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Public Act 91-0041
SB1183 Enrolled LRB9101846SMdv
AN ACT regarding tobacco.
Be it enacted by the People of the State of Illinois,
represented in the General Assembly:
Section 1. Short title. This Act may be cited as the
Tobacco Product Manufacturers' Escrow Act.
Section 5. Findings and Purpose.
(a) Cigarette smoking presents serious public health
concerns to the State of Illinois and to the citizens of the
State. The Surgeon General has determined that smoking
causes lung cancer, heart disease, and other serious
diseases, and that there are hundreds of thousands of
tobacco-related deaths in the United States each year. These
diseases most often do not appear until many years after the
person in question begins smoking.
(b) Cigarette smoking also presents serious financial
concerns for the State of Illinois. Under certain health
care programs, the State may have a legal obligation to
provide medical assistance to eligible persons for health
conditions associated with cigarette smoking, and those
persons may have a legal entitlement to receive such medical
assistance.
(c) Under these programs, the State pays millions of
dollars each year to provide medical assistance for these
persons for health conditions associated with cigarette
smoking.
(d) It is the policy of the State of Illinois that
financial burdens imposed on the State by cigarette smoking
be borne by tobacco product manufacturers rather than by the
State to the extent that such manufacturers either determine
to enter into a settlement with the State or are found
culpable by the courts.
(e) On November 23, 1998, leading United States tobacco
product manufacturers entered into a settlement agreement,
entitled the "Master Settlement Agreement", with the State of
Illinois. The Master Settlement Agreement obligates these
manufacturers, in return for a release of past, present, and
certain future claims against them as described in the
Agreement, to pay substantial sums to the State (tied in part
to their volume of sales); to fund a national foundation
devoted to the interests of public health; and to make
substantial changes in their advertising and marketing
practices and corporate culture, with the intention of
reducing underage smoking.
(f) It would be contrary to the policy of the State of
Illinois if tobacco product manufacturers who determine not
to enter into such a settlement could use a resulting cost
advantage to derive large, short-term profits in the years
before liability may arise without ensuring that the State
will have an eventual source of recovery from them if they
are proven to have acted culpably. It is thus in the
interest of the State of Illinois to require that such
manufacturers establish a reserve fund to guarantee a source
of compensation and to prevent such manufacturers from
deriving large, short-term profits and then becoming
judgment-proof before liability may arise.
Section 10. Definitions. As used in this Act:
"Adjusted for inflation" means increased in accordance
with the formula for inflation adjustment set forth in
Exhibit C to the Master Settlement Agreement.
"Affiliate" means a person who directly or indirectly
owns or controls, is owned or controlled by, or is under
common ownership or control with, another person. Solely for
purposes of this definition, the terms "owns", "is owned",
and "ownership" mean ownership of an equity interest, or the
equivalent thereof, of 10% or more, and the term "person"
means an individual, partnership, committee, association,
corporation, or any other organization or group of persons.
"Allocable share" means Allocable Share as that term is
defined in the Master Settlement Agreement.
"Cigarette" means any product that contains nicotine, is
intended to be burned or heated under ordinary conditions of
use, and consists of or contains:
(1) any roll of tobacco wrapped in paper or in any
substance not containing tobacco; or
(2) tobacco, in any form, that is functional in the
product, which, because of its appearance, the type of
tobacco used in the filler, or its packaging and labeling, is
likely to be offered to, or purchased by, consumers as a
cigarette; or
(3) any roll of tobacco wrapped in any substance
containing tobacco which, because of its appearance, the type
of tobacco used in the filler, or its packaging and labeling,
is likely to be offered to, or purchased by, consumers as a
cigarette described in item (1) of this definition.
"Cigarette" also means "roll-your-own" tobacco (i.e., any
tobacco which, because of its appearance, type, packaging, or
labeling is suitable for use and likely to be offered to, or
purchased by, consumers as tobacco for making cigarettes).
For purposes of this Act, 0.09 ounces of "roll-your-own"
tobacco shall constitute one individual cigarette.
"Master Settlement Agreement" means the settlement
agreement (and related documents) entered into on November
23, 1998 by the State of Illinois and leading United States
tobacco product manufacturers.
"Qualified escrow fund" means an escrow arrangement with
a federally or State chartered financial institution having
no affiliation with any tobacco product manufacturer and
having assets of at least $1,000,000,000 where such
arrangement requires that such financial institution hold the
escrowed funds' principal for the benefit of releasing
parties and prohibits the tobacco product manufacturer
placing the funds into escrow from using, accessing, or
directing the use of the funds' principal except as
consistent with subdivision (a)(2)(B) of Section 15 of this
Act.
"Released claims" means Released Claims as that term is
defined in the Master Settlement Agreement.
"Releasing parties" means Releasing Parties as that term
is defined in the Master Settlement Agreement.
"Tobacco Product Manufacturer" means any entity that,
after the effective date of this Act directly (and not
exclusively through any affiliate):
(1) manufactures cigarettes anywhere that such
manufacturer intends to be sold in the United States,
including cigarettes intended to be sold in the United States
through an importer (except where such importer is an
original participating manufacturer (as that term is defined
in the Master Settlement Agreement) that will be responsible
for the payments under the Master Settlement Agreement with
respect to such cigarettes as a result of the provisions of
subsection II(mm) of the Master Settlement Agreement and
that pays the taxes specified in subsection II(z) of the
Master Settlement Agreement, and provided that the
manufacturer of such cigarettes does not market or advertise
such cigarettes in the United States);
(2) is the first purchaser anywhere for resale in the
United States of cigarettes manufactured anywhere that the
manufacturer does not intend to be sold in the United States;
or
(3) becomes a successor of an entity described in items
(1) or (2).
