```

[House Report 114-694]
[From the U.S. Government Publishing Office]

114th Congress    }                                     {       Report
                        HOUSE OF REPRESENTATIVES
 2d Session       }                                     {      114-694

======================================================================

 
                STOP SETTLEMENT SLUSH FUNDS ACT OF 2016

                                _______
                                

 July 18, 2016.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

   Mr. Goodlatte, from the Committee on the Judiciary, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 5063]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to whom was referred the 
bill (H.R. 5063) to limit donations made pursuant to settlement 
agreements to which the United States is a party, and for other 
purposes, having considered the same, reports favorably thereon 
with an amendment and recommends that the bill as amended do 
pass.

                                CONTENTS

                                                                   Page

The Amendment....................................................     2
Purpose and Summary..............................................     2
Background and Need for the Legislation..........................     2
Hearings.........................................................    11
Committee Consideration..........................................    11
Committee Votes..................................................    11
Committee Oversight Findings.....................................    16
New Budget Authority and Tax Expenditures........................    16
Congressional Budget Office Cost Estimate........................    16
Duplication of Federal Programs..................................    18
Disclosure of Directed Rule Makings..............................    18
Performance Goals and Objectives.................................    18
Advisory on Earmarks.............................................    18
Section-by-Section Analysis......................................    18
Dissenting Views.................................................    19

                             The Amendment

    The amendment is as follows:
  Strike all that follows after the enacting clause and insert 
the following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Stop Settlement Slush Funds Act of 
2016''.

SEC. 2. LIMITATION ON DONATIONS MADE PURSUANT TO SETTLEMENT AGREEMENTS 
                    TO WHICH THE UNITED STATES IS A PARTY.

  (a) Limitation on Required Donations.--An official or agent of the 
Government may not enter into or enforce any settlement agreement on 
behalf of the United States, directing or providing for a payment to 
any person or entity other than the United States, other than a payment 
that provides restitution for or otherwise directly remedies actual 
harm (including to the environment) directly and proximately caused by 
the party making the payment, or constitutes payment for services 
rendered in connection with the case.
  (b) Penalty.--Any official or agent of the Government who violates 
subsection (a), shall be subject to the same penalties that would apply 
in the case of a violation of section 3302 of title 31, United States 
Code.
  (c) Effective Date.--Subsections (a) and (b) apply only in the case 
of a settlement agreement concluded on or after the date of enactment 
of this Act.
  (d) Definition.--The term ``settlement agreement'' means a settlement 
agreement resolving a civil action or potential civil action.

                          Purpose and Summary

    H.R. 5063, the ``Stop Settlement Slush Funds Act of 2016,'' 
prohibits terms in Department of Justice (DOJ) settlements that 
direct or provide for payments to non-victim third-parties.

                Background and Need for the Legislation

    A year-long Committee investigation has revealed that the 
DOJ is pushing and even requiring settling defendants to donate 
money to non-victim third-parties.
    Donations can earn up to double credit against defendants' 
overall payment obligations, while credit for direct relief to 
consumers is merely dollar-for-dollar. What is more, documents 
show that groups that stood to gain from these mandatory 
donations lobbied DOJ to include them in settlements. DOJ has 
funneled third-party groups as much as $880 million dollars in 
just the last 2 years. These payments occur entirely outside of 
the Congressional appropriations and grant oversight process. 
What is worse, in some cases, DOJ-mandated donations restore 
funding that Congress specifically cut.
    It is critical that Congress act. DOJ is ignoring Congress' 
concerns--increasing the use of third-party payments, even as 
Congress objects. Just last month, DOJ included such terms in 
its settlement with Goldman Sachs.
    The purpose of DOJ enforcement actions should be punishment 
and redress to actual victims. Carrying that concept to 
communities at large or community groups, however worthy, is a 
matter for the Legislative branch and is not to be conducted at 
the unilateral discretion of the Executive.
    This is fundamentally a bipartisan, institutional issue. 
That is one reason that an amendment banning mandatory 
donations in last year's Commerce, Justice, Science and Related 
Agencies Appropriations Act passed the House by voice vote.

             I. THE IMPORTANCE OF CONGRESS' SPENDING POWER

    Congress' spending power is its most effective tool for 
oversight and reining in Executive overreach.
    In Federalist No. 58, James Madison described the power of 
the purse as ``that powerful instrument by which we behold, in 
the history of the British Constitution, an infant and humble 
representation of the people . . . finally reducing . . . all 
the overgrown prerogatives of the other branches of 
government.''\1\ Accordingly, Article I section 9, clause 7 
provides that, ``No Money shall be drawn from the Treasury, but 
in Consequence of Appropriations made by Law.'' Alexander 
Hamilton noted that this provision gave Congress the power to 
control not only the amount of an expenditure, but its purpose. 
``[N]o money can be expended, but for an object, to an extent, 
and out of a fund, which the laws have prescribed.''
---------------------------------------------------------------------------
    \1\The Federalist No. 58 (James Madison).
---------------------------------------------------------------------------
    Legal experts note that the Framers ``vested Congress with 
this authority precisely because it was the most representative 
branch; the immediate accountability of Congress . . . insures 
equitable distribution of government funds.''\2\
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    \2\Todd Peterson, Protecting the Appropriations Power: Why Congress 
Should Care About Settlements at the Dep't of Justice, 2009 BYU L. Rev. 
327, 335 (2009).
---------------------------------------------------------------------------

            II. EFFORTS BY AGENCIES TO CIRCUMVENT CONGRESS' 
                             SPENDING POWER

    Precisely because the spending power so effectively reins 
in agency overreach, the Executive Branch has long sought ways 
around it.
A. The Antideficiency Act
    As early as 1809, a Congressional resolution called for 
methods to ``prevent the improper expenditure of Federal 
funds.'' Executive departments would enter into vendor 
contracts without authorization, knowing that Congress could 
not in good conscience deny payment once the goods were 
provided. These ``coercive deficiencies'' prompted the 1820 
Antideficiency Act (ADA) which provided that ``no contract 
shall hereafter be made . . . except under law authorizing the 
same, or under appropriation adequate to its fulfillment.'' The 
statute applied only to the Departments of War, State and 
Treasury. In 1870, Congress expanded it to cover all Federal 
agencies. In 1905, seeing that compliance problems persisted, 
Congress added criminal penalties. Even though no criminal 
prosecutions have been brought under the Antideficiency Act, 
``the in terrorem effect of the criminal sanctions has been 
enough to get the executive branch to take the provisions of 
the Act seriously.''\3\
---------------------------------------------------------------------------
    \3\Peterson, supra note 2, at 339.
---------------------------------------------------------------------------
B. The Miscellaneous Receipts Act
    The Executive Branch soon found ways around the ADA. The 
Constitution requires an appropriation to withdraw money from 
the Treasury, it does not, agencies argued, require that money 
be placed there to begin with. Thus, agencies began to ``divert 
funds received by an agency to that agency's uses before it is 
placed in the [T]reasury.'' Congress closed this loophole with 
the 1849 Miscellaneous Receipts Act (MRA). It provides that 
officials ``receiving money for the Government from any source 
shall deposit the money in the Treasury.''\4\ The law reflects 
the Separation of Powers principle. The Executive Branch 
negotiates settlements, but Congress gets to decide how to 
allocate the money recovered.\5\ As the Government 
Accountability Office (GAO) explains, the MRA is ``another 
element in the statutory pattern by which Congress retains 
control of the public purse under the Separation of Powers 
doctrine.''\6\
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    \4\31 U.S.C. Sec. 3302.
    \5\Andy Spalding, The Much Misunderstood Miscellaneous Receipts Act 
(Part 1), The FCPA Blog (Sept. 29, 2014, 7:18 AM), http://
www.fcpablog.com/blog/2014/9/29/the-much-misunderstood-miscellaneous-
receipts-act-part-1.html.
    \6\Peterson, supra note 2, at 341.
---------------------------------------------------------------------------
    Unfortunately, DOJ has devised a way around the MRA too. 
The loophole is lamented in an article by Todd Peterson, former 
deputy Assistant Attorney General for the Office of Legal 
Counsel (OLC) in the Clinton administration: ``Because the 
Department of Justice has such broad settlement authority, it 
has the ability to use settlements to circumvent the 
appropriations authority of Congress.'' In particular, DOJ has 
the power ``to short circuit the Miscellaneous Receipts Act by 
agreeing to settlement terms that require the violator of a 
Federal statute to undertake certain responsibilities or 
actions that might inure to the benefit of the executive 
branch.'' Thus, the Department could effectively ``augment the 
appropriations of the Executive Branch without running afoul of 
the technical requirements of the Miscellaneous Receipts Act--
although creating an unconstitutional interference with 
Congress' appropriations power.''\7\
---------------------------------------------------------------------------
    \7\Peterson, supra note 2, at 348.
---------------------------------------------------------------------------
    That is precisely what has happened.
    Beginning in the 1980's, various Federal enforcement 
agencies, including the Commodity Futures Trading Commission, 
Nuclear Regulatory Commission and the Environmental Protection 
Agency (EPA), wanted to use settlement money to fund community 
service projects.\8\
---------------------------------------------------------------------------
    \8\Andrew B. Spalding, Restorative Justice for Multinational 
Corporations, University of Richmond Scholarship Repository, 35 (2015).
---------------------------------------------------------------------------
    In 1991, Representative John Dingell, then Chair of the 
Energy and Commerce Committee's Oversight Subcommittee sought a 
GAO opinion on the practice. He asked particularly about the 
permissibility of EPA including Supplementary Environmental 
Projects (SEPs) in settlements with polluters. A SEP is a 
``beneficial project that a violator voluntarily agrees to 
perform in addition to actions required to correct the 
violation . . . as part of a settlement.''\9\
---------------------------------------------------------------------------
    \9\Peterson, supra note 2, at 352.
---------------------------------------------------------------------------
    When GAO concluded that SEPs violated the MRA, EPA 
protested. GAO reexamined its opinion, but reaffirmed the 
conclusion:

        An interpretation of an agency's prosecutorial 
        authority to allow an enforcement scheme involving 
        supplemental projects that go beyond remedying the 
        violation in order to carry out other statutory goals 
        of the agency would permit the agency to improperly 
        augment its appropriations for those other purposes in 
        circumvention of the congressional appropriations 
        process.\10\
---------------------------------------------------------------------------
    \10\Peterson, supra note 2, at 354.

    In subsequent face-to-face meetings between Rep. Dingell's 
staff, DOJ, and EPA, it was agreed that this analysis did not 
apply to all SEPs and that EPA would issue guidelines to avoid 
violations of the MRA and the related augmentation problem. 
SEPs continued in the meantime. The guidelines were finally 
released in 1998.\11\
---------------------------------------------------------------------------
    \11\Id.
---------------------------------------------------------------------------
    One key tactic the Executive Branch uses is to structure 
the transaction as an ``adjustment of penalty.'' The government 
simply reduces the amount owed to it by the amount that the 
defendant agrees to pay directly to the community service 
project. Since the government never receives the money the MRA 
is not triggered. This idea is echoed in a 2006 DOJ Office of 
Legal Counsel memo. It advises that ``[t]o avoid the 
Government's constructively `receiving money for the 
Government,''' settlements that include payments to third-
parties should ``be executed before an admission or finding of 
liability in favor of the United States; and . . . the United 
States [should] not retain post-settlement control over the 
disposition or management of the funds.''\12\
---------------------------------------------------------------------------
    \12\Application of the Gov't Corp. Control Act and The 
Miscellaneous Receipts Act to the Canadian Softwood Lumber Settlement 
Agreement, Op. O.L.C. (2006), https://www.justice.gov/sites/
default/files/olc/opinions/attachments/2015/05/29/op-olc-v030-
p0111.pdf.
---------------------------------------------------------------------------
C. LThe U.S. Attorney's Manual's Limits on Defendant Funded Community 
        Service Projects
    A May 14, 2008 memo from Deputy Attorney General Mark Filip 
announced the following amendment to the U.S. Attorney's Manual 
(USAM) pertaining to defendant-funded community service 
projects:

        Plea agreements . . . should not include terms 
        requiring the defendant to pay funds to a charitable . 
        . . community, or other organization . . . that is not 
        a victim of the criminal activity or is not providing 
        services to redress the harm caused by the defendant's 
        criminal conduct. . . . [T]his practice is restricted 
        because it can create actual or perceived conflicts of 
        interest and/or other ethical issues.\13\ (Emphasis 
        added.)
---------------------------------------------------------------------------
    \13\U.S. Attorney's Manual 9-16.325, Plea Agreements, Deferred 
Prosecution Agreements, Non-Prosecution Agreements and Extraordinary 
Restitution, http://www.justice.gov/usao/eousa/foia_reading_room/usam/
title9/16mcrm.htm#9-16.325 (emphasis added).

    The history of this provision is instructive. According to 
a 2012 U.S. Attorney's Bulletin, the amendment was recommended 
``due to instances of perceived abuse of extraordinary 
restitution by some offices.'' The original plan was to end all 
forms of such ``extraordinary community restitution,'' except 
as statutorily authorized for certain drug crimes.
    After intense discussion, the Criminal Chief's Working 
Group decided to make an exception for environmental crimes. 
This concession ``was due in large part to guidance that was 
issued by the Environment and Natural Resources Division 
(ENRD).''\14\ Thus, the USAM makes exception for community 
service provisions in plea agreements . . . resolving 
environmental matters.'' Importantly, when contemplating such 
provisions, the prosecutor must confer with the Environment and 
Natural Resources Division, ``which has issued guidance to 
ensure that the community service requirements are narrowly 
tailored to the facts of the case.''\15\ Exception is also made 
for certain drug offenses where there is an ``absence of 
identifiable victims, as well as a nexus between the payment 
and the offense.''\16\
---------------------------------------------------------------------------
    \14\Kris Dighe, Organizational Community Serv. in Envtl. Crimes 
Cases, 60 U.S. Attorneys' Bulletin 101 (July 2012) (emphasis added).
    \15\Id.
    \16\Id.
---------------------------------------------------------------------------
    There are several reasons why the USAM language has not 
proven a barrier to DOJ's expanding mandatory donation 
provisions in civil matters such as the recent banking 
settlements. First, strictly speaking, the USAM provision 
covers only criminal matters. In addition, the USAM's language 
leaves loopholes. It permits payments ``to redress the harm 
caused.'' This phraseology fails to impose a tight nexus 
between the harm and the payment. Without demanding a direct 
causal link between the two, connections may be easy to 
manipulate.

           III. DOJ'S UNPRECEDENTED MANDATORY-DONATION BANK 
                            SETTLEMENT TERMS

A. LThe Emergence of Troubling Terms in DOJ Mortgage Banking 
        Settlements
    In November 2014, the House Judiciary and Financial 
Services Committees opened a pattern-or-practice investigation 
into the Justice Department's mortgage lending settlements with 
major banks, including JP Morgan, Citi and Bank of America 
(BoA). The concern was that DOJ was systematically subverting 
Congress' spending power by using settlements to funnel money 
to third-party groups.
    The initial evidence supporting the committees' concern was 
a progression of troubling terms in DOJ's major mortgage 
banking settlements. This began with the 2013 JP Morgan 
settlement that offered the bank credit against its settlement 
obligations for donations to community redevelopment 
groups.\17\ Next came Citi and Bank of America settlements in 
2014 which required $150 million in donations to housing non-
profits.\18\ These donations earned double credit against the 
banks' overall obligations. Meanwhile, credit for direct forms 
of consumer relief remained dollar-for-dollar.
---------------------------------------------------------------------------
    \17\Settlement Agreement between DOJ and JP Morgan, Annex2--
Consumer Relief, Nov. 19, 2013, Menu Item 4D available at https://
www.justice.gov/iso/opa/resources/644201311191647591
63425.pdf.
    \18\Settlement Agreement between DOJ and Citi, Annex2--Consumer 
Relief, July 14, 2014, Menu Items 4D, 4E, 4F, available at http://
www.justice.gov/iso/opa/resources/649201471413
721380969.pdf; Settlement Agreement between DOJ and Bank of America, 
Annex2--Consumer Relief, Menu Items 3E, 3F, 3G, Aug. 21, 2014, 
available at http://www.justice.gov/iso/opa/resources/
8492014829141239967961.pdf.
---------------------------------------------------------------------------
    Bank of America's settlement went further. It not only 
required direct donations to housing non-profits, but required 
the bank to set aside $490 million to pay potential consumer 
tax liability arising from loan modifications. Logic dictates 
that if there is no consumer tax liability to cover, that money 
should revert to the bank. Instead, under the terms of the 
settlement, since Congress extended the non-taxable treatment 
of loan modifications in December 2015, the money is split 
between NeighborWorks America and Interest on Lawyer's Trust 
Account entities (IOLTAs) that fund legal aid.\19\
---------------------------------------------------------------------------
    \19\Settlement Agreement between DOJ and Bank of America, Annex3--
Tax Fund, Aug. 21, 2014, available at http://www.justice.gov/iso/opa/
resources/4922014829141329620708.pdf; Settlement between DOJ and Bank 
of America, Aug. 21, 2014, pg. 9, available at, http://www.justice.gov/
iso/opa/resources/3392014829141150385241.pdf.
---------------------------------------------------------------------------
B. Committee Oversight & DOJ Delay
    The investigation formally commenced on November 25, 2014, 
when the Judiciary and Financial Services Committees requested 
DOJ documents pertaining to the genesis of these unprecedented 
and controversial settlement terms.
    Nevertheless, for over a year, DOJ provided none of the 
requested internal communications pertaining to the 
controversial settlement provisions. Rather, DOJ provided just 
sixty pages of emails between DOJ and outside parties. 
Furthermore, because of duplicative email chains, those sixty 
pages amounted to fewer than ten distinct emails. What little 
information DOJ did provide confirmed that third-party groups, 
which stood to gain from mandatory donation provisions, 
actively lobbied for their inclusion in the settlements.
    In response to further Judiciary Committee inquiries, DOJ 
claimed in September 2015 not to have understood that internal 
communications were sought. This contention is difficult to 
credit in light of the unambiguous language in Committee 
letters and hearing questions. For example, at a May 19, 2015 
hearing, Chairman Goodlatte pressed Civil Division Principal 
Deputy Assistant Attorney General Benjamin Misner specifically 
on internal documents: ``the Department has sent a paltry 60 
pages of email between the Department of Justice and outside 
groups, no internal Department of Justice emails. And those are 
critical . . . When will we get those documents?''\20\
---------------------------------------------------------------------------
    \20\Ongoing Oversight: Monitoring The Activities Of The Justice 
Dep't's Civil, Tax And Env't And Nat. Resources Divisions And The U.S. 
Trustee Program: Hearing Before the H. Subcomm. On Reg. Reform, Com. 
and Antitrust Law, 114th Cong. 81 (2015) (statement by Rep. Bob 
Goodlatte, Chairman, H. Judiciary Comm.).
---------------------------------------------------------------------------
    Finally, on March 18, 2016, 15 months after the initial 
request, DOJ relented and agreed to let the Committee review 
the internal documents, but only at DOJ, and subject to 
restrictions on releasing the documents' contents.
    The internal documents confirm that DOJ conceived of the 
mandatory donation provisions. It also seems quite possible 
that then Associate Attorney General Tony West was the driving 
force behind the effort. Indeed, an August 22, 2014 email from 
the President of the National Association of IOLTA Programs 
(NAIP) to senior legal aid colleagues, obtained independently 
by the Committee, stated:

        I would like to discuss ways we might want to recognize 
        and show appreciation for the Department of Justice and 
        specifically Associate Attorney General Tony West who 
        by all accounts was the one person most responsible for 
        including the IOLTA provisions. (Emphasis added.)

    In response, the Executive Director of the Hawaii Legal Aid 
Foundation wrote, ``[f]rankly, I would be willing to have us 
build a statue [of West] and then we could bow down to this 
statue each day after we get our $200,000+.''\21\
---------------------------------------------------------------------------
    \21\Email from Bob LeClair, Executive Director of the Hawaii Legal 
Aid Foundation, to Charles Dunlap et al, President of NAIP, Aug 22, 
2014, on file with the House Judiciary Committee.
---------------------------------------------------------------------------
    On April 8, 2016, the Committee requested transcribed 
interviews with four DOJ officials who, according to the 
documents the Committee reviewed, were most involved in 
inserting the mandatory donation provisions into the 
settlements.
C. DOJ is Ignoring Congressional Concerns
    In the meantime, rather than suspending the practice of 
mandatory donation provisions in response to legitimate 
Congressional concerns, the Department of Justice has doubled 
down.
    On March 3, 2015, a full 3 months after the Judiciary 
Committee first expressed concerns with mandatory donations, 
the U.S. Trustee Program (UST) entered into an over $50 million 
settlement with JP Morgan relating to robo-signing.\22\ Seven-
and-one-half million of those dollars did not make it to 
victims. Instead, it went to a third-party, largely to educate 
high school and college students about using credit cards 
responsibly.\23\
---------------------------------------------------------------------------
    \22\Robo-signing is the practice of signing legal documents without 
verifying the accuracy of their contents. In this case, DOJ alleged 
that bank officials filed ``payment change notices'' required in 
certain bankruptcy cases that ``were improperly signed, under penalty 
of perjury, by persons who had not reviewed the accuracy of the 
notices.''
    \23\In re: Belzak, Case No. 10-23963-dob (Bankruptcy Court E. D. 
Mi, Northern Div. Bay City) (Order Approving Settlement between the 
United States Trustee Program and JPMorgan Chase Bank N.A.) available 
at, http://www.justice.gov/ust/eo/public_affairs/press/docs/2015/
pr201503
03_order.pdf.
---------------------------------------------------------------------------
    Similarly, DOJ's September 2015 settlement with Hudson City 
Savings Bank requires the defendant to ``[s]pend $750,000 on 
local partnerships.''\24\
---------------------------------------------------------------------------
    \24\Consent Order with Hudson City Savings Bank, p 17, Sept. 24, 
2015, available at https://www.justice.gov/opa/pr/justice-department-
and-consumer-financial-protection-bureau-reach-
settlement-hudson-city.
---------------------------------------------------------------------------
    Most recently, on April 11, 2016, DOJ announced a $5 
billion Residential Mortgage Backed Securities (RMBS) 
settlement with Goldman Sachs.\25\ The consumer relief 
provision requires $240 million in ``Financing and/or donations 
to fund affordable rental and for-sale housing.''\26\
---------------------------------------------------------------------------
    \25\Settlement Agreement between DOJ and Goldman Sachs, Annex2--
Consumer Relief, Apr. 11, 2016, Menu Item 2 available at https://
www.justice.gov/opa/file/839906/download.
    \26\https://www.justice.gov/opa/file/839906/download.
---------------------------------------------------------------------------

       IV. THE CRUX OF THE SUBVERSION OF CONGRESS' SPENDING POWER

    The subversion of Congress' spending power can take several 
forms. In some cases, mandatory donation provisions reinstate 
funding Congress specifically cut. In others, funding is not 
reinstated, but funding decisions that should properly be made 
only by an accountable Congress are instead made at the 
unilateral discretion of the Executive. In both cases, it is 
not only Congress that is sidestepped, but also the standard 
grant-oversight process that ensures money is spent as 
intended.
A. Reinstating Funding Congress Specifically Cut
    In the most egregious cases, DOJ is using mandatory 
donations to restore funding that Congress specifically cut.
    In 2011, Congress eliminated $88 million in funding for 
HUD's ``housing counseling assistance'' program.\27\ Congress 
reinstated about $45 million for the program in 2012.''\28\ 
Grantee groups lamented the 50% cut. For 2014 and 2015, 
Congress continued to provide just $45 MM and $47MM 
respectively.\29\ Thus, the groups were understandably pleased 
with the mandatory donation provisions in the 2014 Citi 
settlement.
---------------------------------------------------------------------------
    \27\Department of Defense and Full-Year Continuing Appropriations 
Act, 2011, Pub. L. No. 112-10, Sec. 2245, 125 Stat 38 (2011).
    \28\Press Release, Nat'l Council of La Raza, Settlement With Top 
Mortgage Service Providers A Win For Struggling Homeowners (Feb. 9, 
2012), http://www.nclr.org/index.php/about_us/news/
news_releases/
settlement_with_top_mortgage_service_providers_a_win_for_struggling_
homeowners.
    \29\See, http://www.lis.gov/cgi-lis/query/D?c113:7:./temp/
c113yBgthU; see also, H.R.3547--Consolidated Appropriations Act, 2014, 
U.S. Congress, https://www.congress.gov/bill/113th-
congress/house-bill/3547/text.
---------------------------------------------------------------------------
    The settlements promised to reinstate all or more of the 
eliminated funding. Compared to the pre-2011 baseline of $88MM, 
HUD grants for 2014 and 2015 fall ``short'' by a combined 
$84MM. The DOJ settlements require $30MM to go specifically to 
groups in the HUD grant program, so 36% is recouped directly. 
In addition, some HUD grantees will also be eligible for a 
portion of the remaining $120MM in mandatory donations, not to 
mention the $490MM in the tax relief fund. For example, 
NeighborWorks is an eligible HUD grantee, but will also receive 
$122MM from BoA's Tax Fund since Congress extended the non-
taxable treatment of loan forgiveness in December 2015. This 
means that DOJ's mandatory donation provisions, which were 
negotiated in consultation with HUD, are restoring at least 
$152MM ($122+$30) to HUD grantees in place of the $88MM 
reduction mandated by Congress.
B. LUsurping Congress' Authority to Decide Funding Priorities
    The beneficiaries of mandatory donation provisions may or 
may not be worthy, non-partisan entities, but that is entirely 
beside the point. Under our system of government, Congress gets 
to decide how money is spent, not DOJ.
    The authority to settle cases necessarily includes the 
ability to obtain redress and remediation for victims. That is 
not in dispute. The issue is that Federal law understands 
victims to be those ``directly and proximately harmed'' by a 
defendant's bad acts.\30\ Once those victims have been 
compensated, deciding what to do with additional funds 
extracted from defendants becomes a policy question properly 
decided by elected representatives in Congress, not agency 
bureaucrats or prosecutors. It is not that DOJ officials are 
necessarily funding bad projects, it is that, outside of 
securing compensation for actual victims, it is not their 
decision to make.
---------------------------------------------------------------------------
    \30\18 U.S.C. Sec. 3771(e).
---------------------------------------------------------------------------
    For example, consider UST's March 3, 2015 robo-signing 
settlement referenced above. It required JP Morgan to donate 
$7.5 million to a third-party: the American Bankruptcy 
Institute's (ABI) endowment for financial education and support 
for the Credit Abuse Resistance Education Program (CAREP).
    CAREP educates high school and college students on the 
responsible use of credit and credit cards.\31\ The underlying 
harm UST was addressing in the settlement was compliance 
failures at banks impacting homeowners already in bankruptcy. 
As such, the connection between the activity giving rise to the 
settlement and the work of the third-party receiving donations 
under it is attenuated. This creates a significant question 
whether the payment violates the Miscellaneous Receipts Act. 
Either way, it is clear that CAREP is not remediating the 
direct harm caused by JP Morgan's alleged wrongdoing. As such, 
CAREP has no clearer claim to settlement funds than any number 
of other worthy causes. The spending-priority issue is a 
question for Congress, not DOJ.
---------------------------------------------------------------------------
    \31\About CARE, available at, http://care4yourfuture.org/about.
---------------------------------------------------------------------------
    Importantly, UST seemed unaware of just how much money the 
settlement provided to ABI as a percentage of ABI's current 
assets. According to its financial statements, at the end of 
2013 ABI had $13.6 MM in total assets, with $9.5 MM in net 
assets. The mandatory donation was $7.5 MM.\32\
---------------------------------------------------------------------------
    \32\American Bankruptcy Institute, 2014 Annual Report, available 
at, http://www.abi.org/about-us/annual-reports.
---------------------------------------------------------------------------
    ABI is not an ideological group. It is a non-profit with a 
reputation for good work. Nevertheless, if its efforts are to 
be subsidized by the government, that is a decision Congress 
must make, for which Congress will be accountable to the 
people. It is inappropriate for the Executive Branch to secure, 
at its unilateral discretion, the near-doubling of the entire 
net worth of an organization--however worthy the organization 
may be.
C. Circumventing Grant Oversight
    Federal grants come with a litany of rules and procedures 
designed to ensure that funds are used as intended. When 
entities are funded out of settlements rather than 
appropriations, this careful system of oversight and 
accountability is undone. That is a key reason that requiring 
third-party payments in DOJ settlements is so troubling. It 
evades oversight.
    Federal grant recipients are subject to a variety of 
administrative requirements detailed in the grant agreement, 
including detailed financial and program reporting 
requirements. Federal agencies are required to follow 
government-wide guidance, known as circulars, when entering 
into grant agreements. These circulars, issued by the Office of 
Management and Budget, set standards for a range of grant 
management activities, including financial reporting, audit 
requirements and suspension and debarment provisions. Federal 
agencies administering grant programs then incorporate the 
standards into regulations for specific grant programs.\33\
---------------------------------------------------------------------------
    \33\Congressional Research Service, Federal Grant Recipient 
Financial Reporting Requirements, April 24, 2015.
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    Such controls are entirely absent in DOJ's banking 
settlements. DOJ officials claim that there is oversight 
because each settlement has an independent monitor. That is 
misleading. It is true that monitors ensure that the banks 
comply with all the settlement terms, including the mandatory 
donations. However, the monitors' jurisdiction extends only to 
the banks, not to the grant recipients. Nothing in the 
settlement agreements gives the monitors authority to conduct 
ongoing oversight of recipients to ensure that they are using 
donated funds as intended.
    In fact, in some settlements, DOJ has explicitly disclaimed 
any oversight responsibility for the donations defendants are 
required to make. Consider again DOJ's March 3, 2015 settlement 
with JP Morgan that required a $7.5 million donation to the 
American Bankruptcy Institute (ABI). DOJ was adamant that 
neither it nor the bank retained ongoing oversight over ABI to 
ensure the donated money is used as intended. Indeed, the 
settlement specifically provides that ``the Parties understand 
and agree that neither has any involvement in or oversight over 
the American Bankruptcy Institute or the Credit Abuse 
Resistance Education Program and neither will monitor the use 
of the contribution by the recipient.''\34\ This is a 
remarkable admission.
---------------------------------------------------------------------------
