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91_HB1468
LRB9102902SMdv
1 AN ACT regarding tobacco.
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' Escrow Act.
6 Section 5. Findings and Purpose.
7 (a) Cigarette smoking presents serious public health
8 concerns to the State of Illinois and to the citizens of the
9 State. The Surgeon General has determined that smoking
10 causes lung cancer, heart disease, and other serious
11 diseases, and that there are hundreds of thousands of
12 tobacco-related deaths in the United States each year. These
13 diseases most often do not appear until many years after the
14 person in question begins smoking.
15 (b) Cigarette smoking also presents serious financial
16 concerns for the State of Illinois. Under certain health
17 care programs, the State may have a legal obligation to
18 provide medical assistance to eligible persons for health
19 conditions associated with cigarette smoking, and those
20 persons may have a legal entitlement to receive the medical
21 assistance.
22 (c) Under these programs, the State pays millions of
23 dollars each year to provide medical assistance for these
24 persons for health conditions associated with cigarette
25 smoking.
26 (d) It is the policy of the State of Illinois that
27 financial burdens imposed on the State by cigarette smoking
28 be borne by tobacco product manufacturers rather than by the
29 State to the extent that the manufacturers either determine
30 to enter into a settlement with the State or are found
31 culpable by the courts.
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1 (e) On November 23, 1998, leading United States tobacco
2 product manufacturers entered into a settlement agreement,
3 entitled the "Master Settlement Agreement", with the State of
4 Illinois. The Master Settlement Agreement obligates these
5 manufacturers, in return for a release of past, present, and
6 certain future claims against them as described in the
7 Agreement, to pay substantial sums to the State (tied in part
8 to their volume of sales); to fund a national foundation
9 devoted to the interests of public health; and to make
10 substantial changes in their advertising and marketing
11 practices and corporate culture, with the intention of
12 reducing underage smoking.
13 (f) It would be contrary to the policy of the State of
14 Illinois if tobacco product manufacturers who determine not
15 to enter into such a settlement could use the resulting cost
16 advantage to derive large, short-term profits in the years
17 before liability may arise without ensuring that the State
18 will have an eventual source of recovery from them if they
19 are proven to have acted culpably. It is thus in the
20 interest of the State of Illinois to require that such
21 manufacturers establish a reserve fund to guarantee a source
22 of compensation and to prevent such manufacturers from
23 deriving large, short-term profits and then becoming
24 judgment-proof before liability may arise.
25 Section 10. Definitions. As used in this Act:
26 "Adjusted for inflation" means increased in accordance
27 with the formula for inflation adjustment set forth in
28 Exhibit C to the Master Settlement Agreement.
29 "Affiliate" means a person who directly or indirectly
30 owns or controls, is owned or controlled by, or is under
31 common ownership or control with another person. Solely for
32 purposes of this definition, the terms "owns", "is owned",
33 and "ownership" mean ownership of an equity interest, or the
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1 equivalent of an equity interest, of 10% or more, and the
2 term "person" means an individual, partnership, committee,
3 association, corporation, or any other organization or group
4 of persons.
5 "Allocable share" means Allocable Share as that term is
6 defined in the Master Settlement Agreement.
7 "Cigarette" means any product that contains nicotine, is
8 intended to be burned or heated under ordinary conditions of
9 use, and consists of or contains:
10 (1) any roll of tobacco wrapped in paper or in any
11 substance not containing tobacco;
12 (2) tobacco, in any form, that is functional in the
13 product, which, because of its appearance, the type of
14 tobacco used in the filler, or its packaging or labeling, is
15 likely to be offered to, or purchased by, consumers as a
16 cigarette; or
17 (3) any roll of tobacco wrapped in any substance
18 containing tobacco which, because of its appearance, the type
19 of tobacco used in the filler, or its packaging and labeling,
20 is likely to be offered to, or purchased by, consumers as a
21 cigarette described in item (1) of this definition.
