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91_SB1183enr
SB1183 Enrolled 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.
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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 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
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1 equivalent thereof, of 10% or more, and the term "person"
2 means an individual, partnership, committee, association,
3 corporation, or any other organization or group of persons.
4 "Allocable share" means Allocable Share as that term is
5 defined in the Master Settlement Agreement.
6 "Cigarette" means any product that contains nicotine, is
7 intended to be burned or heated under ordinary conditions of
8 use, and consists of or contains:
9 (1) any roll of tobacco wrapped in paper or in any
10 substance not containing tobacco; or
11 (2) tobacco, in any form, that is functional in the
12 product, which, because of its appearance, the type of
13 tobacco used in the filler, or its packaging and labeling, is
14 likely to be offered to, or purchased by, consumers as a
15 cigarette; or
16 (3) any roll of tobacco wrapped in any substance
17 containing tobacco which, because of its appearance, the type
18 of tobacco used in the filler, or its packaging and labeling,
19 is likely to be offered to, or purchased by, consumers as a
20 cigarette described in item (1) of this definition.
21 "Cigarette" also means "roll-your-own" tobacco (i.e., any
22 tobacco which, because of its appearance, type, packaging, or
23 labeling is suitable for use and likely to be offered to, or
24 purchased by, consumers as tobacco for making cigarettes).
25 For purposes of this Act, 0.09 ounces of "roll-your-own"
26 tobacco shall constitute one individual cigarette.
27 "Master Settlement Agreement" means the settlement
28 agreement (and related documents) entered into on November
29 23, 1998 by the State of Illinois and leading United States
30 tobacco product manufacturers.
31 "Qualified escrow fund" means an escrow arrangement with
32 a federally or State chartered financial institution having
33 no affiliation with any tobacco product manufacturer and
34 having assets of at least $1,000,000,000 where such
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1 arrangement requires that such financial institution hold the
2 escrowed funds' principal for the benefit of releasing
3 parties and prohibits the tobacco product manufacturer
4 placing the funds into escrow from using, accessing, or
5 directing the use of the funds' principal except as
6 consistent with subdivision (a)(2)(B) of Section 15 of this
7 Act.
8 "Released claims" means Released Claims as that term is
9 defined in the Master Settlement Agreement.
10 "Releasing parties" means Releasing Parties as that term
11 is defined in the Master Settlement Agreement.
12 "Tobacco Product Manufacturer" means any entity that,
13 after the effective date of this Act directly (and not
14 exclusively through any affiliate):
15 (1) manufactures cigarettes anywhere that such
16 manufacturer intends to be sold in the United States,
17 including cigarettes intended to be sold in the United States
18 through an importer (except where such importer is an
19 original participating manufacturer (as that term is defined
20 in the Master Settlement Agreement) that will be responsible
21 for the payments under the Master Settlement Agreement with
22 respect to such cigarettes as a result of the provisions of
23 subsection II(mm) of the Master Settlement Agreement and
24 that pays the taxes specified in subsection II(z) of the
25 Master Settlement Agreement, and provided that the
26 manufacturer of such cigarettes does not market or advertise
27 such cigarettes in the United States);
28 (2) is the first purchaser anywhere for resale in the
29 United States of cigarettes manufactured anywhere that the
30 manufacturer does not intend to be sold in the United States;
31 or
32 (3) becomes a successor of an entity described in items
33 (1) or (2).
34 "Tobacco Product Manufacturer" does not mean an affiliate of
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1 a tobacco product manufacturer unless the affiliate itself
2 falls within any of items (1) through (3) of this
3 definition.
4 "Units sold" means the number of individual cigarettes
5 sold in the State of Illinois by the applicable tobacco
6 product manufacturer (whether directly or through a
7 distributor, retailer, or similar intermediary or
8 intermediaries) during the year in question, as measured by
9 excise taxes collected by the State on packs (or
10 "roll-your-own" tobacco containers) bearing the excise tax
11 stamp of the State. The Illinois Department of Revenue shall
12 promulgate such rules as are necessary to ascertain the
13 amount of State excise tax paid on the cigarettes of such
14 tobacco product manufacturer for each year.