    \34\Supra note 23 (emphasis added).
---------------------------------------------------------------------------

           V. THE ``STOP SETTLEMENT SLUSH FUNDS ACT OF 2016''

    H.R. 5063 prohibits terms in DOJ settlements that direct or 
provide for payments to non-victim third-parties.
    The legislation explicitly permits payments to remediate or 
otherwise directly remedy the direct harm, including 
environmental harm, done by defendants' wrongful activity. For 
example, a liable defendant could be required to pay for long-
term healthcare monitoring for individuals poisoned by toxic 
exposure to the defendant's carcinogenic chemicals. Such care 
directly remedies direct harm to victims.
    The bill also explicitly permits payments for services 
rendered in connection with a case, for example, to a 
settlement monitor. The bill applies prospectively only, so as 
not to disturb any settlements already concluded.

                                Hearings

    On May 28, 2016, the Subcommittee on Regulatory Reform, 
Commercial and Antitrust Law conducted a legislative hearing on 
the ``Stop Settlement Slush Funds Act of 2016.'' The witnesses 
at the hearing were: The Honorable Daniel E. Lungren, Esq., 
Principal, Lungren Lopina LLC; Prof. Paul F. Figley, Associate 
Director of Legal Rhetoric, American University Washington 
College of Law; and Prof. David M. Uhlmann, Director, 
Environmental Law and Policy Program, The University of 
Michigan Law School.
    Two of the three witnesses testified in support of the 
bill. They detailed the importance of Congress' spending power 
and the need to preserve it. They also suggested improvements 
to the bill, including revisions incorporated into the 
substitute amendment. The Minority witness testified that he 
understood the concern that mandatory donations encroach on 
legislative authority and can create the appearance of 
conflicts of interest. Nevertheless, he objected to the bill 
because he was concerned that it could prevent the government 
from addressing generalized harm, particularly in environmental 
cases. The bill, however, is clear that DOJ may require 
payments to redress direct environmental harm. Generalized harm 
may be addressed as well, but how best to do so is a policy 
question that is appropriately left to Congress rather than 
DOJ.

                        Committee Consideration

    On May 11, 2016, the Committee met in open session and 
ordered the bill H.R. 5063 favorably reported, with an 
amendment, by a rollcall vote of 18 to 6, a quorum being 
present.

                            Committee Votes

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
following rollcall votes occurred during the Committee's 
consideration of H.R. 5063:
    1. Amendment #1, by Mr. Conyers. The Amendment would exempt 
certain discrimination settlements from the bill's ban on 
third-party payments. Defeated by a rollcall vote of 9 to 15.

                             ROLLCALL NO. 1
 
                                                  Ayes    Nays   Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman...................              X
Mr. Sensenbrenner, Jr. (WI)....................              X
Mr. Smith (TX).................................              X
Mr. Chabot (OH)................................
Mr. Issa (CA)..................................
Mr. Forbes (VA)................................
Mr. King (IA)..................................
Mr. Franks (AZ)................................              X
Mr. Gohmert (TX)...............................              X
Mr. Jordan (OH)................................              X
Mr. Poe (TX)...................................              X
Mr. Chaffetz (UT)..............................
Mr. Marino (PA)................................              X
Mr. Gowdy (SC).................................
Mr. Labrador (ID)..............................              X
Mr. Farenthold (TX)............................
Mr. Collins (GA)...............................              X
Mr. DeSantis (FL)..............................
Ms. Walters (CA)...............................              X
Mr. Buck (CO)..................................              X
Mr. Ratcliffe (TX).............................              X
Mr. Trott (MI).................................              X
Mr. Bishop (MI)................................              X
 
Mr. Conyers, Jr. (MI), Ranking Member..........      X
Mr. Nadler (NY)................................
Ms. Lofgren (CA)...............................
Ms. Jackson Lee (TX)...........................      X
Mr. Cohen (TN).................................
Mr. Johnson (GA)...............................      X
Mr. Pierluisi (PR).............................      X
Ms. Chu (CA)...................................
Mr. Deutch (FL)................................
Mr. Gutierrez (IL).............................
Ms. Bass (CA)..................................      X
Mr. Richmond (LA)..............................
Ms. DelBene (WA)...............................      X
Mr. Jeffries (NY)..............................      X
Mr. Cicilline (RI).............................      X
Mr. Peters (CA)................................      X
                                                ------------------------
    Total......................................      9      15
------------------------------------------------------------------------

    2. Amendment #2, by Ms. Jackson Lee. The Amendments, 
offered en bloc, would exempt settlements resolving workplace 
sexual harassment, violence or discrimination or providing 
restitution to a State from the bill's ban on third-party 
payments. Defeated by a rollcall vote of 7 to 16.

                             ROLLCALL NO. 2
 
                                                  Ayes    Nays   Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman...................              X
Mr. Sensenbrenner, Jr. (WI)....................              X
Mr. Smith (TX).................................              X
Mr. Chabot (OH)................................
Mr. Issa (CA)..................................
Mr. Forbes (VA)................................              X
Mr. King (IA)..................................
Mr. Franks (AZ)................................              X
Mr. Gohmert (TX)...............................              X
Mr. Jordan (OH)................................              X
Mr. Poe (TX)...................................
Mr. Chaffetz (UT)..............................
Mr. Marino (PA)................................              X
Mr. Gowdy (SC).................................
Mr. Labrador (ID)..............................              X
Mr. Farenthold (TX)............................
Mr. Collins (GA)...............................              X
Mr. DeSantis (FL)..............................              X
Ms. Walters (CA)...............................              X
Mr. Buck (CO)..................................              X
Mr. Ratcliffe (TX).............................              X
Mr. Trott (MI).................................              X
Mr. Bishop (MI)................................              X
 
Mr. Conyers, Jr. (MI), Ranking Member..........
Mr. Nadler (NY)................................
Ms. Lofgren (CA)...............................
Ms. Jackson Lee (TX)...........................      X
Mr. Cohen (TN).................................      X
Mr. Johnson (GA)...............................      X
Mr. Pierluisi (PR).............................      X
Ms. Chu (CA)...................................
Mr. Deutch (FL)................................
Mr. Gutierrez (IL).............................
Ms. Bass (CA)..................................      X
Mr. Richmond (LA)..............................
Ms. DelBene (WA)...............................      X
Mr. Jeffries (NY)..............................
Mr. Cicilline (RI).............................      X
Mr. Peters (CA)................................
                                                ------------------------
    Total......................................      7      16
------------------------------------------------------------------------

    3. Amendment #3, by Mr. Johnson. The Amendment would exempt 
antitrust settlements from the bill's ban on third-party 
payments. Defeated by a rollcall vote of 7 to 15.

                             ROLLCALL NO. 3
 
                                                  Ayes    Nays   Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman...................              X
Mr. Sensenbrenner, Jr. (WI)....................              X
Mr. Smith (TX).................................
Mr. Chabot (OH)................................
Mr. Issa (CA)..................................
Mr. Forbes (VA)................................              X
Mr. King (IA)..................................
Mr. Franks (AZ)................................              X
Mr. Gohmert (TX)...............................              X
Mr. Jordan (OH)................................
Mr. Poe (TX)...................................              X
Mr. Chaffetz (UT)..............................
Mr. Marino (PA)................................              X
Mr. Gowdy (SC).................................
Mr. Labrador (ID)..............................              X
Mr. Farenthold (TX)............................
Mr. Collins (GA)...............................              X
Mr. DeSantis (FL)..............................              X
Ms. Walters (CA)...............................              X
Mr. Buck (CO)..................................              X
Mr. Ratcliffe (TX).............................              X
Mr. Trott (MI).................................              X
Mr. Bishop (MI)................................              X
 
Mr. Conyers, Jr. (MI), Ranking Member..........
Mr. Nadler (NY)................................
Ms. Lofgren (CA)...............................
Ms. Jackson Lee (TX)...........................
Mr. Cohen (TN).................................      X
Mr. Johnson (GA)...............................      X
Mr. Pierluisi (PR).............................      X
Ms. Chu (CA)...................................
Mr. Deutch (FL)................................
Mr. Gutierrez (IL).............................
Ms. Bass (CA)..................................      X
Mr. Richmond (LA)..............................
Ms. DelBene (WA)...............................      X
Mr. Jeffries (NY)..............................      X
Mr. Cicilline (RI).............................      X
Mr. Peters (CA)................................
                                                ------------------------
    Total......................................      7      15
------------------------------------------------------------------------

    4. Amendment #4, by Mr. Cicilline. The Amendment would 
exempt settlements pertaining to protecting privacy from the 
bill's ban on third-party payments. Defeated by a rollcall vote 
of 6 to 15.

                             ROLLCALL NO. 4
 
                                                  Ayes    Nays   Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman...................              X
Mr. Sensenbrenner, Jr. (WI)....................              X
Mr. Smith (TX).................................
Mr. Chabot (OH)................................
Mr. Issa (CA)..................................
Mr. Forbes (VA)................................              X
Mr. King (IA)..................................
Mr. Franks (AZ)................................              X
Mr. Gohmert (TX)...............................              X
Mr. Jordan (OH)................................
Mr. Poe (TX)...................................              X
Mr. Chaffetz (UT)..............................
Mr. Marino (PA)................................              X
Mr. Gowdy (SC).................................
Mr. Labrador (ID)..............................              X
Mr. Farenthold (TX)............................
Mr. Collins (GA)...............................              X
Mr. DeSantis (FL)..............................              X
Ms. Walters (CA)...............................              X
Mr. Buck (CO)..................................              X
Mr. Ratcliffe (TX).............................              X
Mr. Trott (MI).................................              X
Mr. Bishop (MI)................................              X
 
Mr. Conyers, Jr. (MI), Ranking Member..........
Mr. Nadler (NY)................................
Ms. Lofgren (CA)...............................
Ms. Jackson Lee (TX)...........................
Mr. Cohen (TN).................................
Mr. Johnson (GA)...............................      X
Mr. Pierluisi (PR).............................      X
Ms. Chu (CA)...................................
Mr. Deutch (FL)................................
Mr. Gutierrez (IL).............................
Ms. Bass (CA)..................................
Mr. Richmond (LA)..............................
Ms. DelBene (WA)...............................      X
Mr. Jeffries (NY)..............................      X
Mr. Cicilline (RI).............................      X
Mr. Peters (CA)................................      X
                                                ------------------------
    Total......................................      6      15
------------------------------------------------------------------------

    5. Reporting H.R. 5063. The bill prohibits terms in DOJ 
settlements that direct or provide for payments to non-victim 
third-parties. Reported by a rollcall vote of 18 to 6.

                             ROLLCALL NO. 5
 
                                                  Ayes    Nays   Present
------------------------------------------------------------------------
Mr. Goodlatte (VA), Chairman...................      X
Mr. Sensenbrenner, Jr. (WI)....................      X
Mr. Smith (TX).................................
Mr. Chabot (OH)................................
Mr. Issa (CA)..................................      X
Mr. Forbes (VA)................................      X
Mr. King (IA)..................................
Mr. Franks (AZ)................................      X
Mr. Gohmert (TX)...............................      X
Mr. Jordan (OH)................................
Mr. Poe (TX)...................................      X
Mr. Chaffetz (UT)..............................      X
Mr. Marino (PA)................................      X
Mr. Gowdy (SC).................................
Mr. Labrador (ID)..............................      X
Mr. Farenthold (TX)............................
Mr. Collins (GA)...............................      X
Mr. DeSantis (FL)..............................      X
Ms. Walters (CA)...............................      X
Mr. Buck (CO)..................................      X
Mr. Ratcliffe (TX).............................      X
Mr. Trott (MI).................................      X
Mr. Bishop (MI)................................      X
 
Mr. Conyers, Jr. (MI), Ranking Member..........
Mr. Nadler (NY)................................
Ms. Lofgren (CA)...............................
Ms. Jackson Lee (TX)...........................
Mr. Cohen (TN).................................
Mr. Johnson (GA)...............................              X
Mr. Pierluisi (PR).............................              X
Ms. Chu (CA)...................................              X
Mr. Deutch (FL)................................
Mr. Gutierrez (IL).............................
Ms. Bass (CA)..................................
Mr. Richmond (LA)..............................
Ms. DelBene (WA)...............................              X
Mr. Jeffries (NY)..............................              X
Mr. Cicilline (RI).............................              X
Mr. Peters (CA)................................      X
                                                ------------------------
    Total......................................     18       6
------------------------------------------------------------------------

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee advises that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of rule XIII of the Rules of the House of 
Representatives is inapplicable because this legislation does 
not provide new budgetary authority or increased tax 
expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the Committee sets forth, with 
respect to the bill, H.R. 5063, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, July 13, 2016.
Hon. Bob Goodlatte, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 5063, the ``Stop 
Settlement Slush Funds Act of 2016.''
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Marin Burnet, 
who can be reached at 226-2860.
            Sincerely,
                                                Keith Hall,
                                                  Director.

Enclosure

cc:
        Honorable John Conyers, Jr.
        Ranking Member

          H.R. 5063--Stop Settlement Slush Funds Act of 2016.

      As ordered reported by the House Committee on the Judiciary 
                            on May 11, 2016.

    H.R. 5063 would prohibit government officials from entering 
into or enforcing any settlement agreement for civil actions on 
behalf of the United States if that agreement requires the 
other party to the settlement to make a donation to a third 
party. That prohibition would not include payments to provide 
restitution or another remedy that is associated with the basis 
for the settlement agreement. In recent settlements with the 
United States, large corporations, such as Goldman Sachs and 
Bank of America, have been required to donate funds to 
charitable institutions as a part of their restitution. Such 
donations typically constitute a very small fraction of overall 
settlement amounts.
    By precluding any such donations in civil settlements that 
have not been finalized, H.R. 5063 could affect the number and 
content of future settlements relative to current law. However, 
CBO cannot determine whether enacting the legislation would 
lead to an increase or a decrease in the number of such 
settlements or to a change in the Federal receipts and 
forfeitures stemming from future settlements.
    Pay-as-you-go procedures apply because enacting H.R. 5063 
could affect direct spending and revenues; however, CBO cannot 
determine the magnitude or timing of those effects.
    CBO estimates that enacting H.R. 5063 would not increase 
net direct spending or on-budget deficits in any of the four 
consecutive 10-year periods beginning in 2027.
    H.R. 5063 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded mandates Reform Act and 
would not affect the budget of State, local, or trial 
governments.
    The CBO staff contact for this estimate is Marin Burnett. 
The estimate was approved by H. Samuel Papenfuss, Deputy 
Director for Budget Analysis.

                    Duplication of Federal Programs

    No provision of H.R. 5063 establishes or reauthorizes a 
program of the Federal Government known to be duplicative of 
another Federal program, a program that was included in any 
report from the Government Accountability Office to Congress 
pursuant to section 21 of Public Law 111-139, or a program 
related to a program identified in the most recent Catalog of 
Federal Domestic Assistance.

                  Disclosure of Directed Rule Makings

    The Committee estimates that H.R. 5063 specifically directs 
to be completed no specific rule makings within the meaning of 
5 U.S.C. Sec. 551.

                    Performance Goals and Objectives

    The Committee states that pursuant to clause 3(c)(4) of 
rule XIII of the Rules of the House of Representatives, H.R. 
5063 prohibits terms in DOJ settlements that direct or provide 
for payments to non-victim third-parties.

                          Advisory on Earmarks

    In accordance with clause 9 of rule XXI of the Rules of the 
House of Representatives, H.R. 5063 does not contain any 
congressional earmarks, limited tax benefits, or limited tariff 
benefits as defined in clause 9(e), 9(f), or 9(g) of Rule XXI.

                      Section-by-Section Analysis

    The following discussion describes the bill as reported by 
the Committee.
Section 1. Short title.
    Section 1 sets forth the short title of the bill as the 
``Stop Settlement Slush Funds Act of 2016.''
Section 2. Limitation on Donation Terms in Settlements to which the 
        U.S. is a Party
    Section 2(a) Limitation on Required Donations: A U.S. 
official or agent may not enter into or enforce any U.S. 
government settlement directing or providing for a payment to 
any person other than the United States. However, it permits a 
payment that provides restitution for, or otherwise directly 
remedies, actual harm (including to the environment) directly 
and proximately caused by the party making the payment, or that 
constitutes payment for services rendered in connection with 
the case.
    Section 2(b) Penalties: Violators of section (a) are 
subject to the same penalties applicable to violations of 31 
U.S.C. Sec. 3302 (the Miscellaneous Receipts Act).
    Section 2(c) Effective Date: Subsections (a) and (b) apply 
only in the case of a settlement agreement concluded on or 
after the date of enactment of this Act.
    Section 2(d) Definitions: ``Settlement Agreement'' means a 
settlement agreement resolving a civil action or potential 
civil action.

                            Dissenting Views

                              INTRODUCTION

    H.R. 5063, the ``Stop Settlement Slush Funds Act of 2016,'' 
is a deeply flawed proposal that would establish sweeping 
changes to the enforcement of the law by civil enforcement 
agencies. Based on unsubstantiated allegations that ignore 
established law and agency practice, the bill would prohibit 
any official or agent of the government from consummating or 
enforcing a settlement agreement that includes payments to 
parties who are not ``directly and proximately'' harmed by the 
unlawful conduct of the settling party. In doing so, H.R. 5063 
would undermine the ability of agencies to hold unlawful 
conduct accountable and provide complete restitution for 
violations of the law, or tailor remedies to address systemic 
or diffuse harms to unidentifiable victims, the public health, 
or the environment. The cumulative effect of H.R. 5063 would be 
to deter agencies from the efficient resolution of civil 
complaints through settlement agreements. By forcing agencies 
into needless litigation, the bill would waste agency time and 
resources as well as taxpayer dollars and delay the timely 
enforcement of the law and the provision of full relief for 
victims.
    Although proponents of this legislation argue that 
settlement payments to third parties are effectively ``slush 
funds'' paid to ``activist groups,''\1\ there is no evidence to 
substantiate such concerns. For example, the Majority has for 
the last 18 months conducted an extensive investigation into 
certain settlement agreements structured by the Department of 
Justice. To date, however, no credible facts have been 
discovered evidencing that these settlements included so-called 
slush funds otherwise subject to appropriations, despite 
voluminous document production by the Justice Department and 
private parties. These proponents also ignore well-established 
law and agency practice governing the propriety of settlement 
payments to third parties, as recognized by the non-partisan 
and independent Government Accountability Office (GAO) and 
Congressional Research Service (CRS),\2\ and which the Majority 
itself admits is lawful.\3\
---------------------------------------------------------------------------
    \1\Memorandum from U.S. Rep. Bob Goodlatte (R-VA) for Markup of 
H.R. 5063, the ``Stop Settlement Slush Funds Act of 2016,'' to Members 
of the H. Comm. on the Judiciary 9 (May 9, 2016) (on file with 
Democratic staff of the H. Comm. on the Judiciary); Consumers Short 
Changed? Oversight of the Justice Department's Mortgage Lending 
Settlements: Hearing Before the Subcomm. on Regulatory Reform, 
Commercial and Antitrust Law of the H. Comm. on the Judiciary, 114th 
Cong. 8 (2015) (statement of U.S. Rep. Bob Goodlatte, Chairman, H. 
Comm. on the Judiciary) [hereinafter ``Judiciary Oversight Hearing''].
    \2\See, e.g., David Carpenter, Cong. Research Serv., Legal 
Principles Associated with monetary Relief Provided as Part of 
Financial-Related Legal Settlements & Enforcement Actions 1 (2015); 
David Carpenter & Edward Lieu, Cong. Research Serv., Monetary Relief to 
Third Parties as Part of Federal Legal Settlements 3 (2016); U.S. Gov't 
Accountability Office, B-210210, Matter of: Commodity Futures Trading 
Comm'n--Donations Under Settlement Agreements (1983) (donations must be 
reasonably related to prosecutorial authority under statutory goals); 
U.S. Gov't Accountability Office, B-238419, Matter of: Nuclear 
Regulatory Commission's Auth. to Mitigate Civil Penalties (1990) 
(settlements may not impose punishments unrelated to prosecutorial 
objectives).
    \3\Memorandum from U.S. Rep. Bob Goodlatte (R-VA) for Markup of 
H.R. 5063, the ``Stop Settlement Slush Funds Act of 2016,'' to Members 
of the H. Comm. on the Judiciary 1 (May 9, 2016) (``Since the 
government never receives the money the MRA is not triggered. This idea 
is echoed in a 2006 DOJ Office of Legal Counsel memo.'') (on file with 
Democratic staff of the H. Comm. on the Judiciary).
---------------------------------------------------------------------------
    Not surprisingly, the Justice Department, in its strenuous 
opposition to H.R. 5063, states the bill would ``unwisely 
constrain the government's settlement authority and preclude 
many permissible settlements that would advance the public 
interest,'' while interfering with the Department's ability to 
address, remedy, and deter systemic harm caused by unlawful 
conduct.\4\ Several leading environmental and banking law 
experts similarly oppose the bill because it would undermine 
the restitution of generalized harm in various cases.\5\
---------------------------------------------------------------------------
    \4\Comments from the Dep't of Justice on H.R. 5063, the ``Stop 
Settlement Slush Funds Act of 2016,'' to Members of the H. Comm. on the 
Judiciary 1, 3 (May 17, 2016) (on file with Democratic staff of the H. 
Comm. on the Judiciary).
    \5\Stop Settlement Slush Funds Act of 2016: Hearing on H.R. 5063 
Before the Subcomm. on Regulatory Reform, Commercial and Antitrust Law 
of the H. Comm. on the Judiciary, 114th Cong. 3 (2016) [hereinafter 
``H.R. 5063 Hearing''] (written statement of Joel Mintz, Professor, 
Nova Southeastern University College of Law) (on file with Democratic 
staff of the H. Comm. on the Judiciary); Id. (statement of David 
Uhlmann, Director, Environmental Law and Policy Program, University of 
Michigan School of Law, and former Chief of the Environmental Crimes 
Section of the Justice Department), https://judiciary.house.gov/wp-
content/uploads/2016/04/Uhlmann-Testimony.pdf; Settling the Question: 
Did Bank Settlement Agreements Subvert Congressional Appropriations 
Powers?: Hearing Before the Subcomm. on Oversight and Investigations of 
the H. Comm. on Financial Services, 114th Cong. (2016) [hereinafter 
``Financial Services Oversight Hearing''] (statement of David K. Min, 
Assistant Professor of Law, University of California Irvine School of 
Law), http://financialservices.house.gov/uploadedfiles/hhrg-114-ba09-
wstate-dmin-20160519.pdf.
---------------------------------------------------------------------------
    For these reasons and those discussed below, we 
respectfully dissent and urge our colleagues to oppose this 
seriously flawed bill.

                       DESCRIPTION AND BACKGROUND

                              DESCRIPTION

    H.R. 5063, the ``Stop Settlement Slush Funds Act of 2016,'' 
prohibits the enforcement or consummation of settlement 
agreements that direct payments to parties not ``directly and 
proximately'' harmed by the unlawful conduct of the settling 
party (``settlement donations''). A violation of this measure 
would constitute a violation of the Miscellaneous Receipts Act, 
which prohibits the augmentation of agency appropriations 
through enforcement policy.\6\ The intent of this legislation 
is to prevent the Justice Department and other civil 
enforcement agencies from crafting settlement agreements that 
direct funds to non-government organizations, which according 
to the Majority,\7\ circumvent Congress' appropriations power 
under article I, section 9, clause 7 of the U.S. 
Constitution.\8\ A detailed section-by-section explanation of 
the bill appears at the end of these views.
---------------------------------------------------------------------------
    \6\31 U.S.C. Sec. 3302 (b), (d) (2016).
    \7\Memorandum from U.S. Rep. Tom Marino (R-PA) for Hearing on H.R. 
5063, the ``Stop Settlement Slush Funds Act of 2016,'' to Members of 
the Subcomm. on Regulatory Reform, Commercial and Antitrust Law of the 
H. Comm. on the Judiciary 6 (Apr. 25, 2016).
    \8\U.S. Const. art. I, Sec. 9 (``No Money shall be drawn from the 
Treasury but in Consequence of Appropriations made by Law.'').
---------------------------------------------------------------------------

                               BACKGROUND

          I. PROSECUTION OF MISCONDUCT IN CONNECTION WITH THE 
                            GREAT RECESSION

    In 2008, the economy of the United States nearly collapsed, 
resulting in millions of Americans losing their jobs and their 
homes.\9\ Unprecedented since the Great Depression, the crisis 
severely depressed the values of home prices nationwide, 
destabilized the home building sector and other industries, and 
created international economic instability.\10\ More than 13 
million homes were lost to foreclosure between 2006 and 
2014.\11\
---------------------------------------------------------------------------
    \9\Nelson D. Schwartz, Can the Mortgage Crisis Swallow a Town?, 
N.Y. Times, Sept. 4, 2007.
    \10\Id; Judiciary Oversight Hearing, supra note 1, at 1 (statement 
of Geoffrey Graber, Deputy Associate Attorney General and Director of 
the Residential Mortgage-Backed Securities Working Group of the 
Financial Fraud Enforcement Task Force), https://judiciary.house.gov/
wp-content/uploads/2016/02/Graber-RMBS-Testimony-HJC-Sbcmte-Hearing-
12Feb15.pdf.
    \11\Daniel Indiviglio, Could Foreclosuregate Really Cost Big Banks 
$17 Billion? The Atlantic (May 28, 2011), http://www.theatlantic.com/
business/archive/2011/05/could-foreclosuregate-really-cost-big-banks-
17-billion/239600/#; see RealtyTrac, 1.1 Million U.S. Properties with 
Foreclosure Filings in 2014, Down 18 Percent From 2013 to Lowest Level 
Since 2006 (Jan. 14, 2015), http://www.realtytrac.com/news/foreclosure-
trends/1-1-million-u-s-properties-with-foreclosure-filings-in-2014-
down-18-percent-from-2013-to-lowest-level-since-2006/.
---------------------------------------------------------------------------
    A significant cause of this fiscal crisis\12\ was the 
fraudulent packaging and trading of residential mortgage-backed 
securities.\13\ Investments in these securities created a cycle 
of failure in the housing market: weaknesses in the market 
undermined the value of these securities, while the securities' 
declining value ``cratered the housing market.''\14\
---------------------------------------------------------------------------
    \12\United States v. Bank of Am. Corp., No. 3:13-CV-00446-MOC, 2014 
WL 2777397, at *8 (W.D.N.C. June 19, 2014) (``The court need not reach 
far outside the Complaint or be an expert in economics to take notice 
that it was the trading of toxic RMBS between financial institutions 
that nearly brought down the banking system in 2008.''); Judiciary 
Oversight Hearing, supra note 1, at 2 (statement of Geoffrey Graber, 
Deputy Associate Attorney General and Director of the Residential 
Mortgage-Backed Securities Working Group of the Financial Fraud 
Enforcement Task Force), https://judiciary.house.gov/wp-content/
uploads/2016/02/Graber-RMBS-Testimony-HJC-Sbcmte-Hearing-12Feb15.pdf; 
The Administration's Report to Congress: Reforming America's Housing 
Finance Market: Hearing Before the S. Comm. on Banking, Housing and 
Urban Affairs, 112th Cong. (2011) (prepared statement of Timothy 
Geithner, Secretary, U.S. Treasury Dep't).
    \13\A residential mortgage-backed security is comprised of a ``pool 
of mortgage loans created by banks and other financial institutions'' 
that derives value from the ``characteristics of the borrowers and the 
value of the properties underlying'' the security. Dep't of Justice, 
Morgan Stanley Agrees to Pay $2.6 Billion Penalty in Connection with 
Its Sale of Residential Mortgage Backed Securities (Feb. 11, 2016), 
https://www.justice.gov/opa/pr/morgan-stanley-agrees-pay-26-billion-
penalty-connection-its-sale-residential-mortgage-backed.
    \14\Judiciary Oversight Hearing, supra note 1, at 2 (statement of 
Geoffrey Graber, Deputy Associate Attorney General and Director of the 
Residential Mortgage-Backed Securities Working Group of the Financial 
Fraud Enforcement Task Force), https://judiciary.house.gov/wp-content/
uploads/2016/02/Graber-RMBS-Testimony-HJC-Sbcmte-Hearing-12Feb15.pdf.
---------------------------------------------------------------------------
    In response, the Justice Department established the 
Residential Mortgage-Backed Securities (RMBS) Working Group 
``to investigate those responsible for misconduct contributing 
to the financial crisis through the pooling and sale of 
residential mortgage-backed securities.''\15\ The broader 
purpose of the RMBS Working Group is to ``hold accountable 
those who broke the law, speed assistance to homeowners, and 
help turn the page on an era of recklessness that hurt so many 
Americans.''\16\ The broad focus of the Justice Department's 
investigation reflects the diffuse impact of misconduct in the 
mortgage-backed securities market on the ``entire financial 
system and the American economy as a whole.''\17\
---------------------------------------------------------------------------
    \15\Dep't of Justice, U.S. Attorney General Holder, State and 
Federal Officials Announce 
Collaboration to Investigate Residential Mortgage-backed Securities 
Market (2012), http://www.justice.gov/opa/pr/us-attorney-general-
holder-state-and-federal-officials-announce-
collaboration-investigate.
    \16\White House, Office of the Press Secretary, Remarks by the 
President in State of the Union Address (Jan. 24, 2012), https://
www.whitehouse.gov/the-press-office/2012/01/24/remarks-president-state-
union-address (announcing the creation of an investigatory unit to 
``hold accountable those who broke the law, speed assistance to 
homeowners, and help turn the page on an era of recklessness that hurt 
so many Americans.''); Edward Wyatt & Shaila Dewan, New Housing Task 
Force Will Zero in on Wall Street, N.Y. Times (Jan. 25, 2012), http://
www.nytimes.com/2012/01/26/business/new-housing-task-force-takes-aim-
at-wall-st.html.
    \17\Judiciary Oversight Hearing, supra note 1, at 1 (statement of 
Geoffrey Graber, Deputy Associate Attorney General and Director of the 
Residential Mortgage-Backed Securities Working Group of the Financial 
Fraud Enforcement Task Force), https://judiciary.house.gov/wp-content/
uploads/2016/02/Graber-RMBS-Testimony-HJC-Sbcmte-Hearing-12Feb15.pdf.
---------------------------------------------------------------------------
    To date, the RMBS Working Group has facilitated record 
settlements with five financial institutions--Bank of America, 
Citigroup, Goldman Sachs, Morgan Stanley, and JPMorgan Chase--
for alleged misconduct involving the packaging, marketing, and 
sale of residential mortgage-backed securities. In 2013, the 
