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


                STOP SETTLEMENT SLUSH FUNDS ACT OF 2016

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                           REGULATORY REFORM,
                      COMMERCIAL AND ANTITRUST LAW

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                                   ON

                               H.R. 5063

                               __________

                             APRIL 28, 2016

                               __________

                           Serial No. 114-69

                               __________

         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

                      Slade Bond, Minority Counsel
                            
                            
                            
                            C O N T E N T S

                              ----------                              

                             APRIL 28, 2016

                                                                   Page

                            TEXT OF THE BILL

H.R. ____, the ``Stop Settlement Slush Funds Act of 2016''.......     3

                           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     5
The Honorable Bob Goodlatte, a Representative in Congress from 
  the State of Virginia, and Chairman, Committee on the Judiciary     6
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, and Ranking Member, Committee on 
  the Judiciary..................................................     7

                               WITNESSES

The Honorable Daniel E. Lungren, Esq., Principal, Lungren Lopina 
  LLC
  Oral Testimony.................................................    10
  Prepared Statement.............................................    13
Paul F. Figley, Esq., Professor, Associate Director of Legal 
  Rhetoric, American University Washington College of Law
  Oral Testimony.................................................    28
  Prepared Statement.............................................    30
David M. Uhlmann, Esq., Director, Environmental Law and Policy 
  Program, The University of Michigan Law SchooL
  Oral Testimony.................................................    43
  Prepared Statement.............................................    45

                                APPENDIX
               Material Submitted for the Hearing Record

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...................................    72
Response to Questions for the Record from David M. Uhlmann, Esq., 
  Director, Environmental Law and Policy Program, The University 
  of Michigan Law SchooL.........................................    79
H.R. 5063, the ``Stop Settlement Slush Funds Act of 2016''.......    82

 
                    STOP SETTLEMENT SLUSH FUNDS ACT 
                                OF 2016

                              ----------                              


                        THURSDAY, APRIL 28, 2016

                       House of Representatives,

                  Subcommittee on Regulatory Reform, 
                      Commercial and Antitrust Law

                      Committee on the Judiciary,

                            Washington, DC.

    The Subcommittee met, pursuant to call, at 10:07 a.m., in 
room 2141, Rayburn House Office Building, the Honorable Tom 
Marino (Chairman of the Subcommittee) presiding.
    Present: Representatives Marino, Goodlatte, Walters, 
Ratcliffe, Johnson, and Conyers.
    Staff Present: (Majority) Dan Huff, Counsel; Andrea 
Lindsey, Clerk; and (Minority) Slade Bond, Minority Counsel.
    Mr. Marino. The Subcommittee on Regulatory Reform, 
