Senators Elizabeth Warren (D-Mass.) and James Lankford (R-Okla.) have reintroduced bipartisan legislation to increase transparency around major settlements reached by federal enforcement agencies.

The Truth in Settlements Act will “require more accessible and detailed disclosures about settlement agreements so that the public can better understand the agreements the federal government is making on their behalf.”

When closing investigations and settling cases, federal agencies frequently tout the dollar amount obtained from the offender. These numbers are often misleading because the payments may be tax deductible or may include "credits" the settling party can earn toward the settlement amount. Sometimes agreements are deemed confidential, with key details or the settlement itself remaining undisclosed, further obstructing public transparency.

"Government accountability requires transparency, and that's what this bipartisan bill provides," Warren said in a statement on the bill this week. "The Truth in Settlements Act will shut down backroom deal-making by shining a light on federal agency settlements with law-breaking companies.”

“The Truth in Settlements Act will ensure the federal government is held accountable for investigations and settlements that are often decided behind closed doors,” Lankford said.

The legislation seeks to increase transparency of government settlements and permit greater public scrutiny by requiring federal agencies to post basic information about major settlements and provide copies of those agreements on their websites. 

Any written public statement issued by an agency about the value of a major settlement will be required to include an explanation of how those settlement payments are categorized for tax purposes and whether payments may be offset by "credits" for particular conduct.

Companies that settle with federal agencies will be obligated to disclose in their Securities and Exchange Commission filings whether they have deducted any or all of the dollar amounts of their settlements from their taxes. 

The legislation will also require agencies to openly explain why confidentiality is justified in any particular instance. It directs agencies to disclose basic information about the number of settlements they deem confidential each year and directs the Government Accountability Office to conduct a study of confidentiality procedures and to provide additional recommendations for increasing transparency.

Among examples given by proponents for why the bill is needed: the Department of Justice and other entities recently settled a case with JPMorgan Chase for $13 billion. “However, it appears that approximately $11 billion of the settlement amount will be tax deductible, which reduces the ultimate value of the settlement to the taxpayer by up to $4 billion,” a statement says.

Also, two year ago, a district court in Massachusetts refunded $50.4 million in taxes to a health care company that had settled with the DOJ after allegedly defrauding Medicare and other federal healthcare programs for years. After settling, the company sought to deduct nearly all of its $385 million settlement payment from its taxes. Although the Internal Revenue Service initially blocked a portion of the deduction, the court reversed the IRS’s decision because the DOJ had not clearly specified in the agreement that the payments were to be punitive.