[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]


 
                           ONGOING OVERSIGHT:
                    MONITORING THE ACTIVITIES OF THE
                  JUSTICE DEPARTMENT'S CIVIL, TAX AND
                   ENVIRONMENT AND NATURAL RESOURCES
                 DIVISIONS AND THE U.S. TRUSTEE PROGRAM

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                           REGULATORY REFORM,
                      COMMERCIAL AND ANTITRUST LAW

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 19, 2015

                               __________

                           Serial No. 114-34

                               __________

         Printed for the use of the Committee on the Judiciary
         
         
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      Available via the World Wide Web: http://judiciary.house.gov
                       COMMITTEE ON THE JUDICIARY

                   BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        JERROLD NADLER, New York
LAMAR S. SMITH, Texas                ZOE LOFGREN, California
STEVE CHABOT, Ohio                   SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California          STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia            HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa                       Georgia
TRENT FRANKS, Arizona                PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas                 JUDY CHU, California
JIM JORDAN, Ohio                     TED DEUTCH, Florida
TED POE, Texas                       LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah                 KAREN BASS, California
TOM MARINO, Pennsylvania             CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina           SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho                 HAKEEM JEFFRIES, New York
BLAKE FARENTHOLD, Texas              DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia                SCOTT PETERS, California
RON DeSANTIS, Florida
MIMI WALTERS, California
KEN BUCK, Colorado
JOHN RATCLIFFE, Texas
DAVE TROTT, Michigan
MIKE BISHOP, Michigan

           Shelley Husband, Chief of Staff & General Counsel
        Perry Apelbaum, Minority Staff Director & Chief Counsel
                                 ------                                

    Subcommittee on Regulatory Reform, Commercial and Antitrust Law

                   TOM MARINO, Pennsylvania, Chairman

                 BLAKE FARENTHOLD, Texas, Vice-Chairman

DARRELL E. ISSA, California          HENRY C. ``HANK'' JOHNSON, Jr.,
DOUG COLLINS, Georgia                  Georgia
MIMI WALTERS, California             SUZAN DelBENE, Washington
JOHN RATCLIFFE, Texas                HAKEEM JEFFRIES, New York
DAVE TROTT, Michigan                 DAVID N. CICILLINE, Rhode Island
MIKE BISHOP, Michigan                SCOTT PETERS, California

                      Daniel Flores, Chief Counsel
                            
                            C O N T E N T S

                              ----------                              

                              MAY 19, 2015

                                                                   Page

                           OPENING STATEMENTS

The Honorable Tom Marino, a Representative in Congress from the 
  State of Pennsylvania, and Chairman, Subcommittee on Regulatory 
  Reform, Commercial and Antitrust Law...........................     1
The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in 
  Congress from the State of Georgia, and Ranking Member, 
  Subcommittee on Regulatory Reform, Commercial and Antitrust Law     3
The Honorable Bob Goodlatte, a Representative in Congress from 
  the State of Virginia, and Chairman, Committee on the Judiciary     4

                               WITNESSES

Benjamin C. Mizer, Principal Deputy Assistant Attorney General, 
  Civil Division, U.S. Department of Justice
  Oral Testimony.................................................     7
  Prepared Statement.............................................     9
The Honorable John C. Cruden, Assistant Attorney General, 
  Environment and Natural Resources Division, U.S. Department of 
  Justice
  Oral Testimony.................................................    17
  Prepared Statement.............................................    19
Caroline Ciraolo, Acting Assistant Attorney General, Tax 
  Division, U.S. Department of Justice
  Oral Testimony.................................................    30
  Prepared Statement.............................................    32
Clifford J. White, III, Director, Executive Office for United 
  States Trustees
  Oral Testimony.................................................    50
  Prepared Statement.............................................    52
Michael Horowitz, CEO, Twenty-First Century Initiatives
  Oral Testimony.................................................    98
  Prepared Statement.............................................   101
Daniel Z. Epstein, Esq., Executive Director, Cause of Action
  Oral Testimony.................................................   111
  Prepared Statement.............................................   113
Andrew M. Grossman, Adjunct Scholar, Cato Institute, Associate, 
  Baker & Hostetler L.L.P.
  Oral Testimony.................................................   119
  Prepared Statement.............................................   121
Lauren K. Saunders, Associate Director, National Consumer Law 
  Center
  Oral Testimony.................................................   141
  Prepared Statement.............................................   143

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, and 
  Ranking Member, Committee on the Judiciary.....................    71
Material submitted by the Honorable Henry C. ``Hank'' Johnson, 
  Jr., a Representative in Congress from the State of Georgia, 
  and Ranking Member, Subcommittee on Regulatory Reform, 
  Commercial and Antitrust Law...................................   179

                                APPENDIX
               Material Submitted for the Hearing Record

Response to Questions for the Record from Benjamin C. Mizer, 
  Principal Deputy Assistant Attorney General, Civil Division, 
  U.S. Department of Justice.....................................   186
Response to Questions for the Record from the Honorable John C. 
  Cruden, Assistant Attorney General, Environment and Natural 
  Resources Division, U.S. Department of Justice.................   190
Questions for the Record submitted to Caroline Ciraolo, Acting 
  Assistant Attorney General, Tax Division, U.S. Department of 
  Justice........................................................   201
Response to Questions for the Record from Clifford J. White, III, 
  Director, Executive Office for United States Trustees..........   205
Response to Questions for the Record from Andrew M. Grossman, 
  Adjunct Scholar, Cato Institute, Associate, Baker & Hostetler 
  L.L.P..........................................................   208
Response to Questions for the Record from Lauren K. Saunders, 
  Associate Director, National Consumer Law Center...............   211


      ONGOING OVERSIGHT: MONITORING THE ACTIVITIES OF THE JUSTICE 
DEPARTMENT'S CIVIL, TAX AND ENVIRONMENT AND NATURAL RESOURCES DIVISIONS 
                      AND THE U.S. TRUSTEE PROGRAM

                              ----------                              


                         TUESDAY, MAY 19, 2015

                       House of Representatives,

                  Subcommittee on Regulatory Reform, 
                      Commercial and Antitrust Law

                      Committee on the Judiciary,

                            Washington, DC.

    The Subcommittee met, pursuant to call, at 1:13 p.m., in 
room 2141, Rayburn House Office Building, the Honorable Tom 
Marino (Chairman of the Subcommittee) presiding.
    Present: Representatives Marino, Goodlatte, Issa, Collins, 
Ratcliffe, Trott, Johnson, Conyers, Jeffries, and Peters.
    Staff Present: (Majority) Dan Huff, Counsel; Andrea 
Lindsey, Clerk; (Minority) Slade Bond, Counsel.
    Mr. Marino. The Subcommittee on Regulatory Reform, 
Commercial and Antitrust Law will come to order. Without 
objection, the Chair is authorized to declare a recess of the 
Committee at any time and we are going to vote very shortly. We 
welcome everyone here today to today's hearing on Ongoing 
Oversight: Monitoring the Activities of the Justice 
Department's Civil, Tax and Environment and Natural Resources 
Division and the United States Trustee Program. I will 
recognize myself now for an opening statement.
    House rules in good governance require that congressional 
Committees conduct regular oversight over Federal agencies 
within their jurisdiction. The last oversight hearing featuring 
these Justice Department components took place on May 31, 2012. 
In the meantime, the activities of these components have raised 
serious questions that merit congressional oversight. For 
example, will the Federal Deposit Insurance Corporation's 
withdraw of its list of ``High Risk Merchants'' prompt the 
Civil Division to rethink Operation Choke Point?
    A Justice Department spokesperson advised that ``because 
each of our investigations is based on specific evidence of 
unlawful conduct, the FDIC's revised regulatory guidance will 
not have an effect on the ongoing investigations.'' This misses 
the point. Fraud may be the Civil Division's target, but 
Operation Choke Point's methodology is having spillover 
effects. Congress has received numerous reports of banks 
severing relationships with law-abiding customers from 
legitimate industries that the Administration has designated 
``High Risk.''
    The FDIC's retraction reflected an understanding of these 
troubling effects. The Civil Division should follow the FDIC's 
lead and eliminate Operation Choke Point's potential for 
collateral damage. In the absence of such concrete steps, I 
fear the Civil Division may simply be continuing with Operation 
Choke Point as if nothing changed.
    Another high profile matter is a Texas judge's finding that 
division attorneys misled the court during legal challenges to 
the President's administrative actions on immigration. After a 
hearing on the matter, the judge wrote, ``the Court is 
extremely troubled by the multiple representations made by the 
Government's counsel--both in writing and orally . . .'' This 
is not the only judge worried about Civil Division lawyer 
misconduct.
    In a Contracts case involving the ATF, Judge Francis 
Allegra ruled that ``the record revealed at least two instances 
of conduct by defendant's counsel that, in the court's view, 
provide indication that fraud on the court has occurred here.'' 
How does the Department plan to restore its reputation with 
these judges and what internal controls have been put in place 
to prevent a recurrence?
    On March 24, 2015, the House Judiciary Committee approved 
H.R. 712 which addresses inappropriate sue and settle tactics. 
In this arrangement, plaintiffs and a sympathetic agency 
collaborate to accomplish, under the authority of a court order 
a policy change that both want but neither could obtain as 
readily through standard processes.
    In July 2013, 12 State Attorneys General sued the 
Environmental Protection Agency saying they are to use sue and 
settle action tax needs to circumvent the legislative and 
regulatory process. The complaint alleges the practice has 
raised utility costs by as much as 20 percent in many regions.
    A separate study of just six Obama administration sue-and-
settle environmental regulations found that they would cost an 
estimated $101 billion annually. How does ENRD evaluate whether 
to settle environmental cases? Furthermore, how does it ensure 
in the settlement context that, the statutes and Executive 
Orders intended to ensure quality regulations and adequate 
public input are respected? Environmental enforcement is also a 
frequent source of over-criminalization. What steps is ENRD 
taking to prioritize the right cases and use civil sanctions 
rather than criminal penalties where appropriate? This is a 
bipartisan concern.
    Finally, there is an overreaching theme of Obama 
administration lawyers subordinating law to cause. In a recent 
article, a former Reagan administration lawyer drew a powerful 
contrast between Obama administration lawyers and Reagan-era 
advisers who, for the sake of principle, frequently stood in 
the way of ``actions and policies, thought to be of great value 
to the administration.''
    There is much ground to cover in this hearing today and I 
want to thank the witnesses for appearing and I look forward to 
their testimony. I look to the Ranking Member, Mr. Johnson, for 
his opening statement.
    Mr. Johnson. Thank you, Mr. Chairman. Today four components 
of the Justice Department, the Civil Division, the 
environmental and natural resources division and the tax 
division and U.S. Trustee Program will report to us about their 
work and about their many accomplishments.
    The Civil Division plays a major role in defending the 
interest of the United States and its citizens over a broad 
spectrum of issues. The ENRD is charged with protecting the 
environment and the Nation's natural resources. The tax 
division ensures compliance with the U.S. Tax Code and we do 
need one, although it's too complicated, filled and riddled, 
really, with loopholes and you are--while you're being defunded 
in terms of your ability to get those entities who are large 
enough to have the army of lawyers to avoid paying taxes, and 
you're trying to create a fair tax system or tax enforcement 
regimen, should I say, despite the budget cuts. I really 
appreciate the work that you're doing, complying--ensuring 
compliance with the U.S. Tax Code and ensuring that the 
Nation's tax revenues are collected. And also, the fourth 
division, the U.S. Trustee Program promotes the integrity and 
the efficiency of the bankruptcy system ensuring benefits to 
all stakeholders in bankruptcy, debtors, creditors and the 
public.
    We have not held oversight hearings of these components in 
several years, and accordingly, there is much ground to cover. 
Additionally, I anticipate that the majority may question 
several of the Justice Department's recent settlement 
agreements. Since 2013, the Civil Division has investigated and 
combated mass market consumer fraud by focusing on payment 
systems on the automated clearinghouse ACH network.
    To date, the Justice Department has entered into settlement 
agreements with three banks: CommerceWest Plaza, CommerceWest 
Plaza, and Four Oaks. Each of these agreements stem from 
complaints filed by the Justice Department alleging that the 
banks lacked reasonable controls to respond to red flag 
activity, or knew and deliberately ignored the use of these 
banks accounts and access to the national banking system to 
defraud consumers of millions of dollars. For instance, Four 
Oaks Bank allowed a payment processor to directly access the 
ACH network, allowing it to conduct transactions on behalf of 
the illegal activity such as online gambling and a Ponzi fraud 
scheme.
    Beyond those investigations, the Justice Department has 
recently settled with several banks, JPMorgan, Citigroup, and 
Bank of America, relating to their fraudulent conduct that 
directly led to the mortgage foreclose crisis and the Great 
Recession. And in the case of Chase, fraudulent conduct and 
abuse of the bankruptcy systems integrity; all of this being at 
such levels that have been no greater than since the Great 
Recession.
    Collectively, these settlements amply demonstrate the fraud 
that pervaded every level of the securities industry, fraud 
that substantially contributed to the mortgage foreclosure 
crisis and the recession, and even fraud on consumers that has 
occurred years after the onset of the Great Recession.
    In addition to significant civil penalties, several of 
these agreements contain consumer relief provisions designed to 
provide much-needed relief to millions of Americans affected by 
the fraudulent sale of toxic securities, including educational 
assistance through the housing counsel agencies and other 
programs.
    The Department of Housing and Urban Development has 
documented that if a consumer works with a HUD-approved housing 
counseling agency, the odds of a favorable outcome to a 
mortgage foreclose are almost two times greater.
    As we search for ways to avoid another mortgage crisis 
while we are paring the incalculable damage that has already 
occurred, it is essential that we use every tool to keep 
families in their homes. Although I wish that the Justice 
Department settlements had required more of the banks that 
contributed directly to the plight of so many, I am confident 
that these agreements will do much to help millions of 
consumers across the country.
    I thank the Justice Department for fighting on behalf of 
consumers, and I encourage it to continue its investigations 
and I yield back.
    Mr. Marino. Thank you. The Chair now recognizes the 
Chairman of the Judiciary Committee, Congressman Goodlatte of 
Virginia for his opening statement.
    Mr. Goodlatte. Thank you, Mr. Chairman. Good afternoon and 
welcome to our witnesses. The Judiciary Committee is in the 
midst of a ``pattern or practice'' investigation of the Justice 
Department. There is mounting evidence that DOJ is 
systematically subverting Congress' budget authority by using 
settlements to funnel money to activist groups.
    There have been two important developments. First, the 
Department of Justice continues to resist document requests, 
but what little has been provided confirms that activist groups 
which stood to gain from mandatory donation provisions were 
involved in placing those provisions in the settlements.
    The evidence includes an email from activist groups 
requesting a meeting with then-Deputy Attorney General Tony 
West. They write that they, ``worked with'' Federal officials 
to include donations as an option in the 2013 JPMorgan 
settlement. Now they want to go further and have Mr. West make 
certain ``grants mandatory in all future settlements.'' In 
another email, they suggest offering ``enhanced credit'' for 
such donations.
    On March 4, 2014, the activists met with an official from 
Mr. West's office. Just a few months later, the Department of 
Justice announced the Citigroup and Bank of America 
settlements, both of which require mandatory donations to 
community groups and offer enhanced credit for donations above 
the required total minimum of $150 million.
    This record does not square well with the DOJ's testimony 
to the Judiciary Committee earlier this year that, ``there was 
no outside third-party group that participated in any way in 
these negotiations.'' The groups involved include two local 
affiliates of the Industrial Areas Foundation, or ``IAF.'' A 
celebrated scholarly work on community organizing attests to 
the activist pedigree of IAF. The book highlights the IAF 
Training Institute's self-description as a ``a school for 
professional radicals,'' whose objective is, ``training to help 
leaders see the connection between their local issues and 
associated progressive causes.''
    Mandatory donation provisions present real dangers of 
subversion of Congress's appropriations authority. The core 
concern is institutional and non-partisan. We raised this 
concern formal with the Department in November 2014, but 
instead of spending the practice, the Department of Justice has 
doubled down.
    On March 3, 2015, the U.S. Trustee Program entered into an 
over $50 million settlement with JPMorgan Chase relating to 
robo-signing. $7.5 million of that did not make it to victims. 
Instead, it went to a third party, largely to educate high 
school and college students about using credit cards 
responsibly. The tenuous connection between the alleged harm 
and the purpose of the donation creates significant questions, 
and the mere fact that the donation raises concerns under the 
Miscellaneous Receipts Act.
    Furthermore, from a good government standpoint, the 
settlement is striking in the lack of oversight. It states 
explicitly, ``the parties understand and agree that neither has 
any oversight over'' the third-party recipient, and ``neither 
will monitor the use of the contribution by the recipient.'' 
The situation is even more egregious when one considers that 
the third-party recipient is to receive a required donation 
that nearly doubles its net level of assets. It's deeply 
troubling for that to happen at the unilateral discretion of 
the Executive Branch.
    Since this is the first U.S. Trustee Program settlement 
containing mandatory donations, it appears DOJ is expanding 
this controversial practice following its initial use in other 
areas. This disrespects legitimate congressional concerns and 
reverses the Department of Justice's own policy in 2008 when it 
nearly banned the practice of third party payments entirely, 
``due to instances of perceived abuse.''
    This issue is a high priority for the Committee, but there 
is also much more to cover. I thank the witnesses for 
attending, and I look forward to the discussion.
    Mr. Marino. I thank the Chairman. Without objection the 
Members' opening statements will be made part of the record.
    We have an extremely important panel before us here today 
and I want to thank you for being here. And I will begin by 
swearing in the witnesses. Would you please stand and raise 
your right-hand.
    Do you swear that the testimony that you are about to give 
will be the truth, the whole truth, and nothing but the truth, 
so help you God? Please be seated.
    Let the record reflect that all the witnesses responded in 
the affirmative.
    I will now introduce our witnesses, I will introduce each 
one right after the other. Our Ranking Member of the full 
Committee will be here very shortly and he will make his 
opening statement.
    Mr. Benjamin Mizer, correct?
    Mr. Mizer. Yes.
    Mr. Marino. Was appointed Principal Deputy Assistant 
Attorney General for the Department of Justice Civil Division 
on March 2nd of 2015. Congratulations.
    Mr. Mizer. Thank you.
    Mr. Marino. Prior to his employment, Mr. Mizer served in 
the DOJ as counselor to then-Attorney General Eric Holder, Jr., 
on matters that include civil litigation, civil rights and 
national security, and as a Deputy Assistant Attorney General 
in the Office of Legal Counsel. Mr. Mizer also served as a 
solicitor general in Ohio and argued in the United States 
Supreme Court, the Sixth Circuit Court of Appeals and the Ohio 
Supreme Court. Mr. Mizer is a graduate of University of 
Michigan Law School and the College of Wooster. He clerked for 
Judge Judith Rogers of the United States Court of Appeals for 
the D.C. Circuit, and for Justice John Paul Stevens of the 
Supreme Court. Welcome, sir.
    Mr. Mizer. Thank you.
    Mr. Marino. Our next witness is Mr. John Cruden. Mr. Cruden 
was confirmed by the U.S. Senate as the Assistant Attorney 
General for the Environment and Natural Resources Division on 
December 16 of 2014. Mr. Cruden's government service spans 35 
years. He began as an Army ranger in Vietnam, and took the LSAT 
in Saigon. That was a double horrendous situation. He began his 
legal career at Army litigator and moved to the Justice 
Department in 1991 as chief of Environmental Enforcement. Mr. 
Cruden has played a leading role in almost every major 
environmental case, including the government's prosecution for 
the Exxon Valdez oil spill in Alaska, toxic waste dumping at 
Love Canal in New York, dioxin contamination in Times Beach, 
and finally the BP oil spill. Mr. Cruden is a graduate of West 
Point University of Santa Clara law school and the Woodrow 
Wilson School at the University of Virginia. Welcome, sir.
    Ms. Caroline Ciraolo.
    Ms. Ciraolo. Ciraolo.
    Mr. Marino. I am pronouncing it in the Italian way. I 
apologize for that. It is Caroline Ciraolo.
    Ms. Ciraolo. That's all right.
    Mr. Marino. Is the Acting Assistant Attorney General for 
the Tax Division. Prior to assuming the position Ms. Ciraolo 
survived--excuse me, served--in that office, it's a survival--
served as a Principal Deputy Assistant Attorney General and 
Deputy Assistant Attorney General on Policy and Planning for 
the Tax Division. Ms. Ciraolo has also worked as an attorney 
adviser for the Honorable Stanley Goldberg of the U.S. Tax 
Court. Her private sector experience includes serving as the 
chair of the tax controversy litigation practice group as 
Rosenberg, Martin, Greenberg, L.L.P. And working for Martin, 
Junghans, Snyder & Bernstein, PA. She is a graduate of the 
College of New Jersey and the University of Maryland School of 
Law, she also holds an LLM in taxation from the University of 
Baltimore School of Law. Welcome.
    Our next witness is Mr. Clifford White, he's the Director 
of the U.S. Trustee Program, his former role with the program 
included serving as Deputy Director and Assistant United States 
Trustee. Prior to the U.S. Trustee Program, Director White 
served as a Deputy Assistant Attorney General for the 
Department of Justice and served in an official capacity for 
two other Federal agencies. Director White is a graduate of 
George Washington University, and the George Washington School 
of Law. Welcome, sir.
    Mr. White. Thank you.
    Mr. Marino. Each of the witnesses written statements will 
be entered into the record into its entirety. I ask that each 
witness summarize his or her testimony in 5 minutes or less. To 
help you stay within the time, there is a timing light in front 
of you. The light will switch from green to yellow indicating 
that you have 1 minute to conclude your testimony. When the 
light turns red, it indicates that the witness' 5 minutes have 
expired. Thank you so much.
    I think--the bell rang for votes, but we can get a couple 
of statements in by the witnesses, so I'm going to start with 
Mr. Mizer.

