for enforcement purposes.
    Third, subsection (c) requires delivery sellers to comply 
with all state, local, tribal and other laws applicable to the 
sale of tobacco products, including excise taxes; licensing and 
stamping requirements; restrictions on sales to minors; and 
other legal requirements relating to the sale, distribution, or 
delivery of cigarettes or smokeless tobacco. In addition, it 
prohibits delivery sellers from selling or delivering 
cigarettes or smokeless tobacco into a state or locality unless 
the seller has paid all applicable excise taxes and affixed all 
required stamps or other indicia to the cigarettes or smokeless 
tobacco in advance of completing the sale or delivery.
    Subsection (c) also ensures that the legitimate delivery 
services of private common carriers, such as UPS, FedEx and 
DHL, will not be exploited by cigarette traffickers to deliver 
their illegal products while avoiding detection. To do so, the 
PACT Act adopts a novel approach similar to one that has been 
employed by the State of Maine, sometimes referred to as a list 
enforcement scheme.
    Through negotiations with common carriers over the course 
of a year, the sponsors of the bill have worked to ensure that 
the list enforcement scheme can be implemented effectively, and 
without imposing an unreasonable burden on common carriers. A 
great number of changes were made to previous iterations of the 
legislation to ensure its workability and to empower delivery 
services to prevent illegal tobacco products from being shipped 
through their companies.
    To do so, subsection (e) of Section 2A of the Jenkins Act 
would authorize the Attorney General of the United States to 
compile a list of unauthorized delivery sellers. The list would 
include any delivery seller who has not registered with the 
Attorney General, as required under the Jenkins Act, or has 
failed to comply with any of the requirements of the Jenkins 
Act or the Prevent All Cigarette Trafficking Act of 2007. The 
list would be compiled with the input of federal law 
enforcement officials and the attorney general, tax 
administrator, or chief law enforcement official of each state, 
local or tribal government that levies a tobacco tax. The list 
would be updated at least every four months to include 
additional delivery sellers, or remove those who have come into 
compliance with all of the necessary requirements.
    Under subsection (e)(1)(B), the list would contain, to the 
extent known, the following information for each delivery 
seller included in the list: (1) all names the delivery seller 
uses in the transaction of its business or on packages 
delivered to customers; (2) all addresses from which the 
delivery seller does business or ships cigarettes or smokeless 
tobacco; (3) the websiteaddresses, primary e-mail addresses, 
and phone number of the delivery seller; and (4) any other information 
the Attorney General determines would facilitate compliance with the 
list enforcement scheme.
    Both the initial list and any updates would be distributed 
to the attorney general and tax administrator of every state 
and all common carriers and other delivery services, including 
the United States Postal Service. This section also permits the 
Attorney General to distribute the list to other persons if he 
or she determines that doing so will enhance enforcement 
efforts. The subsection also allows people receiving the list 
to deliver it to a government official or common carrier for 
enforcement purposes, or to discuss a delivery seller's 
inclusion on this list with the delivery seller, but otherwise 
requires the list to be kept confidential.
    Subsection (e)(2) of Section 2A would prohibit any common 
carrier from knowingly completing the delivery of any package 
for a person whose name and other identifying information is 
included on any list, or its updates, distributed by the 
Attorney General of the United States.
    The inclusion of detailed identifying information on the 
initial list and all of the updates is intended to accomplish 
two objectives. First, it will ensure that common carriers and 
other delivery services will have adequate information to 
identify which of their customers are using their services to 
violate state and federal tax laws and avoid detection by law 
enforcement.
    Second, the language of this subsection clarifies that 
common carriers are not required to act as an investigative arm 
of the government. Common carriers would simply be prohibited 
from delivering packages for those people whose identifying 
information appears on the list, and would not be required to 
determine whether packages not containing this identifying 
information were actually being shipped by individuals 
identified on the lists. Subsection (e)(8)(A) of Section 2A of 
the Jenkins Act would clarify that any list is accurate or 
complete, determine whether a customer who appears on that list 
is in compliance with the PACT Act, or open or inspect a 
package to determine whether it contains tobacco products.
    The subsection accommodates concerns raised about the 
ability of common carriers to maintain compliance immediately 
after the distribution of the initial list and any updates. 
Subsections (e)(2)(A) and (B) of Section 2A of the Jenkins Act 
would allow 60 days after the distribution of the list, and 30 
days after the distribution of any updates, for common carriers 
and other delivery services to stop shipping packages for 
customers identified on those lists.
    Subsection (e)(3)(B) of Section 2A of the Jenkins Act would 
require common carriers to maintain, for a period of five 
years, any records kept in the ordinary course of business 
relating to deliveries that were interrupted for purposes of 
compliance with the PACT Act.
    To ensure that common carriers will not be penalized for 
complying with the requirements of the Act, subsection 
(e)(8)(C) of Section 2A of the Jenkins Act would clarify that a 
common carrier will not be penalized under section 14101(a) of 
Title 49, United States Code, for not completing the delivery 
of a package because of reasonable efforts to comply with the 
requirements of the Act. If a delivery service encounters a 
package from an individual identified on the list, subsection 
(e)(3)(A)(ii) of Section 2A requires the common carrier or 
other delivery service to provide the package to law 
enforcement officials or destroy it.
    One criticism of earlier versions of the PACT Act focused 
on creating federal regulations of the delivery of tobacco 
products, when a large number of states have already passed 
laws in this area. Common carriers and other delivery services 
believed that it would be burdensome to comply with the various 
federal and state requirements in this area.
    To lessen these concerns, subsection (e)(4) was added to 
the new Section 2A of the Jenkins Act. This subsection preempts 
a limited number of state laws in this area, namely those types 
of laws that are being replaced by the strong federal 
regulatory scheme in the PACT Act. Specifically, subsection 
(e)(4) preempts state, local and tribal laws regulating the 
delivery of cigarettes or smokeless tobacco to consumers that: 
(1) require common carriers or delivery services to verify the 
age or identity of the consumer accepting delivery of the 
package using a government-issued identification; (2) require 
the common carrier or delivery service to obtain a signature 
from the person accepting the package; (3) require the common 
carrier or delivery service to verify that all applicable taxes 
were paid; (4) require packages delivered by the common carrier 
or delivery service to contain particular labels, notices, or 
markings; or (5) prohibit common carriers or delivery services 
from making deliveries based on whether the delivery seller is 
identified on a list maintained or distributed by anyone other 
than the Federal government.
    New York has adopted regulations, however, that do not in 
any way conflict with the PACT Act's provisions. New York has 
enacted a law that completely prohibits the delivery sale of 
tobacco products to individual consumers. Because New York's 
law entirely prohibits the delivery sale, shipment and delivery 
of cigarettes to consumers, rather than regulating how such 
delivery sale, shipment or delivery should be effected, there 
is no need to preempt New York's law, or other similar state 
statutes. As a result, subsection (e)(4)(C) was included to 
clarify that state laws prohibiting the delivery sale, and 
those prohibiting the shipment or delivery pursuant to a 
delivery sale, of cigarettes and smokeless tobacco to 
individual consumers are not preempted by the PACT Act. This is 
intended to preserve New York's existing law and ensure that 
other states are able to adopt similar laws in the future.
    Subsection (e)(7) of Section 2A of the Jenkins Act would 
provide protection for law abiding delivery sellers. This 
subsection requires the Attorney General to make a reasonable 
attempt to provide notice to delivery sellers who will be 
included on the list of noncompliant delivery sellers at least 
14 days in advance of the distribution of such a list. This 
provides sufficient time for a delivery seller to challenge the 
determination by federal, state, local or tribal officials that 
they have not complied with applicable laws.
            Section 2(d). Enhanced penalties
    Subsection (2)(d) replaces Section 3 of the Jenkins Act to 
enhance existing penalties and provide for punishment of any 
violation of the new requirements added to the Jenkins Act by 
the Prevent All Cigarette Trafficking Act.
    Most importantly, it would create a new subsection (a)(1) 
of the Jenkins Act, which would ensure that violators of the 
Jenkins Act are guilty of a felony, punishable by up to three 
years in prison and a fine. As mentioned previously in this 
Report, studies have shown that virtually all Internet tobacco 
vendors are not in compliance with Jenkins Act requirements, 
but enforcement actions have not been taken against them under 
this law because the penalties are insufficient. The Department 
of Justice and the Bureau of Alcohol, Tobacco, Firearms and 
Explosives believe that making violations of the Jenkins Act a 
felony will encourage U.S. Attorneys' Offices to prosecute 
violators of the Jenkins Act.\18\
---------------------------------------------------------------------------
    \18\ Government Accountability Office, Internet Cigarette Sales: 
Giving ATF Investigative Authority May Improve Reporting and 
Enforcement, GAO-02-743, 2002.
---------------------------------------------------------------------------
    Subsection (a)(2) of Section 3 of the Jenkins Act would 
place two limitations on the applicable criminal penalties. 
First, it clarifies that state, local and tribal governments 
are not subject to criminal penalties. Second, it provides that 
common carriers, independent delivery services, and their 
employees are subject to criminal penalties only if the 
violation was committed intentionally, either for economic gain 
or to assist a delivery seller in violating the Act.
    As amended by the PACT Act, subsection (b) of Section 3 of 
the Jenkins Act would define the applicable civil penalties for 
violations of the Act. It provides that delivery sellers who 
violate the Jenkins Act will be fined the greater of $5,000 for 
a first violation and $10,000 for any subsequent violation, or 
two percent of the gross sales of cigarettes or smokeless 
tobacco sold during the one year period ending on the date of 
the violation.
    This subsection also provides that a common carrier or 
other delivery service that violates the Jenkins Act will be 
subject to a civil fine for violating the Act. Any fine of a 
common carrier or other delivery service will not exceed $2,500 
for a first violation, and $5,000 for any subsequent violation 
within one year of a prior violation.
    The subsection also provides that any civil penalties 
imposed against either a delivery seller or a delivery service 
are in addition to other damages, equitable relief, or 
injunctive relief that can be awarded by the court.
    The subsection includes an additional limitation on civil 
penalties with respect to common carriers and other delivery 
services. It would add subsection (b)(3)(B) to Section 3 of the 
Jenkins Act, which exempts the delivery service from civil 
liability if it ``has implemented and enforces effective 
policies and practices for complying with the requirements'' of 
the Jenkins Act. The Committee's intention is to place great 
emphasis on the word ``effective.'' UPS, FedEx, and other large 
delivery services currently have elaborate systems to track 
packages and ensure compliance with their own internal 
regulations, including prohibitions or limitations on the 
shipment of alcohol, hazardous materials, and by non-paying 
customers. The regulations of the PACT Act can be incorporated 
into that compliance system quite easily. This provision is not 
intended to diminish the requirements placed on delivery 
services. Rather, it is expected to yield substantial results. 
It is the Committee's intention that this provision will 
absolve delivery services of civil liability only when, despite 
their best efforts to create a fool proof system, packages slip 
through the cracks or cannot reasonably be detected by their 
compliance system.
            Section 2(e). Enhanced enforcement authorities
    Subsection (2)(e) includes critically important new 
authorities for state, local and tribal law enforcement 
officials. Currently, the ability of state and local law 
enforcement officials to reach out-of-state cigarette 
traffickers through enforcement actions in their own state 
courts is limited. To extend the reach of these officials, this 
subsection provides jurisdiction to United States District 
Courts to prevent and restrain violations of this Act, as well 
as to award injunctive or equitable relief, including money 
damages, for such violations. While the United States Attorney 
General will continue to have primary enforcement authority 
under the Jenkins Act, this subsection clarifies that state, 
local and tribal enforcement officials have standing to bring 
actions in U.S. District Courts to enforce the Jenkins Act.
    Subsection (2)(e) allows states, localities, and tribes who 
levy excise taxes to provide evidence to the Attorney General 
of violations of the Jenkins Act for enforcement purposes.
    Subsection (2)(e) also establishes a PACT Anti-Trafficking 
Fund in the Treasury. Fifty percent of penalties collected by 
the Federal government through PACT enforcement efforts would 
be transferred into the PACT Anti-Trafficking Fund and made 
available to the Attorney General for use in connection with 
enforcement of the Jenkins Act and other tobacco product anti-
contraband laws. Fifty percent of those funds must be made 
available to the Department of Justice agencies and offices 
responsible for the investigations leading to the collection of 
the penalty.
    Like all areas of law enforcement, cooperation between all 
levels of government--federal, state, local and tribal--is 
essential to an efficient allocation of resources and a 
successful outcome. To that end, subsection (2)(e) encourages 
state, local, and tribal officials who bring an enforcement 
action in U.S. District Court to inform the Attorney General.

