[Senate Report 113-259]
[From the U.S. Government Publishing Office]
113th Congress Report
SENATE
2d Session 113-259
_______________________________________________________________________
Calendar No. 566
TRUTH IN SETTLEMENTS ACT OF 2014
__________
R E P O R T
of the
COMMITTEE ON HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
to accompany
S. 1898
TO REQUIRE ADEQUATE INFORMATION REGARDING THE TAX TREATMENT OF PAYMENTS
UNDER SETTLEMENT AGREEMENTS ENTERED INTO BY FEDERAL AGENCIES, AND FOR
OTHER PURPOSES
September 18, 2014.--Ordered to be printed
COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
THOMAS R. CARPER, Delaware, Chairman
CARL LEVIN, Michigan TOM COBURN, Oklahoma
MARK L. PRYOR, Arkansas JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri ROB PORTMAN, Ohio
JON TESTER, Montana RAND PAUL, Kentucky
MARK BEGICH, Alaska MICHAEL B. ENZI, Wyoming
TAMMY BALDWIN, Wisconsin KELLY AYOTTE, New Hampshire
HEIDI HEITKAMP, North Dakota
Gabrielle A. Batkin, Staff Director
John P. Kilvington, Deputy Staff Director
Mary Beth Schultz, Chief Counsel
Troy H. Cribb, Chief Counsel for Governmental Affairs
Keith B. Ashdown, Minority Staff Director
Christopher J. Barkley, Minority Deputy Staff Director
Andrew C. Dockham, Minority Chief Counsel
Laura W. Kilbride, Chief Clerk
Calendar No. 566
113th Congress Report
SENATE
2d Session 113-259
======================================================================
TRUTH IN SETTLEMENTS ACT OF 2014
_______
September 18, 2014.--Ordered to be printed
_______
Mr. Carper, from the Committee on Homeland Security and Governmental
Affairs, submitted the following
R E P O R T
[To accompany S. 1898]
The Committee on Homeland Security and Governmental
Affairs, to which was referred the bill (S. 1898) to require
adequate information regarding the tax treatment of payments
under settlements agreements entered into by Federal agencies,
and for other purposes, having considered the same, reports
favorably thereon with an amendment in the nature of a
substitute and recommends that the bill, as amended, do pass.
CONTENTS
Page
I. Purpose and Summary..............................................1
II. Background and Need for the Legislation..........................2
III. Legislative History..............................................3
IV. Section-by-Section Analysis......................................3
V. Evaluation of Regulatory Impact..................................5
VI. Congressional Budget Office Estimate.............................5
VII. Changes in Existing Law Made by the Bill, as Reported............6
I. Purpose and Summary
The Truth in Settlements Act seeks to bring more
transparency to the process whereby federal agencies settle
enforcement actions or other cases brought against private
parties. It requires Executive agencies to post copies of
agreements involving payments of $1 million or more by non-
government parties and to provide basic information about those
agreements online in a publicly accessible and searchable
format. It requires agencies to disclose certain information in
written public statements that reference the amount to be paid
under such an agreement. And if an agency determines that some
or all of such an agreement must be held confidential, the Act
requires that agency to issue a brief public statement
explaining what interests confidentiality protects and why
those interests outweigh the public's right to a full
accounting of government actions and expenditures.
II. Background and Need for Legislation
Executive agencies are responsible for holding companies
and individuals accountable when they break the law. Both civil
and criminal investigations can end in settlement agreements
under which the party under investigation agrees to make a
payment to the government. Although agencies enter these
agreements on behalf of the American public, there are no
uniform standards governing the public disclosure of the
details of these agreements. As a result, it is often
difficult--or impossible--for the public to obtain basic
information about such agreements and thereby know whether our
nation's laws are being adequately and fairly enforced.