Justice Department agreed to a $13 billion settlement with 
JPMorgan Chase following an investigation by the RMBS Working 
Group of the bank's sale, marketing, and use of residential 
mortgage-backed securities.\18\ At the time, this settlement 
represented the largest settlement with a single entity in 
American history, as well as the largest civil penalty for a 
claim rising under Financial Institutions Reform, Recovery, and 
Enforcement Act (FIRREA).\19\ Thereafter, the Justice 
Department in 2014 agreed to a $7 billion settlement with 
Citigroup stemming from its allegedly fraudulent ``packaging, 
securitization, marketing, sale, and issuance of residential 
mortgage-backed securities,''\20\ which also included a $4 
billion civil penalty under FIRREA. That same year, the Justice 
Department entered into a settlement agreement with the Bank of 
America for nearly $17 billion to resolve claims arising from 
the company's fraudulent sale, arrangement, marketing, and 
other uses of mortgage-backed securities and collateralized-
debt obligations.\21\ Anne Tompkins, U.S. Attorney for the 
Western District of North Carolina, said that the settlement 
``attests to the fact that fraud pervaded every level of the 
RMBS industry, including purportedly prime securities,'' and 
that the settlement demonstrates that even ``reputable 
institutions like Bank of America caved to the pernicious 
forces of greed and cut corners, putting profits ahead of their 
customers.''\22\ In 2016, the Justice Department settled 
potential claims relating to Morgan Stanley's alleged 
misconduct in the market pursuant to which Morgan Stanley would 
pay a $2.6 billion penalty.\23\ Most recently, the Justice 
Department announced a $5.06 billion settlement with Goldman 
Sachs--including a $2.385 billion civil penalty under FIRREA--
relating to its allegedly fraudulent packaging, securitization, 
marketing, sale and issuance of mortgage-backed securities.\24\
---------------------------------------------------------------------------
    \18\Dep't. of Justice, Justice Department, Federal and State 
Partners Secure Record $13 Billion Global Settlement with JPMorgan for 
Misleading Investors about Securities Containing Toxic Mortgages 
(2013), http://www.justice.gov/opa/pr/justice-department-federal-and-
state-
partners-secure-record-13-billion-global-settlement.
    \19\Id; 12 U.S.C. Sec. 1833a (2016); United States v. Bank of New 
York Mellon, No. 11 Civ. 6969 LAK 2 (S.D.N.Y. Apr. 24, 2013).
    \20\Dep't. of Justice, Justice Department, Federal and State 
Partners Secure Record $7 Billion Global Settlement with Citigroup for 
Misleading Investors about Securities Containing Toxic Mortgages 
(2014), http://www.justice.gov/opa/pr/justice-department-federal-and-
state-partners-
secure-record-7-billion-global-settlement.
    \21\Dep't of Justice, Bank of America to Pay $16.65 Billion in 
Historic Justice Department Settlement for Financial Fraud Leading up 
to and During the Financial Crisis (2014), http://www.justice.gov/opa/
pr/bank-america-pay-1665-billion-historic-justice-department-
settlement-financial-fraud-leading.
    \22\Id.
    \23\Dep't of Justice, Morgan Stanley Agrees to Pay $2.6 Billion 
Penalty in Connection with Its Sale of Residential Mortgage Backed 
Securities (Feb. 11, 2016), https://www.justice.gov/opa/pr/morgan-
stanley-agrees-pay-26-billion-penalty-connection-its-sale-residential-
mortgage-backed.
    \24\Dep't of Justice, Goldman Sachs Agrees to Pay More than $5 
Billion in Connection with Its Sale of Residential Mortgage Backed 
Securities (Apr. 11, 2016), https://www.justice.gov/opa/pr/goldman-
sachs-agrees-pay-more-5-billion-connection-its-sale-residential-
mortgage-backed.
---------------------------------------------------------------------------
    In addition to significant monetary penalties, these 
settlements also include statements of facts describing the 
significant fraud and misrepresentation relating to the 
settling banks' sale and underwriting of securities, serving as 
``an acknowledgement by the banks to their shareholders and the 
American public of the misconduct uncovered by the Department 
of Justice.''\25\ For example, one of the settling banks 
acquired pools of mortgage-backed securities that the bank 
graded poorly, such as loans with high loan-to value or debt-
to-income ratios.\26\ Notwithstanding the poor quality of these 
securities, the bank continued to securitize, package, and sell 
them to investors.\27\ In another example, a settling bank 
``knowingly securitized and sold mortgage loans with 
significant percentages of material defects,'' while making 
positive representation to investors about the quality of the 
loans it securitized.\28\ In an internal communication, one of 
the bank's traders stated that he ``would not be surprised if 
half of these loans went down,'' and that the bank should 
``start praying.''\29\
---------------------------------------------------------------------------
    \25\Judiciary Oversight Hearing, supra note 1, at 3 (statement of 
Geoffrey Graber, Deputy Associate Attorney General and Director of the 
Residential Mortgage-Backed Securities Working Group of the Financial 
Fraud Enforcement Task Force), https://judiciary.house.gov/wp-content/
uploads/2016/02/Graber-RMBS-Testimony-HJC-Sbcmte-Hearing-12Feb15.pdf.
    \26\Dep't of Justice, JPMorgan Statement of Facts 6-8 (2013), 
http://www.justice.gov/iso/opa/resources/94320131119151031990622.pdf.
    \27\Id.
    \28\Dep't. of Justice, Justice Department, Federal and State 
Partners Secure Record $7 Billion Global Settlement with Citigroup for 
Misleading Investors about Securities Containing Toxic Mortgages (July 
14, 2014), http://www.justice.gov/opa/pr/justice-department-federal-
and-state-partners-secure-record-7-billion-global-settlement.
    \29\Id.
---------------------------------------------------------------------------
    Several of these settlements also include ``consumer 
relief'' provisions that require the settling banks to 
remediate harms resulting from the banks' allegedly unlawful 
conduct.\30\ These provisions provide the settling banks with 
discretion to choose various forms of consumer relief, 
including principal forgivingness, community reinvestment and 
stabilization initiatives to remediate neighborhood blight, 
foreclosure prevention programs, affordable housing resources, 
and income-based lending for ``borrowers who lost homes to 
foreclosure.''\31\ Additionally, two of these settlements, with 
Citigroup\32\ and Bank of America,\33\ require donations to 
third-party charitable organizations, including legal aid 
organizations, community development financial institutions, 
and housing counseling groups that have been certified by the 
U.S. Department of Housing and Urban Development (HUD). These 
donations account for less than 1% of the overall amount of 
each settlement and will ``support services provided by housing 
counselors and other trusted intermediaries that enable 
consumers to access the consumer relief to which they are 
entitled under the settlements.''\34\ Geoffrey Graber, who 
formerly served as the Director of the RMBS Working Group, 
testified that these settlements embody the goals of the RMBS 
Working Group in several ways:
---------------------------------------------------------------------------
    \30\See, e.g, Dep't. of Justice, Justice Department, Federal and 
State Partners Secure Record $7 Billion Global Settlement with 
Citigroup for Misleading Investors About Securities Containing Toxic 
Mortgages (July 14, 2014), http://www.justice.gov/opa/pr/justice-
department-federal-and-state-partners-secure-record-7-billion-global-
settlement; Dep't of Justice, Annex 2: Citigroup Consumer Relief Report 
(2014), http://www.justice.gov/iso/opa/resources/6492014714137
21380969.pdf [hereinafter ``Citigroup Consumer Relief Report'']; Citi 
Monitorship First Report, Jenner & Block LLP at 6-7 (Jan. 2015), http:/
/www.citigroupmonitorship.com/uploads/3/5/1/9/3519321/
citi_monitorship_initial_report_2015-01-21.pdf.
    \31\Financial Services Oversight Hearing, supra note 5, at 3 
(statement of David K. Min, Assistant Professor of Law, University of 
California Irvine School of Law), http://financialservices.house.gov/
uploadedfiles/hhrg-114-ba09-wstate-dmin-20160519.pdf; see, e.g., 
Citigroup Consumer Relief Report, supra note 14, at 11-15; Dep't of 
Justice, Annex 2: Consumer Relief Report (2013), http://
www.justice.gov/iso/opa/resources/6442013111916
4759163425.pdf.
    \32\The consumer relief portions of the Justice Department's 
settlement with Citigroup include a two-to-one payment credit for 
donations to legal assistance groups to ``help rectify the harm caused 
by Citi's conduct.'' These groups include: (1) community development 
financial institutions (CDFIs), land banks subject to state or local 
regulation, or community development funds administered by non-profits 
or local governments (at least $25 million); (2) state-based Interest 
on Lawyers' Trust Account (IOLTA) organizations that provide funds to 
legal aid organizations (at least $15 million); and (3) HUD-approved 
housing counseling agencies (HCAs) to ``provide foreclosure prevention 
assistance and other housing counseling activities'' (at least $10 
million). Citigroup Consumer Relief Report, supra note 30, at 11-15.
    \33\The Bank of America settlement includes a two-to-one credit for 
donations to third-party groups, such as donations to: (1) Community 
Development Financial Institutions (CDFIs), land banks, or community 
development funds administered by non-profits or local governments; and 
(2) state-based Interest on Lawyers' Trust Account (IOLTA) 
organizations that provide funds to legal aid organizations; and (3) 
HUD-approved housing counseling agencies (HCAs) to ``provide 
foreclosure prevention assistance and other housing counseling 
activities.'' Dep't of Justice, Annex 2: Bank of America Consumer 
Relief Report 6-8 (2014), https://www.justice.gov/iso/opa/resources/
8492014829141239967961.pdf.
    \34\Letter from Julia Gordon, Center for American Progress (CAP), 
to Members of the H. Comm. on the Judiciary (Feb. 12, 2015) (on file 
with Democratic staff of the H. Comm. on the Judiciary).

        First, each settlement achieved accountability by 
        requiring a significant (and in some cases record) 
        monetary penalty, as well as a statement of facts 
        acknowledging the evidence underlying the government's 
        allegations. These penalties will hopefully serve to 
        deter future misconduct; and the statements of facts 
        serve as an acknowledgement by the banks to their 
        shareholders and the American public of the misconduct 
---------------------------------------------------------------------------
        uncovered by the Department of Justice.

        Second, each bank committed to provide many billions of 
        dollars of consumer relief, of a type that is designed 
        to enable many Americans to stay in their homes, and 
        will enable many more to secure homeownership for the 
        first time (the particular settling banks had 
        origination and/or servicing operations that helped 
        facilitate this type of relief). These consumer relief 
        provisions--in which the settling banks agreed to 
        provide billions of dollars in relief for consumers in 
        the housing market--provide an especially salient 
        feature of these settlements. This type of relief 
        likely could not have been ordered by a court, even if 
        the government had prevailed at trial.\35\
---------------------------------------------------------------------------
    \35\Judiciary Oversight Hearing, supra note 1, at 3 (statement of 
Geoffrey Graber, Deputy Associate Attorney General and Director of the 
Residential Mortgage-Backed Securities Working Group of the Financial 
Fraud Enforcement Task Force), https://judiciary.house.gov/wp-content/
uploads/2016/02/Graber-RMBS-Testimony-HJC-Sbcmte-Hearing-12Feb15.pdf.

  II. OVERSIGHT OF THE JUSTICE DEPARTMENT'S INCLUSION OF DONATIONS IN 
                         SETTLEMENT AGREEMENTS

    The Majority is conducting an oversight investigation into 
the consumer relief provisions of the Justice Department's 
settlements with Citigroup and Bank of America (``RMBS 
settlements'').\36\ On November 25, 2014, House Judiciary 
Committee Chairman Bob Goodlatte (R-VA) and Financial Services 
Chairman Jeb Hensarling (R-TX) commenced a formal ``pattern-or-
practice investigation'' into these settlements.\37\ They 
issued a joint letter to the Justice Department requesting 
production of ``all communications relating to what became the 
`Community Reinvestment and Neighborhood Stabilization' 
provisions in the Citigroup and BoA settlements,''\38\ 
explaining that the settlements ``appear to serve as a vehicle 
for funding activist groups.''\39\ Prior to the Majority's 
investigatory letter, Spencer Bachus (R-AL), the former 
Chairman of the Regulatory Reform, Commercial and Antitrust Law 
(RRCAL) Subcommittee, sent a letter to the Justice Department's 
Civil Division expressing similar concerns and also requesting 
additional information on the consumer-relief portions of these 
settlements.\40\ On February 12, 2015, the RRCAL Subcommittee 
held an oversight hearing entitled ``Consumers Short Changed? 
Oversight of the Justice Department's Mortgage Lending 
Settlements,''\41\ where Chairman Goodlatte and RRCAL 
Subcommittee Chairman Tom Marino (R-PA) accused the Justice 
Department of using ``its controversial settlements'' to 
``funnel money to activist groups instead of consumers.''\42\ 
Chairman Goodlatte and Chairman Hensarling sent another letter 
on May 14, 2015 asking for ``all documents and communications 
generated or transmitted by non-profit, charitable, or similar 
organizations,'' as well as ``all communications pertaining to 
what became Annex Three (``Tax Fund'') of the Bank of America 
settlement.''\43\ At a subsequent oversight hearing in the 
RRCAL Subcommittee on March 19, 2015,\44\ Chairman Goodlatte 
complained that the Justice Department's production of 60 pages 
of emails did not include internal communications.\45\
---------------------------------------------------------------------------
    \36\Memorandum from U.S. Rep. Tom Marino (R-PA) for Hearing on H.R. 
5063, the ``Stop Settlement Slush Funds Act of 2016,'' to Members of 
the Subcomm. on Regulatory Reform, Commercial and Antitrust Law of the 
H. Comm. on the Judiciary 6 (Apr. 25, 2016) (on file with Democratic 
staff of the H. Comm. on the Judiciary).
    \37\Id. at 3, 6.
    \38\Letter from U.S. Rep. Bob Goodlatte, Chairman, H. Comm. on the 
Judiciary, & U.S. Rep. Jeb Hensarling, Chairman, H. Comm. on Financial 
Services, to Eric Holder, U.S. Attorney General 3 (Nov. 25, 2014) (on 
file with staff of the H. Comm. on the Judiciary).
    \39\Id. at 3.
    \40\Letter from U.S. Rep. Spencer Bachus, Chairman, Subcomm. on 
Regulatory Reform, Commercial and Antitrust Law of the H. Comm. on the 
Judiciary, to Stuart Delery, Dep't of Justice, Civil Div., Assistant 
Attorney Gen. (Sept. 10, 2014).
    \41\Judiciary Oversight Hearing, supra note 2.
    \42\H. Comm. on the Judiciary, Regulatory Reform Subcommittee Holds 
Hearing on the Justice Department's Controversial Mortgage-Lending 
Settlements (Feb. 5, 2015), https://
judiciary.house.gov/press-release/regulatory-reform-subcommittee-holds-
hearing-on-the-justice-
department-s-controversial-mortgage-lending-settlements/.
    \43\Letter from U.S. Rep. Bob Goodlatte, Chairman, H. Comm. on the 
Judiciary, to Loretta Lynch, U.S. Attorney General (May 14, 2015) (on 
file with staff of the H. Comm. on the Judiciary).
    \44\Ongoing Oversight: Monitoring The Activities of the Justice 
Dep't's Civil, Tax And Env't And Nat. Resources Divisions And The U.S. 
Trustee Program: Hearing Before the Subcomm. on Regulatory Reform, 
Commercial and Antitrust Law of the H. Comm. on the Judiciary, 114th 
Cong. 81 (2015) (statement by Rep. Bob Goodlatte, Chairman, H. Comm. on 
the Judiciary).
    \45\Id. (``the Department has sent a paltry 60 pages of email 
between the Department of Justice and outside groups, no internal 
Department of Justice emails. . . . When will we get those 
documents?'').
---------------------------------------------------------------------------
    The Justice Department initially complied with the 
Majority's request on May 29, 2015 through a production of 
``hundreds of pages of documents'' relating to the consumer 
relief provisions of the RMBS settlements.\46\ In a letter to 
Chairman Goodlatte describing the full scope of the Justice 
Department's efforts to accommodate the Majority's request, 
Assistant Attorney General Peter Kadzik explained:
---------------------------------------------------------------------------
    \46\Letter from Peter J. Kadzik, Assistant Attorney General, to 
U.S. Rep. Bob Goodlatte, Chairman, H. Comm. on the Judiciary, et al. 
(May 29, 2015) (on file with staff of the H. Comm. on the Judiciary).

        The Department has provided written responses dated 
        January 6, 2015, March 31, 2015, May 18, 2015, May 29, 
        2015, and November 6, 2015, which included the 
        production of hundreds of pages of documents. The 
        Department also testified about the RMBS settlements on 
        February 12, 2015, and responded to written questions 
        for the record on May 18, 2015. In addition to this 
        testimony and our formal written responses, the 
        Department also briefed your staff on January 15, 2015, 
        and has spoken with your staff during numerous 
        telephone conversations. Through these actions, the 
        Department has sought to address all of the Committee's 
        stated information needs regarding the RMBS 
        settlements. The Department's accommodation efforts 
        described above have been guided by discussions with 
        your staff regarding the scope and focus of the 
        Committee's inquiry.\47\
---------------------------------------------------------------------------
    \47\Id.

Following this production, the Justice Department supplemented 
its earlier responses through another transmission of documents 
on November 6, 2015.\48\ This production includes approximately 
300 additional pages of emails, internal Justice Department 
communications as well as references to communications with 
third parties.\49\ Thereafter, the Justice Department also 
provided an in camera review of nearly 500 pages of documents, 
including internal work product, memoranda, and communications 
relating to the inclusion of the consumer relief provisions in 
the RMBS settlement agreements.\50\
---------------------------------------------------------------------------
    \48\Letter from Peter J. Kadzik, Assistant Attorney General, to 
U.S. Rep. Bob Goodlatte, Chairman, H. Comm. on the Judiciary, et al. 
(Nov. 6, 2015) (on file with staff of the H. Comm. on the Judiciary).
    \49\Id.
    \50\Letter from Peter J. Kadzik, Assistant Attorney General, to 
U.S. Rep. Bob Goodlatte, Chairman, H. Comm. on the Judiciary, et al. 
(Feb. 29, 2016) (on file with staff of the H. Comm. on the Judiciary).
---------------------------------------------------------------------------
    Notwithstanding the Justice Department's substantial 
cooperation with the Majority's request, proponents of H.R. 
5063 now argue that the Justice Department has ignored 
congressional concerns with settlement agreements and ``doubled 
down'' on ``mandatory donation provisions'' in settlements.\51\ 
The Majority now plans to interview a representative from HUD 
regarding these settlements.
---------------------------------------------------------------------------
    \51\Memorandum from U.S. Rep. Tom Marino (R-PA) for Hearing on H.R. 
5063, the ``Stop Settlement Slush Funds Act of 2016,'' to Members of 
the Subcomm. on Regulatory Reform, Commercial and Antitrust Law of the 
H. Comm. on the Judiciary 8 (Apr. 25, 2016) (on file with Democratic 
staff of the H. Comm. on the Judiciary).
---------------------------------------------------------------------------

                        CONCERNS WITH H.R. 5063

           I. H.R. 5063 IS A POORLY-DESIGNED SOLUTION TO AN 
                          UNDOCUMENTED PROBLEM

    Proponents of H.R. 5063 argue that the Justice Department 
has structured settlements to direct ``slush funds'' to 
``activist groups,''\52\ even though they offer no proof in 
support of their contention.\53\ Notwithstanding significant 
document production by the Justice Department--including an 
extensive in camera review, private briefings and telephone 
conversations, and internal work product and 
communications,\54\ along with hundreds of pages of documents 
produced by private parties--the Majority's investigation of 
the Justice Department's settlement agreements has produced no 
evidence that these settlements included unlawful or 
politically motivated terms.\55\
---------------------------------------------------------------------------
    \52\Memorandum from U.S. Rep. Bob Goodlatte (R-VA) for Markup of 
H.R. 5063, the ``Stop Settlement Slush Funds Act of 2016,'' to Members 
of the H. Comm. on the Judiciary 9 (May 9, 2016).
    \53\H.R. 5063 Hearing, supra note 5, at 1, 5 (written statement of 
Joel Mintz, Professor, Nova Southeastern University College of Law) (on 
file with Democratic staff of the H. Comm. on the Judiciary).
    \54\Letter from Peter J. Kadzik, Assistant Attorney General, to 
U.S. Rep. Bob Goodlatte, Chairman, H. Comm. on the Judiciary, et al. 
(Feb. 29, 2016) (on file with staff of the H. Comm. on the Judiciary).
    \55\See H.R. 5063 Hearing, supra note 5, at 2 (written statement of 
Joel Mintz, Professor, Nova Southeastern University College of Law) 
(``The Random House Dictionary of the English Language defines the 
phrase `slush fund' as `a sum of money used for illicit or corrupt 
political purposes, as for buying influence or votes, bribing public 
officials, or the like.' The SEPs permitted by EPA cannot be fairly 
considered slush funds in any sense.'') (on file with Democratic staff 
of the H. Comm. on the Judiciary).
---------------------------------------------------------------------------
    Although proponents of H.R. 5063 claim that the Justice 
Department's RMBS settlements are unlawful,\56\ the Justice 
Department has broad enforcement discretion when settling 
litigation involving the Federal Government,\57\ a traditional 
power of the Executive Branch.\58\ Under the Take Care Clause 
of the Constitution,\59\ civil enforcement agencies have 
substantial flexibility in crafting settlement agreements 
within their statutory enforcement authority that provide 
remedies for the alleged misconduct of an entity.\60\ Since its 
creation in 1789, the Justice Department has possessed plenary 
authority for all litigation on behalf of the Government or a 
Federal agency except as otherwise provided by law.\61\ The 
authority to compromise and settle litigation is inherent 
within this broad grant of plenary authority over government 
litigation,\62\ and extends beyond mere litigation strategy to 
include the ``national policies espoused by the 
Executive.''\63\ As Professor Christopher Schroeder of Duke 
University Law School observed in his testimony before the 
Committee, this discretion is one of the ``unavoidable features 
in executing almost all laws.''\64\ In its landmark decision, 
the Supreme Court noted in Heckler v. Chaney that agency 
enforcement decisions involve ``a complicated balancing of a 
number of factors that are peculiarly within its expertise,'' 
making the agency ``far better equipped than the courts to deal 
with the many variables involved in the proper ordering of its 
priorities.''\65\ Professor Joel Mintz of Nova Southeastern 
University College of Law, a former chief attorney with the 
Environmental Protection Agency (EPA), explains that this same 
rationale clearly applies to settlement terms, which ``involve 
numerous complicated technical issues as well as important 
judgments respecting the use of limited prosecutorial 
resources,'' and are ``best left in the hands of expert 
agencies and prosecutors, rather than dictated by Congress or 
the Federal courts.''\66\
---------------------------------------------------------------------------
    \56\See generally Memorandum from U.S. Rep. Bob Goodlatte (R-VA) 
for Markup of H.R. 5063, the ``Stop Settlement Slush Funds Act of 
2016,'' to Members of the H. Comm. on the Judiciary 9 (May 9, 2016).
    \57\28 U.S.C. Sec. 516 (2016); Letter from Peter J. Kadzik, 
Assistant Attorney General, to Rep. Bob Goodlatte, Chairman, H. Comm. 
on the Judiciary, et al. (May 29, 2015) (The Justice Department has 
``long been authorized to manage the Federal Government's litigation 
interests . . . a responsibility that includes the authority to settle 
or compromise cases based on such terms as the Department sees fit.'') 
(on file with Democratic staff of the H. Comm. on the Judiciary).
    \58\Agencies also have ample discretion when making determination 
not to enforce a law in light of enforcement priorities and resources. 
Heckler v. Chaney, 470 U.S. 821, 831 (1985).
    \59\U.S. Const. art. II, Sec. 3 (the President ``shall take Care 
that the Laws be faithfully executed.'').
    \60\David Carpenter, Cong. Research Serv., Legal Principles 
Associated with monetary Relief Provided as Part of Financial-Related 
Legal Settlements & Enforcement Actions 1 (2015).
    \61\Assistant Attorney General Theodore Olsen, Office of Legal 
Counsel, The Attorney General's Role as Chief Litigator for the United 
States, Memorandum Opinion for the Attorney General, Jan. 4, 1982, at 
47-48, https://www.justice.gov/sites/default/files/olc/opinions/1982/
01/31/op-olc-v006-p0047.pdf.
    \62\Id. at 59.
    \63\Id. at 60; Smith v. United States, 375 F.2d 243, 248 (5th 
Cir.), cert. denied, 389 U.S. 841 (1967). (``The Federal Government's 
decisions concerning enforcement of its criminal statutes comprise a 
part of its pursuit of national policy.'').
    \64\Enforcing the President's Constitutional Duty to Faithfully 
Execute the Laws: Hearing Before the H. Comm. on the Judiciary, 113th 
Cong. 55 (2014) (statement of Christopher H. Schroeder, Charles S. 
Murphy Professor of Law and Professor of Public Policy Studies, Duke 
University), https://www.gpo.gov/fdsys/pkg/CHRG-113hhrg86841/pdf/CHRG-
113hhrg86841.pdf.
    \65\Heckler v. Chaney, 470 U.S. 821, 831-32 (1985).
    \66\See H.R. 5063 Hearing, supra note 5, at 3 (written statement of 
Joel Mintz, Professor, Nova Southeastern University College of Law) (on 
file with Democratic staff of the H. Comm. on the Judiciary).
---------------------------------------------------------------------------
    Furthermore, donations under settlement agreements 
(``settlement donations'') are a lawful exercise of Justice 
Department's enforcement discretion.\67\ The Miscellaneous 
Receipts Act (MRA)\68\ and other appropriations laws\69\ 
establish a general prohibition against augmentation of agency 
appropriations through enforcement policy.\70\ These laws 
effectuate Congress' role in appropriating funds and ensuring 
that Congress retains control of the public purse.\71\ 
Importantly, however, this prohibition is clearly inapplicable 
to funds that are not received by the Government.\72\
---------------------------------------------------------------------------
    \67\Financial Services Oversight Hearing, supra note 5, at 6 
(statement of David K. Min, Assistant Professor of Law, University of 
California Irvine School of Law), http://financialservices.house.gov/
uploadedfiles/hhrg-114-ba09-wstate-dmin-20160519.pdf; Comments from the 
Dep't of Justice on H.R. 5063, the ``Stop Settlement Slush Funds Act of 
2016,'' to Members of the H. Comm. on the Judiciary 1 (May 17, 2016) 
(on file with Democratic staff of the H. Comm. on the Judiciary).
    \68\31 U.S.C. Sec. 3302(b) (2016); 19 U.S.C. Sec. 527 (2016) 
(requiring deposit of customs fines, penalties, and forfeitures to the 
Treasury).
    \69\31 U.S.C. Sec. 1301(a) (2016) (restricting the use of 
appropriated funds to their intended purposes); U.S. Gov't 
Accountability Office, GAO-06-382SP, Principles of Federal 
Appropriations Law 2 (2004). The Antideficiency Act also prohibits 
Federal agencies from receiving Federal funds or volunteer services for 
which there was no existing appropriation. 31 U.S.C. Sec. 1341(a) 
(2016).
    \70\U.S. Gov't Accountability Office, Nuclear Regulatory 
Commission's Auth. to Mitigate Civil Penalties 17, 19 (1990).
    \71\U.S. Const. art. I, Sec. 9, cl. 7 (``No Money shall be drawn 
from the Treasury, but in Consequence of Appropriations made by 
Law.''); U.S. Const. art. I, Sec. 8, cl. 1 (``The Congress shall have 
Power . . . to pay the Debts and provide for the common Defense and 
general Welfare of the United States.'').
    \72\31 U.S.C. Sec. 3302(b) (2016). Penalties for violating this 
statute include the possibility of removal from office and forfeiture 
of funds to the U.S. Treasury. 31 U.S.C. Sec. 3302(d) (2016).
---------------------------------------------------------------------------
    The non-partisan and independent Government Accountability 
Office (GAO) has issued several opinions clarifying settlement 
donations are not ``for the Government'' within the meaning of 
the MRA.\73\ The GAO explains that an agency's enforcement 
discretion includes the use of settlement donations as long as 
the remedies have a nexus to the correction of an underlying 
violation and the agency's prosecutorial objectives.\74\ 
Indeed, GAO has stated that ``settlements may contain terms and 
undertakings that go beyond the [agency's] remedies,''\75\ and 
that an enforcement agency ``may adjust penalties to reflect 
the special circumstances of the violation or concessions 
exacted from the violator.''\76\ As Professor David Min of the 
University of California Irvine School of Law observes, the 
thrust of this policy is to allow the Federal Government to 
```adjust' penalties on a case-by-case basis, so long as the 
remedies are not `unrelated to the correction of the violation 
in question.'''\77\ Thus, in light of GAO decisions on this 
matter, these settlement terms ``fall within the Executive's 
legitimate enforcement authority and [do] not run afoul of 
either Congress's Article I power of the purse or the 
MRA.''\78\
---------------------------------------------------------------------------
    \73\See, e.g., U.S. Gov't Accountability Office, B-210210, Matter 
of: Commodity Futures Trading Comm'n--Donations Under Settlement 
Agreements (1983) (donations must be reasonably related to 
prosecutorial authority under statutory goals); U.S. Gov't 
Accountability Office, B-238419, Matter of: Nuclear Regulatory 
Commission's Auth. to Mitigate Civil Penalties (1990) (settlements may 
not impose punishments unrelated to prosecutorial objectives).
    \74\U.S. Gov't Accountability Office, B-210210, Matter of: 
Commodity Futures Trading Comm'n--Donations Under Settlement Agreements 
(1983).
    \75\Id.
    \76\U.S. Envtl. Prot. Agency, B-247155.2, 1993 WL 798227 (Comp. 
Gen. Mar. 1, 1993), http://www.gao.gov/assets/200/195921.pdf
    \77\Financial Services Oversight Hearing, supra note 5, at 6 
(statement of David K. Min, Assistant Professor of Law, University of 
California Irvine School of Law), http://financialservices.house.gov/
uploadedfiles/hhrg-114-ba09-wstate-dmin-20160519.pdf.
    \78\Andrew Brady Spalding, Restorative Justice for Multinational 
Corporations, 76 Ohio St. L.J. 357, 394-95 (2015).
---------------------------------------------------------------------------
    The non-partisan Congressional Research Service (CRS) 
likewise agrees that settlement donations are a lawful exercise 
of agency enforcement discretion.\79\ Noting that enforcement 
agencies have ``tremendous flexibility to craft the terms of 
legal settlements with entities for alleged misbehavior,'' CRS 
has observed that remediation under a settlement ``could take 
numerous legal forms, such as civil money penalties, civil 
forfeiture, or restitution to harmed investors, consumers, or 
public programs.''\80\ Furthermore, private parties may 
lawfully distribute relief to third parties--including state or 
local governmental entities or private parties--under the terms 
of a settlement.\81\ These payments, CRS explains, are ``not 
`for the Government' for purposes of the miscellaneous receipts 
statute'' and are ``wholly outside `the statutory mosaic 
Congress has enacted to implement its constitutional power of 
the purse.'''\82\
---------------------------------------------------------------------------
    \79\David Carpenter & Edward Lieu, Cong. Research Serv., Monetary 
Relief to Third Parties as Part of Federal Legal Settlements 1 (2016).
    \80\Id. at 1-2.
    \81\David Carpenter, Cong. Research Serv., Legal Principles 
Associated with monetary Relief Provided as Part of Financial-Related 
Legal Settlements & Enforcement Actions 6 (2015).
    \82\Id.
---------------------------------------------------------------------------
    Courts have also broadly upheld the use of settlement 
donations.\83\ The Supreme Court has long held that a 
settlement may impose broader relief than would be available 
through litigation. In 1986, the Court ruled in Firefighters v. 
City of Cleveland that settlements may include broader forms of 
relief than those outlined in the underlying statute, as long 
as these terms come within the general scope of the case, 
further an objective upon which the law is based, and do not 
violate the underlying statute.\84\ Unlike civil penalties 
imposed by a court, which must be paid to the U.S. 
Treasury,\85\ the Court characterized settlements as contracts 
because the ``voluntary nature of a consent decree is its most 
fundamental characteristic.''\86\
---------------------------------------------------------------------------
    \83\See, e.g., Sierra Club, Inc. v. Elec. Controls Design, Inc., 
909 F.2d 1350, 1355 n.7 (9th Cir. 1990) (``Consent decrees, such as the 
one at issue here, are also consistent with current practice. Courts 
throughout the country have entered consent judgments in civil suits 
requiring defendants to make payments to various environmental 
organizations and, in some cases, the defendants have not been required 
to pay penalties to the U.S. Treasury.'').
    \84\Local No. 93, Int'l Ass'n of Firefighters, AFL-CIO C.L.C. v. 
City of Cleveland, 478 U.S. 501, 517-18, 525-26 (1986); see Sierra 
Club, Inc. v. Elec. Controls Design, Inc., 909 F.2d 1350, 1355 (9th 
Cir. 1990) (construing Local No. 93) (``While it is clear that a court 
cannot order a defendant in a citizens' suit to make payments to an 
organization other than the U.S. treasury, this prohibition does not 
extend to a settlement agreement whereby the defendant does not admit 
liability and the court is not ordering non-consensual monetary 
relief.'').
    \85\Gwaltney of Smithfield, Ltd. v. Chesapeake Bay Found., Inc., 
484 U.S. 49, 53 (1987).
    \86\Id. at 521.
---------------------------------------------------------------------------
    Lower courts have similarly held that settlement donations 
are in the public interest.\87\ In 1990, the Ninth Circuit 
construed Firefighters v. City of Cleveland to allow lawful 
payments to third parties under a settlement.\88\ There, the 
court found that these payments furthered Congress' purpose of 
the underlying statute and that Congress did not intend to 
prevent these forms of payments:
---------------------------------------------------------------------------
    \87\See, e.g., Friends of the Earth v. Eastman Kodak Co., 656 F. 
Supp. 513, 513 (W.D.N.Y.), aff'd, 834 F.2d 295 (2d Cir. 1987) 
(upholding payments to environmental organizations in a consent 
decree).
    \88\Sierra Club, Inc. v. Elec. Controls Design, Inc., 909 F.2d 
1350, 1356 (9th Cir. 1990).