Section 3. Treatment of cigarettes and smokeless tobacco as nonmailable 
        matter

    Illegal remote sellers of cigarettes and smokeless tobacco 
have been incredibly successful at evading compliance with 
existing federal and state laws relating to interstate tobacco 
sales simply by delivering cigarettes and smokeless tobacco to 
their customers by mail. Using the mails has allowed them to 
evade detection and operate with near impunity.
    Section 1716 of Title 18, United States Code, provides that 
alcohol, poisons, weapons, and other materials shall be treated 
as nonmailable matter by the United States Postal Service. 
Section 3 of the PACT Act amends that section to add cigarettes 
and smokeless tobacco to the list of nonmailable matter. This 
would make it illegal for delivery sellers to deposit tobacco 
products in the U.S. mails, and it would prohibit the U.S. 
Postal Service from accepting for delivery, or delivering, 
packages its employees know or have reason to believe contain 
cigarettes or smokeless tobacco. As mentioned earlier in this 
section, the list of noncompliant sellers compiled by the 
Attorney General of the United States will be transmitted to 
the United States Postal Service. This list will provide vital 
information to the Postal Service for the enforcement of this 
section. In addition, this section clarifies that the phrase 
``reasonable cause to believe'' includes notification by the 
Attorney General, a U.S. Attorney, or a state Attorney General 
that a person is primarily engaged in the business of 
transmitting nonmailable cigarettes or smokelesstobacco. It is 
our intent that the language of Section 3 be interpreted by the U.S. 
Postal Service and other federal law enforcement agencies to achieve 
the most effective means possible to stop any and all prohibited 
mailings of cigarettes and smokeless tobacco into or within the United 
States.
    Section 3 includes a geographic exception to the 
nonmailable matter provision. This exception was included to 
allow mailings of cigarettes and smokeless tobacco to persons 
located in remote areas of Hawaii or Alaska, where individuals 
are forced to rely exclusively on the mails to obtain groceries 
and other consumables.
    Section 3 requires tobacco products seized and forfeited 
pursuant to this section to either be destroyed or retained by 
the government for law enforcement purposes and then destroyed.
    In the event that a delivery seller violates the 
nonmailable matter provision, Section 3 of the PACT Act 
provides for a fine of as much as ten times the retail value of 
the nonmailable cigarettes or smokeless tobacco, in addition to 
any unpaid taxes.
    Section 3 also establishes, within the Treasury, the PACT 
Postal Service Fund. This provision requires fifty percent all 
fines imposed for violations of the nonmailability provisions 
to be transferred into the PACT Postal Service Fund for use by 
the Postmaster General for enforcement of the nonmailability 
provision.

Section 4. Compliance with model statute or qualifying statute

    In 1998, 46 states, Puerto Rico, the U.S. Virgin Islands, 
American Samoa, the Northern Mariana Islands, Guam, the 
District of Columbia, the Brown & Williamson Tobacco 
Corporation, Lorillard Tobacco Company, Philip Morris 
Incorporated, R.J. Reynolds Tobacco Company, Commonwealth 
Tobacco, and Liggett & Myers entered into what is called the 
Master Settlement Agreement (MSA). The MSA imposed a variety of 
restrictions on the advertising, marketing and promotion of 
cigarettes. In addition to avoiding taxes, an important way in 
which cigarette traffickers are able to raise money and compete 
with legitimate sellers is to avoid compliance with the Model 
Statute, which requires manufacturers who are not party to the 
MSA to pay money into an escrow fund. The vast majority of 
delivery sellers who violate the Model Statute and the MSA are 
foreign entities, many of which are known to engage in illegal 
cigarette trafficking.
    Section 4 would make it a felony for a manufacturer or 
importer to sell or deliver tobacco products into a state that 
is a party to the MSA if the cigarettes or smokeless tobacco 
are produced by a manufacturer that is not complying with the 
Model statute or Qualifying Statute enacted by a state.
    Subsection (b) provides that United States District Courts 
shall have jurisdiction to prevent and restrain violations of 
this section, and it allows states, through their attorneys 
general, to bring suit in U.S. District Courts for violations 
of the compliance provisions and to recover attorneys fees from 
persons found to have willfully and knowingly violated this 
section. Subsection (b)(5) clarifies that the Attorney General 
of the United States also has authority to administer and 
enforce this section of the PACT Act.

Section 5. Inspection by Bureau of Alcohol, Tobacco, Firearms, and 
        Explosives of records of certain cigarette and smokeless 
        tobacco sellers

    Section 5 authorizes the Bureau of Alcohol, Tobacco, 
Firearms and Explosives to inspect the premises and records of 
delivery sellers who transfer more than ten thousand cigarettes 
or more than five hundred single-unit cans or packages of 
smokeless tobacco in a single month.
    In the event that a delivery seller or other tobacco vendor 
refuses to comply with a request by law enforcement officials 
to inspect records, Section 5 allows U.S. District Courts to 
compel inspections in a civil action. Any failure to maintain 
records or allow inspection under this section would result in 
a fine of as much as $10,000 for each violation.

