Look Out, Washington: Goldman-Busting Senate Panel Now Sets Sights on Government

A U.S. Senate investigative subcommittee, which has used its power for more than a decade to scrutinize corporations and financial institutions for wrongdoing, is shifting its focus to keeping tabs on the government.

The U.S. Senate Permanent Subcommittee on Investigations is slated to hold its first hearing under new leadership on Thursday with a dive into the U.S. corporate tax code. That topic is in line with the priorities laid out by the committee’s new chairman, Ohio Republican Rob Portman, who says he views its role as “primarily oversight of the federal government, agencies and departments.”

Its second priority is developing a record for good legislation, Portman said during a brief interview at the U.S. Capitol Tuesday. It will continue to look at companies, he added.

That’s a departure from the subcommittee’s focus under previous Democratic and Republican leaders. Former chairman Carl Levin, a Michigan Democrat who led the committee to focus on Apple Inc., Credit Suisse Group AG and Goldman Sachs Group Inc., retired last year.

Under Levin — and his Republican predecessors, Norm Coleman from Minnesota and Susan Collins from Maine — the committee probed powerful institutions, often spurring legislative changes and criminal indictments.

It investigated offshore accounts sold by Credit Suisse and UBS AG, tax shelters marketed by KPMG and alleged conflicts of interest at Goldman Sachs — one of which the bank resolved in a $550 million SEC settlement. A 2013 hearing on Apple Inc. tax practices helped prompt the Irish government to change its tax laws.

‘Driving Force’

“Senator Levin and the subcommittee were the driving force behind many of the U.S. and worldwide initiatives to fight financial crime,” said David Chenkin, a defense attorney at Zeichner Ellman & Krause LLP in New York City, who has represented individuals and financial institutions that were the subject of the panel’s investigations. “They were responsible for the anti-money laundering portions of the Patriot Act, they helped to bring down the wall of Swiss and offshore bank secrecy and exposed the underbelly of global kleptocracy and abuse of the U.S. financial system.”

Thursday’s hearing, the first under Portman, is on the role of the tax code on foreign acquisitions of U.S. companies. Federal tax policy in that area made headlines last year because of a spate of deals known as inversions.

Those transactions permit U.S. companies to merge with foreign partners, take a foreign address as their legal headquarters and help them avoid U.S. income taxes in the future.

Executive Witnesses

The hearing will also examine whether the domestic tax system makes U.S. companies attractive takeover targets for foreign competitors. Portman also is working on legislation that would make it easier for U.S. companies to bring home their overseas profits.

The witnesses scheduled to attend Thursday consist solely of current or former corporate executives, including officials from two companies that “inverted” outside the U.S. — Valeant Pharmaceuticals International Inc. and Restaurant Brands International Inc., the parent of Burger King. In the past, the subcommittee hearings often also included outside experts such as law professors.

Although the investigations subcommittee typically provides lengthy reports with findings of apparent wrongdoing ahead of its hearings, it has made no such material available this time.

‘Policy Hearing’

“This hearing appears to be more of a policy hearing along the lines of what the Senate Finance Committee would do, versus recent hearings by the investigations subcommittee that have focused more on inappropriate behavior,” said J. Richard Harvey Jr., a tax law professor at the Villanova School of Law.

Harvey testified as an expert witness at a hearing by the panel in 2013 on techniques used by Apple Inc. to avoid billions of dollars in taxes. Apple has said it abided by the law.

Other investigations are also in the works. The subcommittee is probing alleged mismanagement of the Affordable Care Act health care exchanges to make sure recipients of subsidies qualify.

It also has written to Attorney General Loretta Lynch about the monitoring of multibillion dollar settlements between the Justice Department and Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. stemming from the sale of mortgage-backed securities.

Portman and top panel Democrat Claire McCaskill of Missouri said they want to ensure adequate oversight for the money intended to help those hurt by the housing market downturn.

Still, it’s not clear the committee’s new focus doesn’t mean scrutiny of corporate behavior is completely off the agenda.

“I don’t think corporate America is breathing a sigh of relief,” said Chenkin, the white-collar defense attorney. “It’s more like a wait-and-see attitude.”