  TESTIMONY OF BENJAMIN C. MIZER, PRINCIPAL DEPUTY ASSISTANT 
  ATTORNEY GENERAL, CIVIL DIVISION, U.S. DEPARTMENT OF JUSTICE

    Mr. Mizer. Thank you, Chairman Marino, Ranking Member 
Johnson and Members of the Subcommittee. Thank you for inviting 
me here to testify about the work of the Civil Division of the 
Department of Justice. I joined and have lead the Division 
since March 2 of this year, and I appreciate the opportunity to 
discuss the important work that Civil Division is doing as well 
as its budget and resource needs for fiscal year 2016.
    The Civil Division is made up of more than 1,300 permanent 
employees, including more than 950 attorneys. Each year, our 
attorneys handle tens of thousands of cases that collectively 
involve tens of billions of dollars in claims and recoveries. 
The Civil Division represents the United States, its agencies, 
Members of Congress, cabinet officers and other Federal 
employees. In doing this work, the Division confronts 
significant policy issues, often with constitutional 
dimensions, in defending and enforcing various Federal programs 
and actions. The priorities of the Division include 
strengthening the security of our Nation, protecting the health 
and safety of consumers and pursuing fraud against the 
government and in the finance sector.
    Approximately 87 percent of the Division's cases involve 
defending claims filed against the government. This litigation 
reflects the vast diversity of government activities. In fiscal 
year 2014, well over $100 billion was at issue in our defensive 
suits alone. I'd like to give some examples to illustrate the 
work done by the Divisions dedicated and talented public 
servants.
    Our work to protect our national security is vital to 
defending the Nation. In recent years, the Civil Division has, 
among other things, successfully defended the validity of a 
cause of action against state sponsors of terror, as well as 
screening procedures for individuals entering the United 
States. And the Division's Office of Immigration Litigation has 
successfully prevented known or suspected terrorists from 
becoming naturalized citizens, and defended against habeas 
corpus petitions seeking the release of known or suspected 
terrorists.
    The Civil Division is also primarily responsible for 
defending the legality of statutes passed by Congress. For 
example, among other recent cases raising issues of national 
significance, we are currently defending against constitutional 
and statutory challenges to a section of the USA PATRIOT Act. 
While the majority of the Division's work is defensive, the 
Division has achieved extraordinary results in affirmative 
litigation as well.
    Through these cases, the Civil Division protects the 
health, safety and financial security of our citizens, returns 
billions of dollars to the treasury, and holds accountable 
those who unlawfully threaten the integrity of our financial 
systems. Since 2009, the Civil Division working with the United 
States attorneys across the country has obtained more than $33 
billion in civil and criminal judgements and resolutions in 
affirmative cases. During that same period, the Division often 
in concert with the U.S. Attorneys has used the False Claims 
Act to recover more taxpayer dollars lost to fraud, over $24 
billion, than in any other comparable period.
    In fiscal year 2014 alone, the government recovered a 
record $5.7 billion in False Claims Act cases. And similarly, 
the government's health care fraud recoveries since January 
2009 are at an all-time high.
    In addition, through our efforts to target multiple aspect 
of fraud that contributed to the 2008 financial crisis, the 
Civil Division, along with the Federal and State partners 
recovered over $36 billion from JPMorgan Chase, Citibank and 
Bank of America collectively through settlements resolving 
claims arising out of misconduct in the packaging marketing, 
sale and issuance of residential mortgage-backed securities.
    Although the most visible efforts of the Civil Division in 
this area are those lawsuits that result in large monetary 
judgments, the impact of the Division's work cannot be measured 
solely in dollars and cents. It must also take into account the 
Division's efforts to prevent and deter conduct that harms the 
consumers and the health care system on which they rely, 
including by pursuing the misbranding and adulteration of 
drugs, the distribution of tainted food and the sale of unsafe 
goods.
    The President's fiscal year 2016 request for the Civil 
Division would provide the resources we require to maintain the 
superior legal representation services that have yielded such 
tremendous success. The request seeks 1,360 positions, 968 for 
attorneys, and approximately $326 million, including increases 
for pursuing health care fraud, enforcing our immigration laws 
and improving our litigation support services. We hope the 
House and Senate will fully fund the Division's 2016 request.
    It is an honor to be a part of the Civil Division, and I am 
tremendously proud of the work my colleagues do on behalf of 
the American people day in and day out. Mr. Chairman, I look 
forward to addressing any questions you or Members of the 
Subcommittee may have.
    [The prepared statement of Mr. Mizer follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]    
    
                                   __________
                                   
    Mr. Marino. Thank you, sir. Mr. Cruden.

 TESTIMONY OF THE HONORABLE JOHN C. CRUDEN, ASSISTANT ATTORNEY 
   GENERAL, ENVIRONMENT AND NATURAL RESOURCES DIVISION, U.S. 
                     DEPARTMENT OF JUSTICE

    Mr. Cruden. Chairman Marino, Ranking Member Johnson and all 
Members of the Subcommittee, thank you for inviting me to tell 
you about the work of the Environmental and Natural Resources 
Division.
    Mr. Marino. Sir, I don't know if your mic's on or if you 
have to pull it closer.
    Mr. Cruden. I'll do it. Again, Chairman Marino and Ranking 
Member Johnson, Members of the Subcommittee, thank you very 
much for inviting me here to talk about the work of the 
Environment and Natural Resources Division. Mr. Chairman, as 
you pointed out, I am returning to the division where I 
previously was the career Deputy Assistant Attorney General, 
and before that, I was the Chief of Environmental Enforcement. 
During that time, I have witnessed the extraordinary efforts of 
the career public servants that I now supervise in the 
division. They spend countless hours representing the United 
States in Federal courts across our Nation.
    The division is over 100 years old now, and functions as 
the Nation's environment and natural resources lawyer. We've 
got broad responsibility for thousands of cases. Our 
enforcement and defensive work protects the country's air, land 
and water, and promotes responsible stewardship of America's 
wildlife, natural resources and public lands. I'm very proud of 
what the division accomplished last year. I was not there for 
most of it, so I can brag about things that they did in my 
absence of obtaining over $6 billion in corrective measures 
through court orders and settlements. They secured over $270 
million in civil monetary relief, concluded over 48 criminal 
cases obtaining important sentences of corporations and 
individuals, and finally, in handling the defensive part of our 
docket, saved the American taxpayer over $2 billion.
    But the division's highest priority in enforcement remains 
the Deepwater Horizon litigation holding those people 
accountable for the millions of barrels that were spilled into 
the Gulf of Mexico in 2010.
    That discharge went on for 87 days; 11 people were killed 
and over 40 people were injured. The spill affected all of the 
Gulf States. And we have now been litigating over the course of 
now several years the penalty aspects of that trial. We've 
already settled with two of the defendants, but we have been 
now diligently working through the penalty of the remaining 
two, both BP and Anadarko. The district court has already 
issued several rulings. In April, we finished the last trial on 
penalty and we are now awaiting a decision.
    In addition to our enforcement docket, a substantial 
portion of the division's work includes representing Federal 
agencies in things like the management of public lands and 
associated natural and cultural resources, including water 
rights. This ranges from the defense of the U.S. Department of 
Agriculture's management of forest lands to the defense of the 
Interior Department's administration of its Federal onshore and 
offshore oil and gas programs, mining programs and projects 
expanding the development of renewable sources of energy like 
wind and solar. Victories in such cases have provided greater 
certainty to the regulated community, and have enabled 
substantial development of energy resources across the country.
    In the last few weeks, I've also had the honor of 
announcing cases across the United States, most of them in 
partnership with States who joined us in the prosecution of 
these cases. Here's only a few examples that are explained in 
more detail in my prepared testimony. On Earth Day, with the 
State of Colorado we announced a significant Clean Air Act case 
against Noble. That same day, joining with the State of 
Arkansas, we announced a case, ExxonMobil which involved an oil 
spill into a tributary of the Arkansas River. Following that, 
with the State of California, we announced Lehigh Cement, an 
important Clean Water Act case. In each of those cases, we look 
for settlements that were going to make sure that those things 
didn't happen again to violate the law. We're looking to 
correct the environmental misdeeds and the penalties that we 
achieved, each one of them were shared with the States.
    Just last week, with three U.S. Attorneys' offices in North 
Carolina, I had the pleasure of announcing the plea agreement 
with Duke Energy, including over $100 million in fines, which 
arose from the massive coal ash spill that went into the Dan 
River in North Carolina in February of 2014.
    Mr. Chairman, in my prepared testimony, you have my goals 
for the year coming up. Here are the few that I would 
highlight.
    We want to enforce the Nation's bedrock environmental laws 
that protect air, land, and water for all Americans. We are 
dedicated to protecting the public fisc. We are going to 
advance environmental justice, but promote and defend tribal 
sovereignty, treaty obligations, and rights of Native 
Americans.
    And finally, we are going to provide effective stewardship 
of the Nation's public lands, natural resources, and animals, 
including fighting for the survival of the world's most 
protected and iconic species and marine resources and working 
across the government and the globe to end the illegal trade of 
wildlife.
    Again, I appreciate the opportunity to participate in the 
hearing and would be happy to address any of your questions.
    [The prepared statement of Mr. Cruden follows:]
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                                   __________
                                   
    Mr. Marino. Thank you. Ms. Ciraolo.

   CAROLINE CIRAOLO, ACTING ASSISTANT ATTORNEY GENERAL, TAX 
              DIVISION, U.S. DEPARTMENT OF JUSTICE

    Ms. Ciraolo. Chairman Marino, Ranking Member Johnson and 
Members of the Subcommittee, thank you for this opportunity to 
appear before you to discuss the work of Department of 
Justice's Tax Division. The Tax Division's mission is to 
enforce the Nation's Internal Revenue laws fully, fairly and 
consistently in Federal and State courts throughout the 
country. In doing so, we aim to promote voluntary compliance 
with the tax laws by deterring those who try to avoid paying 
what they owe, and promoting the sound development of law by 
carefully considering the issues raised in our cases.
    In every single case the Tax Division tries to collect the 
proper amount of tax due and owing, no more, no less. In every 
criminal case the Tax Division authorizes appropriate charges 
based on the law and the evidence. The Tax Division typically 
has 6,000 civil cases in various stages involving claims 
exceeding $9 billion, and our civil appellate attorneys handle 
between 600 and 700 appeals each year.
    In addition, the Tax Division annually authorizes between 
1,300 and 1,800 criminal tax investigations and prosecutions. 
The Tax Division employs approximately 340 attorneys, 120 
executive and administrative staff. These men and women are 
bright, honest, hardworking and truly dedicated to public 
service. As Acting Assistant Attorney General, I am honored to 
represent them today.
    One of the biggest enforcement challenges we face is stolen 
identity refund fraud, commonly referred to as SIRF. In SIRF 
crimes, offenders steal personal identification information, 
and file tax returns early in the season showing false refund 
claims. These crimes often involve multiple offenders at 
various levels in the conspiracy, and frequently target the 
most vulnerable members of our society.
    SIRF crimes require immediate action to prevent enormous 
harm to the American public. To this end, the Tax Division 
delegates authority to the U.S. Attorneys offices to open SIRF 
related grand juries, charge SIRF offenders by criminal 
complaint, and seize SIRF-related illegal proceeds.
    The Division preserves the traditional role of authorizing 
SIRF prosecutions and brings its hands-on expertise to many of 
these cases.
    Between October 12 and December 2014, the Department 
brought more than 725 SIRF prosecutions involving more than 
1,400 individuals. Judges have imposed prison terms ranging 
from several years to more than a decade. The prosecution of 
SIRF's crimes is a national priority, and together with our 
Federal, State and local law enforcement partners, we will 
continue to look for ways to identify schemes, dismantle 
criminal operations and share real-time information with the 
IRS to improve its filters.
    Combating offshore tax evasion also remains a top priority 
of the Tax Division. The Department has charged more than 100 
U.S. account holders and dozens of individuals who have 
assisted account holders in evading their U.S. tax obligations.
    We have reached resolutions with nine financial 
institutions, including the historic guilty plea in May of 2014 
of Credit Suisse, second largest bank in Switzerland. These 
efforts have encouraged delinquent taxpayers to come into 
compliance. According to the IRS, since 2009 there have been 
more than 50,000 voluntary disclosures of offshore accounts 
resulting in the collection of more than $7 billion in taxes, 
penalties and interest.
    It is important to keep in mind that not all of our law 
enforcement actions are public and lack of public disclosure 
should, in no way, be viewed as inaction on the part of our 
prosecutors. The Tax Division is currently investigating 
individuals and entities based on information derived from a 
wide variety of sources. We are following the evidence where it 
leads, and where warranted, we will prosecute the offenders to 
the fullest extent of the law.
    In the civil arena, our trial attorneys spends 65 percent 
of their time defending cases brought against the United 
States, the majority of which are refund claims and save the 
Treasury hundreds of millions of dollars. Just this month, the 
District Court for the Middle District of Louisiana declared a 
victory for the government in a tax shelter case involving Dow 
Chemical Company. Over a 13-year period Dow claimed over $1 
billion in improper tax deductions. The district court 
disregarded the transaction in its entirety and imposed a 40 
percent penalty.
    The Division also engages in affirmative litigation, such 
as filing collection suits and seeking injunctions against 
fraudulent tax return preparers and promoters of abusive tax 
schemes. I have only touched on a few of the many issues 
litigated by the Tax Division. Each case whether relatively 
straightforward or complex, can have a significant multiplier 
effect on voluntary compliance. Where an area of tax law may be 
susceptible to reasonable dispute, we advance positions that 
promote the sound development of the law.
    And when individuals or entities engage in misconduct to 
avoid or evade their legal obligations, the Tax Division will 
use all available tools to firmly but fairly hold them 
accountable. Thank you for inviting me to appear before you 
this afternoon and I'm happy to answer any questions you may 
have.
    [The prepared statement of Ms. Ciraolo follows:]
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                                   __________
                                   
    Mr. Marino. Thank you. I now have to declare a recess, 
we're down to the wire for voting. We will be back in about 15, 
20 minutes.
    [Recess.]
    Mr. Marino. The hearing will now come to order, Director 
White, we recognize you for your opening statement.