Commercial and Antitrust Law will come to order. Good morning, 
everyone.
    Without objection, the Chair is authorized to declare a 
recess of the Committee at any time.
    We welcome everyone to today's hearing on H.R. 5063, the 
``Stop Settlement Slush Funds Act of 2016.''
    And I now recognize myself for an opening statement.
    The bill's title sums up the issue. A Judiciary Committee 
investigation has revealed that DOJ is requiring settling 
parties to donate money to third-party groups. At issue are 
large sums of money; close to $1 billion in just the last 2 
years. Of that, over half-a-billion has already been disbursed 
or is committed to be disbursed.
    I purposely did not make this hearing about groups that 
received the money. I did not want to distract from the central 
issue, and I feel the central issue is the harm that these 
provisions do to Congress as an institution. The spending power 
is Congress' most effective tool in reining in the executive 
branch. This is true no matter which party is in the White 
House.
    A Democrat-led Congress passed the Cooper-Church Amendment 
to end the Vietnam war. More recently, Congress used a funding 
restriction to prevent the transfer of Guantanamo Bay prisoners 
to the United States mainland. Bipartisan funding restrictions 
were passed to block lavish salary and conference spending by 
Federal agencies and grantees. This policy control is lost if 
the Executive gains authority over spending.
    Serious people on both sides of the aisle understand this. 
Consider Todd Peterson, former Deputy Assistant Attorney 
General for the Office of Legal Counsel in the Clinton 
administration. He warned in 2009, that ``because the 
Department of Justice has such broad settlement authority, it 
has the ability to use settlements to circumvent the 
appropriations authority of Congress.'' In 2008, a top 
Republican DOJ official circulated a memo to Federal 
prosecutors restricting mandatory donation provisions, because 
they can ``create actual or perceived conflicts of interest and 
or other ethical issues.''
    So, again, serious people understand that this is 
fundamentally a bipartisan, institutional issue. Indeed, the 
language on which this bill is based passed the House last 
year, by a voice vote.
    The ``Stop Settlement Slush Funds Act of 2016'' prohibits 
settlement terms that require donations to third-parties. It 
states explicitly that payments to provide restitution for 
actual harm, directly caused, including harm to the 
environment, are not donations.
    As a former Federal prosecutor, I am acutely aware of the 
needs of DOJ in negotiating settlements. Now, as a Congressman, 
I am also aware that a line has to be drawn. This commonsense 
bill merely ensures that settlement money goes either to direct 
victims or to the U.S. Treasury so that the people's elected 
Representatives can decide how best to spend it.
    I understand we could differ on the details, but today is 
not a markup. This is an opportunity to hear from expert 
witnesses to ensure that the legislation has the proper scope. 
Let's work together from a common premise. So I call on my 
colleagues to join me in defending the fundamental principle: 
Elected, accountable Members of Congress should decide how 
Federal funds are spent.
    I am pleased that every Republican Subcommittee Member is 
already a cosponsor. I hope my Democratic colleagues will soon 
join this important effort.
    I thank our witnesses for appearing and look forward to the 
discussion.
    [The text of the bill, H.R. 5063, follows:]
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                   __________
    