The Truth in Settlements Act addresses three critical
aspects of this lack of transparency. First, it is nearly
impossible to determine what settlement agreements the
government is entering into, let alone access aggregate
information about agreements, or even the number entered into
annually. Executive agencies are not currently required to post
basic information about recent settlement agreements on their
websites, so finding out about them can require significant
effort. To review a sampling of recent Department of Justice
(DOJ) settlement agreements, for example, the public must
either look through the DOJ's list of recent press releases for
links to the relevant documents,\1\ or comb through all of
DOJ's recent postings in the Federal Register to find the ones
relating to settlement agreements.\2\ Both approaches fail to
provide a comprehensive list of recent agreements or a method
for quickly reviewing information about those agreements. That
basic lack of transparency is found across Executive agencies.
---------------------------------------------------------------------------
\1\See http://www.justice.gov/opa/pr/2014/September/ (listing
recent press releases).
\2\See https://www.federalregister.gov/agencies/justice-
department#recent_articles.
---------------------------------------------------------------------------
Second, if an Executive agency chooses to issue a written
public statement referencing the amount it recovered under a
settlement agreement, it is free to omit important contextual
information, such as how those settlement payments are
categorized, and how the settling party may earn ``credits''
toward the settlement amount for certain conduct. Without this
information, an agency's public statement may be misleading.
The categorization of settlement payments is critical
because the tax code prohibits the deduction of ``any fine or
similar penalty paid to a government for the violation of any
law.''\3\ Meanwhile, the tax code generally permits the
deduction of payments that are considered compensatory or
restitution. The potential tax deductibility of settlement
payments can have a significant impact on the amount of money
the government eventually recovers in a settlement and,
potentially, the deterrent effect of that settlement. Likewise,
the method for calculating monetary ``credits'' for conduct in
a settlement can also have a significant impact on the
settlement's ultimate value.
---------------------------------------------------------------------------
\3\26 U.S.C. Sec. 162(f).
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Finally, agencies are not subject to a uniform standard for
disclosing when they have decided to hold a settlement
agreement (or a portion thereof) confidential, and why
confidentiality was warranted. Consequently, agencies can hold
settlements confidential without any explanation provided to
taxpayers or lawmakers of the need for confidentiality.
Taken together, these three challenges make it very
difficult for the public and legislators to evaluate the
actions the government is taking on behalf of the American
people.
To address these problems, the Truth in Settlements Act
mandates new government-wide standards for agencies to provide
transparency to the American public on settlements. It requires
Executive agencies to post copies of agreements involving
payments of $1 million or more by non-government parties and to
provide basic information about those agreements online in a
publicly accessible and searchable format. It requires agencies
to disclose certain information in written public statements
that reference the amount to be paid under such an agreement.
And if an agency determines that some or all of such an
agreement must be held confidential, the Act requires that
agency to issue a brief public statement explaining what
interests confidentiality protects and why those interests
outweigh the public's right to a full accounting of government
actions and expenditures.
III. Legislative History
On January 8, 2014, Senators Warren and Coburn introduced
the Truth in Settlements Act of 2014 (S. 1898). S. 1898 was
referred to the Senate Committee on Homeland Security and
Governmental Affairs. Senators Levin and Begich are also
cosponsors of the bill.
The Committee considered S. 1898 at a business meeting on
July 30, 2014. Senator Coburn offered a substitute amendment,
which made technical changes to the description of information
that agencies would be required to disclose. The Committee
adopted the substitute amendment by unanimous consent and
ordered S. 1898 reported favorably as amended by the Coburn
substitute amendment. Senators present for the vote were
Senators Carper, Levin, Pryor, Landrieu, McCaskill, Begich,
Baldwin, Coburn, Johnson, and Ayotte.
IV. Section-by-Section Analysis
Section 1. Short title
This section establishes the short title of the bill as the
``Truth in Settlements Act of 2014.''
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) provides definitions of key terms. 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 million 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 and basic information about those agreements
online in a searchable format. That basic information includes
a description of the claims each party settled, and the amount
each settling party is obligated to pay, including information
about the amount, if any, that is expressly specified as a
civil or criminal penalty or fine, and the amount, if any, that
is expressly specified as tax deductible. Agencies are not
required to post information about agreements, or portions
thereof, that are subject to confidentiality provisions.