        The Clean Water Act also does not render the proposed 
        consent judgment unlawful. The provisions of the Act 
        provide no limitation on the type of payments to which 
        parties to citizens' suits can agree in a settlement. 
        There is no indication that where a defendant agrees to 
        a settlement it must also agree to pay penalties to the 
        treasury. Likewise, the Act's legislative history 
        reveals no Congressional intent that private parties be 
        precluded from entering into settlements which do not 
        require the defendant to tender civil penalties to the 
        United States. . . . We therefore find that the 
        proposed consent decree furthers the purpose of the 
        statute upon which the complaint was based and does not 
        violate its terms or policy. The payments to the 
        environmental organizations are not in recognition of 
        liability under the Clean Water Act and are not civil 
        penalties. No liability was ever judicially 
        established. The district court abused its discretion 
        in failing to enter the proposed consent judgment.\89\
---------------------------------------------------------------------------
    \89\Id.

In Northwest Environmental Defense Center v. Unified Sewerage 
Agency, the District Court for the District of Oregon similarly 
ruled that a consent decree directing funds to restore waters 
of the Tualatin River, which included funding for staff 
positions to ensure compliance with the agreement, was lawful 
under the Clean Water Act.\90\ The district court explained:
---------------------------------------------------------------------------
    \90\Nw. Envtl. Def. Ctr. v. Unified Sewerage Agency of Washington 
Cty., No. CIV. 88-1128-HO, 1990 WL 191827, at *1-2 (D. Or. July 27, 
1990).