Section 6. Exclusions regarding Indian tribes and tribal matters

    Subsection (a)(1) provides that nothing in the PACT Act is 
intended to affect, amend or modify any agreements, compacts or 
other intergovernmental arrangements between Indian tribes and 
any State or local government relating to the collection of 
taxes on cigarettes or smokeless tobacco.
    Subsection (a)(3) clarifies that nothing in the PACT Act or 
its amendments should be construed to affect, amend, or modify 
limitations under existing federal law, including federal 
common law and treaties, on state, local and tribal tax and 
regulatory authority with respect to the sale, use or 
distribution of cigarettes and smokeless tobacco by or to 
Indian tribes or tribal members in Indian country.
    Subparagraphs (4) and (5) of subsection (a) clarify that 
the PACT Act and its amendments will not have any impact on the 
current state of law regarding Tribal sovereignty. Subparagraph 
(4) clarifies that the PACT Act does not affect, amend, or 
modify State jurisdiction over tribal governments, members, or 
reservations. Subparagraph (5) states that the PACT Act does 
not affect, amend, or modify any existing authority of state or 
local governments to bring enforcement actions against persons 
in Indian country. However, subsection (b) preserves any 
agreements or pacts between Indian tribes and state or local 
governments to allow for the enforcement of tobacco laws and 
regulations.
    Subsection (c) affirms that nothing in this Act, including 
authorities provided to state and local governments to bring 
enforcement actions in U.S. District Courts, are intended to 
``authorize, deputize, or commission States or local 
governments as instrumentalities of the United States.''
    Subsection (d) clarifies that nothing in the PACT Act or 
its amendments is intended to prohibit, limit or restrict the 
enforcement authority of the Attorney General within Indian 
country.

Section 7. Effective date

    Section 7 provides that Section 5 of the Act, dealing with 
Bureau of Alcohol, Tobacco, Firearms, and Explosives authority, 
shall take effect on the date of enactment. All other sections 
of the PACT Act will take effect ninety days after the date of 
enactment.

Section 8. Severability

    Section 8 provides that the invalidation of any provision 
of the PACT Act or its application will not affect the other 
provisions included in the Act, or their application to any 
other person or circumstance.

              V. Congressional Budget Office Cost Estimate

    The Committee sets forth, with respect to the bill, S. 879, 
the following estimate and comparison prepared by the Director 
of the Congressional Budget Office under section 402 of the 
Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 20, 2007.
Hon. Patrick J. Leahy,
Chairman, Committee on the Judiciary,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 1027, the Prevent 
All Cigarette Trafficking Act of 2007.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Mark 
Grabowicz (for federal cost), Melissa Merrell (for the state, 
local, and tribal impact), and Jacob Kuipers (for the private-
sector impact).
        Sincerely,
                                                   Peter R. Orszag.
    Enclosure.

    Summary: S. 1027 would require individuals and businesses 
who make interstate sales of cigarettes or smokeless tobacco to 
comply with state tax laws and register with the Bureau of 
Alcohol, Tobacco, Firearms, and Explosives (ATF). The bill 
would permit ATF to inspect the premises of anyone who 
distributes or sells in interstate commerce more than 10,000 
cigarettes or 500 cans or packages of smokeless tobacco in a 
month via telephone, the mail, or the Internet. S. 1027 also 
would increase penalties, including criminal and civil fines, 
for violations of the laws relating to taxation of cigarettes 
and smokeless tobacco.
    CBO estimates that implementing S. 1027 would cost about 
$120 million over the 2008-2012 period for ATF to enforce the 
bill's provisions, assuming appropriation of the necessary 
amounts. Enacting the bill could affect direct spending and 
receipts, but we estimate that any such effects would not be 
significant.
    S. 1027 would impose both intergovernmental and private-
sector mandates, as defined in the Unfunded Mandates Reform Act 
(UMRA), on certain tobacco sellers and individuals. The bill 
also would preempt certain state, local, and tribal laws 
regulating the delivery of tobacco products. CBO expects that 
the direct costs to comply with those mandates would not be 
significant and would not exceed the annual thresholds 
established in UMRA for intergovernmental and private-sector 
mandates ($66 million and $131 million respectively in 2007, 
adjusted annually for inflation).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of S. 1027 is shown in the following table. 
The costs of this legislation fall within budget function 750 
(administration of justice). In addition to the costs shown 
below, enacting S. 1027 could affect direct spending and 
receipts. However, we estimate that any such effects would be 
less than $500,000 in any year.

----------------------------------------------------------------------------------------------------------------
                                                                   By fiscal year, in million of dollars--
                                                           -----------------------------------------------------
                                                              2007     2008     2009     2010     2011     2012
----------------------------------------------------------------------------------------------------------------
                                        SPENDING SUBJECT TO APPROPRIATION

ATF Spending Under Current Law:
    Estimated Authorization Level \1\.....................      979    1,014    1,046    1,078    1,113    1,148
    Estimated Outlays.....................................      976    1,011    1,043    1,075    1,110    1,145
Proposed Changes:
    Estimated Authorization Level.........................        0       18       25       26       27       28
    Estimated Outlays.....................................        0       16       24       26       27       28
ATF Spending Under S. 1027:
    Estimated Authorization Level.........................      979    1,032    1,071    1,104    1,140    1,176
    Estimated Outlays.....................................      976    1,027    1,067    1,101    1,137   1,173
----------------------------------------------------------------------------------------------------------------
\1\ The 2007 level is the amount appropriated for that year for ATF activities. The estimated authorization
  levels for 2008 through 2012 are CBO baseline estimates that adjust the amount appropriated for 2007 for
  anticipated inflation.

    Basis of estimate: CBO estimates that implementing S. 1027 
would increase ATF operating costs by about $120 million over 
the 2008-2012 period. For this estimate, CBO assumes that the 
necessary amounts will be appropriated near the start of each 
fiscal year and that spending will follow historical patterns 
for similar activities conducted by ATF. In addition, the bill 
would have an insignificant effect on direct spending and 
receipts.

Spending subject to appropriation

    S. 1027 would permit the Bureau of Alcohol, Tobacco, 
Firearms, and Explosives to inspect the premises of businesses 
that distribute or sell more than 10,000 cigarettes or 500 cans 
or packages of smokeless tobacco each month via telephone, the 
mail, or the Internet. Under the bill, the agency expects that 
it would need to conduct inspections for about 7,500 businesses 
each year. The ATF anticipates that it would need to hire about 
130 new employees, including inspectors, agents, auditors, and 
necessary support personnel, to carry out inspections and any 
subsequent investigations into illegal activity. Once fully 
phased in, CBO estimates that the costs of additional employees 
under the bill would reach $25 million annually, including 
salaries, benefits, training, equipment, upgraded computer 
systems, and support costs. For this estimate, we assume that 
the new positions would be fully staffed by fiscal year 2009.

Direct spending and revenues

    Enacting S. 1027 could increase collections of civil and 
criminal fines for violations of the bill's provisions relating 
to the sale of cigarettes and smokeless tobacco. CBO expects 
that any additional collections would not be significant 
because of the relatively small number of additional cases 
likely to be affected. The receipt of criminal and civil fines 
is recorded as additional revenue.
    Under the bill's provisions, some of those fines would not 
be available for spending, some would be deposited in the Crime 
Victims fund and later spent, and others would be deposited in 
new funds established by the bill and later spent from those 
funds. (Deposits into one of those new funds would be spent by 
the U.S. Postal Service and thus would be classified as off-
budget.) CBO estimates that spending of fines collected under 
S. 1027 would not be significant.

Intergovernmental and private-sector impact

            Mandates
    S. 1027 contains both intergovernmental and private-sector 
mandates, as defined in UMRA. It would impose new requirements 
on certain sales of tobacco products by private and tribal 
entities and pre-empt certain state, local, and tribal laws. 
According to ATF and industry sources, most of those business 
entities already perform many of the duties imposed by this act 
and the additional requirements would impose minimal costs. CBO 
expects that the preemption would impose minimal costs on 
state, local, or tribal governments. Consequently CBO estimates 
that the total direct costs to comply with the requirements of 
the bill would fall well below the annual thresholds 
established by UMRA for intergovernmental and private-sector 
mandates ($66 million and $131 million respectively in 2007, 
adjusted annually for inflation).
    Requirements on Delivery Sales of Tobacco. S. 1027 would 
require delivery sellers of tobacco products to comply with 
certain requirements regarding reporting, shipping, record 
keeping, and tax collection. Delivery sellers include those 
businesses that sell or deliver tobacco products purchased 
online, by catalog, or by phone. The bill also would prohibit 
importers and interstate tobacco sellers from selling certain 
cigarettes that are not in full compliance with the terms of 
the tobacco settlement agreement between states and tobacco 
manufacturers and sellers. The requirements would be both 
intergovernmental and private-sector mandates because tobacco 
delivery sales are conducted by both private-sector and tribal 
entities.
    S. 1027 also would require common carriers to keep records 
for five years of any business relating to a delivery that has 
been interrupted because the service determines or has reason 
to believe that the person ordering the delivery is in 
violation of this act. In addition, the bill would affect 
individuals who currently send or receive tobacco products in 
the mail by prohibiting the mailing of such tobacco products in 
the continental United States through the U.S. Postal Service.
    Preemption of State, Local, and Tribal Laws. The bill also 
would preempt certain state, local, and tribal laws that 
require common carriers and delivery services to verify the age 
and require the signature of the individual accepting a tobacco 
delivery or place other restrictions on those services.
            Other impacts on state, local, and tribal governments
    S. 1027 would benefit state governments by expanding their 
authority to enforce cigarette tax collection through the 
Jenkins Act. This expanded authority would allow states' 
attorney generals to file charges in U.S. district courts 
against sellers or deliverers who violate this law. This bill 
also would preserve existing agreements between states and 
tribal governments regarding cigarette taxes.
    Estimate prepared by: Federal Spending: Mark Grabowicz; 
Impact on State, Local, and Tribal Governments: Melissa 
Merrell; Impact on the Private Sector: Jacob Kuipers.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                    VI. Regulatory Impact Evaluation

