[Senate Report 114-76]
[From the U.S. Government Publishing Office]
Calendar No. 140
114th Congress } { Report
SENATE
1st Session } { 114-76
______________________________________________________________________
TRUTH IN SETTLEMENTS ACT OF 2015
__________
R E P O R T
of the
COMMITTEE ON HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
to accompany
S. 1109
TO REQUIRE ADEQUATE INFORMATION REGARDING THE TAX
TREATMENT OF PAYMENTS UNDER SETTLEMENT AGREEMENTS
ENTERED INTO BY FEDERAL AGENCIES, AND FOR OTHER PURPOSES
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
July 7, 2015.--Ordered to be printed
______
U.S. GOVERNMENT PUBLISHING OFFICE
49-010 WASHINGTON : 2015
COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
RON JOHNSON, Wisconsin Chairman
JOHN McCAIN, Arizona THOMAS R. CARPER, Delaware
ROB PORTMAN, Ohio CLAIRE McCASKILL, Missouri
RAND PAUL, Kentucky JON TESTER, Montana
JAMES LANKFORD, Oklahoma TAMMY BALDWIN, Wisconsin
MICHAEL B. ENZI, Wyoming HEIDI HEITKAMP, North Dakota
KELLY AYOTTE, New Hampshire CORY A. BOOKER, New Jersey
JONI ERNST, Iowa GARY C. PETERS, Michigan
BEN SASSE, Nebraska
Keith B. Ashdown, Staff Director
Christopher R. Hixon, Chief Counsel
Patrick J. Bailey, Chief Counsel for Governmental Affairs
Gabrielle D'Adamo Singer, Deputy Chief Counsel for Governmental Affairs
Courtney J. Allen, Counsel
Gabrielle A. Batkin, Minority Staff Director
John P. Kilvington, Minority Deputy Staff Director
Mary Beth Schultz, Minority Chief Counsel
Troy H. Cribb, Minority Chief Counsel for Governmental Affairs
Laura W. Kilbride, Chief Clerk
C O N T E N T S
Page
I. Purpose and Summary..............................................1
II. Background and Need for the Legislation..........................1
III. Legislative History..............................................3
IV. Section-by-Section Analysis......................................3
V. Evaluation of Regulatory Impact..................................5
VI. Congressional Budget Office Cost Estimate........................5
VII. Changes in Existing Law Made by the Bill, as Reported............6
Calendar No. 140
114th Congress } { Report
SENATE
1st Session } { 114-76
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TRUTH IN SETTLEMENTS ACT OF 2015
_______
July 7, 2015.--Ordered to be printed
_______
Mr. Johnson, from the Committee on Homeland Security and Governmental
Affairs, submitted the following
R E P O R T
[To accompany S. 1109]
The Committee on Homeland Security and Governmental
Affairs, to which was referred the bill (S. 1109), to require
adequate information regarding the tax treatment of payments
under settlement agreements entered into by Federal agencies,
and for other purposes, having considered the same, reports
favorably thereon without amendment and recommends that the
bill do pass.
I. Purpose and Summary
The Truth in Settlements Act seeks to provide more
transparency and public access to the terms and conditions
under which federal agencies settle enforcement actions or
other cases brought against non-government entities and
involving payments of at least one million dollars.
II. Background and the Need for Legislation
Executive agencies are entrusted with the responsibility of
enforcing federal laws and holding non-government entities
accountable when they violate these laws. Federal enforcement
actions can be resolved through settlement agreements under
which the party under federal investigation agrees to make a
payment to the government. In recent years, Executive agencies
have entered into settlement agreements in which the settling
party or parties agree to make millions to billions of dollars
in payments to the government, such as the government's
settlement agreements with Bank of America,\1\ JPMorgan
Chase,\2\ Standard & Poor's,\3\ and Anadarko Petroleum Corp.\4\
However, under existing law, there is no requirement for
Executive agencies to publicly disclose how many settlement
agreements the government enters into and the terms of these
agreements, making it difficult for the public to easily access
this information.
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\1\U.S. Department of Justice, Press Release: Bank of America to
Pay $16.65 Billion in Historic Settlement for Financial Fraud Leading
up to and During the Financial Crisis, Aug. 21, 2014, http://
www.justice.gov/opa/pr/bank-america-pay-1665-billion-historic-justice-
department-
settlement-financial-fraud-leading.
