{"data":{"id":"us-ky/krs-131.602","jurisdiction":"us-ky","citation":"KRS 131.602","heading":"Tobacco product manufacturer's options to become participating","body":"manufacturer or to contribute to qualified escrow fund on quarterly basis --\nManagement of escrow fund -- Penalties for failure to place required funds in\nescrow -- Assignment of escrow fu nds to Commonwealth -- Credit of assigned\nfunds against judgment -- Opinion of Attorney General required prior to\nassignment -- Importers jointly and severally liable with non -U.S.\nmanufacturers for escrow amounts -- Posting of financial instrument.\n(1) Any tobacco product manufacturer selling cigarettes to consumers within this state,\nwhether directly or through a distributor, retailer, or similar intermediary or\nintermediaries, after June 30, 2000, shall do one (1) of the following:\n(a) Become a participating manufacturer, as that term is defined in section II(jj) of\nthe master settlement agreement, and generally perform its financial\nobligations under the master settlement agreement; or\n(b) 1. Place into a qualified escrow fund the following amounts, as  adjusted\nfor inflation:\na. For 2000: $0.0104712 per unit sold after June 30, 2000;\nb. For each of 2001 and 2002: $0.0136125 per unit sold;\nc. For each of 2003 through 2006: $0.0167539 per unit sold; and\nd. For 2007 and each year thereafter: $0.0188482 per unit sold; and\n2. Post a financial instrument with the Attorney General as provided in\nsubsection (10) of this section.\n(2) The nonparticipating manufacturer shall place the amount required under this\nsection into the qualified escrow fund on a quarterly basis.\n(3) A nonparticipating manufacturer that places funds into escrow pursuant to this\nsection shall receive the interest or other appreciation on such funds as earned. Such\nfunds themselves shall be released from escrow only under the following\ncircumstances:\n(a) To pay a judgment or settlement on any released claim brought against the\nnonparticipating manufacturer by Kentucky or any releasing party located or\nresiding in Kentucky. Funds shall be released from escrow under this\nparagraph in the order in which they were placed into escrow and only to the\nextent and at the time necessary to make payments required under the\njudgment or settlement;\n(b) To the extent that a nonparticipating manufacturer establishes that the amount\nit was required to place into escrow on account of units sold in the state in a\nparticular year was greater than the master settlement agreement payments, as\ndetermined pursuant to section IX(i) of that agreement, including after final\ndetermination of all adjustments, that the nonparticipating manufacturer\nwould have been required to make on account of the units sold had it been a\nparticipating manufacturer, the excess shall be released from escrow and\nrevert back to the nonparticipating manufacturer; or\n(c) To the extent not released from escro w under paragraph (a) or (b) of this\nsubsection, funds shall be released from escrow and revert back to the\nnonparticipating manufacturer twenty -five (25) years after the date on which\nthey were placed into escrow.\n(4) Each nonparticipating manufacturer sh all annually certify to the Attorney General\nthat it is in compliance with KRS 131.600 to 131.630, 138.130 to 138.205, 248.752,\nand 248.754 and any administrative regulations promulgated thereunder.\n(5) In addition to subsection (10)(g) of this section, th e Attorney General may bring a\ncivil action on behalf of Kentucky against any nonparticipating manufacturer that\nfails in any quarter to place into escrow the funds required under this section. Any\nnonparticipating manufacturer that fails in any quarter to  place into escrow the\nfunds required under this section shall:\n(a) Be required within fifteen (15) days to place sufficient funds into escrow to\nbring it into compliance with this section. The court, upon a finding of a\nviolation of this section, may impo se a civil penalty, to be paid to the general\nfund of Kentucky, in an amount not to exceed five percent (5%) of the amount\nimproperly withheld from escrow per day of the violation and in a total\namount not to exceed one hundred percent (100%) of the origin al amount\nimproperly withheld from escrow;\n(b) In the case of a knowing violation, be required within fifteen (15) days to\nplace sufficient funds into escrow to bring it into compliance with this section.\nThe court, upon a finding of a knowing violation of this section, may impose a\ncivil penalty, to be paid to the general fund of Kentucky, in an amount not to\nexceed fifteen percent (15%) of the amount improperly withheld from escrow\nper day of the violation and in a total amount not to exceed three hundred\npercent (300%) of the original amount improperly withheld from escrow; and\n(c) In the case of a second knowing violation, be prohibited from selling\ncigarettes to consumers within Kentucky, whether directly or through a\ndistributor, retailer, or similar i ntermediary, for a period not to exceed two (2)\nyears or, if later, until fully compliant with KRS 131.600 to 131.630, 138.130\nto 138.205, 248.752, and 248.754 and any administrative regulations\npromulgated thereunder.\nEach failure to place sufficient funds into escrow as required under this section on a\nquarterly basis as required by subsection (2) of this section shall constitute a\nseparate violation.