Justice Dept. halts settlements funding out outside groups

[June 07, 2017]  WASHINGTON (Reuters) - The U.S. Justice Department has barred any legal settlements in federal investigations that include donating funds to community organizations or other third-party groups, rather than to those directly harmed by the wrongdoing or involved in the cases, in a change that could impact banks and other corporations.

U.S. Attorney General Jeff Sessions said in a statement released on Wednesday that settlement payments must be directed to victims impacted by the defendants' actions and then to the federal government. It was the latest action by the Republican Trump administration to end policies from the previous Democratic Obama administration.

Such agreements were a feature of several U.S. settlements with banks in the wake of the 2008 financial crisis.

Under former President Barack Obama, the Justice Department aimed to hold banks accountable for shoddy securities that contributed to the U.S. housing market collapse. From 2013 to 2016, the department reached $46 billion in settlements with U.S. banks that in part directed funds to approved housing aid and other related groups.

In Obama's final weeks in office, the department sued Barclays PLC over similar claims.

"In recent years the Department of Justice has sometimes required or encouraged defendants to make these payments to third parties as a condition of settlement," Sessions said in the statement. "We are ending this practice and ensuring that settlement funds are only used to compensate victims, redress harm, and punish and deter unlawful conduct."

The change could impact other banks still under federal investigation over mortgage issues such as Credit Suisse Group AG,  Royal Bank of Scotland Group PLC, Wells Fargo & Co, UBS Group AG and HSBC.

U.S. Attorney General Jeff Sessions addresses the National Law Enforcement Conference on Human Exploitation in Atlanta, Georgia, U.S., June 6, 2017. REUTERS/Chris Aluka Berry

Representatives for the banks could not be immediately reached for comment.

Sessions, in a one-page memo dated on Monday, told the nation's 94 U.S. attorney generals they could not make any agreements in civil or criminal cases "that directs or provides for a payment or loan to any non-governmental person or entity that is not a party to the dispute."

Sessions cited three exceptions to the new policy: payments or loans that directly aim to address harm such as to the environment or official corruption; legal or other professional services from the case; and restitution, forfeiture and other payments required by law.

While the new policy affects future deals, it would have impacted cases like the Environmental Protection Agency's diesel emissions settlement with Volkswagen AG <VOWG_p.DE> that required the German automaker to invest $2 billion in zero emission vehicle efforts over 10 years.

(Reporting by Karen Freifeld; additional reporting by David Shepardson; Writng by Susan Heavey; Editing by Chizu Nomiyama)

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