\2\U.S. Department of Justice, Press Release: Justice Department,
Federal and state Partners Secure Record $13 Billion Global Settlement
with JP Morgan for Misleading Investors About securities Containing
Toxic Mortgages, Nov. 19, 2013, http://www.justice.gov/opa/pr/justice-
department-federal-and-state-partners-secure-record-13-billion-global-
settlement. See also U.S. Department of Justice, Press Release:
JPMorgan Chase to Pay $614 Million for Submitting False Claims for FHA-
insured and VA-guaranteed Mortgage Loans, Feb. 7, 2014, http://
www.justice.gov/opa/pr/jpmorgan-chase-pay-614-million-submitting-false-
claims-fha-insured-and-va-guaranteed-mortgage.
\3\U.S. Department of Justice, Press Release: Justice Department
and State Partners Secure $1.375 Billion Settlement with S&P for
Defrauding Investors in the Lead Up to the Financial Crisis, Feb. 3,
2015, http://www.justice.gov/opa/pr/justice-department-and-state-
partners-
secure-1375-billion-settlement-sp-defrauding-investors.
\4\U.S. Department of Justice, Press Release: Historic $5.15
Billion Environmental and Tort Settlement with Anadarko Petroleum Corp.
Goes into Effect, Jan. 23, 2015, http://www.justice.gov/opa/pr/
historic-515-billion-environmental-and-tort-settlement-anadarko-
petroleum-corp-goes-effect-0.
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Additionally, when Executive agencies do publicly disclose
information about a settlement agreement, there are no uniform
standards for what type of information must be disclosed. This
lack of public disclosure requirements allows Executive
agencies to omit key information about the terms of settlement
agreements in written public statements. For example, the tax
code prohibits the deduction of ``any fine or similar penalty
paid to a government for the violation of any law.''\5\ The
Government Accountability Office has reported ``[i]n general,
payments that are intended to punish (punitive payments) a
violator are not deductible and payments made to compensate
(compensatory payments) those who were harmed by a violation
are deductible under federal law. Nevertheless, it may not
always be clear which payments are deductible, in part because
the Internal Revenue Code (IRC) does not address the
deductibility of all types of payments that may be made
pursuant to a civil settlement and that statutes imposing the
payments may be unclear regarding whether they are punitive,
compensatory, or both.''\6\ Additionally, a settling party may
earn ``credits'' toward the settlement amount for certain
conduct.\7\ Therefore, without a uniform standard for public
disclosure of settlement agreements, Executive agencies may not
be communicating to the public the actual amount that will be
paid by the settling party.
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\5\26 U.S.C. Sec. 162(f).
\6\U.S. Government Accountability Office, Tax Administration:
Systematic Information Sharing Would Help IRS Determine the
Deductibility of Civil Settlement Payments, GAO-05-757, 1, Sept. 2005,
available at http://www.gao.gov/products/GAO-05-747.
\7\Schmit, Julie, ``Foreclosure settlement to distribute $3.6
billion,'' USA Today, Feb. 28, 2013, http://www.usatoday.com/story/
money/business/2013/02/28/foreclosure-settlement-banks/1954871/. See
also Dewan, Shalia and Silver-Greenburg, Jessica, ``Foreclosure deal
credits banks for routine efforts,'' New York Times, Mar. 27, 2012,
http://www.nytimes.com/2012/03/28/business/foreclosure-deal-gives-
banks-credit-for-routine-activities.html.
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Finally, there is no requirement for Executive agencies to
disclose when a settlement agreement (or a portion thereof) is
determined to be confidential and the justification for
confidentiality. Therefore, Executive agencies can enter into
confidential settlement agreements on behalf of the public
without explaining to the public why the agreement needs to be
confidential.\8\
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\8\Campbell, Dakin, ``Wells Fargo Said to Settle FHFA Claims for
Less Than $1 Billion,'' Bloomberg Business, Oct. 31, 2013, http://
www.bloomberg.com/news/articles/2013-10-31/wells-fargo-said-to-settle-
fhfa-claims-for-less-than-1-billion.
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The Truth in Settlements Act addresses current gaps in
public transparency in settlement agreements entered into by
Executive agencies and non-governmental entities for violations
of federal law. The bill does so by establishing new, uniform,
government-wide standards for information disclosed to the
American public about settlement agreements entered into to
redress a violation of federal law. The bill requires agencies
to post copies of settlement agreements involving payments of
at least one million dollars by non-government entities and to
disclose basic information about those agreements online in a
publicly accessible and searchable format. The bill further
requires agencies to disclose certain information in written
public statements that describe the amount to be paid under a
settlement agreement. If an agency determines that some or all
of the settlement agreement must be kept confidential, the bill
requires the agency to issue a public statement explaining the
interests protected by confidentiality and why those interests
outweigh the public's right to full transparency of government
actions and expenditures.