    Mr. Marino. The Chair now recognizes the Ranking Member of 
the Subcommittee on Regulatory Reform, Commercial and Antitrust 
Law, Mr. Johnson of Georgia, for his opening statement.
    Sir.
    Mr. Johnson. Thank you, Mr. Chairman.
    H.R. 5063, the ``Stop Settlement Slush Funds Act of 2016,'' 
would remove an important civil enforcement tool available to 
agencies to hold corporations accountable for the general harm 
caused by unlawful conduct and would create waves of 
uncertainty, delay, and needless litigation in the enforcement 
of civil law.
    H.R. 5063 would have potentially disastrous consequences on 
the remediation of generalized harms in civil enforcement 
actions. For unlawful conduct with systemic harms, such as 
environmental catastrophe--or an environmental catastrophe, 
settlements provide a mechanism to provide for the remediation 
of generalized harms through offsets and other indirect 
remedies. Similarly, parties seeking to regain public trust may 
also wish to include voluntary auditing requirements in 
settlement agreements that ensure that similar violations do 
not occur in the future.
    Joel Mintz, an expert in environmental law and enforcement, 
observes that these settlements ``can create a win-win scenario 
for all parties involved, including regulators, regulated 
companies, and local communities,'' by creating a flexible 
regulatory climate and repairing ``corporate public images that 
would otherwise be further harmed by negative environmental 
publicity.''
    For example, in 2012, the Mitsui Oil Exploration Company 
settled its liability for violations of the Clean Water Act 
resulting from the Deepwater Horizon oil spill. In addition to 
civil penalties, Mitsui Oil agreed to facilitate land projects 
in several States, including Texas, Mississippi, Alabama, 
Louisiana, and Florida, to conserve critical habitat within the 
Gulf of Mexico.
    In this case and others like it, donations under settlement 
agreements serve as a critical tool to remedy a general harm 
and provide the settling party with an opportunity to re-earn 
the public's trust. H.R. 5063 would eliminate these donations 
in both existing and future settlement agreements. This is true 
even in cases where the settling party seeks a donation to 
offset its unlawful conduct or where a party's harmful conduct 
could not otherwise be remedied.
    This legislation is also an unwarranted encroachment on the 
prosecutorial discretion of civil enforcement agencies. The 
exercise of enforcement discretion is a traditional power of 
executive branch agencies. This authority provides broad 
prosecutorial flexibility to civil enforcement agencies when 
crafting settlement agreements within the scope of their 
statutory authority.
    It is little surprise that the Supreme Court has 
consistently held that the exercise of such discretion is a 
core function of the Executive's power under the take-care 
clause, as it did in Heckler v. Chaney, where the Court 
observed that the characteristics of a decision of a prosecutor 
in the executive branch have long been regarded as the special 
province of the executive branch inasmuch as it is the 
executive branch who is charged by the Constitution to take 
care that the laws be faithfully executed.
    Under this constitutional norm, agencies' prosecutorial 
discretion to settle potential civil actions extends to 
requiring donations in settlement agreements. Additionally, 
settlement agreements may exceed the remedies identified in an 
agency's underlying statute so as long as they relate to the 
agency's statutorily authorized prosecutorial objectives, which 
generally requires that donations have a sufficient nexus 
between the underlying violation and the proposed remedy. H.R. 
5063 represents a severe departure from these core principles, 
raising separation-of-powers concerns and threatening to 
curtail agency discretion in the enforcement of the law.
    In closing, I'd like to thank our witnesses for appearing 
today. I'd like to welcome our former colleague Dan Lungren 
back to the other side.
    And I yield back the balance of my time.
    Mr. Marino. Thank you.
    The Chair now recognizes the Chairman of the full Judiciary 
Committee, Mr. Bob Goodlatte of Virginia, for his open 
statement.
    Mr. Goodlatte. Well, thank you, Mr. Chairman. I appreciate 
your holding this hearing.
    Eighteen months ago, this Committee commenced a ``pattern 
or practice'' investigation into the Justice Department's 
mortgage lending settlements. We found that the Department of 
Justice is systemically subverting Congress' spending power by 
requiring settling parties to donate money to activist groups.
    In just the last 2 years, the Department of Justice has 
directed nearly a billion dollars to third-parties entirely 
outside of Congress' spending and oversight authority. Of that, 
over half a billion has already been disbursed or is committed 
to be being disbursed. In some cases, these mandatory donation 
provisions reinstate funding Congress specifically cut.
    Whether the beneficiaries of these donations are worthy 
entities or not is entirely beside the point. The Constitution 
grants Congress the power to decide how money is spent, not the 
Department of Justice. This is not some esoteric point. It goes 
