State of Illinois
91st General Assembly
Legislation

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91_SB1183

 
                                               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  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.
 
                            -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 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
 
                            -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;
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
 
                            -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).
 
                            -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)  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
 
                            -6-                LRB9101846SMdv
 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
 
                            -7-                LRB9101846SMdv
 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
 
                            -8-                LRB9101846SMdv
 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.

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