In the past few years, it has become common for the federal government to require, as part of financial settlements in cases, defendants to donate money to specific charities.
For example, earlier this year we learned the Department of Justice arranged a settlement with Citibank and Bank of America that required these corporations to “donate” $150 million to “community development groups” similar to ACORN. The donations earn “double credit” against the banks’ obligations, so $150 million erases $300 million in fines.
In early 2016, we learned that the Bank of America donated more than $60.1 million to various charitable funds and nonprofit groups, as part of a $16.6 billion settlement with the United States. Here’s the best part (for Bank of America)—for every one dollar the bank gives, the bank is credited with $2 toward its financial fraud settlement with the Justice Department. The federal government argues that these donations are “voluntary” and thus are not funds that the bank should deposit to the Treasury. However, if the bank does not make the “voluntary” donation, that would violate its plea agreement with the Department of Justice. The grateful recipients of Bank of America’s largesse are organizations that support the present Administration.
Bank of America is not alone. Citigroup signed a similar agreement, giving least $10 million in “community relief” to a government-approved list that (coincidently?) are Democratic-friendly nonprofits. It pays to have friends in high places.
We find ourselves in a situation where the federal government can claim to the public that it is settling a case for, let’s say, $1 billion, but the federal coffers never see this money. Instead, the settlement is wiped clean when the corporation gives half of it to political supporters of the party in power.
The Federalist Society observes:
The amount of money at stake is considerable. For example, in 2014 the Justice Department entered into a $17 billion settlement with Bank of America to resolve claims that it had engaged in various mortgage abuses. The third-party payments also raise very troubling problems of cronyism. According to Investor’s Business Daily, “[r]adical Democrat activist groups stand to collect millions from Attorney General Eric Holder’s record $17 billion deal to settle alleged mortgage abuse charges against Bank of America.” How? “Buried in the fine print of the deal, which includes $7 billion in soft-dollar consumer relief, are a raft of political payoffs to Obama constituency groups. In effect, the government has ordered the nation’s largest bank to create a massive slush fund for Democrat special interests.”
Not only do these settlements provide a piggybank for leftwing groups — ACORN, for instance, was a beneficiary of the Bank of America deal — they are actually an attack upon the Constitution, as they serve as a way of shifting federal funds outside the appropriation process. Plus the potential for abuse is tremendous and inescapable. A defendant can’t choose which charity to fund; the prosecutor in the case make that decision without any public disclosure of potential conflicts they may have. And, of course, the taxpayer is screwed. Money that should be going into the federal treasury to fund projects paid for by tax dollars is diverted to private hands.
The Department of Justice has moved to stop this process
Attorney General Jeff Sessions is reversing an Obama administration practice that encouraged and sometimes required banks and other companies to donate large amounts of money to outside groups as part of settlement agreements with the federal government.
In the Obama administration, the Justice Department negotiated settlements, especially with large banks in connection with the residential mortgage-backed securities crisis, that required the settling parties to pay funds to third-party community organizations, such as the National Council of La Raza, Habitat for Humanity and the National Urban League.
“These third-party organizations were neither victims nor parties to the lawsuits,” Sessions said in a memo sent Wednesday to senior Justice Department officials and U.S. attorney’s offices. Sessions said that, effective immediately, settlement payments to nongovernmental third parties, such as advocacy or housing groups, are prohibited.
“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.
“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,” Sessions said. “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.”
And while Jeff Sessions’ directive takes care of the problem temporarily, there is a bill working its way through Congress to make this diversion of funds illegal.