Sessions Ends Settlement Payouts To Special Interests

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Kevin Daley Supreme Court correspondent
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The Department of Justice (DOJ) will end its third-party settlement practice, a controversial prosecutorial tactic critics deride as a scheme to finance the government’s political allies, and resolve cases without judicial oversight.

In a memorandum circulated internally Monday, Attorney General Jeff Sessions announced the DOJ would no longer ask corporate entities to offer a monetary award to a third-party as a condition of avoiding prosecution. He said this settlement method largely serves “to bankroll special interest 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. “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,” he added.

Third-party settlements are often reached in the course of non-prosecution or deferred prosecution agreements (N/DPA). The arrangement essentially functions as a plea bargain — generally a defendant will agree to fulfill certain requirements in order to avoid prosecution.

The practice skews incentives in favor of reaching settlements before indictments are handed down, as the Heritage Foundation’s Paul Larkin, a seasoned veteran of the Justice Department, explained in a 2014 paper. Corporations, he wrote, are eager to avoid indictments because of the adverse consequences that attend prosecution, including loss of professional licenses, government contracts, and penalties in capital markets.

The agreements also gives the Department versatility a criminal prosecution would not allow. Federal law strictly circumscribes the sanctions courts can assess post-conviction. Therefore, N/DPA’s and third-party settlements give government maximum flexibility in determining penalties, while corporations elude the trouble of indictments — and all absent judicial supervision.

“[T]he N/DPA process effectively inverts the incentive structure otherwise envisioned by the criminal justice system,” Larkin wrote. “Using N/DPAs to resolve a potential criminal case front-loads all of the costs to the corporation because the charge itself can serve as a death sentence, as prosecutors know all too well.”

A monetary award to a third-party, usually one tangentially related to the matter, is increasingly typical of these agreements. Though it is difficult to ascertain how much money the Department has accrued and distributed through the process, the Economist estimates such settlements ran into the hundreds of billions in 2014 alone, based on publicly available figures.

The assortment of outside groups who receive such funds tend to follow the ideological biases of the reigning administration. Recipients of third-party settlement funds during the Obama administration include La Raza, a progressive group that supports curbing deportation and amnesty for illegal immigrants, and Operation Hope, a California group that urges banks to make “dignity loans” to unqualified mortgage applicants.

Larkin noted that third-party settlements raise constitutional problems, as Congress alone may decide how to appropriate federal funds.

“The Constitution and federal law speak to how taxpayers’ money can be disbursed, and the teaching of those authorities is that it is Congress’s prerogative to decide who should receive federal funds,” he wrote.

Per Sessions’ order, DOJ will immediately cease third-party settlements.

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