TESTIMONY OF CLIFFORD J. WHITE, III, DIRECTOR, EXECUTIVE OFFICE 
                   FOR UNITED STATES TRUSTEES

    Mr. White. Thank you. Good afternoon, Mr. Chairman, Ranking 
Member, and Members of the Subcommittee. I thank you for the 
opportunity to appear before you this afternoon to discuss the 
actions of the U.S. Trustee Program to advance our mission as 
the watchdog of the bankruptcy system. We carry out broad, 
administrative, regulatory, and enforcement responsibilities to 
protect the integrity and the efficiency of the bankruptcy 
system for the benefit of all stakeholders--creditors, debtors, 
and the general public. The Program has fulfilled its core 
responsibilities of policing debtor abuse and ensuring that 
private trustees effectively administer estate assets. We also 
have demonstrated agility and responsiveness in protecting 
consumer debtors from fraud and abuse and enhancing the 
accountability of management and professionals in chapter 11 
business cases. A core function of the USTP is to combat 
bankruptcy fraud and abuse. In fiscal year 2014, the Program 
took more than 35,000 formal and informal civil enforcement 
actions and made nearly 2,100 criminal referrals.
    Many of these civil actions involve curtailing debtor abuse 
by ensuring compliance with a means test which requires that 
consumer debtors devote disposable income to the repayment of 
creditors. Importantly, we judiciously use our statutory 
discretion to decline to file motions to dismiss under the 
means test when we find exceptional circumstances, such as job 
loss. As a result, we uphold Congress' purpose of establishing 
an objective basis for consumer relief without creating unfair 
results in individual cases.
    We also have devoted substantial attention to consumer 
protection and have reached numerous national settlements over 
the past few years with major creditors and others to resolve 
such matters as the improper release of privacy protected 
information, unlawful collection practices, and violations by 
major mortgage servicers that harmed homeowners in bankruptcy.
    We remain actively engaged in policing mortgage servicer 
practices. We continue to find violations of bankruptcy law by 
large banks, as well as by newer and growing entrants into the 
servicing industry. We recently entered into a nationwide 
settlement with JPMorgan Chase Bank to rectify bankruptcy 
violations, such as continued robo-signing of court-filed 
documents, inaccurate accounting, and untimely noticing. We're 
actively policing the buying and selling of unsecured 
bankruptcy claims, such as credit card debt. We're reviewing 
the claims selling practices of banks that may result in debts 
discharged in bankruptcy remaining on credit reports. Two banks 
who were subject to USTP discovery orders very recently 
announced changes to their credit reporting practices. We also 
have obtained discovery orders so we can investigate high-
volume claims buyers who may be robo-signing documents that are 
filed in bankruptcy court. Outside the consumer arena, the 
program also carries out significant responsibilities in 
business reorganization cases to ensure accountability by 
management of debtor corporations.
    In the chapter 11 area, our role as watchdog is essential 
to vindicate congressional mandates and protections for 
creditors and other stakeholders. We do not substitute our 
business judgment for that of economic stakeholders, but we do 
ensure that the Bankruptcy Code and Rules are followed by all 
participants, including in matters of attorneys' fees and 
executive bonuses.
    We promulgated new guidelines for attorneys' fees in large 
chapter 11 cases. Our guidelines are designed to promote 
greater transparency in billing practices and to ensure that 
fees do not exceed market rates outside of bankruptcy. It 
appears that at least some of the Nation's largest law firms 
have changed internal practices to satisfy the guidelines. But 
it's still a bit too early to judge the ultimate impact on 
bankruptcy practice. USTP also has sought to vindicate 
congressional restrictions on executive bonuses. Regrettably, 
many corporations continue to propose statutorily prohibited 
retention bonuses to their key executives after filing 
bankruptcy. Our most noteworthy success in this area was twice 
blocking bankruptcy court approval of a $20 million severance 
payment to the outgoing CEO of American Airlines.
    Finally, we're requesting appropriations in fiscal year 
2016 to maintain current operations without enhancements. USTP 
appropriations usually are offset by collections from filing 
fees and chapter 11 quarterly fees. We propose a change in the 
revenue structure to allow a higher fee in the largest chapter 
11 cases to ensure that appropriations are fully offset by 
collections and the U.S. Trustee System Fund is replenished 
after 4 years of reduced revenues as a result of the decline in 
bankruptcy filings.
    My prepared statement sets forth a more complete record of 
our accomplishments. Our 1,100 employees have demonstrated an 
unwavering commitment to our mission. I'm honored to work 
alongside such dedicated public servants. And I would be happy 
to answer any questions from the Subcommittee.
    [The prepared statement of Mr. White follows:]
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                                   __________
                                   
    Mr. Marino. Thank you, sir. The Ranking Member is back. And 
the Chair is now going to recognize the Ranking Member of the 
full Committee, the Judiciary Committee, for his opening 
statement.
    Mr. Conyers. Thank you, Mr. Chairman. I would like 
unanimous consent to put my statement in the record.
    Mr. Marino. Without objection.
    [The prepared statement of Mr. Conyers follows:]
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                               __________
                               
