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91_SB1183eng SB1183 Engrossed LRB9101846SMdv 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 such 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 such manufacturers either determine 30 to enter into a settlement with the State or are found 31 culpable by the courts. SB1183 Engrossed -2- LRB9101846SMdv 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 a 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 SB1183 Engrossed -3- LRB9101846SMdv 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; or 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 and 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 SB1183 Engrossed -4- LRB9101846SMdv 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). SB1183 Engrossed -5- LRB9101846SMdv 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) after the effective date of this Act shall 21 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; SB1183 Engrossed -6- LRB9101846SMdv 1 (iii) For each of 2001 and 2002: 2 $0.0136125 per unit sold; 3 (iv) For each of 2003 through 2006: 4 $0.0167539 per unit sold; 5 (v) For each of 2007 and each year 6 thereafter: $0.0188482 per unit sold. 7 (B) A tobacco product manufacturer that places 8 funds into escrow pursuant to subdivision (a)(2)(A) 9 shall receive the interest or other appreciation on 10 the funds as earned. The funds themselves shall be 11 released from escrow only under the following 12 circumstances: 13 (i) to pay a judgment or settlement on 14 any released claim brought against the tobacco 15 product manufacturer by the State or any 16 releasing party located or residing in the 17 State. Funds shall be released from escrow 18 under this subdivision (a)(2)(B)(i): (I) in 19 the order in which they were placed into 20 escrow; and (II) only to the extent and at the 21 time necessary to make payments required under 22 such judgment or settlement; 23 (ii) to the extent that a tobacco product 24 manufacturer establishes that the amount it was 25 required to place into escrow in a particular 26 year was greater than the State's allocable 27 share of the total payments that such 28 manufacturer would have been required to make 29 in that year under the Master Settlement 30 Agreement (as determined pursuant to Section 31 IX(i)(2) of the Master Settlement Agreement, 32 and before any of the adjustments or offsets 33 described in Section IX(i)(3) of that Agreement 34 other than the Inflation Adjustment) had it SB1183 Engrossed -7- LRB9101846SMdv 1 been a participating manufacturer, the excess 2 shall be released from escrow and revert back 3 to such tobacco product manufacturer; or 4 (iii) to the extent not released from 5 escrow under subdivisions (a)(2)(B)(i) or 6 (a)(2)(B)(ii), funds shall be released from 7 escrow and revert back to such tobacco product 8 manufacturer 25 years after the date on which 9 they were placed into escrow. 10 (C) Each tobacco product manufacturer that 11 elects to place funds into escrow pursuant to this 12 subdivision (a)(2) shall annually certify to the 13 Attorney General that it is in compliance with this 14 subdivision (a)(2). The Attorney General may bring 15 a civil action on behalf of the State of Illinois 16 against any tobacco product manufacturer that fails 17 to place into escrow the funds required under this 18 subdivision (a)(2). Any tobacco product 19 manufacturer that fails in any year to place into 20 escrow the funds required under this subdivision 21 (a)(2) shall: 22 (i) be required within 15 days to place 23 such funds into escrow as shall bring it into 24 compliance with this Section. The court, upon 25 a finding of a violation of this subdivision 26 (a)(2), may impose a civil penalty to be paid 27 into the General Revenue Fund in an amount not 28 to exceed 5% of the amount improperly withheld 29 from escrow per day of the violation and in a 30 total amount not to exceed 100% of the original 31 amount improperly withheld from escrow; 32 (ii) in the case of a knowing violation, 33 be required within 15 days to place such funds 34 into escrow as shall bring it into compliance SB1183 Engrossed -8- LRB9101846SMdv 1 with this Section. The court, upon a finding 2 of a knowing violation of this subdivision 3 (a)(2), may impose a civil penalty to be paid 4 into the General Revenue Fund in an amount not 5 to exceed 15% of the amount improperly withheld 6 from escrow per day of the violation and in a 7 total amount not to exceed 300% of the original 8 amount improperly withheld from escrow; and 9 (iii) in the case of a second knowing 10 violation, be prohibited from selling 11 cigarettes to consumers within the State of 12 Illinois (whether directly or through a 13 distributor, retailer, or similar intermediary) 14 for a period not to exceed 2 years. 15 (b) Each failure to make an annual deposit required 16 under this Section shall constitute a separate violation. If 17 a tobacco product manufacturer is successfully prosecuted by 18 the Attorney General for a violation of this Section, the 19 tobacco product manufacturer must pay, in addition to any 20 fine imposed by a court, the State's costs and attorney's 21 fees incurred in the prosecution. 22 Section 999. Effective Date. This Act takes effect upon 23 becoming law.