BNP Baribas Settlement—Are Terror Settlements Deductible?

The French bank BNP Baribas has pleaded guilty to illicitly transferring funds on behalf of Sudan, Iran, and Cuba, and it has paid almost $9 billion in penalties. Tax attorney Rob Wood has discussed the settlement in his Forbes article “The BNP Paribas $9 Billion Terror Settlement & Tax Deductions,” and he comments in this report on the question of deductions in cases like this.

Rob Wood

Rob Wood

The fact that this payment is a penalty for criminal behavior does not preclude it from being deductible, Wood explains. In this specific case, the settlement agreement prohibits a tax deduction. The inference is clear that the inclusion of this provision supports the notion that settlements like this might otherwise be deductible.

Wood notes that JP Morgan Chase’s recent $13 billion settlement was tax deductible. The idea of having an express provision in the settlement has become more common. There are many divisions in our federal government. “The Justice Department is not the IRS,” Wood points out. The various departments are sometimes involved in power plays with each other, so one department might not automatically include a provision in a settlement agreement that would rule out tax deductibility.

Wood says that there have been bills proposed to resolve the issue legislatively, but so far no bills have been passed that would require settlement agreements to have provisions precluding tax deductions.

For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network.  The Legal Broadcast Network is a featured network of the Sequence Media Group.

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