to the heart of the Separation of Powers theory and Congress' 
ability to rein in the Executive in practice.
    Certainly, the Department of Justice's authority to settle 
cases necessarily includes the ability to obtain redress for 
victims. However, Federal law understands victims to be those 
``directly and proximately harmed'' by a defendant's acts. Once 
those victims have been compensated, deciding what to do with 
additional funds extracted from defendants becomes a policy 
question properly decided by elected Representatives in 
Congress, not agency bureaucrats or prosecutors. It is not that 
Justice Department officials are necessarily funding bad 
projects. It is that, outside of compensating actual victims, 
it is not their decision to make.
    We have brought these reasonable concerns to the Department 
of Justice. But rather than suspend the practice of mandatory 
donations, DOJ has doubled down. Just 2 weeks ago, a major DOJ 
bank settlement required $240 million in ``financing and/or 
donations'' toward affordable housing.
    It is time for Congress to take action to end this abuse.
    The ``Stop Settlement Slush Funds Act of 2016'' bars 
mandatory donation terms in DOJ settlements. It is a bipartisan 
bill.
    It makes clear that payments to provide restitution for 
actual harm, directly caused, are not donations. It explicitly 
references the environmental context where the injury to the 
environment may be diffuse and there may be no identifiable 
victims. The bill deals with this by explicitly permitting 
payments to remediate environmental damage. If direct 
remediation of the harm is impossible or impractical, the 
violator is not let off the hook. The full penalty is paid, but 
into the Treasury.
    The principle is clear, but the details need to be studied. 
I am pleased that we have an expert panel today to offer views. 
I am particularly interested to hear their thoughts on the 
scope of the bill. It covers civil settlements. Is that 
sufficient? What about the language permitting remediation of 
harm ``directly and proximately'' caused? Does this impose a 
sufficiently tight nexus between the payment and the offense to 
prevent further DOJ mischief?
    So I am eager to hear from our witnesses, and I thank them 
for coming. And I also want to thank all of the bill's 
cosponsors, particularly Chairman Marino, Representative 
Peterson, Chairman Culberson, and every Republican Member of 
this Subcommittee.
    And it's also a pleasure to welcome back to the Judiciary 
Committee my longtime friend and former colleague, Dan Lungren, 
who I'm sure has a keen interest and insight into this issue. 
And I welcome the other witnesses today as well.
    Thank you, Mr. Chairman. I yield back.
    Mr. Marino. Thank you.
    The Chair recognizes the full Judiciary Committee Ranking 
Member, Mr. Conyers of Michigan, for his opening statement.
    Mr. Conyers. Thank you, Chairman Marino.
    And I join all of us in welcoming back Dan Lungren in his 
newer capacity. He was an outstanding Member of the Judiciary 
Committee, and we look forward to his testimony.
    Today's hearing concerns legislation that would prohibit 
the enforcement or negotiation of any settlement agreement 
requiring donations to remediate harms that are not directly 
and proximately caused by a party's unlawful conduct.
    The proponents of this bill assert that the Justice 
Department and civil enforcement agencies used such settlement 
agreements to unlawfully augment their own budgets as an end-
run around the congressional appropriation process.
    I believe that this bill is a seriously misguided effort 
for a number of reasons.
    To begin with, these settlement agreements have been 
successfully used, for example, to facilitate an effective 
response to the predatory and fraudulent mortgage lending 
activities that nearly caused the economic collapse of our 
Nation. Settlement agreements with two of these culpable 
financial institutions, Bank of America and Citigroup, require 
a donation of less than 1 percent of the overall settlement 
amount to help affected consumers.
    The majority initially claimed, however, that the Justice 
Department used these settlement agreements as a vehicle for 
funding activist groups. Notwithstanding the production of 
hundreds of pages of documents by the Justice Department, along 
with hundreds of pages of documents produced by private 
parties, the majority's investigation has not produced any 
evidence that the government included unlawful or politically 
motivated terms in its settlement agreement with Bank of 
America or Citigroup, let alone slush funds.
    In the absence of any facts to support their initial claim, 
the majority now asserts that the Justice Department and other 
agencies have augmented their appropriations through civil 
enforcement. But existing law already prevents agencies from 
augmenting their own funds through civil enforcement. These 
laws require that donations in settlement agreements have a 
clear nexus to the prosecutorial objectives of the enforcement 
agency. And both the Government Accountability Office and the 
Congressional Research Service conclude that the settlement 
agreements providing for secondary remediation do not violate 
Congress' constitutional power of the purse.
