Welcome to the Department of Justice, Iowa Attorney General Tom Miller

For immediate release - Tuesday, April 18, 2006.

Contact Bob Brammer - 515-281-6699.

Statement of Attorney General Tom Miller (Iowa)
and Attorney General Lawrence Wasden (Idaho),
Tobacco Committee Co-Chairs, National Association of Attorneys General

Yesterday, the Participating Manufacturers under the Master Settlement Agreement (MSA) made their annual payments to the States as required by the MSA. The large majority of the payment was made by the three major tobacco manufacturers. Of these, only one, Philip Morris, made its payment in full. The other two major cigarette manufacturers, Reynolds American and Lorillard, each paid to the States only about 82% of the amount that was due and paid the balance into a disputed-payment account, arguing that they are entitled to do so because of a potential Non-Participating Manufacturer (NPM) Adjustment that would reduce the payment. This withholding reduced their payments to the States by approximately $755 million.

The States believe that no NPM Adjustment will be found to apply and thus that they are entitled to receive the full payment due under the Agreement. Each State has enacted a Model Statute, under which Non-Participating Manufacturers are required to make payments into an escrow account based on their cigarette sales in the State, and the MSA provides that any State that has diligently enforced this Model Statute is immune from any reduction in payments. The States all believe that they have diligently enforced their Model Statutes and that they ultimately will receive the money in dispute.

Many states are expected to initiate prompt legal action in their state courts to ensure full payment. Contrary to a statement made yesterday by a spokesman for Reynolds, these issues are not subject to arbitration under the MSA and will be litigated in the courts of each state.

While very large amounts of money are paid as a result of the MSA, the MSA is primarily a public health agreement with strong prohibitions on numerous forms of advertising, promotion and marketing of cigarettes by Participating Manufacturers. Since the MSA was executed, cigarette sales in the United States have fallen by more than 21 percent. The number of cigarettes sold in the United States in 2005 was the lowest since 1951 although the U.S. population has doubled and per capita cigarette consumption in the United States is at its lowest level since the 1930s. The natural result of such a decline in sales--which is precisely what the negotiators of the MSA wanted to achieve--is a decline in revenues under the MSA. The States believe the public health gains resulting from reduced smoking more than compensate for this decline in MSA payments. The payments disputed by the cigarette companies now, however, are not related to this overall decline in cigarette sales, but rather are related to the allegations that companies outside the agreement had increased their share of the United States market at the expense of the major cigarette companies because of the MSA, and that the States have not diligently enforced their Model Statutes.

Although the States of course would have preferred to receive the full payment, the States nevertheless received over $5.7 billion in MSA payments, bringing the total paid under the MSA to over $47 billion since the agreement was executed.


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