According to the New York Times, money paid to “settle a
company’s actual or potential liability for a civil or criminal penalty is not
deductible.” However, if the payments are meant to be remedial rather than a
penalty, they are deductible. In effect, such payments are subsidized by the
American taxpayer. The question of whether this arrangement should be changed
can be approached as an ethical problem.
The full essay is at "Essays on the Financial Crisis."