    And, finally, I'm also very concerned that this measure 
will have potentially disastrous consequences on the 
remediation of systemic harms in civil enforcement actions. 
Settlement agreements allow parties to resolve their civil 
liability by voluntarily remediating the harms caused by their 
conduct. In the context of environmental enforcement actions, 
for example, parties may voluntarily agree to undertake 
restoration projects to protect local ecosystems in order to 
offset environmental damage.
    Moreover, for some unlawful conduct, such as, for example, 
employment discrimination, secondary remediation of harms may 
be the only remedy available for systemic violations of the 
law. Employment discrimination lawsuits typically affect the 
interests of employees who are not parties to an action. 
Secondary remediation in these cases serves as an important 
tool to protect victims of workplace harassment and establish 
lawful workplace norms through voluntary compliance and 
training programs.
    So you can see I have some serious concerns about this 
legislation, but I thank our witnesses for being with us today, 
and I look forward to hearing their testimony.
    Mr. Chairman, I yield back.
    Mr. Marino. Thank you.
    Without objection, other Members' opening statements will 
be made part of the record.
    I will begin by swearing in our witnesses before I 
introduce them.
    Would you please stand and raise your right hand?
    Thank you.
    Do you swear that the testimony you are about to give 
before this Committee is the truth, the truth, and nothing else 
but the truth, so help you God?
    Please be seated.
    Let the record reflect that all the witnesses have 
responded in the affirmative.
    And I'm going to just take several minutes to introduce all 
three of you at once, and then we'll start with Congressman 
Lungren, but I like to refer to you as ``General,'' because you 
know how we prosecutors are. As a matter of fact, all of you as 
along those lines.
    But Daniel Lungren is a principal at Lungren Lopina LLC. 
Mr. Lungren has served nine terms as a Member of the U.S. House 
of Representatives from California, as well as two terms as 
attorney general of California. In Congress, he was a Member of 
the House Judiciary Committee, House Intelligence Committee, 
and was a senior Member of the House Committee on Homeland 
Security, where he worked on a number of important legislative 
reforms.
    As attorney general, Mr. Lungren led an office of nearly 
1,000 lawyers with an annual criminal and civil caseload of 
approximately 50,000 cases. In that capacity, Mr. Lungren 
achieved record settlements under California's environmental 
laws, including the largest environmental settlement up to that 
time in California in a toxic spill case. He also won two of 
the largest settlements ever under the Federal Clean Water Act 
and the Federal Superfund law.
    Mr. Lungren earned his bachelor's degree from the 
University of Notre Dame and his law degree from Georgetown 
University Law Center.
    Welcome, Congressman.
    Professor Paul Figley is the associate director of the 
legal writing and rhetoric program and professor of law at the 
American University Washington College of Law.
    Prior to joining the faculty at Washington College of Law, 
Professor Figley served as a U.S. Department of Justice 
litigator for three decades, with the last 15 years as Deputy 
Director in the Torts Branch of the Civil Law Division. At 
Justice, Professor Figley represented the United States and its 
agencies involving tort, national security, and informational 
law.
    Professor Figley earned his bachelor's degree from the 
Franklin and Marshall College and his law degree from the 
Southern Methodist University School of Law.
    Welcome, Professor.
    Professor David Uhlmann--am I pronouncing that correctly, 
sir?
    Mr. Uhlmann. You are, sir.
    Mr. Marino [continuing]. Is the director of the 
environmental law and policy program at the University of 
Michigan Law School and is the Jeffrey F. Liss Professor from 
Practice.
    Prior to joining the Michigan faculty, Professor Uhlmann 
served for 17 years at the United States Department of Justice 
and the last 7 as Chief of the Environmental Crime Section, 
where he chaired the Justice Department's Environmental Crimes 
Policy Committee.
    Professor Uhlmann has published in various national 
publications and leading law journals and has testified before 
Congress. Professor Uhlmann graduated with a bachelor's degree 
in history, with high honors, from Swarthmore College, and a 
law degree from Yale Law School.
    Professor, welcome.
    Mr. Uhlmann. Thank you, sir.
    Mr. Marino. Each of the witnesses' written statements will 
be entered into the record in its entirety.
    I ask that each witness summarize his testimony in 5 
minutes or less. And to help you state within that 5 minutes, 
there are light in front of you. But as I do on occasion when 
I'm out there making a statement, I pay no attention to the 
lights. So what I will do is very diplomatically sort of pick 
up the hammer here and just give a little tap and ask--by doing 
that, asking you to wrap up.
    So I will now recognize the former attorney general of 
California, former Congressman, the Honorable Dan Lungren, for 
his opening statement.

