The US constitution gives Congress control over Federal spending. This was one aspect of of the Iran Contra affair that liberals were bitter about – the Reagan administration got access to money Congress had no control over, and spent it in ways that Congress would never have approved. The same thing is happening now with fines paid by banks to settle Department of Justice lawsuits.
There have been some big settlements recently between banks and the DOJ:
- JP Morgan for $13 billion on 11/19/13
- Citigroup for $7 billion on 7/14/14
- Bank of America for $16 billion on 8/21/14
At first glance this all looks good from a taxpayer’s point of view. You probably expect that all these billions were safely deposited in the Treasury: used to buy pencils for the Education Department, calculators for the IRS, and gasoline for the Army, all as authorized by Congress in the federal budget.
However, the fact is that a lot of the money in these settlements went straight to left wing community groups, without ever touching a US Treasury bank account. Went to who, exactly? DOJ said it was distributed to a mystery list of ‘qualified organizations’. One version of the list surfaced in an editorial on the web site Investor’s Business Daily:
According to the list provided by Justice, those groups include some of the most radical bank shakedown organizations in the country, including:
• La Raza, which pressures banks to expand their credit box to qualify more low-income Latino immigrants for home loans;
• National Community Reinvestment Coalition, Washington’s most aggressive lobbyist for the disastrous Community Reinvestment Act;
• Neighborhood Assistance Corporation of America, whose director calls himself a “bank terrorist;”
• Operation Hope, a South Central Los Angeles group that’s pressuring banks to make “dignity mortgages” for deadbeats.
Worse, one group eligible for BofA slush funds is a spin-off of Acorn Housing’s branch in New York.
DOJ claimed it used a list of ‘qualified organizations’, but a FOIA request by Judicial Watch found that actually there is no list, and also that DOJ provides no oversight of how the money is used.
Notice that DOJ forced the banks to fund the same groups that are attacking them. These groups may have discovered a perpetual motion funding machine: point out a bank, and DOJ files a baseless lawsuit. The bank agrees to settle, with the settlement including hefty donations to community activists, donations used as seed money to fund a new round of accusations.
How is it possible that DOJ is handing out money? The relevant law in this case is the Miscellaneous Receipts Act, which requires that ‘an official or agent of the Government receiving money for the Government from any source shall deposit the money in the Treasury’.
In other words, the bank settlements should be deposited at the Treasury; and once in the hands of the Treasury the money is only spent as authorized by Congress. How do you get around that?
As explained in a series of articles on The FCPA Blog, the key word is ‘receiving’. If the guilty bank sends money directly to La Raza or some other group, the federal government never received the funds, so the Miscellaneous Receipts Act does not apply. This is an obvious end-run around the law, recognized in the past and explicitly forbidden. However, the Obama administration apparently crafted a new set of guidelines allowing exceptions. At first the exceptions were for environmental settlements, but use has now broadened to financial cases.
The DOJ bank settlements may violate even the new, looser guidelines, particularly when DOJ uses settlement money to restore funds cut by Congress. For example, Congress cut funding for La Raza from $88 million to $45 million; but then DOJ used settlement funds to provide an extra $30 million to La Raza, restoring 70% of the cut. As Rep. Bob Goodlatte (R-VA) said in a Congressional hearing on the matter: “DOJ’s settlements appear to restore most of the funding that Congress specifically cut. For DOJ to funnel money to third-parties through settlements this way may violate the law and is undoubtedly bad policy.”
Here are some issues raised by the end-run around MRA:
- The Justice Department lacks authority to hand over government funds to parties of its own choosing.
- Third party contribution requirements bypass the constitutional process for appropriating taxpayer dollars.
- This practice denies the public the opportunity to know how public funds are spent and to hold elected officials accountable for their choices.
- Third-party contribution requirements are rife with opportunities for political cronyism because they allow the Justice Department to pick-and-choose which private organizations will receive federal funds, without guidance or oversight.
As stated in Cong. Goodlatte’s hearing: “When the Justice Department negotiates settlements that send money to third parties instead of to the United States Treasury…without legislative authority, they violate separation of powers by effectively using executive-branch enforcement authority to create legislative spending power. The spending may evade laws and regulations limiting or controlling federal spending, or create or fund programs that Congress never would have agreed to spend.”
This is the flip side of the Obama administration’s abuse of IRS authority: with one hand the IRS is used to attack and intimidate political enemies, and on the other hand DOJ is used to subvert separation-of-powers and provide off-budget funding to political allies.
Imagine in an alternate universe that the Black Panther Party is sued for voter intimidation, settles with DOJ for several million dollars, and part of the settlement requires the Black Panthers to ‘donate’ money to the NRA. Liberal heads would explode with outrage.
If liberals were upset at the diversion of funds in the Iran-Contra affair, they should be just as upset by DOJ running its own slush fund. To be upset in one case and not the other is hypocrisy.