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91_HB0004eng HB0004 Engrossed LRB9100347DJdv 1 AN ACT concerning tobacco product manufacturers. 2 Be it enacted by the People of the State of Illinois, 3 represented in the General Assembly: 4 Section 1. Short title. This Act may be cited as the 5 Tobacco Product Manufacturers Settlement Act. 6 Section 5. Findings and purpose. 7 (a) Cigarette smoking presents serious public health 8 concerns to the State and to the citizens of the State. The 9 Surgeon General has determined that smoking causes lung 10 cancer, heart disease and other serious diseases, and that 11 there are hundreds of thousands of tobacco-related deaths in 12 the United States each year. These diseases most often do not 13 appear until many years after the person in question begins 14 smoking. 15 (b) Cigarette smoking also presents serious financial 16 concerns for the State. Under certain health-care programs, 17 the State may have a legal obligation to provide medical 18 assistance to eligible persons for health conditions 19 associated with cigarette smoking, and those persons may 20 have a legal entitlement to receive such medical assistance. 21 (c) Under these programs, the State pays millions of 22 dollars each year to provide medical assistance for these 23 persons for health conditions associated with cigarette 24 smoking. 25 (d) It is the policy of the State that financial burdens 26 imposed on the State by cigarette smoking be borne by tobacco 27 product manufacturers rather than by the State to the extent 28 that such manufacturers either determine to enter into a 29 settlement with the State or are found culpable by the 30 courts. 31 (e) On November 23, 1998, leading United States tobacco HB0004 Engrossed -2- LRB9100347DJdv 1 product manufacturers entered into a settlement agreement, 2 entitled the "Master Settlement Agreement", with the State. 3 The Master Settlement Agreement obligates these 4 manufacturers, in return for a release of past, present and 5 certain future claims against them as described therein, to 6 pay substantial sums to the State (tied in part to their 7 volume of sales); to fund a national foundation devoted to 8 the interests of public health; and to make substantial 9 changes in their advertising and marketing practices and 10 corporate culture, with the intention of reducing underage 11 smoking. 12 (f) It would be contrary to the policy of the State if 13 tobacco product manufacturers who determine not to enter into 14 such a settlement could use a resulting cost advantage to 15 derive large, short-term profits in the years before 16 liability may arise without ensuring that the State will have 17 an eventual source of recovery from them if they are proven 18 to have acted culpably. It is thus in the interest of the 19 State to require that such manufacturers establish a reserve 20 fund to guarantee a source of compensation and to prevent 21 such manufacturers from deriving large, short-term profits 22 and then becoming judgment-proof before liability may arise. 23 Section 10. Definitions. In this Act: 24 (a) "Adjusted for inflation" means increased in 25 accordance with the formula for inflation adjustment set 26 forth in Exhibit C to the Master Settlement Agreement. 27 (b) "Affiliate" means a person who directly or indirectly 28 owns or controls, is owned or controlled by, or is under 29 common ownership or control with, another person. Solely for 30 purposes of this definition, the terms "owns", "is owned" and 31 "ownership" mean ownership of an equity interest, or the 32 equivalent thereof, of 10% or more, and the term "person" 33 means an individual, partnership, committee, association, HB0004 Engrossed -3- LRB9100347DJdv 1 corporation or any other organization or group of persons. 2 (c) "Allocable share" means "allocable share" as that 3 term is defined in the Master Settlement Agreement. 