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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
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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,
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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
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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
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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
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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.
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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
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1 under this Section shall constitute a separate
2 violation.
3 Section 99. Effective date. This Act takes effect upon
4 becoming law.
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