Congress passed legislation Tuesday aimed at stopping the Justice Department from sending settlement money from its prosecutions to third-party groups not involved in the cases, an Obama administration era practice critics called a “slush fund.”
“An investigation by the House Judiciary Committee last Congress revealed the Department of Justice’s abuse of power: using settlement agreements to direct money away from victims toward organizations of their choosing and away from those they disliked,” said Rep. Bob Goodlatte, R-Va., chairman of the committee.
“Regardless of which party is in the White House, subverting Congress to funnel money to outside organizations is unacceptable and unconstitutional.”
The bill passed 238-183. Seven Democrats joined Republicans in approving the legislation.
The House passed similar legislation last year by a vote of 241-174.
As a part of multi-billion dollar plea agreements DOJ made in 2014 with Bank of America and Citigroup regarding the 2008 financial crisis, the banks were directed to donate respectively, $100 million and $50 million, to housing-related charities and other nonprofit entities. These requirements were characterized by the settlements as relief for victims of fraud.
However, the recipients were not themselves victims or otherwise party to the cases.
Ordinarily, this would have made them ineligible for relief under long-standing rules for federal settlements and the funds would have instead gone directly to the Treasury Department. The funds would have become subject to congressional appropriations. The Obama administration circumvented this requirement by getting the banks to agree to make the donations prior to signing their plea agreements.
This, the administration argued, meant the banks were voluntarily making the donations. But, the banks would have violated their plea agreements if they didn’t make the donations.
Goodlatte held numerous hearings on the settlements in 2015. In one, then-Deputy Assistant Attorney General Geoffrey Graber said, “This kind of relief could not have been ordered by a court, even if the government had prevailed at trial.”
The banks were credited as much as two dollars towards the amount they owned in the settlement for every dollar they gave to a nonprofit. The list of eligible recipients for the funds was based on a list of approved charities maintained by the Department of Housing and Urban Development. The list included both small, local groups and nonpartisan groups like Catholic Charities but also included various liberal groups such as the National Council of La Raza and the Urban League.
There was no cap on the donations. Bank of America ultimately gave out $112 million, $12 million more than it was required to make. That earned it $215 million in credit toward the settlement, according to the settlement’s independent monitor.
Recipients included liberal groups such as the National Council of La Raza ($1.5 million), Habitat for Humanity ($1.5 million) and the National Urban League ($850,000), prompting several Republicans to give the effort the slush fund label. Data for the Citigroup settlement was not available.
Attorney General Jeff Sessions formally prohibited the practice in June, stating any settlement funds should go “first to the victims and then to the American people— not to bankroll third-party special interest groups or the political friends of whoever is in power.”