"Tobacco Product Manufacturer" does not mean an affiliate of
a tobacco product manufacturer unless the affiliate itself
falls within any of items (1) through (3) of this
definition.
"Units sold" means the number of individual cigarettes
sold in the State of Illinois by the applicable tobacco
product manufacturer (whether directly or through a
distributor, retailer, or similar intermediary or
intermediaries) during the year in question, as measured by
excise taxes collected by the State on packs (or
"roll-your-own" tobacco containers) bearing the excise tax
stamp of the State. The Illinois Department of Revenue shall
promulgate such rules as are necessary to ascertain the
amount of State excise tax paid on the cigarettes of such
tobacco product manufacturer for each year.
Section 15. Requirements.
(a) Any tobacco product manufacturer selling cigarettes
to consumers within the State of Illinois (whether directly
or through a distributor, retailer, or similar intermediary
or intermediaries) after the effective date of this Act shall
do one of the following:
(1) become a participating manufacturer (as that
term is defined in Section II(jj) of the Master
Settlement Agreement) and generally perform its
financial obligations under the Master Settlement
Agreement; or
(2) (A) place into a qualified escrow fund by April
15 of the year following the year in question the
following amounts (as such amounts are adjusted for
inflation):
(i) For 1999: $0.0094241 per unit sold
after the effective date of this Act;
(ii) For 2000: $0.0104712 per unit sold;
(iii) For each of 2001 and 2002:
$0.0136125 per unit sold;
(iv) For each of 2003 through 2006:
$0.0167539 per unit sold;
(v) For each of 2007 and each year
thereafter: $0.0188482 per unit sold.
(B) A tobacco product manufacturer that places
funds into escrow pursuant to subdivision (a)(2)(A)
shall receive the interest or other appreciation on
the funds as earned. The funds themselves shall be
released from escrow only under the following
circumstances:
(i) to pay a judgment or settlement on
any released claim brought against the tobacco
product manufacturer by the State or any
releasing party located or residing in the
State. Funds shall be released from escrow
under this subdivision (a)(2)(B)(i): (I) in
the order in which they were placed into
escrow; and (II) only to the extent and at the
time necessary to make payments required under
such judgment or settlement;
(ii) to the extent that a tobacco product
manufacturer establishes that the amount it was
required to place into escrow in a particular
year was greater than the State's allocable
share of the total payments that such
manufacturer would have been required to make
in that year under the Master Settlement
Agreement (as determined pursuant to Section
IX(i)(2) of the Master Settlement Agreement,
and before any of the adjustments or offsets
described in Section IX(i)(3) of that Agreement
other than the Inflation Adjustment) had it
been a participating manufacturer, the excess
shall be released from escrow and revert back
to such tobacco product manufacturer; or
(iii) to the extent not released from
escrow under subdivisions (a)(2)(B)(i) or
(a)(2)(B)(ii), funds shall be released from
escrow and revert back to such tobacco product
manufacturer 25 years after the date on which
they were placed into escrow.
(C) Each tobacco product manufacturer that
elects to place funds into escrow pursuant to this
subdivision (a)(2) shall annually certify to the
Attorney General that it is in compliance with this
subdivision (a)(2). The Attorney General may bring
a civil action on behalf of the State of Illinois
against any tobacco product manufacturer that fails
to place into escrow the funds required under this
subdivision (a)(2). Any tobacco product
manufacturer that fails in any year to place into
escrow the funds required under this subdivision
(a)(2) shall:
(i) be required within 15 days to place
such funds into escrow as shall bring it into
compliance with this Section. The court, upon
a finding of a violation of this subdivision
(a)(2), may impose a civil penalty to be paid
into the General Revenue Fund in an amount not
to exceed 5% of the amount improperly withheld
from escrow per day of the violation and in a
total amount not to exceed 100% of the original
amount improperly withheld from escrow;
(ii) in the case of a knowing violation,
be required within 15 days to place such funds
into escrow as shall bring it into compliance
with this Section. The court, upon a finding
of a knowing violation of this subdivision
(a)(2), may impose a civil penalty to be paid
into the General Revenue Fund in an amount not
to exceed 15% of the amount improperly withheld
from escrow per day of the violation and in a
total amount not to exceed 300% of the original
amount improperly withheld from escrow; and
(iii) in the case of a second knowing
violation, be prohibited from selling
cigarettes to consumers within the State of
Illinois (whether directly or through a
distributor, retailer, or similar intermediary)
for a period not to exceed 2 years.
(b) Each failure to make an annual deposit required
under this Section shall constitute a separate violation. If
a tobacco product manufacturer is successfully prosecuted by
the Attorney General for a violation of subdivision (a)(2),
the tobacco product manufacturer must pay, in addition to any
fine imposed by a court, the State's costs and attorney's
fees incurred in the prosecution.
Section 999. Effective Date. This Act takes effect upon
becoming law.
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