Goldman Sachs' $5B Settlement May Not Be as It Seems

PHOTO: The Manhattan headquarters of Goldman Sachs pictured on Jan. 16, 2015 in New York.PlaySpencer Platt/Getty Images
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Goldman Sachs' $5 billion settlement with the U.S. Justice Department may seem like a hefty penalty for the bank's role in the 2008 financial crisis, but a large portion of that may be a gift from Uncle Sam, some experts told ABC News.

As part of the $5.06 billion settlement announced Monday, the bank is paying $2.385 billion in a civil monetary penalty to the Justice Department. But the other nearly $2.7 billion the bank is paying for consumer relief and to the Attorney General offices in California, Illinois, New York and several federal entities could be tax-deductible, at Goldman’s discretion.

Unless stated otherwise in such agreements, corporations can choose to deduct out-of-court settlements on their taxes as ordinary business expenses, according to nonprofit Public Interest Research Group.

"If that amount is tax deductible, and you apply the corporate tax rate of 30 percent, they get to deduct almost a billion dollars," Dennis Kelleher, president and CEO of nonprofit Better Markets, told ABC News. "If you read the fine print, the agreement will allow Goldman Sachs to pay significantly less."

The settlement points to Goldman Sachs' role in selling residential mortgage-backed securities between 2005 and 2007 that the bank "falsely" assured investors were sound. But they knew the securities "were full of mortgages that were likely to fail," Acting Associate Attorney General Stuart Delery said in a statement.

In one set of securities underwritten by Goldman Sachs in August 2006, a Goldman employee noted the loans underlying the offering had "unusually high credit," according to the Justice Department's statement of facts, implying the loans' higher risk level for investors.

Goldman Sachs' settlement included a statement that the agreement was not an admission of wrongdoing.

And in another example in the Justice Department's document, when a Goldman Sachs' mortgage capital committee asked, "How do we know that we caught everything?" a due diligence employee overseeing one pool of loans wrote, "[W]e don't..."

As with the four other settlements that banks made with the Justice Department related to the 2008 financial crisis, no individual employee is held accountable for what the Justice Department said is illegal conduct. Since 2012, JPMorgan Chase agreed to pay $13 billion, Bank of America settled for $16.6 billion, Citibank settled for $7 billion and Morgan Stanley most recently agreed to pay $3.2 billion.

The roles of JPMorgan Chase and Bank of America involved many more years and billions of more dollars in fraudulent activity, Kelleher said. But no bank has been criminally accountable for actions related to the financial crisis.

Kelleher, who calls the settlement a "slap on the wrist," points out that Goldman's net revenue was $37.7 billion and its net earnings were $9.5 billion in 2006, "just one year in the midst of this multi-year scheme.”

A Goldman Sachs spokesman declined to comment about whether a portion of the settlement is tax deductible. He pointed instead to a statement from the bank's chief executive Monday.

“We are pleased to put these legacy matters behind us. Since the financial crisis, we have taken a number of significant steps to strengthen our culture, reinforce our commitment to our clients, and ensure our governance oversight and processes are robust,” Goldman Sachs' CEO Lloyd Blankfein said in the statement.

At the time that the previous agreements were announced, Morgan Stanley, Bank of America, JPMorgan Chase and Citibank said they believed their settlements would allow them to move forward with their businesses, but not all admitted any wrongdoing.

Separately, Sen. Elizabeth Warren, D-Mass., and Sen. Tom Coburn, R-Okla., proposed the Truth in Settlements Act in early 2014 to require federal officials to disclose how much of a settlement is tax-deductible. The bill passed in the Senate in 2015 but stalled in the House.

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