        What better use of the penalty type payments in an 
        action like this than to facilitate water quality 
        improvements to the affected watershed in ways which 
        could not be required under law. These additional 
        enhancements to water quality, the payment for which 
        also serves as a hefty sanction to defendant, fully 
        meet congressional intent that there be penalty aspects 
        of Clean Water Act consent decrees to discourage other 
        polluters. The proposed consent decree here 
        accomplishes other important and worthwhile purposes. 
        It allows rehabilitation of the resource to begin 
        immediately, rather than suffer possible future 
        pollutant insult and/or exacerbation during months or 
        years more of litigation. This is one of the important 
        reasons that courts should encourage settlement of 
        these actions. Settlements, like that proposed here, 
        fully meet the intent of Congress in providing the 
        Clean Water Act as a friend and protector of our 
        precious natural water resources. The litigants will 
        now become cooperative partners in protecting water 
        quality rather than merely remaining opposing litigants 
        in a court battle, which, without more, offers little 
        utility.\91\
---------------------------------------------------------------------------
    \91\Id.

    Settlement donations are also valid under longstanding 
Justice Department policy so long as the agency does not 
actually or constructively receive funds through a 
settlement.\92\ In 1980, the Justice Department Office of Legal 
Counsel (OLC) advised that the Government may constructively 
receive a third part payment under a settlement in cases where 
an ``agency could have accepted possession and retains 
discretion to direct the use of the money.''\93\ In 2006, OLC 
stated in another opinion that there are two criteria to avoid 
constructively receiving funds through a settlement agreement:
---------------------------------------------------------------------------
    \92\Financial Services Oversight Hearing, supra note 5, at 6 
(statement of David K. Min, Assistant Professor of Law, University of 
California Irvine School of Law), http://financialservices.house.gov/
uploadedfiles/hhrg-114-ba09-wstate-dmin-20160519.pdf.
    \93\Effect of 31 U.S.C. Sec. 484 on the Settlement Authority of the 
Attorney General, 4B Op. O.L.C. 684, 688 (1980).