    In compliance with rule XXVI of the Standing Rules of the 
Senate, the Committee finds that no significant regulatory 
impact will result from the enactment of S. 1027.

                            VII. Conclusion

    Passage and enactment of the Prevent All Cigarette 
Trafficking (PACT) Act of 2007, S. 1027, is long overdue. This 
bipartisan legislation closes loopholes in current tobacco 
trafficking laws, enhances penalties for violations, and 
provides law enforcement with new tools to combat the 
innovative new methods being used by cigarette traffickers to 
distribute their products. Unfortunately, the criminal laws and 
investigative authorities available to law enforcement to 
combat tobacco smuggling are insufficient. By strengthening 
criminal laws governing cigarette trafficking, and empowering 
federal, state and local law enforcement with the powers to 
investigate and prosecute the cigarette traffickers of the 21st 
Century, the PACT Act can help disrupt terrorist groups and 
other organized criminal enterprises. The PACT Act was 
carefully crafted to address each of the shortcomings in our 
existing laws that have been identified. For more than a 
decade, terrorist and other criminal organizations have been 
engaging in tobacco smuggling as a means of generating 
significant amounts of revenue. As the problem continues to 
worsen, and these dangerous groups continue to raise more and 
more money through tobacco smuggling to finance their 
activities, it is imperative that we act quickly to provide law 
enforcement officials with the tools they need to combat 
cigarette trafficking.

      VIII. Changes to Existing Law Made by the Bill, as Reported

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
S. 119, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

                           UNITED STATES CODE

                      TITLE 15--COMMERCE AND TRADE

CHAPTER 10A--COLLECTION OF STATE CIGARETTE TAXES

           *       *       *       *       *       *       *



SEC. 375. [DEFINITIONS.

    [For the purposes of this chapter--
          [(1) The term ``person'' includes corporations, 
        companies, associations, firms, partnerships, 
        societies, and joint stock companies, as well as 
        individuals.
          [(2) The term ``cigarette'' means any roll for 
        smoking made wholly or in part of tobacco, irrespective 
        of size or shape and whether or not such tobacco is 
        flavored, adulterated, or mixed with any other 
        ingredient, the wrapper or cover of which is made of 
        paper or any other substance or material except 
        tobacco.
          [(3) The term ``distributor licensed by or located in 
        such State'' means--
                  [(A) in the case of any State which by State 
                statute or regulation authorizes the 
                distribution of cigarettes at wholesale or 
                retail, any person so authorized, or
                  [(B) in the case of any other State, any 
                person located in such State who distributes 
                cigarettes at wholesale or retail; but such 
                term in no case includes a person who acquires 
                cigarettes for purposes other than resale.
          [(4) The term ``use'', in addition to its ordinary 
        meaning, means the consumption, storage, handling, or 
        disposal of cigarettes.
          [(5) The term ``tobacco tax administrator'' means the 
        State official duly authorized to administer the 
        cigarette tax law of a State.
          [(6) The term ``State'' includes the District of 
        Columbia, Alaska, Hawaii, and the Commonwealth of 
        Puerto Rico.
          [(7) The term ``transfers for profit'' means any 
        transfer for profit or other disposition for profit, 
        including any transfer or disposition by an agent to 
        his principal in connection with which the agent 
        receives anything of value.]

                              DEFINITIONS

    As used in this Act, the following definitions apply:
          (1) Attorney general.--The term ``attorney general'', 
        with respect to a State, means the attorney general or 
        other chief law enforcement officer of the State, or 
        the designee of that officer.
          (2) Cigarette.--
                  (A) In general.--For purposes of this Act, 
                the term ``cigarette'' shall--
                          (i) have the same meaning given that 
                        term in section 2341 of title 18, 
                        United States Code; and
                          (ii) include ``roll-your-own 
                        tobacco'' (as that term is defined in 
                        section 5702 of the Internal Revenue 
                        Code of 1986).
                  (B) Exception.--For purposes of this Act, the 
                term ``cigarette'' does not include a ``cigar'' 
                as that term is defined in section 5702 of the 
                Internal Revenue Code of 1986.
          (3) Common carrier.--The term ``common carrier'' 
        means any person (other than a local messenger service 
        or the United States Postal Service) that holds itself 
        out to the general public as a provider for hire of the 
        transportation by water, land, or air of merchandise, 
        whether or not the person actually operates the vessel, 
        vehicle, or aircraft by which the transportation is 
        provided, between a port or place and a port or place 
        in the United States.
          (4) Consumer.--The term ``consumer'' means any person 
        that purchases cigarettes or smokeless tobacco, but 
        does not include any person lawfully operating as a 
        manufacturer, distributor, wholesaler, or retailer of 
        cigarettes or smokeless tobacco.
          (5) Delivery sale.--The term ``delivery sale'' means 
        any sale of cigarettes or smokeless tobacco to a 
        consumer if--
                  (A) the consumer submits the order for such 
                sale by means of a telephone or other method of 
                voice transmission, the mails, or the Internet 
                or other online service, or the seller is 
                otherwise not in the physical presence of the 
                buyer when the request for purchase or order is 
                made; or
                  (B) the cigarettes or smokeless tobacco are 
                delivered by use of a common carrier, private 
                delivery service, or the mails, or the seller 
                is not in the physical presence of the buyer 
                when the buyer obtains possession of the 
                cigarettes or smokeless tobacco.
          (6) Delivery seller.--The term ``delivery seller'' 
        means a person who makes a delivery sale.
          (7) Indian country.--The term ``Indian country'' has 
        the meaning given that term in section 1151 of title 
        18, United States Code, except that within the State of 
        Alaska that term applies only to the Metlakatla Indian 
        Community, Annette Island Reserve.
          (8) Indian tribe.--The term ``Indian tribe'', 
        ``tribe'', or ``triba'' refers to an Indian tribe as 
        defined in section 4(e) of the Indian Self-
        Determination and Education Assistance Act (25 U.S.C. 
        450b(e)) or as listed pursuant to section 104 of the 
        Federally Recognized Indian Tribe List Act of 1994 (25 
        U.S.C. 479a-1).
          (9) Interstate commerce.--The term ``interstate 
        commerce'' means commerce between a State and any place 
        outside the State, commerce between a State and any 
        Indian country inthe State, or commerce between points 
in the same State but through any place outside the State or through 
any Indian country.
          (10) Person.--The term ``person'' means an 
        individual, corporation, company, association, firm, 
        partnership, society, State government, local 
        government, Indian tribal government, governmental 
        organization of such government, or joint stock 
        company.
          (11) State.--The term ``State'' means each of the 
        several States of the United States, the District of 
        Columbia, the Commonwealth of Puerto Rico, or any 
        territory or possession of the United States.
          (12) Smokeless tobacco.--The term ``smokeless 
        tobacco'' means any finely cut, ground, powdered, or 
        leaf tobacco, or other product containing tobacco, that 
        is intended to be placed in the oral or nasal cavity or 
        otherwise consumed without being combusted.
          (13) Tobacco tax administrator.--The term ``tobacco 
        tax administrator'' means the State, local, or tribal 
        official duly authorized to collect the tobacco tax or 
        administer the tax law of a State, locality, or tribe, 
        respectively.
          (14) Use.--The term ``use'', in addition to its 
        ordinary meaning, means the consumption, storage, 
        handling, or disposal of cigarettes or smokeless 
        tobacco.

SEC. 376. REPORTS TO STATE TOBACCO TAX ADMINISTRATOR.