III. Legislative History
On April 28, 2015, Senators Warren and Lankford introduced
the Truth in Settlements Act of 2015 (S. 1109). S. 1109 was
referred to the Senate Committee on Homeland Security and
Governmental Affairs. Senator Baldwin is also a cosponsor of
the bill.
The Committee considered S. 1109 at a business meeting on
May 6, 2015. The Committee ordered S. 1109 reported favorably
by voice vote, en bloc. Senators present for the vote were
Senators Johnson, McCain, Portman, Lankford, Ernst, Sasse,
Carper, McCaskill, Baldwin, Heitkamp, and Peters.
IV. Section-by-Section Analysis of the Bill, as Reported
Section 1. Short title
This section establishes the short title of the bill as the
``Truth in Settlements Act of 2015.''
Section 2. Information regarding settlement agreements entered into by
Federal agencies
Section 2(a) would create a new statutory provision, 5
U.S.C. Sec. 307.
New section 307(a) defines key terms under the bill. The
term ``covered settlement agreement'' means a settlement
agreement (including a consent decree) that is entered into by
an Executive agency, relates to an alleged violation of Federal
civil or criminal law, and requires the payment of a total of
not less than $1,000,000 by one or more non-Federal persons.
The term ``entity within the Federal Government'' includes an
officer or employee of the Federal Government acting in an
official capacity. The term ``non-Federal person'' means a
person that is ``not an entity within the Federal Government.''
New section 307(b) would require Executive agencies that
enter into covered settlement agreements to post copies of
those agreements on their agency website in a searchable format
and to post certain information about the agreements. This
information includes the date the agreement was entered into,
the names of the settling parties, a description of the claims
each party settled, the amount each settling party is obligated
to pay, and the total amount the settling parties are obligated
to pay. This information must also include, for each settling
party, the amount that is expressly specified as a civil or
criminal penalty or fine, and the amount that is expressly
specified as not tax deductible. Agencies are not prohibited
from entering into confidential settlement agreements and are
not required to post information about agreements, or portions
thereof, that are subject to confidentiality provisions.
Agencies must post this information online for at least five
years and post copies of the agreement online for at least one
year (or at least five years if the settlement amount totals
$50 million or more).
New section 307(c) would require an agency to issue a
public statement if an agency determines that a covered
settlement agreement should be subject to a confidentiality
provision in order to protect the public interest. This public
statement must explain what interests confidentiality protects
and why the interests protected by confidentiality outweigh the
public's interest in knowing about the conduct of the Federal
Government and the expenditure of government resources.
New section 307(d) would require Executive agencies to
include certain information in any written public statement
that refers to the amount to be paid under a covered settlement
agreement by a non-Federal person. This information includes
specifying which portion, if any, of the amount is expressly
specified under the agreement as a civil or criminal penalty or
fine to be paid for a violation of Federal law or is expressly
specified under the agreement as not tax deductible. If no
portion of the amount to be paid under the agreement is
expressly specified as a civil or criminal penalty or fine, the
Executive agency must include a statement attesting to such.
Furthermore, the Executive agency must describe what actions,
if any, the settling party or parties must take under the
agreement in lieu of payment and any payments or compensation
the settling party or parties must make to other non-Federal
persons under the agreement.
New section 307(e) provides that the disclosure
requirements of subsection 307(d) apply to the extent to the
information to be disclosed (or portion thereof) is not subject
to a confidentiality provision that prohibits such disclosure.
New section 307(f) would require agencies to annually
report to Congress on the number of covered settlement
agreements they entered into, and the number of these
agreements that were either partially or fully confidential.
Section 2(b) would require settling parties who file
reports for transactions on a national securities exchange with
the Securities and Exchange Commission to disclose in those
reports if they have filed a claim for a tax deduction during
the reporting period for any payments made under a covered
settlement agreement.
Section 2(c) would direct the Government Accountability
Office to examine, no later than 6 months after enactment of
the bill, how Executive agencies determine settlements or
settlement terms to be confidential and to offer
recommendations, if any, for increasing the transparency of
Executive agency settlements.
