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[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

======================================================================

 
                    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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]
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