Attorney General Jeff Sessions issued a memo last month ending the practice of the U.S. Department of Justice (DOJ) requiring big businesses to include a donation to an unrelated third party in settlement agreements. The DOJ considered the donations a way to offset damages caused by the alleged offenders. An example of how the practice worked involved the multi-billion-dollar settlement agreement related to the 2008 housing market meltdown tied to subprime mortgage lending. The DOJ required financial institutions, including Citigroup and Bank of America, to include millions of dollars in donations to nonprofits. Jeff stated in the memo:
Effective immediately, department attorneys may not enter into any agreement on behalf of the United States in settlement of federal claims or charges, including agreements settling civil litigation, accepting plea agreements or deferring or declining prosecution in a criminal matter, that directs or provides for a payment or loan to any nongovernmental person or entity that is not a party to the dispute.
The memo said further that any settlement funds in these types of cases should go to the U.S. Treasury Department or directly to affected victims. The new policy states restitution would only be allowed to go to directly remedy “the harm that is sought to be addressed,” and that certainly sounds good.
Advocates backing the existing policy say the third-party donations do affect victims of the alleged wrongdoing. For example, the donations in the mortgage fraud litigation benefited the communities that were harmed by the housing market collapse by supporting organizations that work to provide affordable housing. Similar third-party donations required Volkswagen, after admitting it was cheating on emissions tests, to donate part of its $4.3 billion criminal and civil penalties to pay for environmental remediation and to invest in electric vehicle research and development.
Under President Barack Obama, the Department of Justice required millions of dollars in donations to legal aid funds and nonprofits like Habitat for Humanity and NeighborWorks America as part of a series of multibillion-dollar settlements with Bank of America, Citigroup and others related to the 2008 housing market meltdown. The donations, and others like them, were considered by the DOJ as a way to offset damages caused by the alleged offenders.
A prime example would be the donations from Bank of America as part of its $16.65 billion settlement were described at the time as helping communities recover from the financial crisis by supporting affordable housing. Unfortunately, some Republicans and a number of right wing groups don’t like the practice, calling the payments to third parties “slush funds,” and accusing the DOJ of steering the money toward liberal activist groups. I suppose they believe Habitat for Humanity is a liberal group. For the record – I don’t!
A bill in the U.S. House sponsored by Virginia Republican Bob Goodlatte, the “Stop Settlements Slush Funds Act,” would legally prohibit all federal agencies from including payments to third parties in settlement agreements. Rep. Goodlatte introduced a similar bill last year that passed the House, but failed to get a vote in the Senate.
Proponents of the existing policy were totally against Jeff’s move. Amy Spitalnick, press secretary for New York Attorney General Eric Schneiderman, told Law360 that “Attorney General Sessions’ new policy is ill-advised and ignores the tens of thousands of families who were helped by housing service providers across the country in the wake of the financial crisis.” I really believed that the old policy was a good one. Hopefully, Jeff will have a change of heart.
Sources: Law360.com and CNBC
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