    (a) Contents._ Any person who sells [or transfers], 
transfers, or ships for profit [cigarettes] cigarettes or 
smokeless tobacco in interstate commerce, whereby such 
[cigarettes] cigarettes or smokeless tobacco are shipped into a 
State, locality, or Indian country of an Indian tribe taxing 
the sale or use of [cigarettes] cigarettes or smokeless 
tobacco, [to other than a distributor licensed by or located in 
such State,] or who advertises or offers [cigarettes] 
cigarettes or smokeless tobacco for such a sale [or transfer 
and shipment,] transfer, or shipment shall--
          (1) first file [with the tobacco tax administrator of 
        the State] with the Attorney General of the United 
        States and with the tobacco tax administrators of the 
        State and place into which such shipment is made or in 
        which such advertisement or offer is disseminated a 
        statement setting forth his name and trade name (if 
        any), and the address of his principal place of 
        business and of any other place of business[; and], as 
        well as telephone numbers for each place of business, a 
        principal electronic mail address, any website 
        addresses, and the name, address, and telephone number 
        of an agent in the State authorized to accept service 
        on behalf of such person;
          (2) not later than the 10th day of each calendar 
        month, file with the tobacco tax administrator of the 
        State into which such shipment is made, a memorandum or 
        a copy of the invoice covering each and every shipment 
        of [cigarettes] cigarettes or smokeless tobacco made 
        during the previous calendar month into such State; the 
        memorandum or invoice in each case to include the name 
        and address of the person to whom the shipment was 
        made, the brand, [and the quantity thereof.] the 
        quantity thereof, and the name, address, and phone 
        number of the person delivering the shipment to the 
        recipient on behalf of the delivery seller, with all 
        invoice or memoranda information relating to specific 
        customers to be organized by city or town and by zip 
        code; and
          (3) with respect to each memorandum or invoice filed 
        with a State under paragraph (2), also file copies of 
        such memorandum or invoice with the tobacco tax 
        administrators and chief law enforcement officers of 
        the local governments and Indian tribes operating 
        within the borders of the State that apply their own 
        local or tribal taxes on cigarettes or smokeless 
        tobacco.
    (b) Presumptive Evidence._The fact that any person ships or 
delivers for shipment any [cigarettes] cigarettes or smokeless 
tobacco shall, if such shipment is into a State in which such 
person has filed a statement with the tobacco tax administrator 
under subsection (a)(1) of this section, be presumptive 
evidence
          [(1) that] that such [cigarettes] cigarettes or 
        smokeless tobacco were sold, or transferred for profit, 
        by such person[, and
          [(2) that such sale or transfer was to other than a 
        distributor licensed by or located in such State.].
    (c) Use of Information.--A tobacco tax administrator or 
chief law enforcement officer who receives a memorandum or 
invoice under paragraph (2) or (3) of subsection (a) shall use 
such memorandum or invoice solely for the purposes of the 
enforcement of this Act and the collection of any taxes owed on 
related sales of cigarettes and smokeless tobacco, and shall 
keep confidential any personal information in such memorandum 
or invoice not otherwise required for such purposes.

SEC. 376A. DELIVERY SALES.

