[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).
---------------------------------------------------------------------------
    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.