For Immediate Release
Achtung Baby! German Bank Settlement Could Include $490 Million Tax Loophole
WASHINGTON - As the German-based Commerzbank approaches a settlement agreement to resolve allegations surrounding the bank’s role in illegal money laundering with sanctioned states, the Justice Department will need to forbid tax deductions for this corporate wrongdoing or the bank will likely deduct the payments as an ordinary cost of doing business. In that case, taxpayers would ultimately shoulder up to $490 million of the deal.
“If it is apparent that the bank has violated the Bank Secrecy Act, then there is no question about misconduct and this payment should be akin to a fine,” said Michelle Surka, program associate with the United States Public Interest Research Group. “If the Justice Department allows the settlement to be deducted, they are sending the message that breaking the law is just business as usual. That’s the wrong message.”
It is widely reported that Commerzbank will likely sign a deferred prosecution agreement and pay up to $1.4 billion to the Department of Justice, the U.S. Attorney in Manhattan, New York state's Department of Financial Services and the Manhattan District Attorney's office. The deal is not finalized, and these details may still change.
The Commerzbank case has been compared to the settlement between BNP Paribas and the Department of Justice over allegations of the French bank hiding information linking transactions to terrorist regimes. In that settlement agreement, the Justice Department specifically protected taxpayers by denying BNPP a tax deduction. The Department has not yet promised to do the same in this instance.
“The Department of Justice can protect taxpayers by preventing corporations from taking tax deductions from settlement payments. Unfortunately, the Department has done so only sporadically. There needs to be consistency, both in denying settlements from becoming tax write offs and being transparent about the true value of these settlements,” continued Surka.
You can read U.S. PIRG’s research report on the tax implications of legal settlements, “Subsidizing Bad Behavior: How Corporate Legal Settlements for Harming the Public Become Lucrative Tax Write-Offs.”
U.S. PIRG created a fact sheet on use of the settlement loophole by Wall Street financial firms.
U.S. PIRG, the federation of state Public Interest Research Groups (PIRGs), stands up to powerful special interests on behalf of the American public, working to win concrete results for our health and our well-being. With a strong network of researchers, advocates, organizers and students in state capitols across the country, we take on the special interests on issues, such as product safety,political corruption, prescription drugs and voting rights,where these interests stand in the way of reform and progress.