V. Evaluation of Regulatory Impact
Pursuant to the requirements of paragraph 11(b) of rule
XXVI of the Standing Rules of the Senate, the Committee has
considered the regulatory impact of this bill and determined
that the bill will have no regulatory impact within the meaning
of the rules. The Committee agrees with the Congressional
Budget Office's statement that the bill contains no
intergovernmental mandates as defined in the Unfunded Mandates
Reform Act (UMRA) and would impose no costs on state, local, or
tribal governments. The Committee agrees with the Congressional
Budget Office's statement that the bill would impose a low-cost
private-sector mandate on issuers of securities that are
required to submit reports to the Securities and Exchange
Commission.
VI. Congressional Budget Office Cost Estimate
U.S. Congress,
Congressional Budget Office,
Washington, DC, May 20, 2015.
Hon. Ron Johnson,
Chairman, Committee on Homeland Security and Governmental Affairs, U.S.
Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for S. 1109, the Truth in
Settlements Act of 2015.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Matthew
Pickford.
Sincerely,
Keith Hall.
Enclosure.
S. 1109--Truth in Settlements Act of 2015
S. 1109 would establish new requirements for the public
disclosure of settlement agreements entered into by federal
agencies. Specifically, the legislation would require that non-
confidential settlements be posted online if they involve
payments from nonfederal entities that are greater than $1
million and are related to a violation of civil or criminal
laws. Under the bill, each settlement posted online would have
to include the names of the parties involved, a description of
the claims settled, the amount to be paid, and whether the
settlement is a criminal or civil penalty or a fine. In
addition, S. 1109 would require the Government Accountability
Office (GAO) to complete a report on the confidentiality of
settlement agreements.
CBO estimates that enacting S. 1109 would have no
significant effect on the federal budget because most of the
information required is already collected during the settlement
process and the cost of making it available online would not be
significant. CBO also estimates that the cost for GAO to
prepare the required study would be small. Enacting S. 1109
could affect direct spending by some agencies (such as the
Tennessee Valley Authority) because they are authorized to use
receipts from the sale of goods, fees, and other collections to
cover their operating costs; therefore, pay-as-you-go
procedures apply. Because most of those agencies can make
adjustments to the amounts collected, CBO estimates that any
net changes in direct spending by those agencies would not be
significant. Enacting the bill would not affect revenues.
S. 1109 contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA) and would not affect
the budgets of state, local, or tribal governments.
S. 1109 would impose a private-sector mandate, as defined
in UMRA, on issuers of securities that are required to submit
reports to the Securities and Exchange Commission. The bill
would require such issuers to describe in those reports any tax
deduction claimed that relates to payments required under a
covered settlement agreement with a federal agency. The cost of
providing such information would be only slightly more than the
cost of meeting current reporting requirements. CBO estimates,
therefore, that the direct cost of complying with the mandate
would be small and would fall well below the annual threshold
established in UMRA for private-sector mandates ($154 million
in 2015, adjusted annually for inflation).
The CBO staff contacts for this estimate are Matthew
Pickford (for federal costs) and Paige Piper/Bach (for the
private-sector impact). The estimate was approved by Theresa
Gullo, Assistant Director for Budget Analysis.
VII. Changes in Existing Law Made by the Bill, as Reported
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, changes in existing law made by
S. 1109 as reported are shown as follows (existing law proposed
to be omitted is enclosed in brackets, new matter is printed in
italic, and existing law in which no change is proposed is
shown in roman):
TITLE 5--UNITED STATES CODE
* * * * * * *
PART 1--THE AGENCIES GENERALLY
* * * * * * *
CHAPTER 3--POWERS
* * * * * * *
SEC. 307. INFORMATION REGARDING SETTLEMENT AGREEMENTS.
(a) Definitions.--In this section--
(1) the term `covered settlement agreement' means a
settlement agreement (including a consent decree)
that--
(A) is entered into by an Executive agency;
(B) relates to an alleged violation of
Federal civil or criminal law; and
(C) requires the payment of a total of not
less than $1,000,000 by 1 or more non-Federal
persons;
(2) the term `entity within the Federal Government'
includes an officer or employee of the Federal
Government acting in an official capacity; and
(3) the term `non-Federal person' means a person that
is not an entity within the Federal Government.