        (1) the settlement be executed before an admission or 
        finding of liability in favor of the United States; and 
        (2) the United States not retain post-settlement 
        control over the disposition or management of funds or 
        any projects carried out under the settlement, except 
        for ensuring that the parties comply with the 
        settlement.\94\
---------------------------------------------------------------------------
    \94\Application of the Government Corporation Control Act and the 
Miscellaneous Receipts Act to the Canadian Softwood Lumber Settlement 
Agreement, 30 Op. O.L.C. 111, 119 (2006).

Settlements meeting these conditions do not violate the 
Miscellaneous Receipts Act because the government does not 
actually or constructively ``receive money for the 
Government.''\95\
---------------------------------------------------------------------------
    \95\31 U.S.C. Sec. 3302(b) (2016); see Sierra Club v. Electronic 
Controls Design, Inc., 909 F.2d 1350, 1355 (1990) (upholding a consent 
decree directing funds to third-party charitable organizations).
---------------------------------------------------------------------------
    In the context of the RMBS settlements, the Justice 
Department resolved the potential civil liability of these 
banks by requiring a donation of less than 1% of the overall 
settlement agreement amounts to provide affected consumers with 
legal assistance funds to access the relief they were entitled 
to under the settlements.\96\ The terms of these agreements 
arise from the Justice Department's statutory enforcement 
authority under FIRREA\97\ and have a substantial prosecutorial 
nexus to the underlying conduct giving rise to the claim (i.e., 
foreclosure prevention). The RMBS settlements also satisfy the 
Justice Department's own longstanding guidelines. As Professor 
David Min of the University of California Irvine School of Law 
explains:
---------------------------------------------------------------------------
    \96\Letter from Julia Gordon, Center for American Progress (CAP), 
to Members of the H. Comm. on the Judiciary (Feb. 12, 2015) (on file 
with Democratic staff of the H. Comm. on the Judiciary).
    \97\FIRREA authorizes the Department of Justice to file a complaint 
against any persons who commits a predicate offense under FIRREA that 
involves or affects financial institutions and government agencies. 
FIRREA also authorizes the Department of Justice (DOJ) to issue 
administrative subpoenas to witnesses requiring production of relevant 
records. 12 U.S.C. Sec. 1833a (2016); United States v. Bank of New York 
Mellon, No. 11 Civ. 6969 LAK 2 (S.D.N.Y. Apr. 24, 2013).

        They do not include a finding of liability on the part 
        of the banks, and the Federal Government does not 
        maintain post-settlement control over the disposition 
        or management of the funds. Indeed, the banks 
        themselves maintain full control over how they can 
        disburse the funds under the consumer relief 
        provisions, and there is no requirement that they 
        donate any funds to third parties under the terms of 
        these agreements. They appear to be clearly permissible 
        under current law.\98\
---------------------------------------------------------------------------
    \98\Financial Services Oversight Hearing, supra note 5, at 6 
(statement of David K. Min, Assistant Professor of Law, University of 
California Irvine School of Law), http://financialservices.house.gov/
uploadedfiles/hhrg-114-ba09-wstate-dmin-20160519.pdf.

    In sum, funds paid under the RMBS settlements are not 
``drawn from the Treasury,'' nor are they actually or 
constructively received ``for the Government.''\99\ These 
settlements plainly fall within the Justice Department's lawful 
enforcement authority and outside the ``the statutory mosaic 
Congress has enacted to implement its constitutional power of 
the purse.''\100\ Indeed, by the Majority's own admission, 
settlements donations that the government never receives do not 
trigger the MRA.\101\ Further, the Majority ``has implicitly 
acknowledged the legality of charitable payment terms by 
passing H.R. 5063 out of Committee,'' as Professor Min 
notes.\102\
---------------------------------------------------------------------------
    \99\Comments from the Dep't of Justice on H.R. 5063, the ``Stop 
Settlement Slush Funds Act of 2016,'' to Members of the H. Comm. on the 
Judiciary 1, 3 (May 17, 2016) (on file with Democratic staff of the H. 
Comm. on the Judiciary).
    \100\See, e.g., U.S. Const. art. I, Sec. 9, cl. 7 (``No Money shall 
be drawn from the Treasury, but in Consequence of Appropriations made 
by Law.''); U.S. Const. art. I, Sec. 8, cl. 1 (``The Congress shall 
have Power . . . to pay the Debts and provide for the common Defense 
and general Welfare of the United States.''); 31 U.S.C. Sec. 3302(b) 
(2016); David Carpenter & Edward Lieu, Cong. Research Serv., Monetary 
Relief to Third Parties as Part of Federal Legal Settlements 3 (2016).
    \101\Memorandum from U.S. Rep. Bob Goodlatte (R-VA) for Markup of 
H.R. 5063, the ``Stop Settlement Slush Funds Act of 2016,'' to Members 
of the H. Comm. on the Judiciary 1 (May 9, 2016) (``Since the 
government never receives the money the MRA is not triggered. This idea 
is echoed in a 2006 DOJ Office of Legal Counsel memo.'').
    \102\Financial Services Oversight Hearing, supra note 5, at 6 
(statement of David K. Min, Assistant Professor of Law, University of 
California Irvine School of Law), http://financialservices.house.gov/
uploadedfiles/hhrg-114-ba09-wstate-dmin-20160519.pdf.
---------------------------------------------------------------------------
    In addition to clearly satisfying the existing legal 
framework for settlement donations, the RMBS settlements are 
also well-designed as a matter of policy, obviating the need 
for a legislative fix. Under the consumer-relief terms of the 
Citigroup and Bank of America settlements, for example, each 
bank has committed to providing funds to prevent foreclosure 
and enable first-time homeownership.\103\ Housing-counseling 
agencies, as well as other forms of legal assistance 
contemplated by consumer-relief provisions of the RMBS 
settlements, are empirically very effective at foreclosure 
prevention.\104\ Julia Gordon, the former Senior Director of 
Housing and Consumer Finance at the Center for American 
Progress (CAP), notes that homeowners that receive assistance 
from HUD-certified housing counselors are three times more 
likely to avoid foreclosure than homeowners that do not receive 
assistance.\105\ Housing intermediaries also ensure that banks 
comply with the terms of settlements, which Ms. Gordon adds, 
``is not always a given.''\106\
---------------------------------------------------------------------------
    \103\Judiciary Oversight Hearing, supra note 1, at 2 (statement of 
Geoffrey Graber, Deputy Associate Attorney General and Director of the 
Residential Mortgage-Backed Securities Working Group of the Financial 
Fraud Enforcement Task Force), https://judiciary.house.gov/wp-content/
uploads/2016/02/Graber-RMBS-Testimony-HJC-Sbcmte-Hearing-12Feb15.pdf.
    \104\See Judiciary Oversight Hearing, supra note 1, at 2 (statement 
of Alan White, Professor, CUNY School of Law), https://
judiciary.house.gov/wp-content/uploads/2016/02/AW-testimony-
Judiciary-Feb-12-2015.pdf.
    \105\Letter from Julia Gordon, Center for American Progress (CAP), 
to Members of the H. Comm. on the Judiciary 2 (Feb. 12, 2015) (on file 
with Democratic staff of the H. Comm. on the Judiciary).
    \106\Id.
---------------------------------------------------------------------------
    While H.R. 5063's proponents have claimed, without 
evidence, that the recipients of RMBS settlement donations are 
``activist groups,'' the Majority has overlooked the fact that 
conservative groups may also receive funds through the RMBS 
settlements.\107\ Furthermore, numerous mechanisms within the 
settlement terms prevent the misuse of settlement funds.\108\ 
At a hearing on the RMBS settlements, Professor Alan White of 
CUNY School of Law addressed the Majority's concerns directly:
---------------------------------------------------------------------------
    \107\Financial Services Oversight Hearing, supra note 5, at 10 
(statement of David K. Min, Assistant Professor of Law, University of 
California Irvine School of Law), http://financialservices.house.gov/
uploadedfiles/hhrg-114-ba09-wstate-dmin-20160519.pdf.
    \108\Judiciary Oversight Hearing, supra note 1, at 1 (statement of 
Alan White, Professor, CUNY School of Law), https://
judiciary.house.gov/wp-content/uploads/2016/02/AW-testimony-
Judiciary-Feb-12-2015.pdf.

