Ending Slush Fund Settlements: Protecting the Public Purse From Partisan Abuses

During the Obama administration, a concerning trend emerged within the Justice Department. Settlement funds from federal lawsuits were being diverted not to victims or the U.S. Treasury, but to third-party organizations, often ideologically aligned with the administration. This practice effectively transformed legal settlements into a covert funding mechanism, circumventing Congressional oversight and the will of the American people.

This trend was halted in 2017 by then-Attorney General Jeff Sessions, a decision I and many others applauded as a step toward ensuring settlement funds are used to address the harm caused by wrongdoing. However, under the Biden administration, there has been a troubling reversal with these third-party payouts reinstated. This decision raises ethical questions and signifies an apparent disregard for legislative authority and fiscal responsibility.

My bill, H.R.788, the Stop Settlement Slush Funds Act, aims to permanently end this misuse of settlement funds. It prohibits government officials from entering into settlement agreements that direct payments to entities other than the United States, except where necessary to remedy the harm caused. This bill is not just a legal formality; it is a critical safeguard for the integrity of our justice system and the proper allocation of public funds.

The historical record is littered with past instances of settlement funds abuse. In 2014, the Justice Department reached an almost $17 billion settlement with Bank of America over its role in the sale of mortgage-backed securities in the lead-up to the 2008 financial crisis. While the settlement aimed to address serious financial misconduct, much of the funds were diverted to third-party non-profit organizations instead of victims or the U.S. Treasury. This allocation of funds was rightly criticized because it bypassed Congressional authority over government spending and raised questions about the potential for these funds to be used for purposes unrelated to the damages in a lawsuit. Essentially, this practice allowed the Executive Branch to direct large sums of money to favored groups without legislative oversight, undermining the appropriations process defined by the Constitution. 

Legal experts have identified these practices as unlawful and unethical. By diverting funds away from victims or the Treasury, the Justice Department is using its power to allocate public funds based on political preference, not legal merit or public interest. Settlements in legal cases are typically meant to compensate victims or rectify the harm caused. Redirecting these funds to third parties may mean the actual victims or affected parties do not receive the full measure of justice or compensation they are due. 

The “Stop Settlement Slush Funds Act” is a response to ensure settlement funds are used transparently and appropriately. This bill is designed to uphold the principles of justice and ensure every dollar obtained through settlements serves the public interest. No matter who is in the White House, the Justice Department’s enforcement actions should support justice, and not be co-opted towards partisan ends.

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