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Washington, D.C. – The Truth in Settlements Act, introduced jointly today by U.S. Sens. Elizabeth Warren (D-MA) and Tom Coburn (R-OK), would require federal agencies to publicly disclosure the terms of large settlements negotiated with corporations to resolve alleged violations of criminal or civil law.
The bill comes on the heels of a year of record-breaking settlements in Wall Street and other industries. The details of many of the past year’s settlements remain undisclosed to the public.
"When government agencies reach settlements with companies that break the law, they should disclose the terms of those deals to the public,” said Sen. Elizabeth Warren (D-MA). “Anytime an agency decides that an enforcement action is needed, but it is not willing to go to court, that agency should be willing to disclose the key terms and conditions of the agreement. Increased transparency will shut down backroom deal-making and ensure that Congress, citizens and watchdog groups can hold regulatory agencies accountable for strong and effective enforcement that benefits the public interest.”
“Taxpayers deserve to know the settlement details corporations arrange with the government, and the best place for Congress to start is with policies that enhance transparency,” Sen. Tom Coburn (R-OK) said. “Since agencies are not currently required to disclose the financial structure of government settlements, too often the true value of those settlements is not known because often companies are allowed to deduct part of the payment. Our bill gives taxpayers the transparency tools they need to access real information and numbers regarding enforcement settlements.”
The bill will require federal agencies to explain in written public statements that reference the settlement amount whether any portion of that amount is potentially tax deductible. It will also require agencies to disclose other key details of all settlement agreements and to post copies of such agreements online. Any settlement deemed confidential by an agency will require a written reason for its confidentiality.
“The fact that these two Senators who so often disagree came together on this bill shows a broad consensus that governmental deal making over corporate misdeeds should happen in full view of the public,” said Francisco Enriquez, U.S. Public Interest Research Group Tax and Budget Program Associate. “Americans deserve truth in advertising from the federal agencies that work on their behalf. The public should know how much settlements are worth and whether they include hidden subsidies or sweeteners that taxpayers must ultimately foot the bill for.”
While federal law forbids companies from deducting public fines and penalties from their taxes, companies that resolve charges through a legal settlement typically manage to deduct the penalties as a tax write-off unless specifically forbidden from doing so. In essence, companies are allowed to receive a tax break for their wrongdoing without the public ever knowing it.
In addition, the bill mandates that agencies make clear if the settlement amount includes “credits” for routine conduct, as happened in 2012 when the $25 billion National Mortgage Settlement included $17 billion in credits for activities such as demolishing homes that were already standard practice for the settling banks. Credits represented nearly 70 percent of the settlement value.
“This is an important step towards making government more accountable to the American people,” Enriquez said.
You can read U.S. PIRG’s research report on the tax implications of legal settlements, “Subsidizing Bad Behavior: How Corporate Legal Settlements for Harming the Public Become Lucrative Tax Write-Offs.”
See additional U.S. PIRG’s commentary on today’s bill introduction in the Huffington Post.
For U.S.PIRG’s statement on yesterday’s JPMorgan settlement that saved taxpayers $595 million by forbidding tax-deductibility, see “Regulators Disallow Tax Deduction for JPMorgan’s $1.7 Billion Settlement, Saving Taxpayers Close to $600 Million.”
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