        First, it is entirely up to the banks which legal aid 
        agencies and housing counselors to fund. The banks may 
        choose from hundreds of housing counselors and legal 
        aid agencies, including many faith-based organizations 
        and nonpartisan community development groups whose 
        political orientations range from left to centrist to 
        nonpartisan to right. If a bank sees a particular 
        nonprofit agency as too controversial, because of the 
        work that agency does with its other funding, the bank 
        can simply leave the group off of its donation list. 
        Second, less than one percent of the consumer relief 
        dollars in these settlements is earmarked for housing 
        counselors and legal aid. There is simply no 
        significant diversion of money from the billions in 
        required consumer relief. Third . . . the nonprofit 
        legal aid and housing counseling agencies are all 
        subject to auditing and oversight that prevents misuse 
        of public and private funds for political activity of 
        any kind.\109\
---------------------------------------------------------------------------
    \109\Id.

    Lastly, even if it were desirable to change existing law in 
response to the RMBS settlements, H.R. 5063 does not achieve 
this goal. The consumer relief provisions of the RMBS 
settlement agreements were tailored to provide relief to third 
parties directly affected by the misconduct of the settling 
banks. These parties are likely entitled to direct relief 
through third-party payments under section 2(a) of H.R. 5063 as 
these provide restitution for actual harm (i.e., home 
foreclosures) caused by the settling banks' allegedly unlawful 
conduct.
    In the absence of any credible evidence that the Justice 
Department or other Federal agencies have circumvented 
Congress' spending power or directed money to favored groups, 
H.R. 5063 simply addresses a non-existent problem.

 II. H.R. 5063 WOULD UNDERMINE PUBLIC HEALTH AND SAFETY BY ELIMINATING 
  THE GENERAL ENFORCEMENT AND REMEDIATION OF UNLAWFUL CONDUCT IN ALL 
                        CIVIL ENFORCEMENT CASES

A. LSettlement Donations Serve the Twin Enforcement Goals of General 
        Deterrence and Compensation
    Unlike injuries in the context of tort or contract 
liability, penalties sought in the public enforcement of 
Federal statutes are based on theories of deterrence and 
general compensation to society.\110\ Administrative law expert 
Colin S. Diver explains that while the primary function of 
civil enforcement is to ``motivate future behavior,'' an 
important secondary function is to provide general compensation 
to society:
---------------------------------------------------------------------------
    \110\Financial Services Oversight Hearing, supra note 5, at 8 
(statement of David K. Min, Assistant Professor of Law, University of 
California Irvine School of Law), http://financialservices.house.gov/
uploadedfiles/hhrg-114-ba09-wstate-dmin-20160519.pdf.

        By definition, a civil money penalty does not serve a 
        ``specific'' compensatory function of making whole an 
        identifiable individual specifically injured by the 
        offending conduct. Money penalties can, however, be 
        used to serve a ``general'' compensatory function--that 
        is, to compensate ``society'' at large for harm that it 
        has suffered at the hands of a violator. Alternatively, 
        one might view the payment as compensation to the 
        government for the costs incurred by it in enforcing 
        the substantive standard.\111\
---------------------------------------------------------------------------
    \111\Colin S. Diver, The Assessment and Mitigation of Civil Money 
Penalties by Federal Administrative Agencies, 79 Colum. L. Rev. 1435, 
1456 (1979).

    This form of ``general compensation'' is particularly 
appropriate in cases where a party's unlawful conduct involves 
diffuse or systemic harms, or injures an unidentifiable victim, 
the public health, or the environment. Charlie Garlow, a former 
senior EPA attorney, explains that environmental injuries 
cannot be remedied solely through funds directed to the 
---------------------------------------------------------------------------
Treasury:

        For violations of environmental statutes, restitution 
        is indeed the correct penalty to be imposed if the 
        goals of rehabilitation, deterrence and retribution are 
        to be served. However, to be effective, the doctrine of 
        restitution in environmental law must be defined in 
        terms of restoration and recompense, rather than 
        monetary or prison sentencing alone.\112\
---------------------------------------------------------------------------
    \112\Charlie Garlow, Environmental Recompense, 1 Appalachian J.L. 
1, 5-6 (2002).

To provide for complete restitution to generalized harms, 
environmental settlements sometimes include ``offset 
projects.'' For example, the EPA may include Supplemental 
Environmental Projects (SEPs) in settlement terms to offset the 
harms of unlawful conduct by requiring parties to undertake an 
environmentally beneficial project or activity that ``is not 
required by law, but that a defendant agrees to undertake as 
part of the settlement of an enforcement action.''\113\ As with 
other settlement donations, these projects must have a 
sufficient nexus to the underlying conduct of the 
defendant.\114\ In practice, this requirement entails that 
these projects ``are generally carried out at the site where 
the violation occurred, at a different site within the same 
ecosystem, or within the same immediate geographic area.''\115\ 
The EPA has also clarified that they cannot include cash 
donations to community groups, environmental organizations, or 
other third parties.\116\ As courts have observed, these forms 
of settlement donations better serve the purposes of the 
underlying statute than merely directing funds to the 
Treasury.\117\
---------------------------------------------------------------------------
    \113\See, e.g., Envtl. Protection Agency, Office of Enforcement and 
Compliance Assurance, Issuance of the 2015 Update to the 1998 U.S. 
Environmental Protection Agency Supplemental Environmental Projects 
Policy (2015), https://www.epa.gov/sites/production/files/2015-04/
documents/sepupdatedpolicy15.pdf.
    \114\Id. at 7.
    \115\See H.R. 5063 Hearing, supra note 5, at 3 (written statement 
of Joel Mintz, Professor, Nova Southeastern University College of Law) 
(on file with Democratic staff of the H. Comm. on the Judiciary).
    \116\Envtl. Protection Agency, Office of Enforcement and Compliance 
Assurance, Issuance of the 2015 Update to the 1998 U.S. Environmental 
Protection Agency Supplemental Environmental Projects Policy 17 (2015), 
https://www.epa.gov/sites/production/files/2015-04/documents/
sepupdatedpolicy15.pdf.
    \117\Nw. Envtl. Def. Ctr. v. Unified Sewerage Agency of Washington 
Cty., No. CIV. 88-1128-HO, 1990 WL 191827, at *1 (D. Or. July 27, 
1990).
---------------------------------------------------------------------------
    In addition to serving the public interest, settlement 
donations may also be in the interest of private parties. 
Professor Joel Mintz of Nova Southeastern University College of 
Law, a former chief attorney with the EPA, notes in his written 
statement on H.R. 5063 that these types of donations create 
``win-win'' for all parties in civil enforcement cases:

        SEPs demonstrate EPA's willingness to cooperate with 
        the regulated community, and they create a more 
        flexible regulatory climate. SEPs also benefit 
        environmental violators by reducing some of the civil 
        penalties those parties would otherwise have to pay. 
        They help repair corporate public images that would 
        otherwise be further harmed by negative environmental 
        publicity; and they promote settlements, allowing 
        businesses to avoid the costs and risks of litigation. 
        Finally, SEPs increase the likelihood that communities 
        forced to bear the burden of environmental degradation 
        will benefit directly from enforcement actions against 
        violators.\118\
---------------------------------------------------------------------------
    \118\H.R. 5063 Hearing, supra note 5, at 3 (written statement of 
Joel Mintz, Professor, Nova Southeastern University College of Law) (on 
file with Democratic staff of the H. Comm. on the Judiciary).

B. LH.R. 5063 Would Prohibit Civil Enforcement Agencies from Fully 
        Protecting the Public Interest
    H.R. 5063 applies far beyond the Justice Department's 
settlement authority to all civil enforcement agencies. Section 
2(a) of the bill prohibits any officer or agent of the 
Government from resolving the civil liability of a party 
through a settlement agreement that directs or provides 
payments for a payment to any person or entity other than the 
Government, subject to minor exceptions. This represents a 
sweeping change in the enforcement of current law, which 
authorizes civil enforcement agencies to resolve a party's 
civil liability through a settlement that provides both direct 
and indirect forms of restitution for injuries caused by 
unlawful conduct.\119\ It is therefore unsurprising that the 
Justice Department, which has plenary authority to enforce the 
law and defend the interests of the United States,\120\ 
strongly opposes the bill.\121\ In comments on H.R. 5063, the 
Justice Department has expressed concerns that ``this bill 
would unwisely constrain the government's settlement authority 
and preclude many permissible settlements that would advance 
the public interest.''\122\ The Department explains:
---------------------------------------------------------------------------
    \119\See, e.g., id. (written statement of David Uhlmann, Professor, 
University of Michigan Law School).
    \120\Assistant Attorney General Theodore Olsen, Office of Legal 
Counsel, The Attorney General's Role as Chief Litigator for the United 
States, Memorandum Opinion for the Attorney General, Jan. 4, 1982, at 
47-48, https://www.justice.gov/sites/default/files/olc/opinions/1982/
01/31/
op-olc-v006-p0047.pdf.
    \121\Comments from the Dep't of Justice on H.R. 5063, the ``Stop 
Settlement Slush Funds Act of 2016,'' to Members of the H. Comm. on the 
Judiciary 1 (May 17, 2016) (on file with Democratic staff of the H. 
Comm. on the Judiciary).
    \122\Id. at 2.

        The bill prohibits payments by a party other than those 
        made to directly remedy ``actual harm'' that the party 
        directly and proximately caused or for services 
        rendered in connection with the case . . . this 
        language may inhibit or restrict settlements from 
        requiring remediation to impacted victims that 
        addresses more intangible harms, or from requiring 
        monetary payments to victims in estimated amounts where 
        it is impractical or resource-prohibitive to quantify 
        the actual harm. The language would further impede the 
        government's ability to address the root causes of 
        violations and establish effective remedies that are 
        effective retrospectively (correcting noncompliance) 
        and prospectively (addressing root causes of 
        noncompliance to prevent recidivism). . . . In certain 
        cases, as part of negotiated settlement terms, a 
        defendant or potential defendant, might undertake to 
        correct the harms, both direct and indirect, that its 
        conduct may have caused; to carry out activities making 
        the public less vulnerable to conduct of that type; or 
        to modify the conditions and circumstances that might 
        otherwise contribute to similar conduct by others. The 
        government legitimately considers such undertakings 
        when it assesses the just resolution of its claims or 
        potential claims.\123\
---------------------------------------------------------------------------
    \123\Id.

    To illustrate this concern, Representative David Cicilline 
(D-RI) offered an amendment to exempt from the bill any 
settlement agreement concerning privacy protections. He 
explained that his amendment would preserve ``the ability of 
civil enforcement agencies to compel large corporations to 
adopt programs to protect consumer data,'' which would be 
undermined by H.R. 5063's prohibition of settlement 
donations.\124\ He also noted that in cases of diffuse or 
systemic privacy violations, ``the most appropriate remedy may 
involve prescribing steps that effectively prevent future 
misconduct.''\125\ H.R. 5063 would expressly prohibit the 
inclusion of these types of projects in settlements by making 
unlawful payments that do not remedy a harm directly caused by 
the alleged conduct of a settling party.\126\
---------------------------------------------------------------------------
    \124\Tr. of Markup of H.R. 5063, the ``Stop Settlement Slush Funds 
Act of 2016,'' by the H. Comm. on the Judiciary, 114th Cong. 58 (May 
11, 2016).
    \125\Id. at 59.
    \126\See H.R. 5063 Hearing, supra note 5, at 3 (written statement 
of Joel Mintz, Professor, Nova Southeastern University College of Law) 
(``[T]he proposed Stop Settlement Sludge Funds Act appears likely to 
prohibit many of the important benefits now provided by EPA's SEPs 
program.'') (on file with Democratic staff of the H. Comm. on the 
Judiciary).
---------------------------------------------------------------------------
    Speaking in opposition to this amendment, Chairman Bob 
Goodlatte (R-VA) argued that the bill's exception for 
``services rendered in connection with the case'' would apply 
to the settlement donations contemplated by the amendment.\127\ 
In response, Representative Cicilline observed that the bill's 
language is specific to ``costs associated with the litigation, 
not the settlement.''\128\ Indeed, while numerous statutes 
authorize attorney's fees and other forms of payment in 
connection with litigation,\129\ these statutes commonly 
specify the appropriate recipient of funds and the intended 
scope of services to be covered by the statute.\130\ Moreover, 
we are unaware of any statute containing the bill's exact 
language. Furthermore, cases construing similar language 
contemplate attorney's fees or other litigation expenses,\131\ 
but not payments for monitoring, compliance programs, workplace 
training, or other forms of relief currently available under 
settlements. It is therefore unclear whether courts would 
broadly construe this exception to include settlement donations 
designed to prevent future misconduct. Notwithstanding ample 
bipartisan support for protecting Americans' privacy rights, 
however, the amendment was defeated by a vote of 6 to15.\132\
---------------------------------------------------------------------------
    \127\Tr. of Markup of H.R. 5063, the ``Stop Settlement Slush Funds 
Act of 2016,'' by the H. Comm. on the Judiciary, 114th Cong. 64 (May 
11, 2016).
    \128\Id. at 65.
    \129\The Equal Access to Justice Act, 28 U.S.C. Sec. 2412(d)(1)(A) 
(2016).
    \130\See id. at (d)(2) (defining ``fees and other expenses''); see, 
e.g., Conrad, Rubin & Lesser v. Pender, 289 U.S. 472, 475-76 (1933) 
(attorney's fees in bankruptcy proceedings).
    \131\See, e.g., Dell v. Bowen, No. CIV-83-480E, 1986 WL 12482, at 
*1 (W.D.N.Y. Nov. 5, 1986) (attorney's fees under the Equal Access to 
Justice Act (28 U.S.C. Sec. 2412(d)(1)(A)).
    \132\Tr. of Markup of H.R. 5063, the ``Stop Settlement Slush Funds 
Act of 2016,'' by the H. Comm. on the Judiciary, 114th Cong. 70 (May 
11, 2016).
---------------------------------------------------------------------------
C. LH.R. 5063 Would Undermine the Enforcement of Civil Rights Laws
    Civil rights laws embody core values of equality of 
opportunity and freedom from discrimination. Congress passed 
the Civil Rights Act of 1964\133\ to remove discriminatory 
barriers and to promote equality of employment 
opportunities.\134\ As the Supreme Court recently noted, 
however, ``[m]uch progress remains to be made in our Nation's 
continuing struggle against racial isolation'' and toward ``our 
historic commitment to creating an integrated society.''\135\
---------------------------------------------------------------------------
    \133\42 U.S.C. Sec. Sec. 2000e et seq. (2016).
    \134\Griggs v. Duke Power Co., 401 U.S. 424, 429 (1971)
    \135\Texas Dep't of Hous. & Cmty. Affairs v. Inclusive Communities 
Project, Inc., 135 S. Ct. 2507, 2525 (2015).
---------------------------------------------------------------------------
    Cases involving discrimination claims often occur without 
identifiable victims and tend to affect the interests of 
persons who are not likely to receive compensation for unlawful 
conduct (e.g., unidentifiable victims such as former and future 
employees).\136\ In these cases, a settling party that violated 
antidiscrimination laws may seek to resolve its civil liability 
through workplace monitoring or training programs that seek to 
remedy systemic unlawful conduct. As the Justice Department has 
observed, remedies can correct both noncompliance and 
recidivism through settlement terms that require a party to 
undertake activity to prevent future misconduct.\137\ Without 
the ability to include these forms of relief in settlements, 
H.R. 5063, the Department argues, would hamper the enforcement 
of myriad civil rights laws:
---------------------------------------------------------------------------
    \136\Mark E. Recktenwald, Collateral Attacks on Employment 
Discrimination Consent Decrees, 53 U. Chi. L. Rev. 147 (1986).
    \137\Comments from the Dep't of Justice on H.R. 5063, the ``Stop 
Settlement Slush Funds Act of 2016,'' to Members of the H. Comm. on the 
Judiciary 4 (May 17, 2016) (on file with Democratic staff of the H. 
Comm. on the Judiciary).