    (a) In General.--With respect to delivery sales into a 
specific State and place, each delivery seller shall comply 
with--
          (1) the shipping requirements set forth in subsection 
        (b);
          (2) the recordkeeping requirements set forth in 
        subsection (c);
          (3) all State, local, tribal, and other laws 
        generally applicable to sales of cigarettes or 
        smokeless tobacco as if such delivery sales occurred 
        entirely within the specific State and place, including 
        laws imposing--
                  (A) excise taxes;
                  (B) licensing and tax-stamping requirements;
                  (C) restrictions on sales to minors; and
                  (D) other payment obligations or legal 
                requirements relating to the sale, 
                distribution, or delivery of cigarettes or 
                smokeless tobacco; and
          (4) the tax collection requirements set forth in 
        subsection (d).
    (b) Shipping and Packaging.--
          (1) Required statement.--For any shipping package 
        containing cigarettes or smokeless tobacco, the 
        delivery seller shall include on the bill of lading, if 
        any, and on the outside of the shipping package, on the 
        same surface as the delivery address, a clear and 
        conspicuous statement providing as follows: 
        ``CIGARETTES/SMOKELESS TOBACCO: FEDERAL LAW REQUIRES 
        THE PAYMENT OF ALL APPLICABLE EXCISE TAXES, AND 
        COMPLIANCE WITH APPLICABLE LICENSING AND TAX-STAMPING 
        OBLIGATIONS''.
          (2) Failure to label.--Any shipping package described 
        in paragraph (1) that is not labeled in accordance with 
        that paragraph shall be treated as nondeliverable 
        matter by a common carrier or other delivery service, 
        if the common carrier or other delivery service knows 
        or should know the package contains cigarettes or 
        smokeless tobacco. If a common carrier or other 
        delivery service believes a package is being submitted 
        for delivery in violation of paragraph (1), it may 
        require the person submitting the package for delivery 
        to establish that it is not being sent in violation of 
        paragraph (1) before accepting the package for 
        delivery. Nothing in this paragraph shall require the 
        common carrier or other delivery service to open any 
        package to determine its contents.
          (3) Weight restriction.--A delivery seller shall not 
        sell, offer for sale, deliver, or cause to be delivered 
        in any single sale or single delivery any cigarettes or 
        smokeless tobacco weighing more than 10 pounds.
          (4) Age verification.--
                  (A) In general.--Notwithstanding any other 
                provision of law, a delivery seller who mails 
                or ships tobacco products--
                          (i) shall not sell, deliver, or cause 
                        to be delivered any tobacco products to 
                        a person under the minimum age required 
                        for the legal sale or purchase of 
                        tobacco products, as determined by the 
                        applicable law at the place of 
                        delivery;
                          (ii) shall use a method of mailing or 
                        shipping that requires--
                                  (I) the purchaser placing the 
                                delivery sale order, or an 
                                adult who is at least the 
                                minimum age required for the 
                                legal sale or purchase of 
                                tobacco products, as determined 
                                by the applicable law at the 
                                place of delivery, to sign to 
                                accept delivery of the shipping 
                                container at the delivery 
                                address; and
                                  (II) the person who signs to 
                                accept delivery of the shipping 
                                container to provide proof, in 
                                the form of a valid, 
                                government-issued 
                                identification bearing a 
                                photograph of the individual, 
                                that the person is at least the 
                                minimum age required for the 
                                legal sale or purchase of 
                                tobacco products, as determined 
                                by the applicable law at the 
                                place of delivery; and
                          (iii) shall not accept a delivery 
                        sale order from a person without--
                                  (I) obtaining the full name, 
                                birth date, and residential 
                                address of that person; and
                                  (II) verifying the 
                                information provided in 
                                subclause (I), through the use 
                                of a commercially available 
                                database or aggregate of 
                                databases, consisting primarily 
                                of data from government 
                                sources, that are regularly 
                                used by government and 
                                businesses for the purpose of 
                                age and identity verification 
                                and authentication, to ensure 
                                that the purchaser is at least 
                                the minimum age required for 
                                the legal sale or purchase of 
                                tobacco products, as determined 
                                by the applicable law at the 
                                place of delivery.
                  (B) Limitation.--No database being used for 
                age and identity verification under 
                subparagraph (A)(iii) shall be in the 
                possession or under the control of the delivery 
                seller, or be subject to any changes or 
                supplementation by the delivery seller.
    (c) Records.--
          (1) In general.--Each delivery seller shall keep a 
        record of any delivery sale, including all of the 
        information described in section 2(a)(2), organized by 
        the State, and within such State, by the city or town 
        and by ZIP code, into which such delivery sale is so 
        made.
          (2) Record retention.--Records of a delivery sale 
        shall be kept as described in paragraph (1) in the year 
        in which the delivery sale is made and for the next 4 
        years.
          (3) Access for officials.--Records kept under 
        paragraph (1) shall be made available to tobacco tax 
        administrators of the States, to local governments and 
        Indian tribes that apply their own local or tribal 
        taxes on cigarettes or smokeless tobacco, to the 
        attorneys general of the States, to the chief law 
        enforcement officers of such local governments and 
        Indian tribes, and to the Attorney General of the 
        United States inorder to ensure the compliance of 
persons making delivery sales with the requirements of this Act.
    (d) Delivery.--
          (1) In general.--Except as provided in paragraph (2), 
        no delivery seller may sell or deliver to any consumer, 
        or tender to any common carrier or other delivery 
        service, any cigarettes or smokeless tobacco pursuant 
        to a delivery sale unless, in advance of the sale, 
        delivery, or tender--
                  (A) any cigarette or smokeless tobacco excise 
                tax that is imposed by the State in which the 
                cigarettes or smokeless tobacco are to be 
                delivered has been paid to the State;
                  (B) any cigarette or smokeless tobacco excise 
                tax that is imposed by the local government of 
                the place in which the cigarettes or smokeless 
                tobacco are to be delivered has been paid to 
                the local government; and
                  (C) any required stamps or other indicia that 
                such excise tax has been paid are properly 
                affixed or applied to the cigarettes or 
                smokeless tobacco.
          (2) Exception.--Paragraph (1) does not apply to a 
        delivery sale of smokeless tobacco if the law of the 
        State or local government of the place where the 
        smokeless tobacco is to be delivered requires or 
        otherwise provides that delivery sellers collect the 
        excise tax from the consumer and remit the excise tax 
        to the State or local government, and the delivery 
        seller complies with the requirement.
    (e) List of Unregistered or Noncompliant Delivery 
Sellers.--
          (1) In general.--
                  (A) Initial list.--Not later than 90 days 
                after this subsection goes into effect under 
                the Prevent All Cigarette Trafficking Act of 
                2007, the Attorney General of the United States 
                shall compile a list of delivery sellers of 
                cigarettes or smokeless tobacco that have not 
                registered with the Attorney General, pursuant 
                to section 2(a) or that are otherwise not in 
                compliance with this Act, and--
                          (i) distribute the list to--
                                  (I) the attorney general and 
                                tax administrator of every 
                                State;
                                  (II) common carriers and 
                                other persons that deliver 
                                small packages to consumers in 
                                interstate commerce, including 
                                the United States Postal 
                                Service; and
                                  (III) at the discretion of 
                                the Attorney General of the 
                                United States, to any other 
                                persons; and
                          (ii) publicize and make the list 
                        available to any other person engaged 
                        in the business of interstate 
                        deliveries or who delivers cigarettes 
                        or smokeless tobacco in or into any 
                        State.
                  (B) List contents.--To the extent known, the 
                Attorney General of the United States shall 
                include, for each delivery seller on the list 
                described in subparagraph (A)--
                          (i) all names the delivery seller 
                        uses in the transaction of its business 
                        or on packages delivered to customers;
                          (ii) all addresses from which the 
                        delivery seller does business or ships 
                        cigarettes or smokeless tobacco;
                          (iii) the website addresses, primary 
                        e-mail address, and phone number of the 
                        delivery seller; and
                          (iv) any other information that the 
                        Attorney General determines would 
                        facilitate compliance with this 
                        subsection by recipients of the list.
                  (C) Updating.--The Attorney General of the 
                United States shall update and distribute the 
                list at least once every 4 months, and may 
                distribute the list and any updates by regular 
                mail, electronic mail, or any other reasonable 
                means, or by providing recipients with access 
                to the list through a nonpublic website that 
                the Attorney General of the United States 
                regularly updates.
                  (D) State, local, or tribal additions.--The 
                Attorney General of the United States shall 
                include in the list under subparagraph (A) any 
                noncomplying delivery sellers identified by any 
                State, local, or tribal government under 
                paragraph (5), and shall distribute the list to 
                the attorney general or chief law enforcement 
                official and the tax administrator of any 
                government submitting any such information and 
                to any common carriers or other persons who 
                deliver small packages to consumers identified 
                by any government pursuant to paragraph (5).
                  (E) Confidentiality.--The list distributed 
                pursuant to subparagraph (A) shall be 
                confidential, and any person receiving the list 
                shall maintain the confidentiality of the list 
                but may deliver the list, for enforcement 
                purposes, to any government official or to any 
                common carrier or other person that delivers 
                tobacco products or small packages to 
                consumers. Nothing in this section shall 
                prohibit a common carrier, the United States 
                Postal Service, or any other person receiving 
                the list from discussing with the listed 
                delivery sellers the delivery sellers' 
                inclusion on the list and the resulting effects 
                on any services requested by such listed 
                delivery seller.
          (2) Prohibition on delivery.--
                  (A) In general.--Commencing on the date that 
                is 60 days after the date of the initial 
                distribution or availability of the list under 
                paragraph (1)(A), no person who receives the 
                list under paragraph (1), and no person who 
                delivers cigarettes orsmokeless tobacco to 
consumers, shall knowingly complete, cause to be completed, or complete 
its portion of a delivery of any package for any person whose name and 
address are on the list, unless--
                          (i) the person making the delivery 
                        knows or believes in good faith that 
                        the item does not include cigarettes or 
                        smokeless tobacco;
                          (ii) the delivery is made to a person 
                        lawfully engaged in the business of 
                        manufacturing, distributing, or selling 
                        cigarettes or smokeless tobacco; or
                          (iii) the package being delivered 
                        weighs more than 100 pounds and the 
                        person making the delivery does not 
                        know or have reasonable cause to 
                        believe that the package contains 
                        cigarettes or smokeless tobacco.
                  (B) Implementation of updates.--Commencing on 
                the date that is 30 days after the date of the 
                distribution or availability of any updates or 
                corrections to the list under paragraph (1), 
                all recipients and all common carriers or other 
                persons that deliver cigarettes or smokeless 
                tobacco to consumers shall be subject to 
                subparagraph (A) in regard to such corrections 
                or updates.
          (3) Shipments from persons on list.--
                  (A) In general.--In the event that a common 
                carrier or other delivery service delays or 
                interrupts the delivery of a package it has in 
                its possession because it determines or has 
                reason to believe that the person ordering the 
                delivery is on a list distributed under 
                paragraph (1)--
                          (i) the person ordering the delivery 
                        shall be obligated to pay--
                                  (I) the common carrier or 
                                other delivery service as if 
                                the delivery of the package had 
                                been timely completed; and
                                  (II) if the package is not 
                                deliverable, any reasonable 
                                additional fee or charge levied 
                                by the common carrier or other 
                                delivery service to cover its 
                                extra costs and inconvenience 
                                and to serve as a disincentive 
                                against such noncomplying 
                                delivery orders; and
                          (ii) if the package is determined not 
                        to be deliverable, the common carrier 
                        or other delivery service shall, in its 
                        discretion, either provide the package 
                        and its contents to a Federal, State, 
                        or local law enforcement agency or 
                        destroy the package and its contents.
                  (B) Records.--A common carrier or other 
                delivery service shall maintain, for a period 
                of 5 years, any records kept in the ordinary 
                course of business relating to any deliveries 
                interrupted pursuant to this paragraph and 
                provide that information, upon request, to the 
                Attorney General of the United States or to the 
                attorney general or chief law enforcement 
                official or tax administrator of any State, 
                local, or tribal government.
                  (C) Confidentiality.--Any person receiving 
                records under subparagraph (B) shall use such 
                records solely for the purposes of the 
                enforcement of this Act and the collection of 
                any taxes owed on related sales of cigarettes 
                and smokeless tobacco, and the person receiving 
                records under subparagraph (B) shall keep 
                confidential any personal information in such 
                records not otherwise required for such 
                purposes.
          (4) Preemption.--
                  (A) In general.--No State, local, or tribal 
                government, nor any political authority of 2 or 
                more State, local, or tribal governments, may 
                enact or enforce any law or regulation relating 
                to delivery sales that restricts deliveries of 
                cigarettes or smokeless tobacco to consumers by 
                common carriers or other delivery services on 
                behalf of delivery sellers by--
                          (i) requiring that the common carrier 
                        or other delivery service verify the 
                        age or identity of the consumer 
                        accepting the delivery by requiring the 
                        person who signs to accept delivery of 
                        the shipping container to provide 
                        proof, in the form of a valid, 
                        government-issued identification 
                        bearing a photograph of the individual, 
                        that such person is at least the 
                        minimum age required for the legal sale 
                        or purchase of tobacco products, as 
                        determined by either State or local law 
                        at the place of delivery;
                          (ii) requiring that the common 
                        carrier or other delivery service 
                        obtain a signature from the consumer 
                        accepting the delivery;
                          (iii) requiring that the common 
                        carrier or other delivery service 
                        verify that all applicable taxes have 
                        been paid;
                          (iv) requiring that packages 
                        delivered by the common carrier or 
                        other delivery service contain any 
                        particular labels, notice, or markings; 
                        or
                          (v) prohibiting common carriers or 
                        other delivery services from making 
                        deliveries on the basis of whether the 
                        delivery seller is or is not identified 
                        on any list of delivery sellers 
                        maintained and distributed by any 
                        entity other than the Federal 
                        Government.
                  (B) Relationship to other laws.--Nothing in 
                this paragraph shall be construed to prohibit, 
                expand, restrict, or otherwise amend or 
                modify--
                          (i) section 14501(c)(1) or 
                        41713(b)(4) of title 49, United States 
                        Code;
                          (ii) any other restrictions in 
                        Federal law on the ability of State, 
                        local, or tribal governments to 
                        regulate common carriers; or
                          (iii) any provision of State, local, 
                        or tribal law regulating common 
                        carriers that falls within the 
                        provisions of chapter 49 of the United 
                        States Code, sections 14501(c)(2) or 
                        41713(b)(4)(B).
                  (C) State laws prohibiting delivery sales.--
                Nothing in the Prevent All Cigarette 
                Trafficking Act of 2007, or the amendments made 
                by that Act, may be construed to preempt or 
                supersede State laws prohibiting the delivery 
                sale, or the shipment or delivery pursuant to a 
                delivery sale, of cigarettes or smokeless 
                tobacco to individual consumers.
          (5) State, local, and tribal additions.--
                  (A) In general.--Any State, local, or tribal 
                government shall provide the Attorney General 
                of the United States with--
                          (i) all known names, addresses, 
                        website addresses, and other primary 
                        contact information of any delivery 
                        seller that offers for sale or makes 
                        sales of cigarettes or smokeless 
                        tobacco in or into the State, locality, 
                        or tribal land but has failed to 
                        register with or make reports to the 
                        respective tax administrator, as 
                        required by this Act, or that has been 
                        found in a legal proceeding to have 
                        otherwise failed to comply with this 
                        Act; and
                          (ii) a list of common carriers and 
                        other persons who make deliveries of 
                        cigarettes or smokeless tobacco in or 
                        into the State, locality, or tribal 
                        lands.
                  (B) Updates.--Any government providing a list 
                to the Attorney General of the United States 
                under subparagraph (A) shall also provide 
                updates and corrections every 4 months until 
                such time as such government notifies the 
                Attorney General of the United States in 
                writing that such government no longer desires 
                to submit such information to supplement the 
                list maintained and distributed by the Attorney 
                General of the United States under paragraph 
                (1).
                  (C) Removal after withdrawal.--Upon receiving 
                written notice that a government no longer 
                desires to submit information under 
                subparagraph (A), the Attorney General of the 
                United States shall remove from the list under 
                paragraph (1) any persons that are on the list 
                solely because of such government's prior 
                submissions of its list of noncomplying 
                delivery sellers of cigarettes or smokeless 
                tobacco or its subsequent updates and 
                corrections.
          (6) Deadline to incorporate additions.--The Attorney 
        General of the United States shall--
                  (A) include any delivery seller identified 
                and submitted by a State, local, or tribal 
                government under paragraph (5) in any list or 
                update that is distributed or made available 
                under paragraph (1) on or after the date that 
                is 30 days after the date on which the 
                information is received by the Attorney General 
                of the United States; and
                  (B) distribute any such list or update to any 
                common carrier or other person who makes 
                deliveries of cigarettes or smokeless tobacco 
                that has been identified and submitted by 
                another government, pursuant to paragraph (5).
          (7) Notice to delivery sellers.--Not later than 14 
        days prior to including any delivery seller on the 
        initial list distributed or made available under 
        paragraph (1), or on any subsequent list or update for 
        the first time, the Attorney General of the United 
        States shall make a reasonable attempt to send notice 
        to the delivery seller by letter, electronic mail, or 
        other means that the delivery seller is being placed on 
        such list or update, with that notice citing the 
        relevant provisions of this Act.
          (8) Limitations.--
                  (A) In general.--Any common carrier or other 
                person making a delivery subject to this 
                subsection shall not be required or otherwise 
                obligated to--
                          (i) determine whether any list 
                        distributed or made available under 
                        paragraph (1) is complete, accurate, or 
                        up-to-date;
                          (ii) determine whether a person 
                        ordering a delivery is in compliance 
                        with this Act; or
                          (iii) open or inspect, pursuant to 
                        this Act, any package being delivered 
                        to determine its contents.
                  (B) Alternate names.--Any common carrier or 
                other person making a delivery subject to this 
                subsection shall not be required or otherwise 
                obligated to make any inquiries or otherwise 
                determine whether a person ordering a delivery 
                is a delivery seller on the list under 
                paragraph (1) who is using a different name or 
                address in order to evade the related delivery 
                restrictions, but shall not knowingly deliver 
                any packages to consumers for any such delivery 
                seller who the common carrier or other delivery 
                service knows is a delivery seller who is on 
                the list under paragraph (1) but is using a 
                different name or address to evade the delivery 
                restrictions of paragraph (2).
                  (C) Penalties.--Any common carrier or person 
                in the business of delivering packages on 
                behalf of other persons shall not be subject to 
                any penalty under section 14101(a) of title 49, 
                United States Code, or any other provision of 
                law for--
                          (i) not making any specific delivery, 
                        or any deliveries at all, on behalf of 
                        any person on the list under paragraph 
                        (1);
                          (ii) not, as a matter of regular 
                        practice and procedure, making any 
                        deliveries, or any deliveries in 
                        certain States, of any cigarettes or 
                        smokeless tobacco for any person or for 
                        any person not in the business of 
                        manufacturing, distributing, or selling 
                        cigarettes or smokeless tobacco; or
                          (iii) delaying or not making a 
                        delivery for any person because of 
                        reasonable efforts to comply with this 
                        Act.
                  (D) Other Limits.--Section 2 and subsections 
                (a), (b), (c), and (d) of this section shall 
                not be interpreted to impose any 
                responsibilities, requirements, or liability on 
                common carriers.
    (f) Presumption.--For purposes of this Act, a delivery sale 
shall be deemed to have occurred in the State and place where 
the buyer obtains personal possession of the cigarettes or 
smokeless tobacco, and a delivery pursuant to a delivery sale 
is deemed to have been initiated or ordered by the delivery 
seller.

SEC. 377. PENALTIES.

    [Whoever violates any provision of this chapter shall be 
guilty of a misdemeanor and shall be fined not more than 
$1,000, or imprisoned not more than 6 months, or both.]
    (a) Criminal Penalties.--
          (1) In general.--Except as provided in paragraph (2), 
        whoever violates any provision of this Act shall be 
        guilty of a felony and shall be imprisoned not more 
        than 3 years, fined under title 18, United States Code, 
        or both.
          (2) Exceptions.--
                  (A) Governments.--Paragraph (1) shall not 
                apply to a State, local, or tribal government.
                  (B) Delivery violations.--A common carrier or 
                independent delivery service, or employee of a 
                common carrier or independent delivery service, 
                shall be subject to criminal penalties under 
                paragraph (1) for a violation of section 2A(e) 
                only if the violation is committed 
                intentionally--
                          (i) as consideration for the receipt 
                        of, or as consideration for a promise 
                        or agreement to pay, anything of 
                        pecuniary value; or
                          (ii) for the purpose of assisting a 
                        delivery seller to violate, or 
                        otherwise evading compliance with, 
                        section 2A.
    (b) Civil Penalties.--
          (1) In general.--Except as provided in paragraph (3), 
        whoever violates any provision of this Act shall be 
        subject to a civil penalty in an amount not to exceed--
                  (A) in the case of a delivery seller, the 
                greater of--
                          (i) $5,000 in the case of the first 
                        violation, or $10,000 for any other 
                        violation; or
                          (ii) for any violation, 2 percent of 
                        the gross sales of cigarettes or 
                        smokeless tobacco of such person during 
                        the 1-year period ending on the date of 
                        the violation.
                  (B) in the case of a common carrier or other 
                delivery service, $2,500 in the case of a first 
                violation, or $5,000 for any violation within 1 
                year of a prior violation.
          (2) Relation to other penalties.--A civil penalty 
        under paragraph (1) for a violation of this Act shall 
        be imposed in addition to any criminal penalty under 
        subsection (a) and any other damages, equitable relief, 
        or injunctive relief awarded by the court, including 
        the payment of any unpaid taxes to the appropriate 
        Federal, State, local, or tribal governments.
          (3) Exceptions.--
                  (A) Delivery violations.--An employee of a 
                common carrier or independent delivery service 
                shall be subject to civil penalties under 
                paragraph (1) for a violation of section 2A(e) 
                only if the violation is committed 
                intentionally--
                          (i) as consideration for the receipt 
                        of, or as consideration for a promise 
                        or agreement to pay, anything of 
                        pecuniary value; or
                          (ii) for the purpose of assisting a 
                        delivery seller to violate, or 
                        otherwise evading compliance with, 
                        section 2A.
                  (B) Other limitations.--No common carrier or 
                independent delivery service shall be subject 
                to civil penalties under paragraph (1) for a 
                violation of section 2A(e) if--
                          (i) the common carrier or independent 
                        delivery service has implemented and 
                        enforces effective policies and 
                        practices for complying with that 
                        section; or
                          (ii) an employee of the common 
                        carrier or independent delivery service 
                        who physically receives and processes 
                        orders, picks up packages, processes 
                        packages, or makes deliveries, takes 
                        actions that are outside the scope of 
                        employment of the employee in the 
                        course of the violation, or that 
                        violate the implemented and enforced 
                        policies of the common carrier or 
                        independent delivery service described 
                        in clause (i).

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SEC. 378. [JURISDICTION TO PREVENT AND RESTRAIN VIOLATIONS] 
                    ENFORCEMENT.

    [The United States district courts shall have jurisdiction 
to prevent and restrain violations of this Act.]
    (a) In General.--The United States district courts shall 
have jurisdiction to prevent and restrain violations of this 
Act and to provide other appropriate injunctive or equitable 
relief, including money damages, for such violations.
    (b) Authority of the Attorney General.--The Attorney 
General of the United States shall administer and enforce the 
provisions of this Act.
    (c) State, Local, and Tribal Enforcement.--
          (1) In general.--
                  (A) Standing.--A State, through its attorney 
                general (or a designee thereof), or a local 
                government or Indian tribe that levies a tax 
                subject to section 2A(a)(3), through its chief 
                law enforcement officer (or a designee 
                thereof), may bring an action in a United 
                States district court to prevent and restrain 
                violations of this Act by any person (or by any 
                person controlling such person) or to obtain 
                any other appropriate relief from any person 
                (or from any person controlling such person) 
                for violations of this Act, including civil 
                penalties, money damages, and injunctive or 
                other equitable relief.
                  (B) Sovereign immunity.--Nothing in this Act 
                shall be deemed to abrogate or constitute a 
                waiver of any sovereign immunity of a State or 
                local government or Indian tribe against any 
                unconsented lawsuit under this Act, or 
                otherwise to restrict, expand, or modify any 
                sovereign immunity of a State or local 
                government or Indian tribe.
          (2) Provision of information.--A State, through its 
        attorney general, or a local government or Indian tribe 
        that levies a tax subject to section 2A(a)(3), through 
        its chief law enforcement officer (or a designee 
        thereof), may provide evidence of a violation of this 
        Act by any person not subject to State, local, or 
        tribal government enforcement actions for violations of 
        this Act to the Attorney General of the United States 
        or a United States attorney, who shall take appropriate 
        actions to enforce the provisions of this Act.
          (3) Use of penalties collected.--
                  (A) In general.--There is established a 
                separate account in the Treasury known as the 
                ``PACT Anti-Trafficking Fund''. Notwithstanding 
                any other provision of law and subject to 
                subparagraph (B), an amount equal to 50 percent 
                of any criminal and civil penalties collected 
                by the United States Government in enforcing 
                the provisions of this Act shall be transferred 
                into the PACT Anti-Trafficking Fund and shall 
                be available to the Attorney General of the 
                United States for purposes of enforcing the 
                provisions of this Act and other laws relating 
                to contraband tobacco products.
                  (B) Allocation of funds.--Of the amount 
                available to the Attorney General under 
                subparagraph (A), not less than 50 percent 
                shall be made available only to the agencies 
                and offices within the Department of Justice 
                that were responsible for the enforcement 
                actions in which the penalties concerned were 
                imposed or for any underlying investigations.
          (4) Nonexclusivity of remedy.--
                  (A) In general.--The remedies available under 
                this section and section 3 are in addition to 
                any other remedies available under Federal, 
                State, local, tribal, or other law.
                  (B) State court proceedings.--Nothing in this 
                Act shall be construed to expand, restrict, or 
                otherwise modify any right of an authorized 
                State official to proceed in State court, or 
                take other enforcement actions, on the basis of 
                an alleged violation of State or other law.
                  (C) Tribal court proceedings.--Nothing in 
                this Act shall be construed to expand, 
                restrict, or otherwise modify any right of an 
                authorized Indian tribal government official to 
                proceed in tribal court, or take other 
                enforcement actions, on the basis of an alleged 
                violation of tribal law.
                  (D) Local government enforcement.--Nothing in 
                this Act shall be construed to expand, 
                restrict, or otherwise modify any right of an 
                authorized local government official to proceed 
                in State court, or take other enforcement 
                actions, on the basis of an alleged violation 
                of local or other law.
    (d) Persons Dealing in Tobacco Products.--Any person who 
holds a permit under section 5712 of the Internal Revenue Code 
of 1986 (regarding permitting of manufacturers and importers of 
tobacco products and export warehouse proprietors) may bring an 
action in a United States district court to prevent and 
restrain violations of this Act by any person (or by any person 
controlling such person) other than a State, local, or tribal 
government.
    (e) Notice.--
          (1) Persons dealing in tobacco products.--Any person 
        who commences a civil action under subsection (d) shall 
        inform the Attorney General of the United States of the 
        action.
          (2) State, local, and tribal actions.--It is the 
        sense of Congress that the attorney general of any 
        State, or chief law enforcement officer of any locality 
        or tribe, that commences a civil action under this 
        section should inform the Attorney General of the 
        United States of the action.
    (f) Public Notice.--
          (1) In general.--The Attorney General of the United 
        States shall make available to the public, by posting 
        such information on the Internet and by other 
        appropriate means, information regarding all 
        enforcement actions undertaken by the Attorney General 
        or United States attorneys, or reported to the Attorney 
        General, under this section, including information 
        regarding the resolution of such actions and how the 
        AttorneyGeneral and the United States attorney have 
responded to referrals of evidence of violations pursuant to subsection 
(c)(2).
          (2) Reports to congress.--The Attorney General shall 
        submit to Congress each year a report containing the 
        information described in paragraph (1).

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                TITLE 18--CRIMES AND CRIMINAL PROCEDURE

                             PART I--CRIMES


CHAPTER 83--POSTAL SERVICE

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SEC. 1716. INJURIOUS ARTICLES AS NONMAILABLE.

           *       *       *       *       *       *       *


    (i) * * *

           *       *       *       *       *       *       *

          (2) As used in this subsection, the term ``ballistic 
        knife'' means a knife with a detachable blade that is 
        propelled by a spring-operated mechanism.
    (j) Tobacco Products.--
          (1) Prohibition.--
                  (A) In general.--Except as provided in 
                subparagraphs (C) and (D), all cigarettes (as 
                that term is defined in section 1(2) of the Act 
                of October 19, 1949 (15 U.S.C. 375; commonly 
                referred to as the ``Jenkins Act'')) and 
                smokeless tobacco (as that term is defined in 
                section 1(12) of that Act), are nonmailable and 
                shall not be deposited in or carried through 
                the mails. The United States Postal Service 
                shall not accept for delivery or transmit 
                through the mails any package that it knows or 
                has reasonable cause to believe contains any 
                cigarettes or smokeless tobacco made 
                nonmailable by this subsection.
                  (B) Reasonable cause to believe.--For 
                purposes of this section, notification to the 
                United States Postal Service by the Attorney 
                General, a United States attorney, or a State 
                Attorney General that an individual or entity 
                is primarily engaged in the business of 
                transmitting cigarettes or smokeless tobacco 
                made nonmailable by this section shall 
                constitute reasonable cause to believe that any 
                packages presented to the United States Postal 
                Service by such individual or entity contain 
                nonmailable cigarettes or smokeless tobacco.
                  (C) Cigars.--Subparagraph (A) shall not apply 
                to cigars (as that term is defined in section 
                5702(a) of the Internal Revenue Code of 1986).
                  (D) Geographic exception.--Subparagraph (A) 
                shall not apply to mailings within or into any 
                State that is not contiguous with at least 1 
                other State of the United States. For purposes 
                of this paragraph, ``State'' means any of the 
                50 States or the District of Columbia.
          (2) Packaging exceptions inapplicable.--Subsection 
        (b) shall not apply to any tobacco product made 
        nonmailable by this subsection.
          (3) Seizure and forfeiture.--Any cigarettes or 
        smokeless tobacco made nonmailable by this subsection 
        that are deposited in the mails shall be subject to 
        seizure and forfeiture, and any tobacco products so 
        seized and forfeited shall either be destroyed or 
        retained by Government officials for the detection or 
        prosecution of crimes or related investigations and 
        then destroyed.
          (4) Additional penalties.--In addition to any other 
        fines and penalties imposed by this chapter for 
        violations of this section, any person violating this 
        subsection shall be subject to an additional penalty in 
        the amount of 10 times the retail value of the 
        nonmailable cigarettes or smokeless tobacco, including 
        all Federal, State, and local taxes.
          (5) Use of penalties.--There is established a 
        separate account in the Treasury known as the ``PACT 
        Postal Service Fund''. Notwithstanding any other 
        provision of law, an amount equal to 50 percent of any 
        criminal and civil fines or monetary penalties 
        collected by the United States Government in enforcing 
        the provisions of this subsection shall be transferred 
        into the PACT Postal Service Fund and shall be 
        available to the Postmaster General for the purpose of 
        enforcing the provisions of this subsection.
    [(j)](k)(1) Whoever knowingly deposits for mailing or 
delivery, or knowingly causes to be delivered by mail, 
according to the direction thereon, or at any place at which it 
is directed to be delivered by the person to whom it is 
addressed, anything declared nonmailable by this section, 
unless in accordance with the rules and regulations authorized 
to be prescribed by the Postal Service, shall be fined under 
this title or imprisoned not more that one year, or both.
    [(k)](l) For purposes of this section, the term ``State'' 
includes a State of the United States, the District of 
Columbia, and any commonwealth, territory, or possession of the 
United States.

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