4 (d) "Cigarette" means any product that contains nicotine, 5 is intended to be burned or heated under ordinary conditions 6 of use, and consists of or contains (1) any roll of tobacco 7 wrapped in paper or in any substance not containing tobacco; 8 or (2) tobacco, in any form, that is functional in the 9 product, which, because of its appearance, the type of 10 tobacco used in the filler, or its packaging and labeling, is 11 likely to be offered to, or purchased by, consumers as a 12 cigarette; or (3) any roll of tobacco wrapped in any 13 substance containing tobacco which, because of its 14 appearance, the type of tobacco used in the filler, or its 15 packaging and labeling, is likely to be offered to, or 16 purchased by, consumers as a cigarette described in clause 17 (1) of this definition. The term "cigarette" includes 18 "roll-your-own" (i.e., any tobacco which, because of its 19 appearance, type, packaging, or labeling, is suitable for 20 use and likely to be offered to, or purchased by, consumers 21 as tobacco for making cigarettes). For purposes of this 22 definition of "cigarette", 0.09 ounces of "roll-your-own" 23 tobacco shall constitute one individual "cigarette". 24 (e) "Master Settlement Agreement" means the settlement 25 agreement (and related documents) entered into on November 26 23, 1998 by the State and leading United States tobacco 27 product manufacturers. 28 (f) "Qualified escrow fund" means an escrow arrangement 29 with a federally or State chartered financial institution 30 having no affiliation with any tobacco product manufacturer 31 and having assets of at least $1,000,000,000 where such 32 arrangement requires that such financial institution hold 33 the escrowed funds' principal for the benefit of releasing 34 parties and prohibits the tobacco product manufacturer HB0004 Engrossed -4- LRB9100347DJdv 1 placing the funds into escrow from using, accessing or 2 directing the use of the funds' principal except as 3 consistent with subdivision (b)(2) of Section 15 of this 4 Act. 5 (g) "Released claims" means "released claims" as that 6 term is defined in the Master Settlement Agreement. 7 (h) "Releasing parties" means "releasing parties" as that 8 term is defined in the Master Settlement Agreement. 9 (i) "Tobacco product manufacturer" means an entity that 10 after the effective date of this Act directly (and not 11 exclusively through any affiliate): 12 (1) manufactures cigarettes anywhere that such 13 manufacturer intends to be sold in the United States, 14 including cigarettes intended to be sold in the United 15 States through an importer (except where such importer is 16 an original participating manufacturer (as that term is 17 defined in the Master Settlement Agreement) that will be 18 responsible for the payments under the Master Settlement 19 Agreement with respect to such cigarettes as a result of 20 the provisions of subsection II(mm) of the Master 21 Settlement Agreement and that pays the taxes specified in 22 subsection II(z) of the Master Settlement Agreement, and 23 provided that the manufacturer of such cigarettes does 24 not market or advertise such cigarettes in the United 25 States); 26 (2) is the first purchaser anywhere for resale in 27 the United States of cigarettes manufactured anywhere 28 that the manufacturer does not intend to be sold in the 29 United States; or 30 (3) becomes a successor of an entity described in 31 paragraph (1) or (2). 32 The term "tobacco product manufacturer" shall not include an 33 affiliate of a tobacco product manufacturer unless such 34 affiliate itself falls within any of paragraphs (1) through HB0004 Engrossed -5- LRB9100347DJdv 1 (3) of this definition. 2 (j) "Units sold" means the number of individual 3 cigarettes sold in the State by the applicable tobacco 4 product manufacturer (whether directly or through a 5 distributor, retailer or similar intermediary or 6 intermediaries) during the year in question, as measured by 7 excise taxes collected by the State on packs (or 8 "roll-your-own" tobacco containers) bearing the excise tax 9 stamp of the State. The Department of Revenue shall 10 promulgate such regulations as are necessary to ascertain the 11 amount of State excise tax paid on the cigarettes of such 12 tobacco product manufacturer for each year. 13 Section 15. Requirements. Any tobacco product 14 manufacturer selling cigarettes to consumers within the State 15 (whether directly or through a distributor, retailer or 16 similar intermediary or intermediaries) after the date of 17 enactment of this Act shall do one of the following: 18 (a) become a participating manufacturer (as that term is 19 defined in section II(jj) of the Master Settlement 20 Agreement) and generally perform its financial obligations 21 under