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Attorney general memo ends DOJ practice of donating settlement money to third parties

Attorney General Jeff Sessions/Gage Skidmore

Attorney General Jeff Sessions has directed Justice Department lawyers to stop making settlement agreements that direct money to nongovernmental organizations that are not parties to the case or victims of the conduct that underlies the case, the Washington Post (sub. req.) reported Wednesday.

Sessions issued a memo Tuesday to senior DOJ officials and U.S. Attorney’s offices directing them to end the practice, which the Post says arose under the Obama administration. This was especially common in settlements DOJ reached with mortgage lenders accused of wrongdoing during the financial crisis of 2008 and beyond, which were often directed to community groups, including local legal aid organizations.

According to the Post, DOJ settled with several major mortgage lenders in 2013, allowing it to pay $3 billion to third-party legal aid groups and NeighborWorks, which works on housing issues and community development. In 2015, a settlement with JPMorgan Chase resulted in $7.5 billion for the American Bankruptcy Institute’s endowment for financial education. In 2016, a settlement with Volkswagen over its falsified emissions test results required the company to invest $2 billion in zero-emissions technology.

CNBC adds that a settlement with Gibson Guitar Corp. over alleged use of illegally imported wood, required it to contribute to the National Fish and Wildlife Foundation.

The new policy forbids this kind of settlement except when the payments go to remedy direct harm from the alleged wrongdoing; pay restitution to victims; or pay for professional services performed in the case. All other funding should go to the U.S. Treasury, Sessions said.

In a statement, Sessions said the payments to third parties were a form of political patronage.

“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,” he 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.”

The practice had also been criticized by Republican legislators and commentators, who called it a “slush fund” that went to liberal groups, Fox News says. Rep. Bob Goodlatte, R-Virginia, introduced legislation in January that would prohibit it.