    Mr. Marino. Is that it, sir?
    Mr. Conyers. That's it.
    Mr. Issa. I love that man.
    Mr. Marino. This is the way it should be done. This is the 
way it should be done. I'm going now to recognize myself for 5 
minutes of questioning. And, Mr. Mizer, you drew the short 
stick because of my relationship and my love for the Justice 
Department as a U.S. Attorney. I would like to ask you some 
questions that I think need some explanation, if you don't 
mind, sir.
    So in two recent cases, judges found apparent serious 
misconduct by Civil Division attorneys. And you heard me read 
what the judge said about that. How frequently, and has this 
occurred before, do judges find potential serious misconduct by 
Civil Division attorneys?
    Mr. Mizer. I'm sorry, could you repeat the question? I 
didn't hear the last part.
    Mr. Marino. Yes. How frequently do judges find potential 
serious misconduct by Civil Division attorneys?
    Mr. Mizer. My understanding, Congressman, having only been 
in the Civil Division for a couple of months, is that these are 
very rare occurrences. But we take them very seriously. As a 
member, a former member of the Justice Department, I'm sure you 
understand that we view our obligation of the duty of candor 
and professional responsibility to the courts very highly and 
take those obligations with extreme seriousness. In the two 
cases that you mentioned in your opening statement, Mr. 
Chairman, we are aware of these cases. In neither case, do we 
believe that any misconduct occurred. And those cases are in 
ongoing litigation. We have responded to the judges and papers 
filed in those cases, taking the position that no misconduct 
did occur on behalf of the Civil Division attorneys.
    Mr. Marino. When you say ongoing litigation, is that with a 
court in determining whether there was misconduct or not?
    Mr. Mizer. Each case is different. In the Texas case that 
you referenced, the judge has requested additional materials to 
determine whether or not any such misconduct occurred, and we 
have contested any such allegation. And in the other case that 
you referenced, proceedings are ongoing with a special master.
    Mr. Marino. So with your statement here, my next two 
questions are moot because you're saying you disagree with the 
misconduct. So my next question would have been what steps were 
taken and what, if any, disciplinary action? What if the court 
rules that there was misconduct and hands that down, will there 
be disciplinary action taken?
    Mr. Mizer. The Justice Department, as you know from your 
time in the Department, has internal mechanisms for dealing 
with questions of conduct by attorneys. And we would, without 
question, deploy those internal mechanisms.
    Mr. Marino. Thank you. We know that senior DOJ officials 
met with activist groups seeking mandatory donations in the 
mortgage settlements. By contrast, mortgage investors say that 
substantial portions of the reported settlements are funded not 
by defendant banks, but by innocent bond holders who were not 
even consulted. Did DOJ meet with mortgage investors or 
consumers actually harmed about what the settlement terms 
should be?
    Mr. Mizer. If your question is about the residential 
mortgage-backed security settlements, I was not part of the 
negotiations of those settlements. I'm generally aware of those 
settlements, but can't speak with specificity to those 
concerns. I do know that the Judiciary Committee has posed 
additional questions to the Justice Department about those 
terms in the settlements and about the negotiation process for 
those settlements. And I know that the Justice Department is 
working hard on providing additional information with respect 
to those questions.
    Mr. Marino. Okay. What can the Division do to include 
investors and consumer representatives in negotiations where 
investors' and consumers' rights are substantially affected?
    Mr. Mizer. Congressman, again, I was not part of the 
negotiation of those settlements. But my understanding is that 
no outside parties were involved in any of the negotiations.
    Mr. Marino. What would you do in the future in having that 
position now?
    Mr. Mizer. Sure. In the future, only the Justice Department 
or Federal entities would be involved in any negotiation 
process. And any settlement that would be entered during my 
time in the Civil Division would fully and fairly represent the 
best interests of the United States.
    Mr. Marino. Do we have a situation where, in the past, 
where investors have been affected by this, would they have a 
chance to speak up?
    Mr. Mizer. Certainly we are acutely aware of the concerns 
of investors and of the harm that was done to investors by 
fraud, not only in the residential mortgage-backed securities 
context, but in any context in which fraud is committed against 
the public or against the United States. And we take those 
interests very much into consideration when we enter 
settlements or when we sue in order to fully discharge the 
interests of the United States.
    Mr. Marino. So I guess I'm going to go out here on a leap 
of faith and say at some point, those individuals will have an 
opportunity to bring up their issues concerning what took place 
with DOJ?
    Mr. Mizer. Yes. In fact, the False Claims Act provides an 
opportunity for relators themselves to bring claims. And then 
the fraud division, the fraud section of the Civil Division 
also will often work with those relators.
    Mr. Marino. So I see my time has almost run out. I will 
yield back the remainder of my time. And the Chair now 
recognizes the Ranking Member of the Subcommittee, Mr. Johnson.
    Mr. Johnson. Thank you, Mr. Chairman. Mr. Mizer, the 
Justice Department is vested with broad authority to conduct 
litigation and to settle matters in the interest of the United 
States, correct?
    Mr. Mizer. That's correct.
    Mr. Johnson. Does the Miscellaneous Receipts Act limit the 
Justice Department's ability to enter into such settlements?
    Mr. Mizer. I am not an expert on the Miscellaneous Receipts 
Act. I do know that it places certain limitations on the kind 
of arrangements that the Justice Department can enter. But I 
can't speak with specificity to what those limitations might 
be.
    Mr. Johnson. Thank you, sir. Mr. Cruden, Andrew Grossman, a 
witness on our second panel, has cited a concurring opinion and 
a dissenting opinion in two recent cases involve the ENRD's 
support of the conclusion that the ENRD's litigation strategies 
on the issue of credential standing are undermining the 
government-wide litigation efforts. What is your response?
    Mr. Cruden. I have not read in any detail that testimony. 
But I did look at the two cases that both occurred before I 
returned to the Department of Justice. I found it interesting 
that in both cases, the Department of Justice's positions 
prevailed. I believe he was commenting on a standing issue in 
two cases. But it kind of overlooks the hundreds of times that 
the Environment Division actually brings standing to the 
attention of the court and vigorously litigates that issue.
    Mr. Johnson. Thank you. Mr. Grossman also argues in his 
written testimony that the ENRD's litigation practices merit 
further investigation because Environmental Protection Agency 
officials and environmental groups collaborate with ENRD 
attorneys. What is your response to that allegation?
    Mr. Cruden. I don't actually understand what his allegation 
is. If he says that we are communicating with those agencies 
that we represent, yes, we do. On the other hand, at the end of 
the day, the position that we present in court is the position 
that the Department of Justice has decided is in accordance 
with law and facts. Clearly, we receive input from all of the 
agencies that we represent in that process.
    Mr. Johnson. Thank you, sir. Andrew Grossman also has cited 
a debunked U.S. Chamber of Commerce report to conclude that the 
ENRD is colluding with third-party organizations through a sue-
and-settle, phenomenon that predetermines the outcome of 
settlements and skirts the Administrative Procedure Act 
rulemaking process, or actually rulemaking requirements. Can 
you respond to that allegation?
    Mr. Cruden. To the extent that I know what has happened in 
the Division, which includes this year and then many years 
beforehand when I was a career attorney in the Division through 
several different Administrations. I have not seen a collusive 
lawsuit. I would not accept a collusive lawsuit and would not 
do anything like that during my tenure as Assistant Attorney 
General.
    Mr. Johnson. And how long have you been in this position, 
sir?
    Mr. Cruden. I've been in this position since January, but 
my total time in the Division exceeds 20 years.
    Mr. Johnson. Thank you, sir. And please explain how consent 
decree practices have resulted in beneficial settlements for 
all parties, including corporations, and produced good 
environmental outcomes.
    Mr. Cruden. We bring a number of cases alleging violations 
of Clean Air or Clean Water to protect the citizens of the 
United States and very often we're able to resolve those cases 
with a consent decree. Under those, our standards are very 
clear: that is, if the consent decree is going to be better for 
the U.S. than litigating the case to conclusion, we should do 
that. That is very often where we're getting not only the kind 
of penalties that I described in my opening statement, we're 
also getting the injunctive relief that is very scientific, 
very engineer-oriented, that is going to restore the 
environment to where it would have been but for the polluting 
event. Consent decrees not only get the communities involved. 
They not only get the public involved, but they also clean up 
the mess that was made initially by someone breaking the law.
    Mr. Johnson. Thank you. I wish I had time to hear from you, 
Ms. Ciraolo, before time expires about how the budget cutting 
has severely impacted your ability, your agency's ability to 
perform. But perhaps one of the other witnesses, one of the 
other panelists might ask you that question. So thank you. I 
yield back.
    Mr. Marino. Thank you. The Chair recognizes the Chairman of 
the full Judiciary Committee, Congressman Goodlatte.
    Mr. Goodlatte. Thank you, Mr. Chairman. Mr. Mizer, the 
Committee still has not received the documents we requested on 
November 25, 2014. When are we going to receive those 
documents?
    Mr. Mizer. Mr. Chairman, I know that an additional request 
was received very recently by the Justice Department.
    Mr. Goodlatte. No. No. A partial response of about 60 
pages, out of a much larger body of documents, was requested a 
long time ago. And that's all we got. And we wrote again, it 
wasn't a supplemental request, it was a request saying whoops, 
you didn't send us all the documents we've asked for, now where 
are they? We sought all communication relating to the 
controversial mandatory donation terms in the Bank of America 
and Citigroup settlements. The Department has sent a paltry 60 
pages of email between the Department of Justice and outside 
groups, no internal Department of Justice emails. And those are 
critical. We sent a follow-up request last week. Last night, 
the DOJ responded without answering any of the questions and 
without providing any date when we could expect the documents. 
It's been nearly half a year. When will we get those documents?
    Mr. Mizer. I don't know the specific timing of the 
response. But I know that the Justice Department is working 
hard on responding to your questions.
    Mr. Goodlatte. Who is making the decision on when we're 
getting the response? You're the head of the Division.
    Mr. Mizer. The settlement agreements that the questions 
relate to relate to the residential mortgage-backed security 
settlements. Those occurred before, the settlements were 
entered before my time in the Civil Division. And they also 
implicated multiple offices within the Justice Department. So 
the Justice Department is coordinating a response. And I'm sure 
we'll respond timely.
    Mr. Goodlatte. Timely has gone by already. But quickly will 
avoid a subpoena.
    Mr. Mizer. Thank you.
    Mr. Goodlatte. During the Reagan administration, the 
Department of Justice Civil Division Chief, Richard Willard, 
routinely refused to sign off on case settlements--and this 
goes to your statement too, Mr. Cruden--mandating the funding 
of agency-favored activities for which Congress had failed to 
appropriate money. The Citibank and Bank of America settlements 
provide money for a HUD home counseling program that Congress 
specifically cut spending for. How does Mr. Willard's example 
affect your analysis of this issue?
    Mr. Mizer. Mr. Chairman, the settlement agreements that 
you've referenced were, again, entered before my time in the 
Civil Division. But I'm generally aware of the provisions that 
you're citing.
    Mr. Goodlatte. So it's going to be your policy now to 
follow Mr. Willard's example and not include in settlements 
people who do not have standing in the lawsuit, who are not 
parties to the lawsuit?
    Mr. Mizer. The policy of the Civil Division will be, under 
my leadership, to fully and fairly negotiate settlements that 
are in the best interests of the United States. And the----
    Mr. Goodlatte. How about following this little document 
here, too, which says that the Congress appropriates funds, not 
the Justice Department.
    Mr. Mizer. We certainly will, in all instances, follow the 
Constitution as our lodestar and enter settlement agreements 
that are consistent with all laws passed by the Congress.
    Mr. Goodlatte. Dr. White----
    Mr. White. Yes, sir.
    Mr. Goodlatte [continuing]. At the time you negotiated the 
JPMorgan settlement, were you aware that the required donation 
to the third party would nearly double that third party's net 
assets.
    Mr. White. I'm not aware of the specific balance sheet 
situation of the American Bankruptcy Institute.
    Mr. Goodlatte. $7.5 million, my understanding is that the 
net worth today is a little over $11 million.
    Mr. White. Yeah, I'm not sure of the precise accuracy of 
those numbers. It's a 501(c)(3) organization. It doesn't exist 
for purposes of building its balance sheet. It recently took 
over the Credit Abuse Resistance Education Program, which is 
the main object.
    Mr. Goodlatte. I think their objectives are very good. But 
where do you come off funding them as opposed to the Congress 
funding them.
    Mr. White. Because of our effort in the settlement 
discussions with JPMorgan Chase to ensure two important 
objectives, accountability by the bank, and remediation for 
the----
    Mr. Goodlatte. Was the American Bankruptcy Institute a 
party to that lawsuit?
    Mr. White. No, it's not.
    Mr. Goodlatte. So why were they the beneficiary of, 
effectively, appropriations that bypassed the Congress when 
they received those funds?
    Mr. White. As I said, if you could bear with me just a 
moment, Mr. Goodlatte. For the purposes of accountability as 
well as remediation, the offenses committed by Chase Bank in 
this case included both monetary and non-monetary offenses, 
including against the integrity of the bankruptcy system. 
There's $43 million of direct remuneration to homeowners, 
either through credits or direct payments. In addition to that, 
there's $7.5 for the----
    Mr. Goodlatte. Presumably, homeowners were the injured 
party?
    Mr. White. No, I would suggest to you, very importantly, 
our job is watchdog of the bankruptcy system and that 
responsibility is codified in titles 11 and 28 of the U.S. 
Code. The integrity of the bankruptcy system was injured here 
in a very direct way. So it's part of the negotiations. And, of 
course, as you know, there are many moving parts in a 
negotiation. All parts have to go together. An essential part 
of that negotiation also was getting the correct amount that 
should be set for the payments by Chase Bank for 
accountability. Now, in the statute that we're dealing with in 
the Bankruptcy Code, we're dealing with an offense----
    Mr. Goodlatte. Excuse me, Director. My time has already 
expired. But I want to follow up on the very point you're 
making. Because the Congressional Research Service, when we 
asked them to look into this, said that the connection with the 
American Bankruptcy Institute was tenuous at best. Now let me 
ask you this: Whose idea was the $7.5 million payment? The 
bank's or the government's?
    Mr. White. It's all the product of a negotiation. But I own 
this provision lock, stock, and barrel because----
    Mr. Goodlatte. I understand it was your idea.
    Mr. White. Excuse me, sir?
    Mr. Goodlatte. I said my understanding, it was your idea.
    Mr. White. Yes. I would say----
    Mr. Goodlatte. That would be a more straightforward answer.
    Mr. White. I'm not walking away from this provision at all. 
I think it was an important----
    Mr. Goodlatte. At the time you were negotiating the 
JPMorgan settlement, did anyone make you aware that the 
Judiciary Committee was very concerned about third-party 
payment terms subverting Congress' appropriation power?
    Mr. White. To go back in my mind at the time I was 
negotiating this with Chase, it was sometime deep into 
negotiation when I believe there had been a hearing some months 
ago.
    Mr. Goodlatte. And you didn't think that that would be 
cause to hold up and say maybe we shouldn't go down an avenue 
that is controversial under the separation of powers under the 
United States Constitution?
    Mr. White. I believe that the statute that we were 
operating under, Mr. Goodlatte, and the objectives we had set 
here, this is a perfectly proper provision. And with regard to 
the object of the third-party payment, it has a nexus with the 
bankruptcy system. And it is the largest organization of 
bankruptcy professionals that is a 501(c)(3). It doesn't take 
Federal money. It doesn't lobby.
    Mr. Goodlatte. Reclaiming my time which has expired. 
Director White, did you consider coming to the United States 
Congress for $7.5 million for that purpose?
    Mr. White. I did not----
    Mr. Goodlatte. If it has all the merit that you describe, 
why not ask for an appropriation from the Congress for that 
purpose?
    Mr. White. Because I was looking for accountability.
    Mr. Goodlatte. You were looking for money and going around 
the Congress and this was a convenient way to do that, wasn't 
it?
    Mr. White. I respectfully disagree entirely with that 
statement. I was looking for accountability by Chase Bank for 
robo-signing 50,000 documents filed in bankruptcy court.
    Mr. Goodlatte. You get the accountability by turning it 
over to the government. And you could also, at the same time, 
say I recommend to the Congress that we----
    Mr. White. If I may explain our statute.
    Mr. Goodlatte [continuing]. Appropriate $25 million of that 
for the Bankruptcy Institute.
    Mr. White. May I have a moment to explain the statute that 
I----
    Mr. Goodlatte. That's up to the Chairman. I will subsist 
from asking further questions. If you want to allow the witness 
to respond, I would be happy to listen.
    Mr. Marino. Yes. You can do it briefly, sir.
    Mr. White. Thank you, Mr. Chairman. The creditor abuse 
practices that we were addressing in this settlement aren't 
subject of a specific penalty provision in the Bankruptcy Code. 
We're using the equitable powers of the bankruptcy court to 
fashion an appropriate remedy. So in the course of that, we're 
trying to ensure that there's full accountability by the bank 
that also ensures full remediation for the aggrieved 
homeowners. I believe we achieved that by the dollar 
remediation that is provided there for the homeowners, as well 
as the additional payment by Chase. Also, in order to suggest 
that this somehow is a penalty that otherwise would have been 
paid to the Federal Treasury is I think, at best, highly 
speculative, given the statute that we're operating under.
    Also in our agreement, Chase admits to conduct throughout 
the agreement. It doesn't admit to particular liability. So to 
suggest that there otherwise would have been a penalty, that we 
could somehow dissect the provisions of the agreement, take out 
the $7.5 million, instead of going to a third party would have 
gone to the Federal Treasury, I would suggest, respectfully, is 
at best highly speculative. The bank admitted to conduct. It 
didn't admit to specific liability. And the Bankruptcy Code 
does not provide for creditor abuse, specific fines, or 
penalties. It's the equitable power of the court.
    I appreciate the time.
    Mr. Marino. The Chair now recognizes the ranking Committee 
of the full Committee, Mr. Conyers.
    Mr. Conyers. Thank you, Mr. Chairman.
    I want to begin by yielding to the distinguished gentleman 
from Georgia, Mr. Johnson, for his very penetrating question 
that he wasn't able to get to you.
    Mr. Johnson. Thank you. And so as not to repeat myself and 
waste any time, would you care to respond to the question that 
I said that I would have raised?
    Ms. Ciraolo. Thank you, Mr. Johnson.
    The Tax Division appreciates the budget and the resources 
its been given to pursue its tax enforcement efforts. I think 
that you might be referring to the sequestration that we were 
under in the past, and that was a very difficult process for 
the Tax Division.
    Mr. Johnson. It's an ongoing process as well.
    Ms. Ciraolo. We appreciate the resources we've been given 
now, and we are using those resources to the best of our 
ability.
    In the last few years, there was a hiring freeze. We lost a 
lot of senior attorneys to attrition. We are in the process of 
hiring new attorneys, but that obviously had an impact on our 
ability to pursue tax enforcement and tax administration.
    Mr. Johnson. Thank you.
    What percentage of your attorney force has been decimated 
by the tax cuts?
    Ms. Ciraolo. During the budget difficulties, we lost 20 
percent of our experienced attorneys. That, coupled with the 
hiring freeze at the time, put us at a disadvantage in terms of 
pursuing tax enforcement. The men and women of the Tax Division 
are bright and hard-working, and they will do what it takes to 
pursue the cases that they have. But further cuts to the budget 
would be devastating to the Tax Division.
    Mr. Johnson. Thank you.
    And I'll yield back to the Chairman.
    Mr. Conyers. Thank you so much, sir.
    Director White, are you aware of a concern voiced by 
attorneys for consumer debtors that some trustees make 
burdensome document demands that well exceed what's required by 
law? And if this concern is valid, what do you recommend that 
the program do in response to it?
    Mr. White. Yes, sir. I do think overall that our trustees 
do an outstanding job with regard to efficiently administering 
and fairly administering bankruptcy cases. But I have been made 
aware from time to time that there have been concerns with 
regard to whether document production requests made on a 
routine basis by certain trustees is excessive. And we take 
that seriously for purposes of the efficiency of the bankruptcy 
system.
    Similar, and actually related to this matter as well, is 
that we sometimes become frustrated and pay some resource 
enforcement attention to the fact that debtors' counsel do not 
always respond in a timely and complete fashion to legitimate 
requests for document production, whether it be pay advices, 
tax returns, and so forth that are needed in order to properly 
administer an estate.
    So we believe there's a common interest here with 
efficiency of the system on the part of both trustees who need 
the information and debtors' counsel who provide the 
information.
    A couple of years ago, in response to these concerns, we 
decided what we would do, in light of the fact that it is a 
decentralized system, local rules are different, local 
practices vary from district to district, we issued some best-
practices guidelines for trustees that could be used as a 
training tool by trustees as well as by debtors counsel to try 
to ensure that document production requests were not excessive. 
There would be some guidelines for what's appropriate, given 
various fact scenarios.
    Recently, after 2 years of these guidelines being out----
    Mr. Conyers. Okay. I'm running out of time, sir.
    Mr. White. Okay. We've been doing something about it, Mr. 
Conyers, is the bottom line.
    Mr. Conyers. I get your drift.
    Let me turn to Mr. Cruden now.
    Would you, please, explain how consent decree practices 
have resulted in beneficial settlements for all parties, 
including corporations, and produced good environmental 
outcomes?
    Mr. Cruden. As you all know, Ranking Member Conyers, the 
consent decree process comes in litigation. So when there has 
been a lawsuit, there has been a complaint, and the consent 
decree is resolving that dispute. The consent decree process 
also gives the court authority to look over and make sure that 
promises are carried out.
    So one particular advantage of a consent decree is it ends 
the litigation, and it ends attorneys fees. So all of the 
parties, in fact, can spend their money, in my case, doing 
positive things for the environment as opposed to funding 
additional litigation. So that's a positive step right away.
    Second very positive thing, very often corporations are 
coming to us right away and saying: We are interested in 
settling. We know that we have made mistakes. They don't have 
to admit liability, but they can, again, look at how to correct 
that activity. Sometimes they are increasing the training of 
their individuals. Very often, they're taking steps, and then 
the local community is going to stop a polluting event, and 
correct any environmental problem that occurred there.
    So the consent decree has a positive economic effect but it 
also has a positive environmental effect.
    Mr. Conyers. Thank you so much.
    And thank you, Mr. Chairman.
    Mr. Marino. Thank you.
    The Chair now recognizes Congressman Trott.
    Mr. Trott. Thank you, Mr. Chairman.
    Director White, thank you for being here today.
    And as you may know, the American Bankruptcy Institute 
recently issued some recommendations relating to chapter 11 
bankruptcies, particularly relating to concerns over trusts 
that are established post-confirmation and the lack of 
transparency and disclosure and governance with respect to 
those trusts.
    I wonder if you have any of those same concerns as it 
relates to trusts that are created post-confirmation and what 
your thoughts are regarding that recommendation?
    Mr. White. Yes, sir. In recent years, we've heard 
increasingly from creditors and then also through the chapter 
11 Commission that you referred to the fact that there has been 
a proliferation of post-confirmation trusts and entities 
created in chapter 11 reorganization cases that are really 
vital to the success of the plan. They deal with efforts to 
bring money in a litigation trust distribution but concern 
about transparency.
    Now, we have limited authority with regard to post-
confirmation after a plan is confirmed and a case emerges from 
bankruptcy. Where we do have a role is in the disclosure 
statement process, which is what the commission looked at 
specifically. Where issues of corporate governance need to be 
set out in who is going to control the trust, issues of how the 
claims are going to be processed, issues with regard to if a 
stakeholder has a question or a problem or an objection to the 
administration of the trust, ensuring there's a mechanism to 
get to the court so that the judge can resolve that.
    So I believe that an important issue is raised. Under 
current statute, we try to act to bring greater transparency 
and fairness to the system. It's an integrity system for us, 
and it is something we've been sensitive to. We should probably 
be more sensitive to it, and I share your concerns.
    Mr. Trott. Thank you.
    There's some feeling in the mortgage servicing industry 
that sometimes the U.S. Trustee, you know, places more emphasis 
on form over substance. Within your staff, are there any quotas 
or rewards given to folks for the number of investigations or 
the number of complaints they bring against mortgage servicers?
    Mr. White. No, nothing of that. We, of course, measure--try 
to measure various enforcement activities in numerous 
categories so we can see, for example, if an area we should 
shift resources, but absolutely not.
    And the cases that we've brought with regard to mortgage 
servicers, we're dealing with things--to use Chase or other 
examples in other national settlements--where I think one would 
agree these were significant and required action, robo-signing, 
inaccurate accounting, and so forth. But there's no room for 
quotas in a legitimate enforcement system, and we don't have 
them.
    Mr. Trott. It's pretty clear banks like Citi, Chase, Wells, 
B of A are exiting or working to exit the servicing space 
because it's really not profitable, nor is it good for a 
reputational risk. Do you view the rise of specialty servicers 
as a good or bad things for consumers?
    Mr. White. I don't know that I view it either way. I will 
say that we have--and I amplify this a bit in the full 
statement--we have tried to look at the newer and boutique 
entrants into the servicing industry because we've seen that 
they were making the same kinds of errors that we saw 5 years 
ago before the national mortgage settlement. So we want to be 
very concerned that the progress we made with regard to the 
traditional banks is not lost as those loan portfolios are sold 
off to the newer entrants into the system.
    Mr. Trott. Thank you, sir.
    Mr. Mizer, I know you are relatively new to your position. 
Congratulations. Do you have any numbers of how the nonprofit 
housing groups like NeighborWorks and others that received in 
excess of $150 million as part of the settlement, how are they 
doing? How many loan workouts and modifications have they 
helped borrowers complete? How many homes have been saved, and 
how many foreclosures have been avoided? Do you have any 
numbers internally on that?
    Mr. Mizer. I don't have any numbers on that. I do know that 
there's consumer relief provisions, that those agreements are 
independently monitored and that those independent monitors 
have reporting obligations, but I don't have numbers with 
respect to your specific question.
    Mr. Trott. Director White, a few minutes ago, talked about 
the Trustees' Office working to ensure timely discovery and 
disclosure of information. So can you sort of understand--and 
it wasn't under your watch, but can you sort of understand why 
this Committee would be highly suspicious of mandatory payments 
in excess of $150 million as part of some settlement to 
