Biden gives DOJ green light to resume Obama-era 'slush fund' payouts to liberal groups

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President-elect Joe Biden is calling for the Justice Department to look into reinstating a controversial Obama-era practice that allowed prosecutors to make settlement agreements that resulted in defendants paying outside groups instead of victims or the government.

The Trump administration had put an end to these payments following a 2017 memo from then-Attorney General Jeff Sessions which was reflected in the Justice Department's manual.

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"When the federal government settles a case against a corporate wrongdoer, any settlement funds should go first to the victims and then to the American people — not to bankroll third-party special interest groups or the political friends of whoever is in power," Sessions said in 2017.

A Republican-backed bill known as the "Stop Settlement Slush Funds Act of 2017" would have made the practice illegal. 

"Congress must permanently end the abuses Obama's Justice Department exploited to use settlements to funnel money to their liberal friends," then-Rep. Bob Goodlatte, R-Va., who sponsored the bill in the House, said in 2017.

Goodlatte's bill never became law, but the Sessions-era DOJ policy did become an official agency rule that officially went into effect in December 2020. The rule allows for limited exceptions for "an otherwise lawful payment or loan that provides restitution or compensation to a victim," situations where "a trusted third party" is needed to deliver funds due to concerns over foreign corruption, payments for legal or other professional services related to the case, and payments that are otherwise "expressly authorized" by a statute or regulation.

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The rule is now part of a list of federal agency actions to be reviewed pursuant to Biden's upcoming executive order titled, "Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis."

Fox News reached out to the Biden transition team for comment, but they did not immediately respond.

Past instances of settlements involving payments to third-party groups include a $17 billion settlement agreement where Bank of America was required to pay nonprofit organizations to resolve an investigation into its role in the sale of mortgage-backed securities before the 2008 financial crisis. That agreement was struck under then-Attorney General Eric Holder’s Justice Department.

In another agreement, Gibson Guitar Corp. had to contribute to the National Fish and Wildlife Foundation to resolve a criminal investigation into allegations it illegally imported exotic wood.

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Paul Larkin, a senior legal research fellow at the Heritage Foundation, wrote in 2016 that the practice was "improper and unlawful," arguing that it was barred by the Appropriations Clause, violated ethics principles, and worked as an "end run around" the Antideficiency Act and Miscellaneous Receipts Act.

"No private lawyer could give away a client's settlement money, and no government lawyer may do so either. It is time for this unlawful practice to end," Larkin wrote.

Fox News' Jake Gibson and Brooke Singman and The Associated Press contributed to this report.