[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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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
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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:]
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__________
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:]*
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*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
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Response to Questions for the Record from Clifford J. White, III,
Director, Executive Office for United States Trustees
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
[all]