potentially politically motivated nonprofits, and it takes 6 
months for us to get incomplete answers to questions in that 
regard? Do you sort of understand why that gives us pause.
    Mr. Mizer. I certainly understand the concern, Congressman. 
I would note that the consumer relief provision that you've 
identified provides the banks with a menu of options from which 
to choose, and then if the banks----
    Mr. Trott. So they were given incentives to funnel money 
into potentially a slush fund for these politically motivated 
nonprofits. That's the concern. So they have choices, but they 
have bonus credit points if they choose certain choices. You're 
familiar with that part of the settlement, right.
    Mr. Mizer. I'm generally familiar with it.
    Mr. Trott. One last question.
    And I'm out of time, Mr. Chairman.
    In hindsight, wouldn't it have been better, instead of 
opening up a can of worms of politically motivated nonprofits, 
to direct that money, which in some cases $150 million would be 
an incredible amount of money to State bar programs, to have 
mediation programs that have a much greater chance of success 
or State housing development authorities that have a very 
accurate and process that is full of integrity, that wouldn't 
be susceptible to this kind of attack? I mean, wouldn't that be 
a better way to help borrowers?
    Mr. Mizer. Congressman, I can't speak to the decisionmaking 
that went before. But what I can say is that in the future, in 
any settlement that we enter, we will consider the concerns 
that you've identified and other concerns in making sure that 
the public fisc is restored for some of the harm done to it by 
fraudsters and that some measure of relief is given to those 
who deserve it.
    Mr. Trott. Thank you, sir.
    I yield back my time.
    Mr. Marino. Thank you.
    The Chair recognizes Congressman Peters.
    Mr. Peters. Thank you, Mr. Chairman.
    I will start by asking, ma'am, can you tell me how to 
pronounce your name?
    Ms. Ciraolo. Ciraolo.
    Mr. Peters. Ciraolo. Ms. Ciraolo, thank you for being here. 
Thanks to all the witnesses for being here.
    I had a question on two topics in the tax provision. One is 
bad tax preparers. I wonder what you could do--well, you could 
tell me about what you are doing to take bad tax preparers off 
the street.
    Ms. Ciraolo. Sure. Thank you. And we share your concern 
regarding fraudulent tax preparers.
    The Tax Division has a twofold approach to fraudulent tax 
preparers. One is our civil injunctions. These are immediate 
actions to put the preparers out of business when they are 
identified. And on the criminal side, we prosecute fraudulent 
preparers that are engaged in willful conduct, willfully 
preparing and filing fraudulent tax returns.
    Mr. Peters. Those are options open to you. But do you have 
any sense for what's being effective, how often you're seeing 
it? Can you give me sort of a sense? I understand those two 
avenues as possible procedures. How is that working?
    Ms. Ciraolo. It's a significant problem, and we are 
bringing all of our resources to bear. Since 2000, we brought 
over 500 civil injunctions against fraudulent return preparers 
and abusive promoters of schemes.
    On the criminal side, we're prosecuting, we're identifying 
fraudulent return preparers, prosecuting them. We're working 
with our law enforcement partners both within the IRS and 
within the U.S. Attorney's Office to identify these and 
prosecute.
    Mr. Peters. Do you perceive that you're having a positive 
effect on this, or are you just kind of treading water or----
    Ms. Ciraolo. Well, the criminal element doesn't seem to go 
away, but we are there. And we're getting significant sentences 
in these cases. Anyone out there that's contemplating this type 
of behavior should take a look at the cases we've brought to 
date. And it's our obligation to the honest return preparers--
and there are many honest return preparers out there--to pursue 
this on behalf of them and on behalf of the American public.
    Mr. Peters. Okay. The other issue is, I'm still on 
identities. So I saw the New York Times' report on instances 
where criminals have electronically filed tax returns using 
stolen IDs, and then they would get a fraudulent return but 
with money back to them.
    So I was sort of curious about how substantial or 
widespread you see that this problem is, and then what efforts 
you're making in the division to address this issue.
    Ms. Ciraolo. Thank you. Again, we share your concern. This 
is a growing problem. Stolen identify refund fraud is 
essentially a street crime, and it's a growing problem. We are 
working with the IRS and the U.S. Attorneys' offices along with 
State and local law enforcement partners to identify these 
offenders, dismantle the operations, and prosecute the 
offenders.
    As we pursue these cases, we are not only prosecuting the 
offenders, but we are sharing information gathered in the 
investigation in realtime with the IRS so we can improve its 
filters to stop the refunds at the door. We have over 100 
prosecutors in the Tax Division, many of whom are working on 
these cases. We've also delegated authority to the U.S. 
Attorneys' offices so they can act quickly to impanel SIRF 
grand juries charged by criminal complaint and obtain seizure 
warrants for illegal proceeds in SIRF cases.
    In February 2014, we established a SIRF advisory board. 
This board works with U.S. Attorneys' offices and with the IRS 
to offer training in these cases to better spot the offenders 
and deal with the problem. So we are bringing all of our 
resources to bear in this area.
    Mr. Peters. And do you feel you have adequate tools in this 
area, or is there anything Congress should be doing for you to 
help assist these efforts?
    Ms. Ciraolo. Thank you for raising that issue.
    We are using all the resources that we have available. 
We're using all available tools. We welcome any ideas to combat 
this significant problem.
    Mr. Peters. I think that the idea is that you would have 
more of an idea what you need than we would. So that's why I'm 
asking you.
    Is there something that--I understand the financial or the 
monetary aspect of it. But is there something in terms of 
tools, particularly with respect to the Internet, that you 
would need help with from this Committee or from Congress as a 
whole?
    Ms. Ciraolo. We have a variety of tools we use. Right now 
we're sharing information in realtime with the IRS. And the 
IRS----
    Mr. Peters. You're saying you have what you need in terms 
of tools or----
    Ms. Ciraolo. We're always open to more ideas on how to 
combat this problem.
    Mr. Peters. But don't have any ideas. Okay. Okay. Just 
maybe in the last 30 seconds that I have, can you share a sense 
for what the sequester meant in terms of your ability to 
prosecute tax fraud and particularly if you have some sort of 
numbers in terms of the return that we are losing on getting 
money back from people who are cheating on their taxes?
    Ms. Ciraolo. Yes. Thank you. Sequestration was extremely 
difficult for the Tax Division. We had a reduction in the funds 
for litigation expenses, for travel expenses. That put our 
attorneys at a severe disadvantage when they were going up 
against other counsel in cases, both in civil cases and 
criminal investigations. We had a hiring freeze. We had to 
limit outside training. We lost 20 percent of our experienced 
attorneys.
    We have been working very hard to hire up, but the morale 
dropped during that period of time. With limited resources and 
with sequestration, we're less able to pursue additional cases. 
Our men and women are working very hard. They're going to do 
what it takes to get these cases done, to pursue the offenders. 
And I don't want anyone out there thinking that, you know, with 
limited resources, we're not going to identify and pursue these 
offenders.
    Mr. Peters. Thank you very much.
    Mr. Chairman, thank you.
    Mr. Marino. Thank you.
    The Chair recognizes Congressman Ratcliffe.
    Mr. Ratcliffe. Thank you, Mr. Chairman.
    I want to thank all the witnesses for being here today. 
Effective oversight is one of the most important duties that we 
have as a Committee, and I appreciate the willingness of each 
one of you to be here to assist us in that regard.
    I also want to thank you, Chairman Marino, for holding this 
hearing today, to examine the activities of the four Justice 
Department components within this Subcommittee's jurisdiction.
    As a former U.S. Attorney like you, Mr. Chairman, I had the 
great privilege of serving with many great men and women at the 
Department of Justice, and I care a great deal about the 
reputation of the DOJ with the American people.
    With that context, Mr. Mizer, many of the 700,000 Texans 
that I represent are deeply concerned about Operation Choke 
Point and the role of DOJ with respect to that operation. Many 
of the folks that I represent viewed the operation as a, 
frankly, a blunt weapon which targets and stigmatizes entire 
industries that the Administration doesn't like.
    I recently met with a number of folks in the gun industry, 
and a number of these law-abiding citizens had, in fact, been 
targeted by this program.
    In July of 2014, this Subcommittee held a hearing on 
Operation Choke Point. After the hearing, the FDIC announced 
that it would rescind its list of high-risk merchants. This 
move seemed to be an apparent recognition of the fact that 
Operation Choke Point was inflicting an unacceptable level of 
collateral damage on legitimate businesses.
    So my question to you is, what specific steps has DOJ taken 
to mitigate the collateral damage of Operation Choke Point 
subpoenas?
    Mr. Mizer. Thank you, Congressman.
    My experience with Operation Choke Point only extends to 
the 2 months or so that I have been in the Department. But I 
can say that we are pursuing only fraudsters and those banks 
that knowingly allow fraud to occur. And in my time in the 
division, we've settled two significant cases that make clear 
what we're doing and what we're not doing.
    What we're not doing is targeting the kind of gun retailers 
that you have identified. What we are doing is going after 
banks that are ignoring very serious red flags and ignoring the 
legal obligations that they have not to do business with 
fraudsters who are defrauding American consumers of their money 
by stealing bank account information and essentially stealing 
money.
    So, in one of the cases that we have settled, one of the 
banks had boxes full of affidavits in which consumers were 
telling the bank that, in fact, the charges against them had 
never been authorized and, nonetheless, the bank continued to 
allow the charges to occur. So we are only going after those 
kinds of unlawful practices and not the lawful gun retailers 
who have expressed concern to you. And we want to make that 
abundantly clear.
    Mr. Ratcliffe. Thank you.
    So can you tell me, and maybe you can't, but I'd like to 
know whether the Justice Department has sent any additional 
Operation Choke Point subpoenas since the Subcommittee hearing 
last summer.
    Mr. Mizer. I don't believe that the division did. During my 
time in the division, which has only been the past couple of 
months or so, I have not signed off on any additional subpoenas 
in this regard.
    Mr. Ratcliffe. Okay. Thank you, Mizer.
    I'd like to use my remaining time to quickly turn to 
another issue that is on top of the mind for many of my 
constituents.
    As you know, in February, Judge Andrew Hanen of the United 
States District Court for the Southern District of Texas 
enjoined the executive amnesty announced by the Administration 
back in November of 2014. He later discovered that DOJ lawyers 
had misled the court by saying that no action would be taken on 
the November executive amnesty policy until a certain date 
when, in fact, the Administration had, in fact, already begun 
carrying out the new amnesty policies.
    Mr. Mizer, as you know, those types of misrepresentations 
are unacceptable and extremely serious. And in some instances, 
I would have expected maybe other Federal judges to consider 
striking the government's pleadings in their entirety.
    Again, with that context, what steps are you aware of that 
DOJ is taking to mend its credibility with the court?
    Mr. Mizer. Congressman, like you, we, in the Civil Division 
and in the Justice Department take extremely seriously the high 
obligation that the Justice Department has and duty of candor 
to the courts. And we vigorously dispute any suggestion that we 
engaged in misrepresentations or misconduct in front of any 
court, including the Judge Hanen. We have filed papers in that 
court demonstrating that, in fact, no misconduct occurred, and 
we continue to discharge our obligations of candor to that 
court.
    Mr. Ratcliffe. Well, my time has expired, so we'll just 
have to agree to disagree on that issue, Mr. Mizer.
    I thank you and yield back.
    Mr. Marino. The Chair recognizes Congressman Jeffries.
    Mr. Jeffries. I thank the Chair for convening this hearing 
as well as all the witnesses for your participation here today 
and your service to the country.
    If we can just start with Mr. Mizer. I wanted to just kind 
of explore, again, the context by which the Department of 
Justice has gone after some of the financial institutions 
responsible for participating in the greatest collapse of the 
United States economy since the Great Depression.
    It is my understanding that we're in the midst of an 
appropriate oversight hearing. It was referred to earlier as a 
pattern-and-practice hearing. I think there was a pattern and 
practice of fraudulent behavior, whether that included 
mortgage-backed securities and no-document loans and targeting 
of vulnerable individuals, credit default swap market that was 
completely unregulated and out of control, all of which 
collectively led to the Great Recession.
    And so I think, responsibly, the Department of Justice has 
taken action against many of the financial institutions that 
broke the law and should be held liable and accountable for 
their actions. And it's my understanding that in this context, 
several settlements have been reached, of course, and that the 
Department of Justice really pursued five different types of 
areas where consumer relief was provided? Is that correct?
    Mr. Mizer. Those settlement agreements were entered before 
my time in the Civil Division, so I don't know if the five 
different types is exactly the right number. But I do know 
there are consumer relief provisions included.
    Mr. Jeffries. So my understanding that there were loan 
modifications as part of DOJ settlements; refinancing 
assistance provided to individuals who were trapped in high-
interest mortgages--that would be two; three, closing cost and 
down payment assistance; four, financing for affordable 
housing; and then, five, donations to community organizations. 
And I think the fifth one, donations to community 
organizations, seems to be a matter of some controversy. I have 
yet to understand why, but I get that it's a matter of some 
controversy. So we can hone in on that for a moment.
    In terms of the overall totality of the settlement, if we 
just take settlement related to JPMorgan, the settlement 
related to Citigroup, the settlement related to Bank of 
America, the aggregate settlement amount seems to be in excess 
of $30 billion to $35 billion. Is that correct?
    Mr. Mizer. The aggregate settlements were over $35 billion. 
That is correct.
    Mr. Jeffries. Okay. In terms of the assistance to community 
organizations, am I correct that that number was about $100 
million?
    Mr. Mizer. I believe it was a small fraction. I think it 
was between 100 and 150 million. But, again, because the 
settlements were entered before my time, I'm not specifically 
familiar.
    Mr. Jeffries. Okay. $100 million is, in and of itself, in 
isolation, a substantial number. But, clearly, in the context 
of the overall amount of consumer relief or settlements that 
were generated, it is a very small fraction. But can you just 
elaborate for me on what was the rationale in the context of 
these different areas where consumer relief was found, the 
majority of which went into other areas, what was the rationale 
behind entering into sort of these partnerships between the 
financial institutions and the community organizations?
    Mr. Mizer. My understanding is that the purpose of the 
provisions was the banks who had engaged in unlawful conduct to 
direct some of the money to individuals who had suffered as a 
result of their unlawful practices and for some measure of 
relief to be given to individuals who either lost their homes 
or who suffered as a result of the unlawful practices of these 
large financial institutions that resulted in such severe harm 
to our economy.
    Mr. Jeffries. Now, are you also involved in sort of 
overseeing operation choke hold?
    Mr. Mizer. I believe it's Operation Choke Point.
    Mr. Jeffries. I'm sorry. We had a police violence hearing 
earlier today. I'm getting my talking points mixed up. But 
Operation Choke Point. And I guess there's some controversy 
about certain financial institutions perhaps being targeted 
that were involved in some way in gun running. Is that correct?
    Mr. Mizer. I'm aware of reports that some businesses that 
are engaged in lawful practices, including gun retailers, 
alleged have been affect by Operation Choke Point. But those 
allegations are unfounded. We are targeting only lawful 
business. We are not targeting gun retailers. We are only going 
after those businesses that are engaged in illegal conduct and 
fraud against American consumers. I'm happy to provide more 
information, but I see my time has expired.
    Mr. Jeffries. Yeah. Thank you for that.
    If I could just have an additional point of the 
observation.
    Mr. Marino. Yes.
    Mr. Jeffries. Very briefly. I would just say that, you 
know, we've got 5 percent of the world's population but 50 
percent of the world's guns. And we believe there are more than 
285 million guns in circulation right now in America. It seems 
to me reasonable that something should be done to keep those 
guns out of the hands of individuals that would do us harm.
    I yield back.
    Mr. Marino. Thank you.
    The Chair now recognizes Congressman Issa.
    Mr. Issa. Thank you.
    Mr. Mizer, I really appreciate the opportunity to pick up 
right where we left off. During your answer, you actually said 
``lawful business.'' I assume you meant unlawful business?
    Mr. Mizer. If I misspoke, I apologize. We are targeting----
    Mr. Issa. Because you sure did send subpoenas to a lot of 
lawful businesses. Now, you do you remember the name Ray 
Donovan from your history books?
    Mr. Mizer. Yes.
    Mr. Issa. Okay. What department do these people go to get 
their reputation back, famously the Secretary of Labor said 
after he was exonerated. You've sent out countless subpoenas. 
You've caused banks to drop lawful businesses by the scores, 
particularly payday lenders, not just ammunition sales. And now 
they want to know where to go to get their reputation and, by 
the way, their bank's relationship back. What do I tell them?
    Mr. Mizer. Congressman, many of the subpoenas that you've 
identified----
    Mr. Issa. I can't identify them because you haven't 
delivered us the list of them. For example, since November, 
sorry, July 28 of 2014, how many subpoenas have you sent out? I 
know you've only been there 2 months, but----
    Mr. Mizer. What I can say is we are not----
    Mr. Issa. Have you sent out subpoenas?
    Mr. Mizer. Congressman, in the 2 months that I have been in 
the Civil Division, I have not authorized any subpoenas in 
relation to this set of concerns.
    Mr. Issa. Okay. So when the FDIC printed this rather 
interesting semi-retraction of we were misunderstood when we 
said target these high risks and cause banks to drop all kinds 
of lawful businesses and you followed up, you're going to tell 
us that there was no political agenda even though the gentleman 
made it very clear that the political agenda of the President 
is consistent with this: Get these people their banking 
relationships dried up and you can stop them from being in 
business.
    So the question once more is, after this kind of use of 
power, where do they go to get a clean bill of health? Are you 
participating in this? Are you willing to be part of 
remediation, as the FDIC has said, as the FDIC Chairman has 
said he is doing but hasn't shown us yet?
    Mr. Mizer. Congressman, I can't speak to what the FDIC is 
doing. What I can say is that----
    Mr. Issa. Are you doing anything?
    Mr. Mizer. Congressman, we are trying to make abundantly 
clear that we are not targeting----
    Mr. Issa. Are you doing any remediation of those who have 
had their reputations destroyed by Operation Choke Point?
    Mr. Mizer. Congressman, we have not received any financial 
institutions communicating to us that involuntary bank closures 
were on account of Operation Choke Point. And so----
    Mr. Issa. Operation Choke Point put companies out of 
business, took away their bank relationships. You're aware of 
that, right?
    Mr. Mizer. Congressman, the unlawful conduct that we are 
targeting should have not resulted in any lawful business 
losing a bank account.
    Mr. Issa. But it did. Let me go on to a little different, 
but it's on my list of shakedown is the title that my people 
gave me on all this. In a case of--filed by the ACLU, the Lopez 
v. Johnson case, you entered into a settlement, right?
    Mr. Mizer. I am not specifically familiar with that case.
    Mr. Issa. Okay. So the fact that in a settlement, the ACLU 
was able to get the United States Government, not through 
Congress, to agree to advertise in and hold a campaign in 
Mexico to encourage people who had voluntarily deported 
themselves, voluntarily departed, to let them know that they 
could come back and fight it. You're not aware of any of this?
    Mr. Mizer. I am not aware of that case. But I would be 
happy to continue to confer with the Committee.
    Mr. Issa. I would be thrilled if you would come back to us. 
Because we, quite frankly, do not understand on what basis you 
agree to spend money campaigning to tell people that are, in 
fact, illegals, who have voluntarily left, that they should 
come back and fight deportation. Director White, you answered 
sort of questions of the Chairman, but I'm going to try and ask 
it a different way.
    Mr. White. Sure.
    Mr. Issa. You have, at times, taken penalties into the 
Federal Treasury from entities such as the ones that--such as 
JPMorgan Chase, is that correct?
    Mr. White. I'm not sure that any----
    Mr. Issa. You have had settlements in which the Treasury 
received money?
    Mr. White. I'm not sure any settlement that we were solo, 
without other Federal entities, has ever had a penalty go in. 
Where we get penalties--and we, actually, in our annual report, 
list penalties that----
    Mr. Issa. Let me just ask a question.
    Mr. White. Sure.
    Mr. Issa. Is there any prohibition on the nonprofit known 
as the United States of America receiving the $7.5 million, 
``voluntarily,'' so that the United States Government would 
have specific funds to go out for a grant program openly and 
transparently to entities to do the remediation that you're 
talking about, is there any prohibition in law that would have 
prevented you from bringing it in and allowing a grant program? 
And I'll just give you a followup question.
    Isn't it true the Department of Justice does, in fact, have 
grant program authority, as do other parts of the government, 
that could have done some of these, if you will, informational 
grants?
    Mr. White. My expertise is in the Bankruptcy Code and those 
parts of title 28 that deal with us. And in order for the money 
to have gone to the taxpayer or more money to the homeowner, 
then we would have needed two other things to occur, which I 
suggest are highly speculative. One, Chase agreeing to it.
    Mr. Issa. Chase was going to agree to whatever you said, or 
they wouldn't have given that $7.5 million otherwise.
    Mr. White. From your mouth to God's ears.
    Mr. Issa. Inshallah.
    Mr. White. I mean, I think it's speculative to suggest that 
the agreement could have been done without--the way it was 
fashioned, both with the remediation that went to the 
homeowners in the amounts that was to the homeowners and 
additional accountability imposed through the third-party 
payment. I believe it was an essential part of the agreement.
    Mr. Issa. So you would support, then, legislation that 
would keep you from, in fact, bypassing Congress, bypassing the 
appropriation process, and selecting what might very well be 
considered to be partisan 501(c)(3) groups with an agenda, if 
you will, to do this work?
    Mr. White. Respectively, Mr. Issa, I don't believe that we 
in any way bypassed the Congress, nor do I believe in any way 
we sent it to an organization that is in the least bit 
controversial.
    Mr. Issa. Well, I appreciate that you don't think they're 
the least bit controversial.
    Mr. White. I'm talking about, I can only----
    Mr. Issa. Look, we put a community organizer in the White 
House. The American people made that decision. But when you 
make a decision to direct funds toward organizations and you 
double their financial base as a result, you make a real 
difference in their ability to do things which, in fact, is 
fine if it's done through an open and transparent process, 
which it doesn't appear to be.
    Mr. White. Perhaps, Mr. Issa, if I may----
    Mr. Issa. Of course.
    Mr. White [continuing]. I may have misunderstood your 
question, sir. I thought you were referring to the Chase 
settlement that U.S. Trustee Program entered into in March. In 
that case, the only recipient was the American Bankruptcy 
Institute, which is the largest professional association of 
bankruptcy professionals. It does not lobby. It does not 
litigate on behalf of private clients. It does not accept 
Federal money and so forth. So what I'm testifying to--I 
thought the question went to--the ABI grant. That's the one 
that I can speak to. And I must say that I have viewed it as an 
unassailable provision of that agreement.
    Mr. Issa. And unappropriated.
    I thank the Chairman.
    Mr. Marino. Seeing no other witnesses for this panel, you 
are excused. I want to thank you so much for being here this 
afternoon.
    And we will impanel our next witnesses. Thank you.
    Mr. White. Thank you.
    Mr. Marino. Good afternoon. The meeting will be, the 
hearing will come to order again. I would like to thank our 
panel for waiting and for testifying.
    And I want to begin by asking you to please stand, raise 
your right hand to be sworn in.
    Would you please stand and raise your right hand to be 
sworn in?
    Do you swear that the testimony you're about to give is the 
truth, the whole truth, and nothing but the truth so help you 
God?
    You may be seated. And let the record reflect that all the 
witnesses have responded in the affirmative.
    I'm going to introduce the panel. And I will begin with Mr. 
Horowitz. Am I pronouncing that correctly?
    Mr. Horowitz. Yes.
    Mr. Marino. Thank you, sir.
    Mr. Horowitz is the CEO of Twenty-First Century Initiatives 
and serves as senior fellow for the Hudson Institute. Mr. 
Horowitz served as general counsel for the Office of Management 
and Budget under the Reagan administration. For nearly two 
decades, Mr. Horowitz has run the Religious Liberty Project at 
the Hudson Institute, playing a lead role in the shaping and 
passage of such wide-ranging legislation as the International 
Freedom Act, the Sudan Peace Act, the Prison Rape Elimination 
Act, the North Korea Human Rights Act, and the Trafficking 
Victims Protection Act. Mr. Horowitz served in the United 
States Marine Corps Reserves. He is a graduate of City College 
of New York and the Yale Law School.
    Good afternoon, sir.
    Mr. Daniel Epstein is the executive director of the 
nonpartisan, public advocacy and legal reform organization 
Cause of Action. Prior experience includes having served at the 
U.S. House of Representatives as a counsel for oversight and 
investigations at the Committee on Oversight and Government 
Reform, where he specialized in tax, labor, nonprofit, and 
Federal grant-spending investigations and oversight. Mr. 
Epstein has been cited by a variety of media outlets, including 
the National Journal, the Chicago Tribune, and the Washington 
Post. He is a graduate of Emory University Law School and 
Kenyon College in Gambier, Ohio.
    Good afternoon, sir.
    Mr. Grossman is an associate at the firm Baker & Hostetler, 
LLP, and an adjunct scholar at the Cato Institute. He has filed 
several high-profile amicus curiae briefs in Supreme Court 
cases and in the Federal courts. Mr. Grossman has been a 
frequent legal commentator on radio and television, having 
appeared on Fox News, CNN, MSNBC, CNBC, NPR, CBN, and in print 
publications, such as The Wall Street Journal, USA Today, The 
Washington Post, The Washington Times, and many others. He has 
testified before the House and Senate Judiciary Committees 
numerous times on issues of constitutional law and legal 
policy, and frequently advises Members of Congress. Mr. 
Grossman is a graduate of George Mason's School of Law and the 
University of Pennsylvania master's program. He holds an 
undergraduate degree from Dartmouth College.
    Welcome, sir.
    Ms. Saunders is the associate director at the D.C. branch 
of the National Consumer Law Center, where she serves as its 
managing attorney. Ms. Saunders specializes in the area, 
including the Consumer Financial Protection Bureau, prepaid 
cards, mobile payments, and small-dollar loans, credit cards, 
bank accounts, and preemption. Prior to working with the NCLC, 
Ms. Saunders directed the Federal Rights Project of the 
National Senior Citizens Law Center and was an associate at 
Hall & Phillips. Ms. Saunders is a graduate of Harvard Law 
School where she was an executive editor of the Law Review. She 
also holds a master's degree from Harvard and an undergraduate 
degree from Stanford University.
    I want to thank each of you. Each of the witness' written 
statements will be entered into the record in its entirety. I 
ask each witness to summarize his or her testimony in 5 minutes 
or less. And to help you stay within the time, there is a 
timing light in front of you. The light will switch from green 
to yellow, indicating that you have 1 minute to conclude your 
testimony. When the light turns red, it indicates that the 
witness' 5 minutes have expired. Mr. Horowitz, you are 
recognized for your 5 minutes or less opening statement. Thank 
you, sir.

