Attorney General Ends DOJ ‘Slush Fund’ Settlements

Published August 7, 2017

Federal prosecutors are no longer allowed to force companies to make payouts to outside groups under settlement agreements with the Department of Justice (DOJ).

In a June 7 memo, Attorney General Jeff Sessions directed the 94 U.S. attorneys’ offices immediately to end the practice of requiring companies to donate funds to third party organizations or interest groups as part of settlement agreements with the U.S. government. Under President Barack Obama, the DOJ often required companies to donate large amounts of money to outside groups as part of these agreements. In April 2016 hearings before the U.S. House Judiciary Committee, many Republicans referred to these payments as slush funds used to pad the accounts of activist groups.

“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 accompanying his memo.

Government Funding for Activists

These agreements have been a way for the Executive Branch to support interest groups it favors while avoiding the legislative appropriation process, says Ted Frank, a senior attorney and director of the Competitive Enterprise Institute’s Center for Class Action Fairness.

“Instead of having the money go directly to the Treasury in the form of a fine, executive agencies say, ‘We’re imposing a big, giant fine on you, but you can relieve your fine with a credit for $1 per $1, or even $1 for a $2 or $3 credit, if you give money to these third-party causes or charities,'” Frank said. “These groups range from left-wing advocacy groups, as in some of the banking settlements, to completely new governmental programs which aren’t governmental programs because they are being set up through a litigation settlement rather than through appropriations.

“For example, in the Volkswagen emissions scandal, where the government has Volkswagen over a barrel and can impose a big, giant fine, they allow Volkswagen to reduce the fine by $1.5 billion if Volkswagen gives the same amount to create a program supporting the development of electric vehicles,” said Frank. “What’s interesting about this is the Obama administration repeatedly requested Congress fund this electric vehicle program, and Congress repeatedly said, ‘No, this is an industrial policy we do not want to support,’ and so the program wasn’t funded, but the DOJ got the program funded anyway as part of the settlement agreement.”

Calls for Permanent Fix

Although Frank praises Sessions’ move to restore the separation of powers to ensure programs don’t get funded unless Congress approves the outlays, he says Congress should act to make this change permanent.

“Unfortunately, there’s always the danger the next president or the next attorney general will reverse the policy and we go back to the way things were before,” Frank said. “We need a law to stop this from happening again in the future.”

In January, House Judiciary Committee Chairman Bob Goodlatte (R-VA) introduced H.R. 522, the Stop Settlement Slush Funds Act of 2017, to prohibit any federal agency from requiring third party payments from defendants as part of a settlement. It awaits action.

Kenneth Artz ([email protected]) writes from Dallas, Texas.