22 "Cigarette" also means "roll-your-own" tobacco (i.e., any
23 tobacco which, because of its appearance, type, packaging, or
24 labeling is suitable for use and likely to be offered to, or
25 purchased by, consumers as tobacco for making cigarettes).
26 For purposes of this Act, 0.09 ounces of "roll-your-own"
27 tobacco shall constitute one individual cigarette.
28 "Master Settlement Agreement" means the settlement
29 agreement (and related documents) entered into on November
30 23, 1998 by the State of Illinois and leading United States
31 tobacco product manufacturers.
32 "Qualified escrow fund" means an escrow arrangement with
33 a federally or State chartered financial institution having
34 no affiliation with any tobacco product manufacturer and
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1 having assets of at least $1,000,000,000 where such
2 arrangement requires that such financial institution hold the
3 escrowed funds' principal for the benefit of releasing
4 parties and prohibits the tobacco product manufacturer
5 placing the funds into escrow from using, accessing, or
6 directing the use of the funds' principal except as
7 consistent with subdivisions (a)(2)(B) and (a)(2)(C) of
8 Section 15 of this Act.
9 "Released claims" means Released Claims as that term is
10 defined in the Master Settlement Agreement.
11 "Releasing parties" means Releasing Parties as that term
12 is defined in the Master Settlement Agreement.
13 "Tobacco Product Manufacturer" means any entity that, on
14 and after the effective date of this Act directly (and not
15 exclusively through any affiliate):
16 (1) manufactures cigarettes anywhere that such
17 manufacturer intends to be sold in the United States,
18 including cigarettes intended to be sold in the United States
19 through an importer (except where such importer is an
20 original participating manufacturer (as that term is defined
21 in the Master Settlement Agreement) that will be responsible
22 for the payments under the Master Settlement Agreement with
23 respect to such cigarettes as a result of the provisions of
24 subsections II(mm) of the Master Settlement Agreement and
25 that pays the taxes specified in subsection II(z) of the
26 Master Settlement Agreement, and provided that the
27 manufacturer of such cigarettes does not market or advertise
28 such cigarettes in the United States);
29 (2) is the first purchaser anywhere for resale in the
30 United States of cigarettes manufactured anywhere that the
31 manufacturer does not intend to be sold in the United States;
32 or
33 (3) becomes a successor of an entity described in items
34 (1) or (2).
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1 "Tobacco Product Manufacturer" does not mean an affiliate of
2 a tobacco product manufacturer unless the affiliate itself
3 falls within any of items (1) through (3) of this
4 definition.
5 "Units sold" means the number of individual cigarettes
6 sold in the State of Illinois by the applicable tobacco
7 product manufacturer (whether directly or through a
8 distributor, retailer, or similar intermediary or
9 intermediaries) during the year in question, as measured by
10 excise taxes collected by the State on packs (or
11 "roll-your-own" tobacco containers) bearing the excise tax
12 stamp of the State. The Illinois Department of Revenue shall
13 promulgate such rules as are necessary to ascertain the
14 amount of State excise tax paid on the cigarettes of such
15 tobacco product manufacturer for each year.
16 Section 15. Requirements.
17 (a) Any tobacco product manufacturer selling cigarettes
18 to consumers within the State of Illinois (whether directly
19 or through a distributor, retailer, or similar intermediary
20 or intermediaries) on and after the effective date of this
21 Act shall do one of the following:
22 (1) become a participating manufacturer (as that
23 term is defined in section II(jj) of the Master
24 Settlement Agreement) and generally perform its
25 financial obligations under the Master Settlement
26 Agreement; or
27 (2) (A) place into a qualified escrow fund by April
28 15 of the year following the year in question the
29 following amounts (as such amounts are adjusted for
30 inflation):
31 (i) For 1999: $0.0094241 per unit sold
32 on and after the effective date of this Act;
33 (ii) For 2000: $0.0104712 per unit sold
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1 on and after the effective date of this Act;
2 (iii) For each of 2001 and 2002:
3 $0.0136125 per unit sold on and after the
4 effective date of this Act;
5 (iv) For each of 2003 through 2006:
6 $0.0167539 per unit sold on and after the
7 effective date of this Act;
8 (v) For each of 2007 and each year
9 thereafter: $0.0188482 per unit sold on and
10 after the effective date of this Act.