the Master Settlement Agreement; or 22 (b) (1) place into a qualified escrow fund by April 15 of 23 the year following the year in question the following 24 amounts (as such amounts are adjusted for inflation): 25 1999: $.0094241 per unit sold after the effective 26 date of this Act; 27 2000: $.0104712 per unit sold after the effective 28 date of this Act; 29 for each of 2001 and 2002: $.0136125 per unit sold 30 after the effective date of this Act; 31 for each of 2003 through 2006: $.0167539 per unit 32 sold after the effective date of this Act; 33 for each of 2007 and each year thereafter: $.0188482 HB0004 Engrossed -6- LRB9100347DJdv 1 per unit sold after the effective date of this Act. 2 (2) A tobacco product manufacturer that places funds 3 into escrow pursuant to paragraph (1) shall receive the 4 interest or other appreciation on such funds as earned. 5 Such funds themselves shall be released from escrow only 6 under the following circumstances: 7 (A) to pay a judgment or settlement on any 8 released claim brought against such tobacco product 9 manufacturer by the State or any releasing party 10 located or residing in the State. Funds shall be 11 released from escrow under this subparagraph (i) in 12 the order in which they were placed into escrow and 13 (ii) only to the extent and at the time necessary to 14 make payments required under such judgment or 15 settlement; 16 (B) to the extent that a tobacco product 17 manufacturer establishes that the amount it was 18 required to place into escrow in a particular year 19 was greater than the State's allocable share of the 20 total payments that such manufacturer would have 21 been required to make in that year under the Master 22 Settlement Agreement (as determined pursuant to 23 section IX(i)(2) of the Master Settlement Agreement, 24 and before any of the adjustments or offsets 25 described in section IX(i)(3) of that Agreement 26 other than the Inflation Adjustment) had it been a 27 participating manufacturer, the excess shall be 28 released from escrow and revert back to such 29 tobacco product manufacturer; or 30 (C) to the extent not released from escrow 31 under subparagraph (A) or (B), funds shall be 32 released from escrow and revert back to such tobacco 33 product manufacturer 25 years after the date on 34 which they were placed into escrow. HB0004 Engrossed -7- LRB9100347DJdv 1 (3) Each tobacco product manufacturer that elects to 2 place funds into escrow pursuant to this subsection 3 shall annually certify to the Attorney General that it is 4 in compliance with this subsection. The Attorney General 5 may bring a civil action on behalf of the State against 6 any tobacco product manufacturer that fails to place into 7 escrow the funds required under this Section. Any tobacco 8 product manufacturer that fails in any year to place into 9 escrow the funds required under this Section shall: 10 (A) be required within 15 days to place such 11 funds into escrow as shall bring it into compliance 12 with this Section. The court, upon a finding of a 13 violation of this subsection, may impose a civil 14 penalty to be paid to the General Revenue Fund in 15 an amount not to exceed 5% of the amount improperly 16 withheld from escrow per day of the violation and 17 in a total amount not to exceed 100% of the original 18 amount improperly withheld from escrow; 19 (B) in the case of a knowing violation, be 20 required within 15 days to place such funds into 21 escrow as shall bring it into compliance with this 22 Section. The court, upon a finding of a knowing 23 violation of this subsection, may impose a civil 24 penalty to be paid to the General Revenue Fund in an 25 amount not to exceed 15% of the amount improperly 26 withheld from escrow per day of the violation and 27 in a total amount not to exceed 300% of the original 28 amount improperly withheld from escrow; and 29 (C) in the case of a second knowing violation, 30 be prohibited from selling cigarettes to consumers 31 within the State (whether directly or through a 32 distributor, retailer or similar intermediary) for 33 a period not to exceed 2 years. 34 Each failure to make an annual deposit required HB0004 Engrossed -8- LRB9100347DJdv 1 under this Section shall constitute a separate 2 violation. 3 Section 99. Effective date. This Act takes effect upon 4 becoming law.