              TESTIMONY OF MICHAEL HOROWITZ, CEO, 
                TWENTY-FIRST CENTURY INITIATIVES

    Mr. Horowitz. Thank you, Mr. Chairman.
    Thank you, Mr. Chairman.
    Thank you, Mr. Ranking Member.
    It is a distinct pleasure to be here as you begin a hearing 
on some of the most fundamental issues that face government. 
They are, first, the relationship of means to ends, as 
government pursues its objectives. And, second, the role of the 
rule of law in the government's process. I've wrestled with 
those questions a great deal. I've seen others wrestle with 
those questions. And I've done so particularly at two important 
moments in American history. The first was the battle against 
segregation in Mississippi and throughout the South. And the 
second is as OMB general counsel.
    When I was in Mississippi, Mr. Chairman, I saw lots of 
people who placed policy preference over law. They created a 
crisis for the United States. They did not help the State of 
Mississippi, nor did they help their cause. I also saw men who 
were indifferent to the issue of segregation. I think of Judge 
Claude Clayton of the Northern District of Mississippi. He 
probably was comfortable with the culture as it was. But it was 
a matter of indifference to him when he saw the law being 
violated. That, to him, took precedence over policy objectives 
at all times. And he, more than anyone, ended segregation. And 
it was the rule of law, despite one's personal views or 
personal preferences in policy, that was the feature that did 
it.
    I saw the same thing in the Reagan administration, Mr. 
Chairman. We, as senior attorneys, said no to the President and 
to agencies. We often hurt presidential policy. We often hurt 
the President politically. I remember being with the White 
House Counsel, being the subject of newspaper ads, being 
attacked because we opposed a conservative so-called ``defund 
the left'' movement. We thought that grants should be given 
based on the quality of the grant application, not the politics 
of the grantee.
    Mr. Goodlatte, you had mentioned Richard Willard. We fought 
like tigers against those sweetheart settlements, not only when 
moneys were given to favored parties but also when government 
agencies were told to perform functions and given money outside 
the appropriations process. The mechanism here is, of course, 
the judgment fund. The judgment fund is a permanent, indefinite 
appropriation. And if a court signs a piece of paper, Congress 
has no say in the matter. And infinite amounts of money can be 
spent. That's what the judgment fund means. So use of the 
judgment fund as a means of circumventing the constitutional 
appropriations process. I remember the bittersweet moment when 
independent counsel came to me and complimented me for 
defeating Ollie's Army. It was quite a bittersweet moment 
because I had issued a ruling saying that Congress had passed a 
law that didn't allow the White House to manage the Iran--the 
Contra campaign. And we had to turn it over to the State 
Department, whose policies were not the policies of the 
President.
    Many of us would tell people who came to us and said that 
we have policies that we prefer, and by the way, one of the 
beneficiaries will be this fellow who has given a lot of money 
to campaigns. We had a pretty standard tactic: We said do it 
again, and we refer you to the FBI.
    I tried to propose tort reforms, which I thought were 
constitutionally permissible. And my colleagues said, No, it 
can't be done. And I went to my colleagues and said: But, you 
know, the tort lawyers are creating all this difficulty. And if 
we don't do the reform at the Federal level, it won't be done.
    Nobody, as the President regularly does now, said: Well, if 
we don't do it, it won't happen. And we've got to do it, come 
what may.
    The issue was on the Federalism component. And I was shot 
down by my colleagues.
    Now, when we did it, Mr. Chairman, I felt badly. Ed Meese 
was heartsick when he brought to public attention the fact that 
money was being paid to the Contras by--and there were 
financial arrangements with Iran. The President had said that 
we weren't giving money to Iran in the course of negotiating 
with terrorists. And it turns out we were. He got the evidence, 
and he went public immediately on that evidence.
    And, yet, Mr. Chairman, when I look back in retrospect, 
what I realize is that what we helped do was create a 
Presidency which stood for more than its own self-interest, 
which stood for principle. People said regularly: Well, I don't 
agree with Reagan, but he stands for something and I will 
support him. And it was a Presidency that really counted 
because it was respect for the rule of law.
    And if there is, what are we going to do, Mr. Chairman, 
with this incredulous performance of this Administration, 
Executive orders that repeal whole systems, Executive orders 
that create whole statutory frameworks, these settlement 
matters of which we could talk some more.
    There is no way, Mr. Chairman, I can say this definitively, 
that confronted with a statute that says billions of dollars 
shall go out to support a healthcare system--and it said that 
there are two classes of beneficiaries, only one of whom shall 
get money--there is no way, Mr. Chairman, we would have allowed 
money to go to a second class of beneficiaries, which is what 
has happened, nor would we have permitted deadlines to be 
ignored, nor would we have permitted the waiver of tax moneys, 
no matter what our feelings on the matter.
    Now, I don't blame the President so much on this, Mr. 
Chairman. He may be a lawyer, but he's a client in this case. 
And I do say that we have a group of lawyers who never say no. 
That's outrageous. We depend on them. We don't--what they do is 
what the southern segregationists did: Hey, we can do anything 
we want. If you don't like it, sue us. And at the end of 
litigation, if we get a court order, at that point, we'll 
change. That's what the Administration is doing. And in the 
process, it's hostaging the courts. Because it's now saying to 
the courts: If you rule and follow the law here and say that 
ObamaCare benefits shall not go to everybody, if you tell those 
immigrants that you don't have a clear path, even though you're 
illegal, enough time has passed, we've created the fait 
accompli, that you're going to be politically at fault.
    Mr. Marino. Sir, can you sum up? Could you please sum up? 
And then we'll get to the questions.
    Mr. Horowitz. Yes. I see the Congressman is back, and I 
would say I'm sorry Mr. Johnson is gone now----
    Mr. Marino. He'll be back.
    Mr. Horowitz [continuing]. Because I think there are things 
Congress must do. I've tried to spell out a couple of options 
for Congress to consider. But if there were bipartisan support 
for a rule of law regime that would be in the interests, 
politically, of this Administration, we wouldn't need to go 
down that road. And I hope that Democrats will come to 
understand that.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Horowitz follows:]
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                                ADDENDUM
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                               __________
                               
    Mr. Marino. Thank you, sir.
    Mr. Epstein.

             TESTIMONY OF DANIEL Z. EPSTEIN, ESQ., 
              EXECUTIVE DIRECTOR, CAUSE OF ACTION

    Mr. Epstein. Good afternoon, Chairman Marino, Ranking 
Member Johnson, Members of the Subcommittee.
    My name is Daniel Epstein. And I'm the executive director 
of Cause of Action, a nonprofit, strategic oversight group that 
is committed to ensuring the regulatory process is transparent, 
fair, and accountable.
    Cause of Action uses various investigative tools and legal 
tools to educate the public about the importance of 
transparency and accountability of the Federal Government. We 
consider our efforts to be a vital form of public oversight 
that supplements the important efforts of Congress.
    I appreciate the opportunity to testify today about 
oversight of the Department of Justice, particularly its Tax 
Division. As a matter of both law and principle, when it comes 
to Americans' tax information, Federal Government attorneys 
must keep it secret, even if the President asks them to divulge 
it.
    Since 2009, the White House has run a program where 
attorneys from the Tax Division at the U.S. Department of 
Justice, go on ``detail'' or temporary leave of absence from 
DOJ to spend a year as a legal adviser to the President. Cause 
of Action is concerned that this program may be a manner for 
which the President can be armed with information that may 
benefit him politically.
    To illustrate, Andrew Strelka, a former IRS attorney who 
was allegedly involved in the targeting of conservative groups, 
later joined the Tax Division of the Justice Department, where 
he defended the IRS in a targeting against one such group, Z 
Street. This was, as former Oversight Committee Chairman Darryl 
Issa called it, a conflict of interest. But that was only half 
the story.
    Mr. Strelka went on leave from DOJ Tax to join the White 
House Counsel's Office, the legal advisers to President Obama, 
where he did background checks on potential nominees, accessing 
their tax information and providing recommendations to the 
President. Mr. Strelka, who is one of several DOJ tax attorneys 
who served on detail at the White House, obtained confidential 
information from the IRS, from the Department of Justice, and 
from the White House, and had the opportunity to share 
information obtained from one government employer with any 
other. Not only would such sharing be a violation of the Tax 
Code, it is fundamentally at odds with legal ethics. To be 
sure, Congress has granted the President the authority to 
access the return information of any nominee so long as reports 
of such requests are submitted to Congress.
    The legislative history of the Tax Reform Act of 1976 and 
both Treasury Department and Department of Justice guidance 
indicate that Congress sought to balance the President's broad 
access to taxpayer information by requiring transparency. 
However, Congress has never received reports of the President 
conducting tax checks on nominees. The concern here is that the 
detailing of DOJ tax attorneys to the White House allows for 
the circumvention of a congressionally mandated process for the 
President to access taxpayer information of potential nominees 
or, for that matter, any individual. Indeed, the Treasury 
inspector general for tax administration was ordered by the 
U.S. District Court of the District of Columbia to disclose the 
existence of 2,500 records of alleged unauthorized disclosures 
by the IRS to the White House of tax information.
    Cause of Action has submitted numerous requests to the 
DOJ's Tax Division seeking answers on how individuals, like 
Andrew Strelka, were screened and the information they accessed 
properly safeguarded to prevent the White House from accessing 
tax information held by the Justice Department and vice versa. 
As we sit here today, DOJ Tax has failed to fully respond to 
Cause of Action's requests. In light of these concerns, on 
April 15, Cause of Action requested the DOJ inspector general, 
who is also named Michael Horowitz, to investigate the Tax 
Division's practice of detailing attorneys to the White House. 
To date, the inspector general has not responded to Cause of 
Action's request. Cause of Action's examination of records 
reveals no policies, no procedures, no rules, no guidelines to 
ensure that Tax Division attorneys detailed to the White House 
are appropriately screened and the information safeguarded to 
prevent confidential tax returns or return information from 
being unlawfully accessed or disclosed. The American people 
deserve answers as to whether their most private information 
may have been shared with the White House for political gain.
    Thank you, again, Mr. Chairman, for the opportunity to 
discuss the work of Cause of Action. And I'm happy to answer 
any questions that you or any other Members of the Subcommittee 
may have.
    [The prepared statement of Mr. Epstein follows:]
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                               __________
    Mr. Marino. Thank you, sir.
    Mr. Grossman.

    TESTIMONY OF ANDREW M. GROSSMAN, ADJUNCT SCHOLAR, CATO 
         INSTITUTE, ASSOCIATE, BAKER & HOSTETLER L.L.P.

    Mr. Grossman. Mr. Chairman and Members of the Subcommittee, 
thank you for holding this hearing today and inviting me to 
testify. My statement will focus on the potential conflicts 
that arise when Federal agencies' relationships with outside 
special interests lead them to adopt litigation positions that 
may differ from those of the rest of the government. The 
Department of Justice litigates on behalf of the entire 
government. The positions it takes must not only be effective 
but also coherent across the field of government litigation. In 
general, it performs this task admirably. But sometimes it 
falls short.
    In a recent opinion, D.C. Circuit Court Judge Laurence 
Silberman faulted the Department's Environmental and National 
Resources Division for, in his words, acting to subordinate 
governmentwide litigation interest to the desires of one 
agency, the EPA. While his immediate complaint was the 
division's failure to raise meritorious standing defenses, his 
concern was stated in much broader terms. The division's 
litigating practices, he said, have led to dramatic contrasts 
with positions taken by the Civil Division.
    Reading between the lines, Judge Silberman's opinion raises 
two important points: The first is that these litigation lapses 
likely reflect EPA's political views. In particular, EPA's 
close relationship with environmentalist groups is leading it 
to compromise its litigating positions, such as by foregoing 
defenses that might undermine those groups' ability to 
participate in future cases against the agency. There is, in 
order words, at least a whiff of collusion.
    And the second is that ENRD countenances this, undermining 
its ability to ensure uniformity and sophistication in 
government litigation. These serious charges by a well-
respected jurist raise a number of questions worthy of 
investigation. For example, when has the EPA directed the 
Justice Department to forego arguments that the government 
would raise in similar circumstances involving other agencies? 
To what extent do outside groups participate in the formulation 
of the EPA's litigation strategies? And are those groups also 
in contact with ENRD attorneys? And what is the litigation 
impact of the revolving door between EPA and environmentalists 
groups? Are agency officials properly recusing themselves when 
their former employers seek to spur the agency into action 
through litigation or otherwise? Congress should demand 
answers.
    Judge Silberman's observations also throw new light on the 
phenomenon of sue and settle, another instance of collusion 
between agencies and outside groups. The Subcommittee is 
already familiar with the problems that arise when settlements 
between agencies and special interests are used to set agency 
priorities and duties. These include lack of transparency, lack 
of public participation, rushed and sloppy rulemaking, and, 
above all, the evasion of proper accountability and oversight. 
These things are all well understood. But what is new is recent 
pushback by those claiming that the issue is overblown and that 
such settlements have only a limited impact on agency action. 
That view is mistaken. First, the facts speak for themselves. 
For example, EPA rushed out its mercury rule subject to the 
terms of a settlement. And it has since been required to amend, 
correct, and reconsider that rule on numerous occasions. And 
that rule may be struck down by the Supreme Court due to EPA's 
failure, in its haste to regulate, to properly consider the 
costs of doing so.
    EPA is once again rushing to finalize the Brick MACT rule 
after its first one, which was also rushed out the door to meet 
its settlement deadlines, was struck down. The Judiciary 
Committee has heard testimony showing how the timing crunch for 
the Brick MACT rule provided the Agency an excuse to avoid 
serious consideration of flexible alternatives that may ease 
compliance burdens while providing the same environmental 
protections.
    A final example is the Fish and Wildlife Service's 2011 
settlements committing to rush out Endangered Species Act 
listing determinations for 251 species by September 2016 while 
abandoning its discretion to find that a listing may be 
warranted but is precluded by higher priorities.
    These are just three current examples. There are many more. 
The second point is that between 2008 and June 2013, 14 of the 
17 major nondiscretionary rules issued by EPA resulted from 
deadline lawsuits. On the horizon are rules setting performance 
standards for new and existing powerplants. This impact is by 
no means limited. And a third point is that the proof is in the 
pudding. Special interests wouldn't bring lawsuits destined for 
settlement if it didn't work. Unfortunately, it does.
    The problem will only get worse in the waning days of the 
Obama Presidency. At this point, agency officials have every 
incentive to sign settlements that help them rush rules out the 
door and that attempt to bind their successors in the next 
Administration. This has happened before. Vigorous oversight 
will be necessary to ensure the next Administration, which may 
have very different priorities than this one, is not bound by 
its predecessor's unwise policy choices.
    Let me conclude with a word on solutions. The Sunshine for 
Regulatory Decrees and Settlements Act would provide important 
procedural reforms to ensure that settlements setting agency 
priorities do not compromise transparency, accountability, and 
the public interest. As I discuss in my written testimony, 
Congress should also address the problem at its root by 
reforming unrealistic agency deadlines and rethinking citizen 
suit provisions for suspensions that allow outside groups to 
coerce agency actions. Even if these reforms are unlikely to be 
signed by the current President, they should be readied now for 
the possibility that the next Administration may have an 
appetite for serious regulatory reform.
    Again, I thank the Committee for the opportunity to offer 
these remarks. And I look forward to your questions.
    [The prepared statement of Mr. Grossman follows:]*
---------------------------------------------------------------------------
    *Note: The supplemental material submitted with this witness 
statement is not printed in this hearing record but is on file with the 
Subcommittee. The statement, in its entirety can be accessed at: http:/
/docs.house.gov/meetings/JU/JU05/20150519/103476/HHRG-114-JU05-Wstate-
GrossmanEsqA-20150519-U1.pdf.
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                               __________
    Mr. Marino. Thank you, sir.
    Ms. Saunders.