11 (B) A tobacco product manufacturer that places
12 funds into escrow pursuant to subdivision (a)(2)(A)
13 shall receive the interest or other appreciation on
14 the funds as earned. The funds themselves shall be
15 released from escrow only under the following
16 circumstances:
17 (i) to pay a judgment or settlement on
18 any released claim brought against the tobacco
19 product manufacturer by the State or any
20 releasing party located or residing in the
21 State. Funds shall be released from escrow
22 under this subdivision (a)(2)(B)(i): (I) in
23 the order in which they were placed into
24 escrow; and (II) only to the extent and at the
25 time necessary to make payments required under
26 such judgment or settlement;
27 (ii) to the extent that a tobacco product
28 manufacturer establishes that the amount it was
29 required to place into escrow in a particular
30 year was greater than the State's allocable
31 share of the total payments that such
32 manufacturer would have been required to make
33 in that year under the Master Settlement
34 Agreement (as determined pursuant to Section
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1 IX(i)(2) of the Master Settlement Agreement,
2 and before any of the adjustments or offsets
3 described in Section IX(i)(3) of that Agreement
4 other than the Inflation Adjustment) had it
5 been a participating manufacturer, the excess
6 shall be released from escrow and revert back
7 to such tobacco product manufacturer; or
8 (iii) to the extent not released from
9 escrow under subdivisions (a)(2)(B)(i) or
10 (a)(2)(B)(ii), funds shall be released from
11 escrow and revert back to such tobacco product
12 manufacturer 25 years after the date on which
13 they were placed into escrow.
14 (C) Each tobacco product manufacturer that
15 elects to place funds into escrow pursuant to this
16 subdivision (a)(2) shall annually certify to the
17 Attorney General that it is in compliance with this
18 subdivision (a)(2). The Attorney General may bring
19 a civil action on behalf of the State of Illinois
20 against any tobacco product manufacturer that fails
21 to place into escrow the funds required under this
22 subdivision (a)(2). Any tobacco product
23 manufacturer that fails in any year to place into
24 escrow the funds required under this subdivision
25 (a)(2) shall:
26 (i) be required within 15 days to place
27 such funds into escrow as shall bring it into
28 compliance with this Section. The court, upon
29 a finding of a violation of this subdivision
30 (a)(2), may impose a civil penalty to be paid
31 to the Tobacco Settlement Recovery Fund in the
32 State Treasury in an amount not to exceed 5% of
33 the amount improperly withheld from escrow per
34 day of the violation and in a total amount not
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1 to exceed 100% of the original amount
2 improperly withheld from escrow;
3 (ii) in the case of a knowing violation,
4 be required within 15 days to place such funds
5 into escrow as shall bring it into compliance
6 with this Section. The court, upon a finding
7 of a knowing violation of this subdivision
8 (a)(2), may impose a civil penalty to be paid
9 to the Tobacco Settlement Recovery Fund in the
10 State Treasury in an amount not to exceed 15%
11 of the amount improperly withheld from escrow
12 per day of the violation and in a total amount
13 not to exceed 300% of the original amount
14 improperly withheld from escrow; and
15 (iii) in the case of a second knowing
16 violation, be prohibited from selling
17 cigarettes to consumers within the State of
18 Illinois (whether directly or through a
19 distributor, retailer, or similar intermediary)
20 for a period not to exceed 2 years.
21 (b) Each failure to make an annual deposit required
22 under this Section shall constitute a separate violation. If
23 a tobacco product manufacturer is successfully prosecuted by
24 the Attorney General for a violation of this Section, the
25 tobacco product manufacturer must pay, in addition to any
26 fine imposed by a court, the State's costs and attorney's
27 fees incurred in the prosecution.
28 Section 999. Effective Date. This Act takes effect upon
29 becoming law.