Today, the Justice Department announced that it is ending the Obama administration’s practice of taking massive sums of money, obtained from settled enforcement cases, and re-routing it to third-party advocacy groups. This is very good news, at two levels.
First, and most immediately, it ends what Fox News rightly calls a “slush fund” that the Obama administration used to take money away from actual victims in order to fund groups that the administration favored. Second, and more generally, this is a small but crucial step toward repairing some of the immense damage that the modern administrative state does to our Constitution’s basic separation of powers.
The Justice Department files a lot of lawsuits, needless to say, but not all of them are litigated all the way to a final verdict. That’s not a bad thing: as a young Abraham Lincoln once wrote, compromise and settlement avoids litigation where “the nominal winner is often a real loser—in fees, expenses, and waste of time.” But it also puts immense sums of money in Justice Department lawyers’ hands.
The Justice Department would be the first to tell you that. Days before Donald Trump’s inauguration, the Obama DOJ announced that federal and state prosecutors had jointly reached a nearly $900 million settlement with Moody’s, the credit rating service, for its actions leading up to the 2008 Financial Crisis. A few weeks earlier, the department announced that it had collected nearly $5 billion in settlements for False Claims Act cases in the prior 2016 alone. That was just one of several multi-billion-dollar settlements secured by the Justice Department, as George Will observed last summer.
So, such settlements provide a lot of money to compensate victims of the wrongdoers misdeeds, right? Well, yes and no. It’s certainly a lot of money, and much of it goes to victims. But not all of it: the Obama administration’s Justice Department redirected immense sums of settlement money to third-party advocacy groups favored by the administration.
The House Judiciary Committee spotlighted this a year ago, in the report supporting the “Stop Settlement Slush Funds Act of 2016” (which was passed by the House but died in the Senate). And Senator Grassley put the point bluntly, in an October 2016 letter to then-Attorney General Lynch:
The Department handpicked the third-party organizations—none of which have suffered harm—that could receive payments. The Department made its selections through a non-public and unaccountable process that is void of any opportunity for oversight from Congress or transparency to the public. Moreover, the list of government-approved recipients includes organizations from which Congress cut funding in 2011, such as the National Council of La Raza, the National Urban League, the National Community Reinvestment Coalition, and NeighborWorks America. The Department has apparently used its settlement agreements to funnel money to left-leaning, politically active organizations, and to effectively restore funding to organizations that Congress deliberately defunded.
In addition to circumventing Congress and handpicking recipient organizations to receive a portion of the settlement payments, the Department has created opportunities for misuse of government funds. The settlement agreements do not provide for any oversight of the third-party recipients’ use of the settlement payments. I have long been concerned about the potential for abuse within tax-exempt organizations and spent years investigating the Association of Community Organizations for Reform Now’s (ACORN) illicit practice of funding lobbying and political activity with funds raised for charitable purposes. Given the political activities of many of the third-party recipients and the absence of proper oversight, it is impossible to ensure that the recipients will use the payments solely for housing assistance programs.
In fact, as the House Judiciary Committee report showed, the Obama Justice Department even used settlement funds to support policy initiatives that Congress had defunded. As the committee urged in its report, those programs and recipients may or may not be in the public interest, “but that is entirely beside the point. Under our system of government, Congress gets to decide how money is spent, not DOJ.”
As soon as Attorney General Lynch left office, Republicans began to urge her successor, Attorney General Sessions, to reform or end the practice. Sessions agreed: on Monday, he issued a memo to federal prosecutors, ordering them to end the practice of paying settlement money out to unaffected third-party groups, with only limited exceptions. After explaining the new policy in that memo, Sessions further noted in a press release:
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 . . . 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. 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.
As I suggested at the outset, the Attorney General’s decision is important for reasons that go deeper than specific settlements or recipients. This is an important step toward restoring basic constitutional values—namely, the importance of Congress’s power of the purse.
As James Madison observed in Federalist 58, the Framers entrusted Congress with the powers to tax and spend, precisely in order to make those decisions political accountable, and to give Congress the power to restrain the energetic Executive Branch. “This power over the purse,” Madison wrote, “may, in fact, be regarded as the most complete and effectual weapon with which any constitution can arm the immediate representatives of the people, for obtaining a redress of every grievance, and for carrying into effect every just and salutary measure.”
Unfortunately, the modern administrative state has found ways to fund itself—either with Congress’s help, in statutes that free agencies like the Consumer Financial Protection Bureau from the appropriations process; or in spite of Congress, as in the Justice Department’s settlement slush fund. Former White House Counsel C. Boyden Gray spelled this problem out in detail last year, in congressional testimony spotlighting the threat that the Justice Department’s practices pose to American constitutionalism. (I’ve written on this, too, from time to time.)
The constitutional concerns raised by Justice Department settlements did not begin with the Obama administration; scholars were beginning to focus on this years ago. But as with so many aspects of modern administrative overreach, the Obama Administration took an already troubling administrative practice and pressed it beyond the breaking point. Attorney General Sessions’s action this week is a good first step in the right direction. Now his Justice Department, the Trump administration, and the Congress need to do the harder work of making these reforms more permanent, through legislation.