JPMorgan Shouldn’t Get Tax Break for “London Whale” Settlement

Taxpayers Could End Up Paying for Part of Settlement Unless Regulators Prevent It


Statement by Francisco Enriquez, U.S. Public Interest Research Group Tax and Budget Associate, in response to recent news reports that JPMorgan will admit fault as part of its $100 million settlement with the Commodity Futures Trading Commission for the $6 billion “London Whale” trading fiasco.

“On Wednesday, reports emerged that JPMorgan Chase will agree to admit to wrongdoing and pay a $100 million penalty for improper market manipulation that led to a multibillion dollar trading loss. Yet unless the Commodity Futures Trading Commission (CFTC) explicitly forbids it, the bank could write off the settlement as a tax deduction, forcing taxpayers to shoulder some of the cost of JPMorgan’s admitted reckless behavior.

“JPMorgan’s admission of wrongdoing will only benefit the public if investors can be made whole through ensuing civil litigation, and if taxpayers are protected from bearing the cost of tax windfalls to the bank.

“Federal law forbids companies from deducting public fines and penalties from their taxes, but payments made as part of a settlement can be treated differently. Companies that cut deals with an agency to resolve charges through a legal settlement typically manage to deduct the penalties as a tax write-off unless specifically forbidden from doing so. In essence, companies are allowed to receive a tax subsidy for their wrongdoing, forcing ordinary taxpayers to shoulder the budgetary burden.

“Despite an admission of wrongdoing in the London Whale case, JPMorgan could still manage to secure a tax deduction for its misdeeds. If JPMorgan writes off the cost of the $100 million deal it cuts with the CFTC, taxpayers could end up subsidizing up to $35 million for the financial giant’s admitted misdeeds. 

“Agencies must explicitly prohibit such write-offs, as the SEC did with Goldman Sachs in 2010 and the EPA and State Department typically do.”

You can read U.S. PIRG’s report on the tax implications of legal settlements, “Subsidizing Bad Behavior: How Corporate Legal Settlements for Harming the Public Become Lucrative Tax Write-Offs.

See U.S. PIRG’s recent commentary in the Huffington Post for more information about how JPMorgan Chase could take advantage of the settlement loophole in other pending cases.

U.S. PIRG’s research and analysis of legal settlements has been featured in the New York Times, the Washington Post, and the Associated Press.

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U.S. PIRG, the federation of state Public Interest Research Groups, is a consumer group that stands up to powerful interests whenever they threaten our health and safety, our financial security, or our right to fully participate in our democratic society.