(b) Information To Be Posted Online.--
(1) Requirement.--
(A) In general.--Subject to subparagraph (B),
the head of each Executive agency shall make
publicly available in a searchable format in a
prominent location on the Web site of the
Executive agency--
(i) a list of each covered settlement
agreement entered into by the Executive
agency, which shall include, for each
covered settlement agreement--
(I) the date on which the
parties entered into the
covered settlement agreement;
(II) the names of the parties
that settled claims under the
covered settlement agreement;
(III) a description of the
claims each party settled under
the covered settlement
agreement;
(IV) the amount each party
settling a claim under the
covered settlement agreement is
obligated to pay under the
settlement agreement;
(V) the total amount the
settling parties are obligated
to pay under the settlement
agreement; and
(VI) for each settling
party--
(aa) the amount, if
any, the settling party
is obligated to pay
that is expressly
specified under the
covered settlement
agreement as a civil or
criminal penalty or
fine; and
(bb) the amount, if
any, that is expressly
specified under the
covered settlement
agreement as not
deductible for purposes
of the Internal Revenue
Code of 1986; and
(ii) a copy of each covered
settlement agreement entered into the
by the Executive agency.
(B) Confidentiality provisions.--The
requirement to disclose information or a copy
of a covered settlement agreement under
subparagraph (A) shall apply to the extent that
the information or copy (or portion thereof) is
not subject to a confidentiality provision that
prohibits disclosure of the information or copy
(or portion thereof).
(2) Period.--The head of each Executive agency shall
ensure that--
(A) information regarding a covered
settlement agreement is publicly available on
the list described in paragraph (1)(A)(i) for a
period of not less than 5 years, beginning on
the date of the covered settlement agreement;
and
(B) a copy of a covered settlement agreement
made available under paragraph (1)(A)(ii) is
publicly available--
(i) for a period of not less than 1
year, beginning on the date of the
covered settlement agreement; or
(ii) for a covered settlement
agreement under which a non-Federal
person is required to pay not less than
$50,000,000, for a period of not less
than 5 years, beginning on the date of
the covered settlement agreement.
(c) Public Statement.--If the head of an Executive agency
determines that a confidentiality provision in a covered
settlement agreement, or the sealing of a covered settlement
agreement, is required to protect the public interest of the
United States, the head of the Executive agency shall issue a
public statement stating why such action is required to protect
the public interest of the United States, which shall explain--
(1) what interests confidentiality protects; and
(2) why the interests protected by confidentiality
outweigh the public's interest in knowing about the
conduct of the Federal Government and the expenditure
of Federal resources.
(d) Requirements for Written Public Statements.--Any
written public statement issued by an Executive agency that
refers to an amount to be paid by a non-Federal person under a
covered settlement agreement shall--
(1) specify which portion, if any, of the amount to
be paid under the covered settlement agreement by a
non-Federal person--
(A) is expressly specified under the covered
settlement agreement as a civil or criminal
penalty or fine to be paid for a violation of
Federal law; or
(B) is expressly specified under the covered
settlement agreement as not deductible for
purposes of the Internal Revenue Code of 1986;
(2) if no portion of the amount to be paid under the
covered settlement agreement by a non-Federal person is
expressly specified under the covered settlement
agreement as a civil or criminal penalty or fine,
include a statement specifying that is the case; and
(3) describe in detail--
(A) any actions the non-Federal person shall
take under the covered settlement agreement in
lieu of payment to the Federal Government or a
State or local government; and
(B) any payments or compensation the non-
Federal person shall make to other non-Federal
persons under the covered settlement agreement.
(e) Confidentiality.--The requirement to disclose
information under subsection (d) shall apply to the extent that
the information to be disclosed (or portion thereof) is not
subject to a confidentiality provision that prohibits
disclosure of the information (or portion thereof).
(f) Reporting.--
(1) In general.--Not later than January 15 of each
year, the head of an Executive agency that entered into
a covered settlement agreement during the previous
fiscal year shall submit to each committee of Congress
with jurisdiction over the activities of the Executive
agency a report indicating--
(A) how many covered settlement agreements
the Executive agency entered into during that
fiscal year;
(B) how many covered settlement agreements
the Executive agency entered into during that
fiscal year that had any terms or conditions
that are required to be kept confidential; and
(C) how many covered settlement agreements
the Executive agency entered into during that
fiscal year for which all terms and conditions
are required to be kept confidential.
(2) Availability of reports.--The head of an
Executive agency that is required to submit a report
under paragraph (1) shall make the report publically
available in a searchable format in a prominent
location on the Web site of the Executive agency.
[all]