 TESTIMONY OF LAUREN K. SAUNDERS, ASSOCIATE DIRECTOR, NATIONAL 
                      CONSUMER LAW CENTER

    Ms. Saunders. Thank you.
    Chairman Marino, Ranking Member Johnson, and Members of the 
Subcommittee, all in one seat, thank you for inviting me.
    I'm here to testify in support of the Department of 
Justice's Operation Choke Point and to urge DOJ to do more to 
combat payment fraud.
    Last year, DOJ brought its first Operation Choke Point case 
against Four Oaks Bank and Trust, which helped process payments 
for a Ponzi scheme, an illegal gambling site, and illegal and 
fraudulent payday loans. The bank overlooked hundreds of 
consumer complaints, warnings from State attorneys general, and 
extremely high rates of payments rejected as unauthorized.
    I have not heard one word of criticism about the Four Oaks 
case itself. The bank's conduct was indefensible. Yet the case 
led to rampant speculation that DOJ was engaged in a covert 
attack on legal businesses deemed immoral.
    These concerns should have been put to rest by the two most 
recent Choke Point cases brought this past March. Commerce West 
Bank facilitated 1.3 million remotely created checks for 
telemarketing scams, medical benefit discounts card scams, and 
payday loan finder scams. In taking on the new payment 
processor account, the bank planned for and soon saw half of 
the payments rejected. Hundreds of consumers complained. 
Commerce West blocked debits from banks that complained that 
their customer was--that Commerce West's customer was targeting 
elder abuse. But Commerce West allowed the debits to continue 
at the banks that didn't complain.
    In the third case, Plaza Bank enabled tens of millions of 
dollars of Internet telemarketing schemes, fraudulent identity 
theft protection insurance, and false offers of free credit 
cards and airline tickets. The bank's COO, who was secretly a 
part owner of the payment processor, dismissed concerns from 
its compliance officer about extremely high return rates and 
complaints from banks and law enforcement. Even when new 
management was brought in, they debated whether the lucrative 
revenue outweighed the risk to the bank from the frauds.
    Again, I have heard no one question the extent of the fraud 
or the egregiousness of the banks' conduct in these cases. And, 
yet, this evidence about what DOJ is actually doing has not 
stopped criticism. Lately, pawnbrokers and gun dealers have 
complained that their accounts were closed. But I have seen no 
ties to DOJ's Operation Choke Point. Complaints about bank 
closures go back to the Bush administration, to the 2001 
PATRIOT Act. A decade ago, long before Operation Choke Point, 
the pawnbrokers complained in a letter to FinCEN in 2006, 
``Pawn industry members have lost longstanding lines of credit 
as well as demand deposit relationships in those parts of the 
country since 2004.'' Anti-money-laundering rules require 
scrutiny of accounts with high levels of cash or international 
transactions. Gun dealers are often pawnbrokers. And both may 
be cash-intensive. If a regulator finds Bank Secrecy Act 
violations or a bank spots problems, accounts may be closed 
until the problems can be fixed.
    Numerous other reasons that I outlined in my written 
testimony that have nothing to do with Operation Choke Point 
can also account for bank account closures.
    But there is one area where DOJ does deserve some credit, 
accounts used for payment fraud. And my only complaint is that 
DOJ has not done enough. With only three cases in the last 2 
years, DOJ has barely touched the tip of the iceberg. In March, 
a court fined the ringleaders of a scam who took $11 million 
illegally from seniors' accounts. What did the scammer's bank 
know? In another case, fraudulent payday lenders took $46 
million from the bank accounts of consumers who never took out 
a payday loan. What did the scammer's bank know?
    DOJ does go after scammers directly. And I've outlined many 
instances in my written testimony. But if a bank is a willing 
accomplice, choking off several scammers at once is more 
effective than playing Whack-A-Mole by chasing individual 
scammers around the globe. Choke Point is also a helpful 
reminder about how financial institutions can be and, in most 
cases, are part of the fight against fraud.
    In this age of rampant data breaches and Internet scams, 
why on earth would we criticize DOJ for using all the tools it 
has to protect the American public from fraud? Thank you for 
the opportunity to testify today. I am happy to answer your 
questions.
    [The prepared statement of Ms. Saunders follows:]
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                               __________
    Mr. Marino. Thank you.
    And, once again, all of your statements will be made of the 
full record.
    And I'm going to recognize myself for some questions. Mr. 
Johnson said he would be back.
    So, with that, let's start the questioning. And I would 
like to start with Mr. Horowitz, if you would, please. Mr. 
Horowitz, you provided such an honorable picture of your 
colleagues in the Reagan administration and in the White House. 
That appears to sharply contrast with what is taking place 
today. What do you think has changed?
    Mr. Horowitz. Well, I think Ronald Reagan understood that 
there were things more important in the end than winning a 
particular game. One had to stand for something larger than 
oneself. And I think it was reflected. I also think there was a 
quality issue. My younger colleagues, then younger, at the 
Reagan White House included two later circuit court judges, the 
CEO of Home Depot, a group of Washington all-stars, people 
making more money than even the settlement amounts paid that 
have been described here, and the Chief Justice of the United 
States. These were people for whom the rule of law meant 
something. We took it seriously. But what we got was leadership 
from the top.
    And I think that this Administration is just so eager to 
win, to score, to achieve results, that the means become 
irrelevant and the ends are. Leadership comes from the top.
    I would say one other thing. And that is that I believe--
and I'm glad Mr. Johnson is here when I say it--that Eric 
Holder has been the most lawless Attorney General since John 
Mitchell. I just do not see this notion of the rule of law 
trumping some immediate political gain. And I think that that 
has--so that the quality of the lawyers taken from the top, 
from the Attorney General, are just extraordinarily 
disappointing here. They think they're winning. I think they 
get press support for doing it whereas we used to get hit by 
the press. That was helpful to us when we got criticized by the 
press. They kept our feet to the fire. The press is not doing 
it to this Administration.
    Mr. Marino. My next question for you is, what is the long-
term damage, if any, to the system from these results-driven 
lawyers?
    Mr. Horowitz. Well, it is extraordinary. And I'm, again, 
grateful that Mr. Johnson is here because what I tried to say 
was that the issue that's raised by the misperformance of this 
Administration is not a Democrat versus Republican issue. It's 
the executive branch versus Congress issue. When Executive 
orders are issued that create whole legal regimes, Congress 
becomes irrelevant.
    You know, the reach of the Federal Government is now so 
great that you don't need Congress anymore. The President can 
say anybody who wants to deal with the Federal Government shall 
from now on do and he fills in the blank. Do this in terms of 
environmental laws. Do this in terms of discrimination. Do this 
in terms of immigration. He is not simply managing the Federal 
Government; he is legislating for the entire country with the 
stroke of a pen. I think that is dangerous to democracy. And 
it's got to stop. I also think he creates--when there's not 
that democratic process going on, the President constantly 
talks about: My authorities have expanded. I've got a pen 
that's handy, and I can just sign a piece of paper and make all 
kinds of things happen.
    I will say, Mr. Johnson, that today Democrats may applaud 
what gets done on immigration. But if that power over Executive 
orders can trump Congress, if that power to make settlements 
trumps the appropriations process, what's sauce for the goose 
is sauce for the gander. And there will be a conservative 
administration that will trump Congress just as well.
    So I think there is a real damage and risk to the whole 
process of governance because the rule of law today--and I'm 
not saying this is a venal administration--but I will say, Mr. 
Johnson, as someone who got attacked by the Ku Klux Klan when I 
was in Mississippi, I find little difference in terms of 
respect and disrespect to the law between the Attorney 
General's Office of the State of Mississippi at its worse and 
the lawyers of this Administration. I think there's nothing 
worse that can be said of this Presidency.
    Mr. Marino. Thank you.
    Mr. Epstein, the historian Paul Johnson writes that 
President Roosevelt was well known for using the IRS to punish 
political enemies. Do you see anything going on today that 
makes you fear that this is taking place with this 
Administration?
    Mr. Epstein. Well, I think what is most obvious, and this 
is a direct result of my organization's litigation against the 
Treasury inspector general for tax administration, is we know 
based off an order to TIGTA that there are 2,500 records of 
alleged unauthorized disclosures from the IRS to the White 
House. The White House has very broad means to obtain taxpayer 
information. It does that through a provision of the Tax Code. 
What is clear is the White House has never disclosed that it 
ever used these provisions. And, yet, what is obvious is that 
taxpayer information is going into the White House. And when 
you have 2,500 records of that, it--while there is, because of 
the lack of transparency on this, no direct evidence of the 
President specifically requesting that information, it is 
highly likely that there is some risks. And I think the fact 
that the President has not followed direct congressional 
statutes indicates that there may be some serious issues 
involved with this White House and taxpayer information.
    Mr. Marino. Thank you.
    Mr. Grossman, what do you say to the suggestion that 
collusive litigation is not a problem?
    Mr. Grossman. Mr. Chairman, I think my response is simply 
to look at the facts. If one looks at the 2011 settlements 
between two environmentalist groups and the Fish and Wildlife 
Service requiring the Fish and Wildlife Service to make listing 
determinations for 251 separate species within a set period of 
time, while abandoning its traditional discretion, its 
statutory discretion to defer such listings and then to 
prioritize its operations based on sound science--that's what 
the statute says--if you look at that settlement agreement, I 
think it becomes clear that what is going on here is not what 
Congress intended when it anticipated that the citizen suit 
provisions would be used to encourage agencies to undertake 
their statutory duties.
    Mr. Marino. My time has long expired. And I'm going to 
defer to the Ranking Member, Mr. Johnson. And we'll come back 
and do a second round because I don't like making you come here 
and then just do one round of questioning and then send you on 
your way, if you don't mind.
    Mr. Johnson.
    Mr. Johnson. Thank you, Mr. Chairman.
    And I thank the panelists for being here today.
    Mr. Horowitz, I realize that you are the lead witness on 
this panel. I realize you're the lead witness on this panel. 
And it was not my intent to disrespect anyone on the panel by 
having to leave out. I had a pre-arranged 3:30 event that I had 
to take care of. And so, therefore, I went ahead and did it. 
And so I missed your testimonies. So, please, don't take that 
as a sign of disrespect.
    And I do, Mr. Horowitz, feel your intensity about what you 
see as a usurping or overstepping of executive authority as you 
see it. I happen to disagree. And I'm one of those who feels 
that a strong government can promote prosperity for all. I look 
at government in terms of being an entity that protects the 
weak from the strong. And it does so through rules and 
regulations and laws. And there's a reason why the legislative 
branch is the first branch dealt with in our Constitution in 
Article I. It's a reason why the executive branch is afforded 
less attention in the founding document than the powers 
enumerated to the legislative branch. There's a reason for 
that. And I think the Framers intended for the legislative 
branch to--although we have a coequal branch or coequal setup 
of checks and balances where each branch checks the other. So, 
from that standpoint, it's equal. But I do understand the 
hierarchy that is set forth in our Constitution.
    And I would also note that, of late, our legislative branch 
has been gummed up. It hasn't really been working. The 113th 
branch--or Session of Congress was known as the most do-
nothingest branch of Congress in the history of our country. 
And when you take the number of bills that were enacted into 
law, passed and enacted into law, and this, despite the grave 
circumstances within which we find ourselves as a Nation, on a 
global level. Our challenges are unprecedented, both 
domestically and beyond our borders. And we just can't let 
things go within our borders and expect to maintain the same 
position internationally that we have enjoyed.
    And so that has given rise to some practical responses, I 
think, by the executive branch. When there is a vacuum, it has 
to be filled. And if not filled, then woe be unto the entire 
Nation. And so I don't think that there is any ulterior 
purposes by our President and our former Attorney General in 
terms of doing the work that they see that needs to be done. 
And I think both have evidenced a desire to work with Congress. 
But despite that mentality, I think both have been met by 
unprecedented levels of obstruction, particularly the 
President. It seems like anything that he does and any person 
that he puts into a position to do anything is going to be 
opposed just because it's President Obama's prerogative.
    So, you know, that's kind of where we find ourselves in my 
view. And I look at--I look at both men having proceeded out of 
love and admiration for the country and not for any other 
purpose other than to serve the people of our great Nation. 
And, fortunately, in this Nation, we can agree to disagree with 
each other. And we have elections. And we change the guard. The 
American people speak through those elections. And President 
Obama was elected twice, the second time with the same Attorney 
General as he appointed the first time. So that's kind of where 
we stand. And I certainly would have no problem with you 
responding, though my time has run out.
    Mr. Horowitz. Well, if I may comment, Mr. Johnson.
    First, we don't disagree on much that you said. We agree on 
much that you said. First, I believe in a strong Presidency. 
The Reagan administration was a very strong Presidency that 
filled in what we thought were lots of gaps. And there was 
debate on the matter.
    The part--and I agree that there are gaps now in governance 
and things that need to be done and blockages in terms of 
action. These are problematic things always in government. 
However, and this I believe is the key, if there is gridlock in 
the system, no matter how bad the consequences, it must never 
permit the President and, very particularly, the Attorney 
General to override the clear force of law. And that is what 
lawyers are there to say. We saw lots of gaps from our point of 
view in the Reagan administration. And, yet, when the Iran, 
when the Contra battle was going on, I had the unhappy task of 
making it even harder for the President to prevail in Nicaragua 
because you had passed legislation that made it impossible for 
the White House, as I viewed it, to have administration over 
that combat.
    That's where I disagree. Maybe you think ObamaCare is 
absolutely critical. And let me say I share your view that Eric 
Holder and the President operate from love of the country. I 
don't disagree with that. What I am saying is that that love 
and that frustration should never allow them and you should 
never allow them to transcend the law. How in the world do they 
justify giving billions of dollars to people in Federal 
exchanges when the law says only people in State exchanges 
could get the money? How do they justify ignoring deadlines? 
How do they justify waiving tax payments? The law is clear on 
that subject. And if there is gridlock, let me just say----
    Mr. Johnson. With all due respect, on the issue of the 
Federal versus State exchanges, I think that clearly when you 
look at the legislative intent and you construe it in 
accordance with time-honored rules of construction by the 
court, you must conclude that the legislative branch intended 
for everyone to have benefit of subsidies, regardless of 
whether or not the Federal Government or the State set up of 
the exchange.
    Mr. Horowitz. Well, let's say we disagree on that. And 
maybe after the hearing, I can give my view and you give me 
yours if you have a second. But I don't want to moot that here. 
What I really mean to say is if there is gridlock and if it is 
hurting the country and if there is impatience, it does not 
justify issuing an Executive order, as the President says: Hey, 
Congress is not acting, so I'm issuing an Executive order 
ordering clemency for illegals and putting them on a path to 
citizenship. The remedy for gridlock, the remedy for failure is 
elections.
    If there's a Republican Congress, it's a do-nothing 
Congress, do what Harry Truman did: Get them kicked out in the 
next election. But do not issue an Executive order to fill in 
the gap that Congress refused to fill in, in your judgment. 
That's what I see happening here.
    Mr. Johnson. Mr. Horowitz, if we were to take your view to 
its logical conclusion, then there should never be a single 
Executive order issued by a President.
    Mr. Horowitz. Mr. Johnson, as general counsel at OMB, I had 
primary responsibility for handling Executive orders. I've got 
5 years of the most critical experience in dealing with 
Executive orders. I am trying to--and they are necessary tools 
of the President. But I want again to make clear, the idea that 
you take, the President has waiver authority. And then you 
extend it to waive anything is just, is legislation. There is--
--
    Mr. Johnson. That's what we have a court system for though.
    Mr. Horowitz. Ah, but that's where I think my Mississippi 
experience is very important. What would happen would be the 
lawyers didn't ever have to make a decision. If the courts had 
ordered integration of the parks and then there would be pools; 
they would keep them segregated. And they would say: Well, 
let's keep them segregated. And they can litigate it. When the 
court tells us to integrate the pools, we'll integrate the 
pools.
    Mr. Johnson. And that's pretty much the way----
    Mr. Horowitz. It is not the responsibility--an 
Administration has its own responsibility to follow the law and 
to follow it carefully, no matter what the consequences and not 
simply say: Well, it goes to us, and when the courts come in, 
they'll tell us what to do. I tell you, accepting your judgment 
about love of country, that it pains me to see that the 
practices of this Administration, in terms of being constrained 
by legal mandates, is no different from what I saw in 
Mississippi during the massive resistance campaigns. I agree, 
it's a noble motive. But when--and let me say one last thing in 
terms of the rule of law: It won't work because eventually what 
is going to happen, Mr. Johnson, is that the courts are going 
to step in. We have already had a 9-nothing decision from the 
Supreme Court on recess appointments that never should have 
been allowed if lawyers had been alive here. And so, in the 
end----
    Mr. Johnson. That's something that had been taking place 
for, since----
    Mr. Horowitz. Yes, but not during congressional sessions. 
And it was a 9-nothing decision of the court. I think you are 
going to find, as the Nixon administration did, as the Southern 
States did, that extended indifference to law and I got a 
stroke of the pen and I got new authorities every day is going 
to create counter-reactions that is going to make ObamaCare 
less lasting because that is--you do not breed respect for what 
you do if you think you can do it by yourself and if you 
override Congress. I'm just telling you if----
    Mr. Johnson. Mr. Horowitz, I would love to continue our 
dialogue. But I'm doing a disservice to my Chairman, who is 
trying to run this Committee.
    And, so out of respect, I do, I must yield back.
    Mr. Marino. We'll ask another round, if you don't mind. Is 
anybody in a hurry here other than wanting to get home? Just 
bear with me. We're going to vote here shortly anyhow. Ms. 
Saunders, let me qualify my question before I ask it because, 
as a prosecutor, district attorney in my State of Pennsylvania, 
and a U.S. attorney responsible for prosecuting Federal laws 
and working for Justice and the White House, I just, whoever 
breaks the law has to pay the consequences. I have absolutely 
no problem with that. And there were banks doing that and 
probably still are. And I hope they do get caught. And they 
should be punished and not only with civil penalties but 
criminal penalties as well.
    So the issue is not that banks and other entities that are 
operating under--that are operating illegally, according to the 
rule of law. That's warranted. It's the collateral effects that 
is taking place here because of negotiations and settlements 
and how it's being done.
    When I was a prosecutor, I didn't say to someone or suggest 
to anyone that if you do things this way, we will not prosecute 
you. If you broke the law, you broke the law. So let me give 
you two examples of where there is collateral damage. And 
certainly the Justice Department and the IRS, any government 
entity that has that kind of power can simply say no, we didn't 
force someone to do this. But they've suggested in numerous 
situations not to lend to a particular individual or 
individuals or to suggest to banks that if you don't change 
your lending habit, we will shut you down. If they violated the 
law, it should have been dealt with. So there's a situation 
where ZestFinance--it's an online lending startup, funded by a 
Princeton graduate, who is the former chief information officer 
at Google. Are you familiar with ZestFinance? Maybe not. Z-E-S-
T Finance.
    Ms. Saunders. I've heard of it.
    Mr. Marino. It uses--and I'm not going to ask you to 
respond to ZestFinance particulars because there are many cases 
that I don't know about either. But ZestFinance uses 
mathematical analysis of large consumer data. It sets to offer 
loans at a far lower cost than competing products. ZestFinance 
submitted a statement to this Committee that as a result of 
Operation Choke Point, they have already had to layoff 45 
percent of their workforce. Are you aware of this?
    Ms. Saunders. Not----
    Mr. Marino. I'm not trying to get you because there are 
many cases out there.
    Ms. Saunders. I do vaguely recall testimony about Zest.
    Mr. Marino. And let me tell you why, because Zest Finance, 
being a startup company, needed financing to continue with its 
business and needed continual financing until it got to the 
point where it was generating the profits to not have to run to 
get financing. But the bank said, you know, your industry is 
not a popular industry, and we're not going to do business with 
you. And I have to believe that it's an example of Justice or 
IRS or some entity going in, saying: Hey, we don't like the way 
you're doing business.
    The rule of law isn't based on we do not like the way you 
are doing business. The rule of law is here is the statute, 
here is the law, here is the evidence that we have that you 
violated, and you will be prosecuted. Most recently, in 
November 2014, Heritage Credit Union told Hawkins Guns in 
Wisconsin that it was closing the company's account. To 
determine why, the owner called the bank manager and teller and 
recorded the conversation. The bank confirmed that officials 
from the National Credit Union Administration forced the 
closure.
    NCUA officials came in, looked at their books, looked at 
everything and said: Here are some accounts that we feel that 
we are going to regulate you on. So that put Hawkins Guns at a 
disadvantage and lost a lot of business because of it. I'm not 
sure if they went out of business. So if there was something 
wrong there, the Federal Government should have done two 
things. If they had the evidence, they should have said to 
Heritage Credit Union: You are making illegal loans, or 
whatever the situation is, you are not following the banking 
rules, and you will be prosecuted. Didn't happen, at least to 
my knowledge, not yet. And as far as Hawkins Guns, however 
they're concerned, if they were selling guns illegally or doing 
something in violation of the crimes code or sales law or not 
paying their taxes, they should have been prosecuted as well. 
And they were not.
    So you criticize opponents of the operation of Choke Point 
for making baseless claims. But these are not baseless claims. 
And I've had information from people saying: We don't want to 
publicly come out because the IRS will come after us or some 
entity will come after us.
    So this is what I'm telling you what the collateral effects 
are. But that is not the argument that this Committee is 
making. We're simply explaining it; the rule of law must be 
followed. And no government entity should be saying to someone: 
I don't think you should do this because of political reasons.
    Either you prosecute or you do not prosecute. What say you?
    Ms. Saunders. Thank you. Well, I think that as a former 
prosecutor, I am sure you also appreciate that not every 
allegation that gets thrown around is necessarily backed up by 
the evidence. And I have seen all sorts of baseless claims 
about this bank account and that bank account was closed 
because of Operation Choke Point. But I haven't seen any 
evidence that the Justice Department is pressuring any bank to 
close a lawful business.
    Mr. Marino. Okay. I'll let you finish. But you know as well 
as I do, that there are very subtle ways of getting the message 
across. And you know as a prosecutor, there are ways of dodging 
so-called, the ``terminology of the law'' to get a point 
across. Prosecutors should not be doing that, Government 
entities should not be doing ``I think you should not lend this 
company money.''
    Ms. Saunders. And I've seen no hint that that is going on. 
In the case of Heritage Credit Union, first of all, you quoted 
NCUA which, of course, is not the Department of Justice, and 
it's not Choke Point. And, of course, supervisory exams by the 
bank regulators are secret. And I think the banks like it that 
way. So they can't always talk about exactly what is going on. 
So I don't know. I do know that I think Heritage Credit Union 
sent the gun dealer a letter, saying they had some matters that 
they needed to take care of, but they would be happy to have 
the gun dealer back as a customer. I believe, if I'm not 
mistaken, that's a credit union that had recently merged and 
that had grown quite quickly. And it may be that there were 
some compliance issues with the Bank Secrecy Act.
    Mr. Marino. Now you're jumping to conclusions here.
    Ms. Saunders. And so are these dealers.
    Mr. Marino. It may be, it may be this, it may be that. And, 
yes, it's not part of the Justice Department, but it's a part 
of the Federal Government. And it should be transparent. And it 
should be open. And no games will be played. And I didn't 
tolerate it from my prosecutors. They made me look good. They 
followed the law. But when the Federal Government starts 
flexing its muscle because of political reasons, there is a 
severe problem.
    Ms. Saunders. Would you like every bank exam to be public? 
I mean, there's lots of bank examinations. I would love to see 
what is going on. Frankly, we are often frustrated because 
regulators do things quietly, you know, with the bank behind 
the scenes.
    Mr. Marino. Well, given the disaster that Dodd-Frank has 
caused, I would imagine that banks would not, even mine, exams 
being opened up to the public if they didn't have to follow 
such ridiculous regulation that has been laid out over the 
decade.
    Ms. Saunders. You know, I think a lot of these complaints 
go back to the Bush administration, have nothing to do with 
this Administration.
    Mr. Marino. I wasn't in Congress during the Bush 
administration. If I were, I would be holding the Bush 
administration responsible for that. There is something--here's 
my premise about being a Congressman: I want to improve the 
quality of life for Americans. I think there is too much 
regulation. And I don't care if it's a Republican President; I 
don't care if it's a Democrat President. I'm the type of 
individual, as I took an oath as a prosecutor--I was a 
prosecutor for 18 years. That's still in my mind, and that's 
still ingrained in me. Again, I don't care what Administration, 
if I were around or if I will be around when there's a 
Republican President and I think that they are circumventing 
the system, breaking the law or trying to play some games, I 
will be the first one leading the charge on taking them on.
    Ms. Saunders. Right. My point is that it's easy to 
attribute motives. But back, in 2006, CFSA, which represents 
payday lenders said--this is in 2006--for the past 6 years 
banks have been abandoning us, first in a trickle, then 
continuously accelerating so that now few banks are willing to 
service us.
    Now, I don't think anybody thought that the Bush 
administration was on a moral crusade against payday lenders. 
It's easy to attribute motives, but I think we have a serious 
problem with funding of terrorists and drug dealers that move 
cash around. And, unfortunately, you know, there are rules that 
impact all of us. And, you know, the conversation whether we 
have too much regulation or not enough regulation is, you know, 
is another conversation. You know, the Justice Department is 
not passing regulations here. Frankly, I think that better 
regulation would have saved us hundreds of billions of dollars, 
and a Great Recession, and communities devastated, and 
countries around the world are on the verge of collapse and so 
I----
    Mr. Marino. I'm going to respectfully disagree with your 
opinion, but I hear it constantly, not only from my 
constituents but small businesses and large businesses and 
medium businesses, that regulation is killing them, regulations 
that I could explain here. You look up my record, it's on 
record, example after example after example of regulation. But, 
again, I don't care what Administration it is; there is, at 
this point, businesses are being so regulated that they are 
going out of business. And you talk about--you really don't 
want to open a can the worms when you talk about terrorism and 
funding of terrorism with this Administration. We don't have 
the time to go into that, but I'd love to have that debate with 
you some day.
    Ms. Saunders. I just ask you not to believe every headline.
    Mr. Marino. Believe me, I don't. And that's another thing, 
as a prosecutor, I take with a pound of salt what someone tells 
me, what evidence is there. And you have to do a lot of work 
and research. And, as a prosecutor, just continually root out 
what evidence that is brought to your attention, so-called 
evidence, to make sure that when you go into the courtroom, 
you're not doing something, presenting any evidence that is 
just not so. And this Administration and the departments have 
been--the Justice Department has been accused of doing this, 
not being straightforward with judges. And it's not one judge; 
it's several judges. I can--if, as a prosecutor, if any one of 
my staff or I were publicly chastised and accused by a Federal 
judge, let alone several Federal judges, that the issue was--is 
still being litigated, I would be devastated. I would 
absolutely be devastated because we're officers of the court. 
There's a rule of law, and if nowhere else--which I think 
should be done in other areas--you don't try to pull the wool 
over someone in a courtroom. So, with that----
    Ms. Saunders. Well, I would just say that I think the best 
evidence on Choke Point--the best evidence of what they are 
doing is what they've actually done, three, you know, sound 
cases that we should all be standing up and applauding them 
for. We should be thanking the financial institutions that are 
doing their duty, which is most of them. We should be thanking 
the bank conferences that I see agenda, people talking about: 
Hey, here are the red flags; these are things you can look out 
to.
    And people are there listening because they want to 
cooperate----
    Mr. Marino. But here are the red flags, but here are the 
red flags, but instead of us finding you, why don't you donate 
money to a particular organization, that yet--we're going to 
have hearings on that as well.
    So, with that, I'm going to defer to was it Mr. Epstein or 
Mr.--raising your hand?
    Mr. Horowitz.
    Mr. Horowitz. If I could indulge, because I really----
    Mr. Marino. Just for a moment.
    Mr. Horowitz. Just be very short. I really want to come 
back to Mr. Johnson, and I want to say the following: First, 
the President and the Attorney General act out of love for 
their country, I share your view.
    What I criticize is not their pursuit of politics but their 
pursuit of policies that they believe in and believe are deeply 
needed. But I think they risk all when they go through stroke-
of-the-pen kinds of practices to fill in what they see as the 
gap. They risk their reputation. They risk backlash from the 
courts and Congress. They risk making the policies that they 
care about become impermanent rather than permanent. That's the 
lesson of the Reagan, as I say, as against the Nixon 
administration in terms of the importance of rule of law.
    They weaken what makes a democracy really work. And so if I 
were advising this President as a senior lawyer, I would say 
the same thing we did in the Reagan administration, it may hurt 
now what happens, but the long-term consequence of patience, of 
respect for law, wins you a lot more than you'll lose. The 
remedy for gridlock is elections, not saying: I've got new 
authorities that I've just discovered; I've got a pen ready to 
sign anything.
    I think we're going to need reform now as a result of this 
practice of Executive orders, of lots of practices of this 
President. And I think these--less discretion is going to be 
given to the Presidency because the performance of this 
Administration and a failure to follow the rule of law.
    Mr. Johnson. Mr. Horowitz, I believe that any 
Administration will fill the vacuum, the void, left by 
congressional inaction when it comes to what needs to be done 
for the benefit of this country. And we may view--we may have 
different views. Some of us come from an anti-regulatory 
philosophical bent of mind like Charles and David Koch. I mean 
they are free-market, no-regulation, laissez-faire folks. And 
that's a philosophy that has taken hold in Congress and has 
been here for decades now, predominantly. And that's what led 
to the Great Recession, in my opinion--an anti-regulatory, 
hands-off approach, ``let the free market settle everything.'' 
And when it all boiled down, the free market needed a bail out. 
And this economy and thus the world economy was teetering on 
the brink of disaster. And woe and behold the free-marketers 
came to Congress and asked for the American people to bail them 
out. And the American people bailed them out.
    I didn't vote for the bailout because I didn't think that 
it was--the $700 billion was adequately restricted or 
conditioned. There were not enough congressional conditions on 
the use of that money. And so, therefore, the banks that 
created the Great Recession themselves in a deregulated 
environment because there was no restriction between the 
investment and the commercial side, and that investment side 
took over. The American taxpayers were on the hook for $250,000 
per account. And we had to bail them out like that. We had to 
bail out the banks to that extent. But on the investment side, 
it got much deeper, and we had to bail out the whole thing.
    And so the American people bailed out the banks, gave them 
money. What did they do? The too big to fail got even bigger 
and too bigger to fail. And what about the homeowners? What 
about the homeowners--what about the homeowners on whose backs 
the crushing weight of the recession hurt most? They were not 
bailed out. But, nevertheless, we're still in an antiregulatory 
environment.That's what controls Congress now. That's the 
mindset of Congress. And it has led to a do-nothing Congress.
    And, Mr. Epstein, you are an alumnus of the Koch brothers 
associates program, correct? That's not C-o-k-e; K-o-c-h, the 
Koch brothers.
    Mr. Epstein. I used to work at the Charles Koch Foundation.
    Mr. Johnson. Uh-huh. And you are an alumnus of the Koch 
associates program, correct?
    Mr. Epstein. That's correct.
    Mr. Johnson. And can you tell us what--tell us about that 
program.
    Mr. Epstein. It is a----
    Mr. Johnson. It instills free-market principles in those 
who come through it?
    Mr. Epstein. Yeah. Actually, those who go through that 
program believe, I think like you do, that the government 
should be accountable, fair, and transparent.
    Mr. Johnson. And they also believe that there should not be 
a government that takes a lot of aggressive action. You favor a 
more laissez-faire approach to the economy.
    Mr. Epstein. Well, it's interesting, Mr. Johnson----
    Mr. Johnson. Is that true?
    Mr. Epstein. You--well, I can't speak on their behalf. I 
can only tell you that my organization and why--I'm here to 
testify, to talk about
    Mr. Johnson. Cause of Action.
    Mr. Epstein [continuing]. In the Federal Government.
    Mr. Johnson. Cause of Action.
    Mr. Epstein. That's correct, sir.
    Mr. Johnson. Now, there was a 2015 article, a February 2015 
article, in the Los Angeles Times that notes that critics of 
Cause of Action call it a sophisticated charade, saying the 
lawyers trawl for clients like Fuel Cell, whose cases enable 
them to pursue a Koch brothers agenda in the guise of helping 
individuals or small firms that liberals might find 
sympathetic.
    Is that true, or is that false?
    Mr. Epstein. Yeah, that's false. Cause of Action, we are 
committed, just like what you pointed out, which is there is an 
antiregulatory bias in the Federal Government. That's exactly 
what's happening. Choke Point is a policy that has no 
regulation. It's not subject to notice and comment. The Bank of 
America settlements were not subject to notice and comment. 
These were unelected officials engaging in decisionmaking that 
the public had no stake in. I believe that----
    Mr. Johnson. You don't think that Federal agencies should 
have the ability to take wrongdoers to civil courts to obtain 
civil remedies?
    Mr. Epstein. I absolutely do. But neither in the case of 
Choke Point nor in the case of Bank of America was there any 
court involvement at all. In the case of Bank of America, that 
settlement agreement was never approved by a court. As you 
pointed out in your arguments about arbitration, you actually 
believe in a very robust court system. Yet that robust court 
system has nothing to do with the programs and policies that 
have been discussed here today.
    Now just simply point out----
    Mr. Johnson. But the parties agreed to it, though, didn't 
they?
    Mr. Epstein. Well, and I think that's exactly the point. 
You know, the banks that agreed----
    Mr. Johnson. There was nobody holding a gun to anybody's 
head to make them do something.
    Mr. Epstein. Well, I think that Congressman Johnson, that 
the banks that agreed to the settlements and the slush fund, 
it's no surprise that these are banks that also accepted 
payments from the bailout. These are also banks that have the 
groups that they are going to be funding, they are groups that 
these banks' foundations have funded in the past. You yourself 
said that strong government ensures prosperity for all. Well, 
what strong government means is that the banks are the only 
ones who can afford to understand the cost of government 
decisions.
    Mr. Johnson. All I know is that $700 billion in taxpayer 
funds and a $30 million agreement for Bank of America and 
Citigroup to donate to HUD-approved housing counseling 
agencies, I mean that's--that's just--we're sitting here--I 
mean, we're comparing ants to elephants.
    And, with that, and I do wish we could have further 
dialogue, but I know that the Chairman wants to adjourn this 
hearing.
    And, with that, I yield back.
    Before I do that, though, I would like to tender for the 
record, by unanimous consent, an article from The Hill entitled 
``Is Operation Choke Point to Blame for Bank Account 
Closures?'' And also a coalition letter on Operation Choke 
Point to the U.S. House of Representatives.
    Mr. Marino. Without objection.
    [The information referred to follows:]
    
