On August 21, 2014, the United States Department of Justice announced a record 16.65 billion dollar agreement to resolve civil claims alleged against Bank of America for improperly concealing the risks of mortgage-related securities when it sold them to large institutional investors before and after the 2008 financial meltdown. Separate governmental entities announced unrelated settlements with Goldman Sachs and Standard Chartered Bank, while the Justice Department announced a 13 billion dollar settlement with JP Morgan Chase and a 7 billion dollar settlement with Citigroup regarding similar conduct to that of Bank of America. Indeed, over the last five years, ten of the 100 largest U.S. companies by revenues (CVS, CareMark, Goodwill, Johnson & Johnson, Merck, Phiser, Tyson Foods and UPS) reached deferred prosecution or non-prosecution agreements (“DPA’s” or “NPA’s”)[1]. For additional insight into DPA’s or NPA’s see Thomas K. Potter, III’s prior blog post on December 19, 2013.
The concern is that those monies paid out through settlements do not flow to government reserves; instead, these funds generate a large pool of resources for the Executive Branch to appropriate as it sees fit. These appropriations occur without congressional authorization or oversight.[2] For example, of the 16.65 billion in Bank of America’s announced settlement figure, 7 billion is allocated to “consumer relief” – - “credits” that the bank earns for spending money as the Justice Department sees fit, under the direction of a department-appointed “independent monitor.”[3] The largest incentives in the Bank of America settlement encourage “affordable” family housing developments by providing a $3.25 credit against every dollar spent on “critical needs” family housing developments for up to 7 billion dollars with a minimum 100 million dollar allocation. In essence, a low-income housing credit without congressional authorization issued by the Justice Department.
As some commentators have noted, Congress should take steps to insist that corporate settlement agreements with the Justice Department are transparent, overseen by judges, and do not usurp regulatory and appropriations powers of the government.[4] First introduced in the 110th Congress, the Accountability in Deferred Prosecution Act of 2014, H.R. 4540, proposes the issuance of public guidelines for DPA’s and NPA’s, establishes rules for the selection of “independent monitors,” and seeks to publicize the text of any DPA or NPA on a website. By giving prosecutors within the Justice Department unfettered authority to enter into DPA’s and NPA’s, the Executive Branch circumvents or oversteps congressional authority to promote transparency for these massive settlement agreements. The Justice Department’s indirect prosecution of its civil claims is requiring companies to establish training and reporting programs; change compensation schemes; modify sales and marketing plans; hire senior “compliance officers” and provide for “independent monitoring” by an appointed member of the Justice Department – all at the direction of the Executive Branch without any participation from the congressional or judicial branches of government.
[1] Deferred Prosecution Agreements (“DPA’s”) and Non-Prosecution Agreements (“NPA’s”) are pre-trial diversion contracts entered into by the government – usually the Department of Justice – and a potential corporate defendant whereby the prosecution of certain criminal charges are held in abeyance until the company satisfies the terms of the pre-trial diversion contract. See the National Association of Criminal Defense Lawyers website.
[2] James R. Copeland and Isaac Gorodetski, Bank of America Settlement, The Latest and Largest Example of The `Shadow Regulatory State,’ 2014 WL 4473855.
[3] Shana-Tara Regon, Proposal Seeks More Oversight of Justice Department’s Pre-Trial Diversion Agreements, Washington Legal Foundation, Vol. 18 No. 22, September 25, 2009. The article discusses the “Accountability and Deferred Prosecution Act” introduced as H.R. 1947 by William Pascrell. At that time, the bill – H.R. 1947 – sought to result in the more uniform decision making process with the Department of Justice by standardizing certain agreement terms, as well as establishing procedures to ensure the independence and accountability of the “Independent Corporate Monitors.”
[4] 2014 WL 4473855 at *6.
