Elizabeth Warren (D-MA) and Tom Coburn (R-OK) introduced the Truth in Settlements Act on Wednesday to compel federal agencies that have negotiated a settlement with a company valued at $1 million or more to disclose its specific terms to the public.
The bill would require agencies to disclose, for instance, that a settlement includes significant tax deductions or ‘credits’ for routine conduct that reduce the actual value of the settlement. It would also preclude agencies from keeping settlements confidential without giving an explanation as to why the terms are being withheld from the public.
Specifically, the Act does the following:
- Requires agencies to explain in written public statements that reference the settlement amount whether any portion is tax deductible. The companies would have to note these tax deductions in their SEC filings as well.
The tax code allows corporations to deduct any settlement payments classified as restitution or compensation but prohibits them from deducting payments classified as penalties or fines.
- Requires federal agencies to explain that settlement terms included the cost of credits. An example of this is the National Mortgage Settlement valued at $25 million which included $17 billion in credits for banks that wrote down a percentage of unpaid loans.
- Requires that the basic terms of a settlement over $1 million be posted on the company’s website, including dates, settling parties, settled claims and the amount and classification of any payments. Copies of the actual agreements would be required to be posted on these sites as well.
- Requires companies to explain why they deem a settlement confidential.
- Requires agencies to report to Congress annually on the number of settlements it classified as confidential or as having some confidential terms in light of their overall number of settlements.
- Directs the Government Accountability Office to study the confidentiality issue and make legislative and administrative recommendations for reform.
The bipartisan lawmakers’ proposal follows years of criticism aimed at federal regulators and the Department of Justice for striking deals that do not seem to curb corporate misbehavior and whose specific terms often remain unclear to the public, rather than taking companies to court.
It is not clear yet what regulators and prosecutors think about this bill, but they have long argued that their settlements are in the best interests of taxpayers, serve to expedite cases of serious misconduct and conserve limited resources that would be drained by prolonged litigation.
Julie DiMauro is the executive editor of FCPA Blog and can be reached here.