    
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    Mr. Johnson. Thank you.
    Mr. Marino. Ladies and gentlemen, this concludes our 
hearing for today. I want to thank you for the time that you've 
spent here and the lively debate. I've learned things, and I 
try to learn something every time we have hearings. Again, 
thank you for attending, and you are excused.
    And this hearing is concluded.
    [Whereupon, at 4:30 p.m., the Subcommittee was adjourned.]
                            
                            A P P E N D I X

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               Material Submitted for the Hearing Record

Response to Questions for the Record from Benjamin C. Mizer, Principal 
 Deputy Assistant Attorney General, Civil Division, U.S. Department of 
                                Justice
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


Response to Questions for the Record from the Honorable John C. Cruden, 
Assistant Attorney General, Environment and Natural Resources Division, 
                       U.S. Department of Justice
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    Questions for the Record submitted to Caroline Ciraolo, Acting 
 Assistant Attorney General, Tax Division, U.S. Department of Justice*
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    *Note: The Subcommittee did not receive a response from this 
witness at the time of the filing of this hearing record.
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   Response to Questions for the Record from Clifford J. White, III, 
         Director, Executive Office for United States Trustees

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     Response to Questions for the Record from Andrew M. Grossman, 
  Adjunct Scholar, Cato Institute, Associate, Baker & Hostetler L.L.P.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


     Response to Questions for the Record from Lauren K. Saunders, 
            Associate Director, National Consumer Law Center

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