Justice Department bans settlement money to outside groups

June 7 (UPI) -- The U.S. Justice Department will no longer allow penalties to go to advocacy groups as part of civil and criminal settlements, which Republicans have called "slush funds."

Instead the money collected can only be used to reimburse parties to the litigation or compensate victims, Attorney General Jeff Sessions said in an order Tuesday.

"When the federal government settles a case against a corporate wrongdoer, any settlement funds should first go 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 in a statement accompanying the one-page order to all Justice Department division heads and U.S. attorneys.

In January, House Judiciary Committee Chairman Bob Goodlatte, R-Va., introduced a bill to prohibit federal agencies from requiring defendants to donate money to third-party groups as part of a settlement. It was called Stop Settlement Slush Funds Act of 2017.

When Barack Obama was president, the Justice Department gave proceeds to third parties, including settlements with Wall Street banks in the sale of toxic mortgage bonds. The money funded mortgage relief for homeowners rather than compensation to investors who lost money.

Last October, Senate Judiciary Committee Chairman Chuck Grassley, R-Iowa, wrote in a letter to then-Attorney General Loretta Lynch that 2013 settlements with Bank of America Corp. for $16.65 billion and Citigroup Inc. for $7 billion restored funding to left-leaning groups that Congress deliberately defunded. They included National Council of La Raza, the National Urban League, the National Community Reinvestment Coalition and NeighborWorks America.

In 2015, the Justice Department directed JPMorgan Chase, in a settlement over robo-signing claims, to pay $7.5 million to the American Bankruptcy Institute's endowment for financial education, Justice officials said.

In the government's settlement last year with Volkswagen AG for cheating on emissions tests, the automaker was required to spend $2.7 billion to fund environmental remediation projects and another $2 billion on charging infrastructure for electric vehicles.

"These third-party organizations were neither victims nor parties to the lawsuits," Sessions wrote.

Under Sessions' policy, settlement funds not going to victims or for services in connection with the case will go to the U.S. Treasury. Exceptions are payments that directly remedy the harm addressed in the settlement, including the "environment or from official corruption," and those "expressly authorized by statute, including restitution and forfeiture."

"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," Sessions 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."