During the Obama administration, a worrying trend emerged within the Justice Department. Settlements from federal lawsuits were diverted not to victims or the U.S. Treasury, but to third-party organizations often ideologically aligned with the administration. This practice effectively turned legal settlements into secret funding mechanisms, 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, ensuring that settlement funds are used to address the harm caused by wrongdoing. He praised it as a step towards achieving this goal. But under the Biden administration, these third-party payments are being reinstated in a troubling reversal. This decision raises ethical questions and represents a clear disregard for legislative authority and fiscal responsibility.
My bill, HR788, the Settlement Funds Termination Act, aims to permanently end this abuse of settlement funds. The law prohibits government officials from entering into settlement agreements directing payments to non-U.S. entities, unless necessary to remedy damages caused. This bill is more than just a legal process. It is an important safeguard for the integrity of the justice system and the proper allocation of public funds.
The historical record is littered with examples of past abuses of settlement funds. In 2014, the Department of Justice reached a $17 billion settlement with Bank of America over its role in selling mortgage-backed securities ahead of the 2008 financial crisis. Although the settlement was intended to address serious financial misconduct, much of the funds were diverted to third-party nonprofit organizations rather than victims or the U.S. Treasury Department. This allocation of funds received deserved criticism because it circumvented Congress's authority over government spending and raised questions about the possibility that these funds could be used for purposes unrelated to restitution in litigation. Essentially, this practice allowed the executive branch to direct large sums of money to advocacy groups without legislative oversight, undermining the constitutional appropriations process.
Legal experts have rightly criticized these practices as illegal and unethical. By diverting funds from victims and the Treasury Department, the Department of Justice is using its power to allocate public funds based on political preferences rather than legal merits or public interest. Settlements in lawsuits are usually aimed at compensating victims or redressing the harm caused. Diverting these funds to third parties could mean that actual victims and affected parties do not receive the full justice and compensation they deserve.
The “Settlement Secret Fund Termination Act” is a countermeasure to ensure the transparency and proper use of settlement funds. This bill aims to uphold the principles of justice and ensure that any money obtained through settlements serves the public interest. No matter who is in the White House, the Justice Department's enforcement efforts should support justice and not be used for partisan purposes.