Justice Department Protects Taxpayers in BNP Settlement


The Justice Department’s nearly $9 billion settlement with BNP Paribas, which addresses the bank’s hiding information linking transactions to terrorist regimes, explicitly barred the bank from using this settlement as a tax deduction. In recent years the agency appears to bar tax deductibility more regularly but still it does not always disclose its settlements and it has not issued any formal policy statements about this practice.

“While the BNP settlement does not hold any individual bank employees criminally accountable,” said Phineas Baxandall, Senior Analyst at U.S. PIRG, “it does protect taxpayers by explicitly forbidding BNP Paribas from writing off the settlement as a tax-deductible business expense against its profits in future years.”

The settlement includes a fine of $140 million, which would not be deductible in any case.

“The non-deductibility clause in the settlement is important in ensuring that the $8.8336 billion in forfeitures are also non-deductible. If the bank had been allowed to deduct this sum, U.S. taxpayers could ultimately lose out on almost $3.1 billion in future revenues from the bank,” said Baxandall.

Monday’s settlement states, “BNPP agrees that it shall not claim, assert, or apply for, either directly or indirectly, any tax deduction, tax credit, or any other offset with regard to any US. federal, state, or local tax or taxable income for any fine or forfeiture paid pursuant to this Agreement.”

A poll released this spring by the U.S. Public Interest Research Group Education Fund and conducted by Lake Research Partners found that substantial majorities across party lines overwhelmingly disapprove of settlement tax write offs and want federal agencies to be more transparent about them.

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.