        In settling such cases that the Department has brought 
        to redress a pattern or practice of systemic 
        discrimination, the Department seeks both compensation 
        for individual victims harmed by the unlawful 
        practices, and injunctive relief to correct or prevent 
        discrimination. Unfortunately, it is often 
        extraordinarily difficult to prospectively identify all 
        of the possible victims in certain cases, due to the 
        nature of the discriminatory practices, the mobility of 
        the possible victims, or both. Accordingly, the 
        Department enters into consent orders requiring 
        defendants to establish a settlement fund to compensate 
        victims who will be identified post-settlement. In such 
        cases, the defendants deposit a negotiated amount into 
        an interest-bearing escrow account and provide notice 
        targeted to reach possible victims. After the notice 
        period ends, and victims have been identified, the 
        United States submits the proposed disbursements to the 
        Court for approval. If unclaimed monies remain in the 
        settlement fund after all identified victims have been 
        paid, the decrees provide that the court may order that 
        unclaimed funds be paid to a non-profit organization 
        that is dedicated to addressing and preventing the kind 
        of discriminatory practices that gave rise to the 
        lawsuit. These organizations must have the requisite 
        qualifications and expertise in the areas specified in 
        the consent order.\138\
---------------------------------------------------------------------------
    \138\Id.

To highlight this concern, Ranking Member John Conyers, Jr. (D-
MI) offered an amendment that would have exempted from the bill 
any settlement agreement that pertains to the enforcement of 
civil rights laws. He explained that his amendment was 
necessary because ``the bill's broad and ill-defined 
prohibition would effectively deter civil enforcement agencies 
from providing general relief in discrimination cases, 
discourage courts from enforcing these settlements, and invite 
costly and needless litigation concerning these 
provisions.''\139\ Unfortunately, this amendment failed by a 
vote of 9 to 15.\140\
---------------------------------------------------------------------------
    \139\Tr. of Markup of H.R. 5063, the ``Stop Settlement Slush Funds 
Act of 2016,'' by the H. Comm. on the Judiciary, 114th Cong. 19 (May 
11, 2016).
    \140\Id. at 26.
---------------------------------------------------------------------------
    To further underscore these concerns, Representative Sheila 
Jackson Lee (D-TX) offered an amendment that would have 
exempted from H.R. 5063 settlement agreements that pertain to 
payments to indirectly remediate and prevent sexual harassment, 
violence, or discrimination in the workplace. She explained 
H.R. 5063 would prevent settlement donations for workplace 
monitoring and other payments to remedy generalized harm, 
including remedies designed to prevent the recurrence of sexual 
violence or discrimination.\141\ This amendment also failed by 
a vote of 7 to 16.\142\
---------------------------------------------------------------------------
    \141\Id. at 31.
    \142\Id. at 44.
---------------------------------------------------------------------------
D. LH.R. 5063 Would Prevent the General Remediation of Environmental 
        Injuries and Compensation to States and Local Communities
    Environmental laws, such as the Clean Air Act and Clean 
Water Act, expressly authorize restitution for generalized 
harm. The Clean Air Act, for example, grants authority in 
environmental enforcement cases for ``beneficial mitigation 
projects'' to ``enhance the public health or the 
environment,''\143\ which require that a settling party 
remedies, reduces, or offsets the harm caused by its alleged 
violations. These terms are typically included in settlements 
where a party's unlawful emissions or discharges cause general 
harm to the public, wildlife, or the environment.\144\ Since 
the enactment of the Clean Air Act, Congress has additionally 
authorized courts to direct funds to beneficial mitigation 
projects in the final judgment of a citizen suit,\145\ and 
likewise refrained from enacting guidelines for the inclusion 
of these agreements in civil penalties or settlement 
agreements, generally deferring to the courts and 
agencies.\146\
---------------------------------------------------------------------------
    \143\42 U.S.C. Sec. 7604 (2016).
    \144\Envtl. Protection Agency, Office of Enforcement and Compliance 
Assurance, Securing Mitigation as Injunctive Relief in Certain Civil 
Enforcement Suits 2 (2012).
    \145\42 U.S.C. Sec. 7604 (g)(2) (2016).
    \146\See Edward Lloyd, Supplemental Environmental Projects Have 
Been Effectively Used in Citizen Suits to Deter Future Violations As 
Well As to Achieve Significant Additional Environmental Benefits, 10 
Widener L. Rev. 413, 425 (2004).
---------------------------------------------------------------------------
    H.R. 5063, however, would effectively circumvent these 
statutes to prevent the general remediation of environmental 
injuries. Professor David Uhlmann of the Michigan Law School, 
who formerly served as Chief of the Environmental Crimes 
Section of the Justice Department, explained in his testimony 
at the hearing on the bill that corporate defendants in large, 
catastrophic pollution cases are typically required to direct 
funds to congressionally-chartered foundations for the purpose 
of addressing the general harms caused by vessel 
pollution.\147\ To resolve its liability for one uniquely 
catastrophic spill, British Petroleum (BP) agreed to direct 
funds for environmental projects ``to address the catastrophic 
harm to the Gulf of Mexico ecosystem that occurred because of 
BP's misconduct,'' in addition to the largest penalties for an 
environmental crime in history.\148\ H.R. 5063 would eliminate 
these forms of remedies to major environmental misconduct.
---------------------------------------------------------------------------
    \147\H.R. 5063 Hearing, supra note 5, at 4 (statement of David 
Uhlmann, Professor, University of Michigan Law School), https://
judiciary.house.gov/wp-content/uploads/2016/04/Uhlmann-
Testimony.pdf.
    \148\Id.
---------------------------------------------------------------------------
    Proponents of the bill argue that H.R. 5063 allows agencies 
to redress direct environmental injuries, and where direct 
remediation is impractical, ``the violator is not let off the 
hook'' because funds are paid to the Treasury, leaving Congress 
to decide how best to remediate environmental damage.\149\ This 
argument, however, is wrong for several reasons.
---------------------------------------------------------------------------
    \149\Memorandum from U.S. Rep. Bob Goodlatte (R-VA) for Markup of 
H.R. 5063, the ``Stop Settlement Slush Funds Act of 2016,'' to Members 
of the H. Comm. on the Judiciary 12 (May 9, 2016) (on file with 
Democratic staff of the H. Comm. on the Judiciary).
---------------------------------------------------------------------------
    First, H.R. 5063's exception for environmental remediation 
is drafted too narrowly to allow for environmental 
projects.\150\ As Professor Mintz observes, the bill would 
prohibit the following ``entirely legitimate, appropriate'' use 
of settlement funds permitted under current law:
---------------------------------------------------------------------------
    \150\H.R. 5063 Hearing, supra note 5, at 5 (written statement of 
Joel Mintz, Professor, Nova Southeastern University College of Law) (on 
file with Democratic staff of the H. Comm. on the Judiciary).

        1) LPollution prevention projects that improve plant 
        procedures and technologies, and/or operation and 
        maintenance practices, that will prevent additional 
---------------------------------------------------------------------------
        pollution at its source;

        2) LEnvironmental restoration projects including 
        activities that protect local ecosystems from actual or 
        potential harm resulting from the violation;

        3) LFacility assessments and audits, including 
        investigations of local environmental quality, 
        environmental compliance audits, and investigations 
        into opportunities to reduce the use, production and 
        generation of toxic materials;

        4) LPrograms that promote environmental compliance by 
        promoting training or technical support to other 
        members of the regulated community; and

        5) LProjects that provide technical assistance or 
        equipment to a responsible state or local emergency 
        response entity for purposes of emergency planning or 
        preparedness.\151\
---------------------------------------------------------------------------
    \151\Id.

These projects are unlikely to be construed as redressing the 
``actual (environmental) harm, directly and proximately 
caused'' by unlawful conduct and, accordingly would be unlawful 
under H.R. 5063, notwithstanding the beneficial nature of such 
settlement donations.\152\
---------------------------------------------------------------------------
    \152\Id.
---------------------------------------------------------------------------
    Secondly, H.R. 5063 would foreclose settlement donations to 
local communities and states harmed by violations of the law. 
In 2012, for example, the EPA and Justice Department resolved 
the civil liability of several corporations in connection with 
the Deepwater Horizon oil spill through a settlement that 
directed funds to several Gulf states, including Texas, which 
was not a party to the complaint, but received $3.25 million 
for Supplemental Environmental Projects (SEPs) and other 
responsive actions to remediate the generalized harm of the oil 
spill.\153\ As the Justice Department notes, this common 
feature of settlements in environmental enforcement actions 
would likely be barred by H.R. 5063:
---------------------------------------------------------------------------
    \153\Envtl. Protection Agency, MOEX Offshore 2007 LLC Settlement 
(Feb. 17, 2012), https://www.epa.gov/enforcement/moex-offshore-2007-
llc-settlement#sep.

        The United States frequently enters into joint 
        settlement of environmental cases with States; those 
        cases nearly always provide for payment of civil 
        penalties to the participating State. Such civil 
        penalties appear to be payments prohibited under the 
        bill. Similarly, the United States may settle 
        litigation brought by third parties against Federal 
        agencies under various environmental, natural 
        resources, and other statutes for the payment of 
        specified monies. Such payments are arguably barred by 
        the bill. If the term ``payment'' is interpreted to 
        have a meaning broader than monetary payments, or to 
        include payments made to third parties who implement 
        terms of a settlement, there could be additional 
        consequences for environmental settlements.\154\
---------------------------------------------------------------------------
    \154\Comments from the Dep't of Justice on H.R. 5063, the ``Stop 
Settlement Slush Funds Act of 2016,'' to Members of the H. Comm. on the 
Judiciary 3 (May 17, 2016) (on file with Democratic staff of the H. 
Comm. on the Judiciary).

    Third, in response to the Majority's argument that Congress 
should decide how best to allocate compensatory funds, not 
agencies, Congress has already made this decision through the 
passage of environmental laws that specifically contemplate 
settlement donations.\155\ As courts have noted, the purposes 
of these laws are ``to improve water quality, not endow the 
Treasury.''\156\ Furthermore, as Charlie Garlow, a former 
senior EPA attorney, notes, funds directed to the Treasury 
seldom fully remedy environmental injuries:
---------------------------------------------------------------------------
    \155\42 U.S.C. Sec. 7604 (2016).
    \156\Nw. Envtl. Def. Ctr. v. Unified Sewerage Agency of Washington 
Cty., No. CIV. 88-1128-HO, 1990 WL 191827, at *1 (D. Or. July 27, 
1990).

        Money served to the Treasury does little to ``make the 
        environment whole again.'' It is making the environment 
        whole that is the ultimate goal of environmental 
        restitution. The environment, for the purposes of this 
        criminal law analogy, is ``the victim,'' against which 
        the offender commits a crime. Once a defendant's 
        egregious acts are proven and he is convicted of the 
        environmental crime, restoration and recompense provide 
        the doctrinal mechanism through which rehabilitation of 
        the offender can occur. Just as in the criminal 
        context, the offender is forced to face the 
        responsibility he owes to society as a whole to 
        preserve the environment. Instead of merely paying a 
        fine to a general governmental unit and continuing his 
        business as usual, the defendant must confront and 
        address the damage he has directly caused.\157\
---------------------------------------------------------------------------
    \157\Charlie Garlow, Environmental Recompense, 1 Appalachian J.L. 
1, 5-6 (2002).

    Lastly, Congress lacks the time, expertise, and resources 
to properly review and make these enforcement decisions on 
behalf of Federal agencies.\158\ Requiring a congressional 
appropriation for each environmental project would greatly 
strain Congress' already limited legislative resources and 
scarce time, while opening the doors to industry influence and 
obstruction in routine enforcement matters.\159\ The cost of 
delays associated with this scheme would have devastating 
consequences for the public health, environment, and local 
communities.
---------------------------------------------------------------------------
    \158\See The REINS Act of 2013: Promoting Jobs, Growth, and 
American Competitiveness: Hearing on H.R. 367 Before the Subcomm. on 
Regulatory Reform, Commercial and Antitrust L. of the H. Comm. on the 
Judiciary, 113th Cong. (2013) (statement of Ronald M. Levin, William R. 
Orthwein Distinguished Professor of Law, Washington University in St. 
Louis).
    \159\Id.
---------------------------------------------------------------------------
    In response to these concerns, Representative Sheila 
Jackson Lee (D-TX) offered an amendment that would have 
exempted from H.R. 5063 settlement agreements that provide 
restitution to states that are not parties to litigation.\160\ 
This amendment failed by a vote of 7 to 16.\161\
---------------------------------------------------------------------------
    \160\Tr. of Markup of H.R. 5063, the ``Stop Settlement Slush Funds 
Act of 2016,'' by the H. Comm. on the Judiciary, 114th Cong. 31 (May 
11, 2016).
    \161\Id. at 44.
---------------------------------------------------------------------------

 III. H.R. 5063'S VAGUE PROVISIONS WILL RESULT IN NEEDLESS LITIGATION 
                               AND DELAY

    As drafted, H.R. 5063 is inherently vague. The bill, for 
instance, fails to define key terms, which will undoubtedly 
engender legal challenges to proposed settlements, deter 
agencies from pursuing settlements, and ultimately force courts 
to interpret them.
    For example, the bill does not define what constitutes a 
``payment.'' Professor David Uhlmann of the University of 
Michigan Law School explains that ``courts interpreting the 
legislation could conclude that it precludes third-party 
payments as part of civil settlement agreements, other than 
restitution, even in cases of generalized harm to the 
environment or consumers.''\162\ He is concerned that, even as 
ordered reported by the Committee in its amended form, H.R. 
5063 continues to raise a ``host of questions about what 
payments are covered,'' while failing to meaningfully define 
terms or address the bill's underlying problems.\163\
---------------------------------------------------------------------------
    \162\H.R. 5063 Hearing, supra note 5, at 4 (statement of David 
Uhlmann, Professor, University of Michigan Law School), https://
judiciary.house.gov/wp-content/uploads/2016/04/Uhlmann-
Testimony.pdf.
    \163\Email from Prof. David Uhlmann, Professor, University of 
Michigan Law School, to Democratic staff of the H. Comm. on the 
Judiciary (May 9, 2016) (on file with Democratic staff of the H. Comm. 
on the Judiciary).
---------------------------------------------------------------------------
    H.R. 5063 also fails to define ``official or agent of the 
Government.'' This term could be construed to apply to any 
state actor, including a Federal judge or local official. Thus, 
a Federal judge could hesitate to enforce even clearly valid 
settlements in actions involving the Government to avoid 
violating the bill's prohibition. This may also be true for 
purely private actions, as it could be argued that a Federal 
judge enforces these settlements as an ``official or agent of 
the Government . . . on behalf of the United States.'' This 
provision may also prevent the payment of funds to private 
parties through a settlement where the Government is a 
defendant in a civil action, such as class action litigation 
directing undistributed funds to charitable organizations.
    Combined with these unclear provisions, the bill's chilling 
penalties--removal from office--may prevent Federal agencies 
from making payments even where statutorily authorized, such as 
payments to whistleblowers under FIRREA.\164\
---------------------------------------------------------------------------
    \164\U.S.C. Sec. 4205(d)(1) (2016); Comments from the Dep't of 
Justice on H.R. 5063, the ``Stop Settlement Slush Funds Act of 2016,'' 
to Members of the H. Comm. on the Judiciary 2 (May 17, 2016) (on file 
with Democratic staff of the H. Comm. on the Judiciary).
---------------------------------------------------------------------------

              SECTION-BY-SECTION EXPLANATION OF H.R. 5063

    A description of the bill's principal substantive 
provisions follows.
    Section 2(a) of the bill prohibits an officer or agent of 
the Government from resolving the civil liability of a party 
through a settlement agreement that directs or provides 
payments to any person or entity other than the Government, 
subject to two exceptions. First, settlement agreements may 
direct payments to third parties to provide restitution for the 
actual harm that was ``directly and proximately'' caused by the 
unlawful conduct that is the basis of the settlement agreement. 
Second, settlement agreements may include payments to third 
parties for ``services rendered in connection with the case'' 
(e.g., attorney's fees).
    Under section 2(b) of the bill, a violation of section 2(a) 
constitutes a violation under the Miscellaneous Receipts Act, 
which include the possibility of removal from office and 
forfeiture of received funds to the U.S. Treasury.\165\
---------------------------------------------------------------------------
    \165\31 U.S.C. Sec. 3302(d) (2016).
---------------------------------------------------------------------------
    Section 2(c) sets forth the effective date as the date of 
enactment, clarifying that the bill only applies to settlement 
agreements concluded on or after the enactment date.
    Section 2(d) defines ``settlement agreement'' to include a 
resolution of a civil action or potential civil action through 
settlement agreement.

                               CONCLUSION

    Similar to the multitude of the Majority's anti-regulatory 
bills that our Committee has considered over this and the last 
two Congresses, H.R. 5063 is yet another solution in search of 
a problem that is rife with unintended consequences. There is 
no credible evidence substantiating the underlying premise of 
this bill, namely, that settlement donations are an 
unconstitutional subversion of congressional spending authority 
or that agencies have included unlawful terms in settlement 
agreements. Longstanding appropriations law and agency policy--
as recognized by the Government Accountability Office and the 
Congressional Research Service--clearly contemplate these 
concerns and prevent civil enforcement agencies from directing 
funds to politically-favored groups or circumventing Congress 
to augment their own appropriations. Nevertheless, H.R. 5063 
would establish sweeping changes to the enforcement of Federal 
statutes and severely undermine the ability of agencies to 
respond to unlawful conduct through the provision of general 
compensation for indirect harm. Further, H.R. 5063's unclear 
provisions and chilling penalties will generate needless 
litigation and dissuade the timely resolution of civil 
complaints through settlement.
    Accordingly, we strongly oppose H.R. 5063 and we urge our 
colleagues to join us in opposition.

                                   Mr. Conyers, Jr.
                                   Ms. Lofgren.
                                   Ms. Jackson Lee.
                                   Mr. Cohen.
                                   Mr. Johnson, Jr.
                                   Mr. Deutch.
                                   Mr. Jeffries.
                                   Mr. Cicilline.

                                  [all]
```