Agencies must post copies of the agreement online for at least
one year following the settlement (or at least five years if
the settlement includes $50 million or more in payments), and
must post the basic information about the agreement online for
at least five years following the settlement.
New section 307(c) would require that if an agency
determines a covered settlement agreement should be subject to
a confidentiality provision, that agency is required to issue a
public statement explaining what interests confidentiality
protects and why those interests outweigh the public's interest
in knowing about the conduct of the government and the
expenditure of government resources.
New section 307(d) would require agencies to specify in any
written public statement referencing the amount to be paid
under a covered settlement agreement the following information:
which portion of the payment, if any, is
expressly specified as a civil or criminal penalty or
fine;
that no portion of the payment is designated
as a civil or criminal penalty or fine, if that is the
case;
which portion of the payment, if any, is
expressly designated as not tax deductible;
what actions, if any, the settling party or
parties must take under the agreement in lieu of
payment; and
what payments, if any, the settling party or
parties must make to non-Federal government entities.
New subsection 307(e) provides that the disclosure
requirements of subsection 307(d) apply to the extent to the
information to be disclosed (or the portion thereof) is not
subject to a confidentiality provision that prohibits such
disclosure.
Additionally, new section 307(f) would require agencies to
report annually to Congress on the number of covered settlement
agreements they entered into, and the number of those
agreements that were either partially or fully confidential.
Section 2(b) would require settling parties that file
reports 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) directs the Government Accountability Office
to examine how, and to what extent, agencies deem settlements
confidential, and offer recommendations 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 or private-sector mandates as defined in the
Unfunded Mandates Reform Act (UMRA) and would impose no costs
on state, local, or tribal governments.
VI. Congressional Budget Office Cost Estimate
U.S. Congress,
Congressional Budget Office,
Washington, DC, September 9, 2014.
Hon. Tom Carper,
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. 1898, the Truth in
Settlements Act of 2014.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Matthew
Pickford.
Sincerely,
Douglas W. Elmendorf.
Enclosure.
S. 1898--Truth in Settlements Act of 2014
CBO estimates that enacting S. 1898 would have no
significant effect on the federal budget. The legislation could
affect direct spending by agencies not funded through annual
appropriations; therefore, pay-as-you-go procedures apply. CBO
estimates, however, that any net increase in spending by those
agencies would not be significant. Enacting the bill would not
affect revenues.
S. 1898 would establish new requirements for publicly
disclosing settlement agreements entered into by a federal
agency. Specifically, the legislation would require that non-
confidential settlements involving payments from nonfederal
entities greater than $1 million and related to a violation of
civil or criminal law be posted online. Under the bill, each
settlement posted online would have to include the names of the
parties involved, a description of the claims, the amount to be
paid, and whether the settlement is a criminal or civil penalty
or a fine. Because that information is already collected during
the settlement process, CBO expects that making it available
online would have a negligible cost.
S. 1898 contains no intergovernmental mandate as defined in
the Unfunded Mandates Reform Act and would impose no costs on
state, local, or tribal governments. S. 1898 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 ($152 million
in 2014, 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, Deputy Assistant Director for Budget Analysis.
VII. Changes in Existing Statute 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. 1898, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black 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
* * * * * * *
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 one 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,
the amount the settling party
is obligated to pay that has
been designated as a civil
penalty or fine, or otherwise
specified as not tax deductible
under the covered settlement
agreement; and
(ii) a copy of each covered
settlement agreement entered into 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) until
at least the date that is 5 years after 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 until--
(i) at least the date that is 1 year
after 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, at least the date that is
5 years after 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 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;
and
(2) describe in detail any actions the non-Federal
person shall take under the covered settlement
agreement--
(A) in lieu of payment to the Federal
Government or a State or local government; or
(B) in addition to such a payment.
(e) 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 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.