\n(6) Notwithstanding the provisions of subsection (3) of this section, a nonparticipating\nmanufacturer th at elects to place funds into escrow pursuant to this section may\nmake an irrevocable assignment of its interest in the funds to the benefit of the\nCommonwealth of Kentucky. Such assignment shall be permanent and apply to all\nfunds in the subject qualified  escrow fund or that may subsequently come into the\nfund, including those deposited into the qualified escrow fund prior to the\nassignment being executed, those deposited into the qualified escrow fund after the\nassignment is executed, and interest or othe r appreciation on the funds. The\nnonparticipating manufacturer, the Attorney General, and the financial institution\nwhere the qualified escrow fund is maintained may make amendments to the\nqualified escrow fund agreement as may be necessary to effectuate an assignment of\nrights executed pursuant to this subsection or a withdrawal of funds from the\nqualified escrow fund pursuant to subsection (7) of this section. An assignment of\nrights executed pursuant to this subsection shall be in writing, signed by a du ly\nauthorized representative of the nonparticipating manufacturer making the\nassignment, and shall become effective upon delivery of the assignment to the\nAttorney General and the financial institution where the qualified escrow fund is\nmaintained.\n(7) Notwithstanding the provisions of subsection (3) of this section, any escrow funds\nassigned to the Commonwealth pursuant to subsection (6) of this section shall be\nwithdrawn by the Commonwealth upon request by the Treasurer of the\nCommonwealth and approval of  the Attorney General. Any funds withdrawn\npursuant to this subsection shall be deposited in the general fund and shall be\ncalculated on a dollar-for-dollar basis as a credit against any judgment or settlement\ndescribed in subsection (3)(a) of this section  which may be obtained against the\nnonparticipating manufacturer who has assigned the funds in the subject qualified\nescrow fund. Nothing in this subsection or in subsection (6) of this section shall be\nconstrued to relieve a nonparticipating manufacturer from any past, current, or\nfuture obligations the manufacturer may have pursuant to this chapter.\n(8) Notwithstanding subsections (6) and (7) of this section, no assignment of escrows\ncreated pursuant to this section shall be made by a nonparticipating manufacturer, or\nshall be accepted by the Treasurer of the Commonwealth, unless and until the\nAttorney General has provided an opinion to the Treasurer, with a copy of the\nopinion provided to the Governor and the Legislative Research Commission, that\namendments to KRS 131.600 and subsections (6) and (7) of this section shall not\nsubstantially jeopardize the Commonwealth's payments under the master settlement\nagreement.\n(9) For any nonparticipating manufacturer that is located outside the United States,\neach importer of the nonparticipating manufacturer's cigarettes shall be jointly and\nseverally liable with the nonparticipating manufacturer for the deposit of all escrow\namounts due under subsection (1) of this section, and the payment of all civil\npenalties imposed under subsection (5) of this section for the units sold in this state.\n(10) (a) A nonparticipating manufacturer shall post a financial instrument with the\nAttorney General as a condition of the nonparticipating manufacturer and its\nbrand families being included in the state directory for that quarter.\n(b) The amount of the financial instrument shall be the greater of fifty thousand\ndollars ($50,000) or the greatest required escrow amount due from the\nnonparticipating manufacturer or its predecessor for  the immediately\npreceding twelve (12) calendar quarters.\n(c) The financial instrument shall be posted at least ten (10) days in advance of\neach calendar quarter.\n(d) The nonparticipating manufacturer shall be the obligor.\n(e) The State Treasurer shall be the obligee.\n(f) The financial instrument shall be conditioned on the performance by the\nnonparticipating manufacturer of all of its escrow deposit and other financial\nobligations under Kentucky law.\n(g) In addition to subsection (5) of this section, if:\n1. The nonparticipating manufacturer fails to make its escrow deposits\nequal to the full amount owed for the quarter within thirty (30) days\nfollowing the end of the quarter, the Attorney General may execute the\nfinancial instrument in the amount equal to a ny remaining amount of\nescrow due. The amount collected shall be deposited in the general fund\nand shall reduce the amount of escrow due from the nonparticipating\nmanufacturer by the dollar amount collected. Escrow obligations that\nremain after the collect ion on the financial instrument shall remain due\nfrom the nonparticipating manufacturer and each of its importers; and\n2. The Attorney General obtains a judgment against the nonparticipating\nmanufacturer for its failure to make the required escrow deposit,  the\nAttorney General may also execute on the financial instrument to\nrecover the amount of the costs of investigation, expert witness fees,\ncosts of action, civil penalties, and attorneys' fees obtained in that\njudgment. Funds collected from the financial  instrument shall be\ncounted first toward the amount of escrow due but not deposited into\nescrow by the nonparticipating manufacturer.","path":["KRS Chapter 131"],"source_url":"https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=44701","current_through":"Includes enactments through the 2026 Regular Session","vintage":"09/05/2026","retrieved_at":"2026-09-05T20:50:22Z","sha256":"b90d14bad0ffa3280b66f9e7707c9daf52fa61c8b7678e30e6ea9ae61e55d660","source_id":"us-ky","stale":false,"prev":"us-ky/krs-131.600","next":"us-ky/krs-131.604"},"notice":"GroundRules: Original legal text. Not legal advice."}