(Adds Harley-Davidson case)
WASHINGTON, June 7 The U.S. Justice Department
has barred 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, in a change that could affect banks and other
Settlement payments must be directed to victims affected by
the defendants' actions and then to the federal government,
according to a statement on Wednesday by U.S. Attorney General
Jeff Sessions. It was the latest action by the Republican Trump
administration to end policies put in place by former President
Barack Obama, a Democrat.
Such agreements were a feature of several U.S. settlements
with banks in the wake of the 2008 financial crisis.
Under 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 a
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 affect other banks still under federal
investigations over mortgage issues such as Credit Suisse Group
AG, Royal Bank of Scotland Group PLC, Wells
Fargo & Co, UBS Group AG and HSBC.
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.
Sessions' memo raises questions about whether the Justice
Department will finalize a $12 million settlement against
Harley-Davidson Inc announced in August. The company
also agreed to stop selling illegal after-market devices that
cause its motorcycles to emit too much pollution.
As part of the settlement, Harley agreed to spend $3 million
on an unrelated project to reduce air pollution, the Justice
Department said in August.
The new policy would likely have barred part of the
Environmental Protection Agency's diesel emissions settlement
with Volkswagen AG, which requires the German
automaker to invest $2 billion in zero emission vehicle efforts
over 10 years.
(Reporting by Karen Freifeld in New York and; David Shepardson
in Washington; Writng by Susan Heavey and Doina Chiacu; Editing
by Chizu Nomiyama, Bernard Orr)