The lawlessness of the Obama administration has been astounding.
Entire books have been written about President Obama’s notion that he should be and is free to do whatever he wants (such as Lawless by Professor David Bernstein, which I wrote about here). No doubt more will be.
One remarkably brazen instance I recently learned about is his administration’s funneling of money from lawsuit settlements into the pockets of left-wing activist groups. It makes you wonder if there is anything this administration won’t try to get away with.
Following the collapse of the housing bubble, the federal government initiated several grandstanding, politically-motivated lawsuits against big banks for their allegedly fraudulent conduct with regard to secondary market mortgage-backed securities. Rather than fight the feds and their almost bottomless well of taxpayer dollars, several of the defendants decided to cut their losses and settle.
That enabled federal prosecutors to claim victory and wave some prominent scalps. Siphoning off billions of bank capital is bad enough, but the rule of law problem emerges in two of the settlement agreements, under which the banks (Citigroup and Bank of America) were able to reduce their penalties by making “donations” to favored left-wing activist groups.
Citigroup agreed to donate at least $50 million to “community organizing” groups including NeighborWorks and La Raza and for every dollar above that, the bank gets two dollars knocked off its total settlement sum of $2.5 billion. With Bank of America, the settlement calls for a $100 million contribution to housing-related groups and, again, a two-for-one reduction for donations to community organizing groups.
If Saul Alinsky were still alive, he’d be dancing a jig over this brilliant ploy to transfer wealth from banks into the hands of activist groups that seek to impose collectivism.
Alinskyites don’t care about the rule of law, but quite a few Americans still do and the blatant illegality of this scheme has come to the attention of members of Congress and legal scholars.
As reported here, House Judiciary Committee Chairman Rep. Robert Goodlatte and Financial Services Committee Chairman Jeb Hensarling have been looking into these settlements. Rep. Goodlatte is quoted as saying “It seems that the alleged victims are not the primary beneficiaries of these multi-billion dollar settlements. Instead, the terms … look less like consumer relief and more like a scheme to funnel money to politically favored interest groups.”
Does the Department of Justice have any legal authority to make deals like that?
A law that the officials have either overlooked or chosen to ignore is the Miscellaneous Receipts Act. Passed back in 1849, that statute forbids any agent of the government who receives funds belonging to the government to lend, deposit, use or exchange the money with any other person. The purpose of the law was to maintain congressional control over the appropriation of money and keep the executive branch from circumventing Congress whenever it wanted to spend in accordance with its own desires.
The statute, thus, backstops the Constitution’s language in Article I, Section 9 that “No money shall be withdrawn from the Treasury but in consequence of appropriations made by law” by preventing executive branch officials from deciding what to do with federal money before it gets into the Treasury.
Law professor Richard Epstein connects the dots for us in this Hoover Institution essay: “Clearly, in the bank cases, the DOJ seeks to evade the Miscellaneous Receipts Act by redirecting funds before putting them into the Treasury, without receiving Congressional approval. Its shifty claim is that the MRA does not apply to the case because the moneys in question never fell into the government’s possession and custody.”
The obvious weakness of that argument, Epstein observes, is that the Department of Justice has no constitutional authority to make unauthorized gifts. And yet that is exactly what it has done, for transparently political reasons. The beneficiary groups are loyal, zealous allies of the Democratic Party.
Imagine if, under a Trump administration, settling defendants were told that their payments could be reduced by making “donations” to the National Rifle Association. That would be no different than what is going on here.
Epstein foresees growing harm if this practice is allowed to continue: “The widespread use of these settlements creates an open door for the executive branch to circumvent structural limits found in the Constitution. In so doing, it creates the real specter that various interest groups will lobby the DOJ to initiate litigation from which they could hope to receive collateral gain through settlement.”
If this is allowed, we’re far along the path to banana republic status.
Can anything be done to stop it?
As already noted, some congressional Republicans are investigating this matter and at least one non-profit “watchdog” organization, Cause of Action Institute, has taken action.
In this Daily Caller story, Richard Pollock quotes Alfred Lechner, president of the Cause of Action Institute (and a former federal judge) on his organization’s efforts at exposing and stopping this kind of financial chicanery with a rule-making petition to the Departments of Justice and Treasury: “We’re looking at how routing of settlement money to third-party groups without congressional authorization violates the power of Congress to appropriate funds. It appears this money would be better spent, better used for the victims of this mortgage crisis at the time.”
We can hope that the efforts at clawing back the funds and, more importantly, preventing this abuse of power in the future will succeed. But we shouldn’t be very optimistic. The problem here is deeply rooted in the pervasive belief among presidents and their subordinates that the rule of law doesn’t apply to them. Rather, it’s something they apply to other people so long as it helps them remain in power.
Our only hope is to change that philosophy.