15 Section 15. Requirements.
16 (a) Any tobacco product manufacturer selling cigarettes
17 to consumers within the State of Illinois (whether directly
18 or through a distributor, retailer, or similar intermediary
19 or intermediaries) after the effective date of this Act shall
20 do one of the following:
21 (1) become a participating manufacturer (as that
22 term is defined in Section II(jj) of the Master
23 Settlement Agreement) and generally perform its
24 financial obligations under the Master Settlement
25 Agreement; or
26 (2) (A) place into a qualified escrow fund by April
27 15 of the year following the year in question the
28 following amounts (as such amounts are adjusted for
29 inflation):
30 (i) For 1999: $0.0094241 per unit sold
31 after the effective date of this Act;
32 (ii) For 2000: $0.0104712 per unit sold;
33 (iii) For each of 2001 and 2002:
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1 $0.0136125 per unit sold;
2 (iv) For each of 2003 through 2006:
3 $0.0167539 per unit sold;
4 (v) For each of 2007 and each year
5 thereafter: $0.0188482 per unit sold.
6 (B) A tobacco product manufacturer that places
7 funds into escrow pursuant to subdivision (a)(2)(A)
8 shall receive the interest or other appreciation on
9 the funds as earned. The funds themselves shall be
10 released from escrow only under the following
11 circumstances:
12 (i) to pay a judgment or settlement on
13 any released claim brought against the tobacco
14 product manufacturer by the State or any
15 releasing party located or residing in the
16 State. Funds shall be released from escrow
17 under this subdivision (a)(2)(B)(i): (I) in
18 the order in which they were placed into
19 escrow; and (II) only to the extent and at the
20 time necessary to make payments required under
21 such judgment or settlement;
22 (ii) to the extent that a tobacco product
23 manufacturer establishes that the amount it was
24 required to place into escrow in a particular
25 year was greater than the State's allocable
26 share of the total payments that such
27 manufacturer would have been required to make
28 in that year under the Master Settlement
29 Agreement (as determined pursuant to Section
30 IX(i)(2) of the Master Settlement Agreement,
31 and before any of the adjustments or offsets
32 described in Section IX(i)(3) of that Agreement
33 other than the Inflation Adjustment) had it
34 been a participating manufacturer, the excess
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1 shall be released from escrow and revert back
2 to such tobacco product manufacturer; or
3 (iii) to the extent not released from
4 escrow under subdivisions (a)(2)(B)(i) or
5 (a)(2)(B)(ii), funds shall be released from
6 escrow and revert back to such tobacco product
7 manufacturer 25 years after the date on which
8 they were placed into escrow.
9 (C) Each tobacco product manufacturer that
10 elects to place funds into escrow pursuant to this
11 subdivision (a)(2) shall annually certify to the
12 Attorney General that it is in compliance with this
13 subdivision (a)(2). The Attorney General may bring
14 a civil action on behalf of the State of Illinois
15 against any tobacco product manufacturer that fails
16 to place into escrow the funds required under this
17 subdivision (a)(2). Any tobacco product
18 manufacturer that fails in any year to place into
19 escrow the funds required under this subdivision
20 (a)(2) shall:
21 (i) be required within 15 days to place
22 such funds into escrow as shall bring it into
23 compliance with this Section. The court, upon
24 a finding of a violation of this subdivision
25 (a)(2), may impose a civil penalty to be paid
26 into the General Revenue Fund in an amount not
27 to exceed 5% of the amount improperly withheld
28 from escrow per day of the violation and in a
29 total amount not to exceed 100% of the original
30 amount improperly withheld from escrow;
31 (ii) in the case of a knowing violation,
32 be required within 15 days to place such funds
33 into escrow as shall bring it into compliance
34 with this Section. The court, upon a finding
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1 of a knowing violation of this subdivision
2 (a)(2), may impose a civil penalty to be paid
3 into the General Revenue Fund in an amount not
4 to exceed 15% of the amount improperly withheld
5 from escrow per day of the violation and in a
6 total amount not to exceed 300% of the original
7 amount improperly withheld from escrow; and
8 (iii) in the case of a second knowing
9 violation, be prohibited from selling
10 cigarettes to consumers within the State of
11 Illinois (whether directly or through a
12 distributor, retailer, or similar intermediary)
13 for a period not to exceed 2 years.
14 (b) Each failure to make an annual deposit required
15 under this Section shall constitute a separate violation. If
16 a tobacco product manufacturer is successfully prosecuted by
17 the Attorney General for a violation of subdivision (a)(2),
18 the tobacco product manufacturer must pay, in addition to any
19 fine imposed by a court, the State's costs and attorney's
20 fees incurred in the prosecution.
21 Section 999. Effective Date. This Act takes effect upon
22 becoming law.
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