TESTIMONY OF THE HONORABLE DANIEL E. LUNGREN, ESQ., PRINCIPAL, 
                       LUNGREN LOPINA LLC

    Mr. Lungren. Thank you, Mr. Chairman. And thank all Members 
of the Subcommittee, particularly the Chairman of the full 
Committee, the Ranking Member of this Committee, the Ranking 
Member of the full Committee, who I refer to as Chairman 
emeritus from time to time.
    Like many--well, first of all, let me just say I'm going to 
try and give a perspective of both a former Member of Congress 
and attorney general in this matter. And like many of you, I 
have observed with concern the American public, who appears to 
have lost some considerable faith with the present state of our 
politics and governance.
    In other words, a healthy skepticism of government, which I 
believe is enshrined in our opening documents--founding 
documents, has been replaced in some cases with outright 
cynicism, and that is in fact harmful to our democracy. There 
are many reasons for this corrosive development, but they are 
too numerous to mention here, but I do believe they establish a 
context for a discussion today.
    I fear the growing trend in law enforcement is contributing 
to the erosion of the public's trust that it will receive 
impartial and fair justice. And I think also, particularly in 
the case that we are talking about here today, it is intruding 
on the core prerogatives of the Congress as well.
    There are about four points that I make in my written 
presentation. The first deals with the specific subject matter 
we're talking about here, where executive branch agencies now 
use settlements of enforcement actions to fund private parties 
whose activities further the policy and, I believe, in some 
cases, the personal goals of the agency officials.
    Secondly, law enforcement officials and their offices 
increasingly have a direct financial stake in the outcome of 
prosecutions. At the Federal level, we talk about asset 
forfeiture and equitable sharing programs which allow law 
enforcement agencies to retain a share of their forfeiture 
proceedings.
    Let me be clear. I was present at the creation of the 1984 
iteration of that law and proudly claim some share of 
authorship. But I think abuses have arisen, and they must be 
dealt with, and I think this Congress must review them in some 
detail.
    Third, such practices have not been limited to the Federal 
Government. State enforcement officials, including State 
attorneys general, have used settlements to fund their own 
operations and create new grant programs outside their State 
legislative processes and sometimes in conjunction with the 
Federal Government.
    Fourthly, there is a modern 24 news--24-day news cycle 
that's transformed the public information domain and how public 
officials act. The pressure is even greater on public 
officials, particularly those who are law enforcement. How do 
we help them make sure that they are doing justice? How do we 
help them make sure that they are making their decisions 
without fear or favor?
    I think there are at least three things we ought to look 
at: clear rules of the road; secondly, defendants given a fair 
chance to defend themselves rather than being subjected to 
multiple overlapping enforcement actions that leave no choice 
in some cases but an unfair and unjust settlement; and 
punishments should fit the offense. And Congress--it ought to 
be looked as to whether or not we have excessive demands that 
are coercing settlements from the innocent.
    Let me go back to my first point and the subject of 
specific legislation before this Committee. Does anyone believe 
that these donations are freely given, voluntary expressions of 
support for these organizations? No, they're coerced--coerced 
payments to the entities mandated by the officials acting with 
the full power and majesty of the government.
    Let me just give a few examples of these grant phenomenas.
    In 2012, the Department of Justice forced Gibson Guitars to 
pay a $50,000 community service payment to the National Fish 
and Wildlife Foundation even though the foundation was not a 
victim of the alleged crime and had no direct connection with 
the case. It was simply a nongovernmental organization that DOJ 
employees liked.
    In 2006, the DOJ forced a wastewater plant that had been 
accused of violating the Clean Water Act to give a million 
dollars to the United States Coast Guard Alumni Association. 
Looking at the case, I can find that the association had 
absolutely no connection and had suffered no harm, direct or 
indirect.
    This Committee, I think, is to be commended for your 
investigation into the contours of DOJ settlements with our 
country's largest banks. Look, we could go through detail after 
detail on this, but the Bank of America settlement is most 
curious to me. The bank was to set aside $490 million to pay 
any potential tax liability to be incurred by their customers 
occasioned by loan modification or forgiveness. In other words, 
if there is a forgiveness, the net result of the forgiveness is 
viewed as an income to the individual who held the loan, and 
the government comes after them for taxes.
    So I can understand why that was done. However, Congress, 
in its infinite wisdom--I always thought we were going to do 
this--extended the non-tax liability in those cases. So what 
happened to the $490 million? Well, they were donated to the 
NeighborWorks America and Interest on Lawyers Trust Accounts 
groups.
    Look, some of us here, those on the Committee and I, might 
agree with the worthiness of these organizations. However, is 
that the Department of Justice's decision to make? I would 
argue that under the Constitution it is not. I would argue that 
in my years in Congress I saw some of the core prerogatives of 
the Congress ceded either by omission or comission to the 
executive branch.
    And, thirdly, I would just say that, as the American people 
are looking at their institutions of governance on all levels, 
Congress ought to at least follow the Constitution. And as 
Senator Byrd said, appropriations go to the legislative branch 
because it is the most open and responsive or representative 
branch of our government. So we're talking about accountability 
and transparency.
    Thank you for your consideration.
    [The prepared statement of Mr. Lungren follows:]
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
            
                   __________
    
    Mr. Marino. Thank you.
    Professor Figley, please.

    TESTIMONY OF PAUL F. FIGLEY, ESQ., PROFESSOR, ASSOCIATE 
  DIRECTOR OF LEGAL RHETORIC, AMERICAN UNIVERSITY WASHINGTON 
                         COLLEGE OF LAW

    Mr. Figley. