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OFFICIAL REPLY OF THE STATE COUNCIL TO THE ANNOUNCEMENT CONCERNING DEALING SEVERELY WITH CIGARETTE SMUGGLING AND RECTIFYING THE CIGARETTE MARKET

    The State Council has approved the "Announcement Concerning Dealing
Severely With Cigarette Smuggling and Rectifying the Cigarette Market". You
are hereby instructed to promulgate and implement said Announcement.
ANNOUNCEMENT CONCERNING DEALING SEVERELY WITH CIGARETTE SMUGGLING AND
RECTIFYING THE CIGARETTE MARKET (Promulgated on October 16, 1994, by the
State Tobacco Monopoly Bureau, the Ministry of Public Security, the State
Administration for Industry and Commerce and the General Administration
of Customs)

    The following Announcement is hereby issued for the purpose of safeguarding State and consumer interests, dealing severely with illegal and
criminal activities related to cigarette smuggling, rectifying the cigarette
market and protecting the legal rights of the national cigarette industry and
related management.

    1. Enterprises, institutions and offices, organizations or individuals
engaged in illegal activities related to smuggling cigarettes, or otherwise
illegally purchasing, transporting, mailing, selling or storing smuggled
cigarette shall be severely punished in accordance with the related law and
regulations enacted by the State.

    2. Cases involving cigarette smuggling activities which constitute a
crime shall be bound over to judicial departments for investigation of
criminal responsibility in accordance with the law; Relevant executive
departments shall handle cases in which activities do constitute a crime by
confiscating smuggled goods and income earned from illegal transactions, and
offenders will be subject to a prescribed fine.

    3. Parties transporting imported cigarette across provinces (regions or
cities) inside the borders of China shall hold a Certificate of Transport
Permit issued by the State Tobacco Monopoly Bureau; Parties transporting
imported cigarettes within a province (region or city) shall have a
Certificate of Transport Permit issued by the Provincial Tobacco Monopoly
Bureau. Imported cigarettes, excluding tobacco products supervised and
administered by Customs, transported without a Certificate of Transport Permit
shall be confiscated by the relevant executive department, and all parties
involved shall be subject to a prescribed fine and all means of transport
shall be confiscated.

    4. Units responsible for the management of legally imported cigarettes
shall hold a special permit for management of tobacco sales issued by the
department responsible for tobacco monopoly; Units responsible for the
management of confiscated illegally imported cigarettes shall hold a license
as an "Enterprise Designated to Manage Confiscated Illegally Imported
Cigarette" approved and issued by the State Tobacco Monopoly Bureau, or a
similar license approved and issued by the Provincial Tobacco Monopoly Bureau
with the authorization of the State Tobacco Monopoly Bureau. Said units shall
replenish stocks via regulated channels. Units or individuals illegally
managing such activities without the prescribed permits shall be penalized,
all illegal goods shall be confiscated and those found in violation shall be
subject to a maximum fine equal to five times the value of the goods. In
serious cases, the relevant department of administration of industry and
commerce shall revoke management licenses in accordance with the law.

    5. Enterprises, institutions and offices, organizations or individuals
providing facilities for the storage, transport and mailing of smuggled
cigarettes, or eventual sale of smuggled cigarette shall be penalized. All
illegal income shall be confiscated by the executive department and violators
will subject to a maximum fine equal to twice the amount of illegal income;
Violators who have earned no illegal income shall be subject to a fine in
accordance with the seriousness of the case.

    6. Illegally imported cigarette confiscated by executive departments shall
be handed over to a tobacco auction company established or authorized by the
State Tobacco Monopoly Bureau. Said auction company will be permitted to sell
subject products to the units holding licenses as an "Enterprise Designated to
Manage Confiscated Illegally Imported Cigarette" (Wholesale); designated
enterprises (wholesale) are also permitted to wholesale subject products to
units holding licenses as an "Enterprises Designated to Manage Confiscated
Illegally Imported Cigarette" (Retail). Those found in violation of the
aforementioned regulations shall be penalized. Subject goods shall be
confiscated by the relevant executive department and violators shall be
subject to a maximum fine of three times the value of subject goods. The
management qualifications of companies involved in serious cases shall be
revoked. Small quantities of illegally imported cigarettes confiscated in
markets shall be handed over to fixed sales enterprises designated by the
local department for tobacco monopoly. Prior to any auction, or wholesale or
retail activities, the administrative department for tobacco monopoly shall
label all packages or cartons containing confiscated illegally imported
cigarettes as "Confiscated Smuggled Cigarettes."

    7. In accordance with related regulations, rewards based on merit shall
be given to units or individuals who have reported, assisted in investigations
to prevent smuggling activities and sales of smuggled cigarettes. Those found
guilty of resisting, viciously attacking or otherwise threatening the
well-being of executive personnel during the process of checking and
preventing smuggling activities, or inspecting markets, shall, in accordance
with the seriousness of the case, be investigated for criminal responsibility
according to law, or be penalized in accordance with provisions outlined in
the "Regulations of the People's Republic of China on Administrative Penalty
for Public Security".

    8. This Announcement shall become effective on the date of promulgation.