Attorney General Jeff Sessions has ended the Justice Department’s practice of diverting money from financial fraud settlements to third-party nonprofits, a practice Republican lawmakers have decried as a “slush fund” for liberal groups.
The move was the latest example of the Trump administration rolling back a rules change made by the Obama administration, and it came after Republican complaints that the practice was a move aimed at bolstering groups backed by former President Barack Obama and Democrats.
“When the federal government settles a case against a corporate wrongdoer, 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,” Sessions said in a statement Wednesday. “Unfortunately, in recent years the Department of Justice has sometimes required or encouraged defendants to make these payments to third parties as a condition of settlement. With this directive, we are ending this practice and ensuring that settlement funds are only used to compensate victims, redress harm, and punish and deter unlawful conduct.”
As part of multi-billion dollar plea agreement the department made in 2014 with Bank of America and Citigroup over the 2008 financial crisis, the banks were directed to donate $100 million and $50 million, respectively, to housing-related charities and other nonprofit organizations. The requirements were characterized by the settlements as relief for victims of fraud.
However, the recipients were not victims or otherwise party to the cases. Ordinarily, that 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 Departmen and become subject to congressional appropriations.
The Obama administration circumvented that requirement by getting the banks to agree to make the donations prior to signing their plea agreements. Taht, the administration argued, meant the banks were voluntarily making the donations. The banks would have violated their plea agreements if they didn’t make the donations.
“This kind of relief could not have been ordered by a court, even if the government had prevailed at trial,” Deputy Assistant Attorney General Geoffrey Graber told the House Judiciary Committee in 2015.
The setup was a good deal for the banks, which were credited as much as $2 toward the amount they owned in the settlement for $1 they gave to a nonprofit. The list of eligible recipients for the funds was based on a list of approved charities maintained the Department of Housing and Urban Development.
The list included both small, local groups and nonpartisan groups such as Catholic Charities, but also included various liberal groups such as the National Council of La Raza and the National Urban League.
There was no cap on the donations. Bank of America 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 label the effort a slush fund. Data for the Citigroup settlement was not available.
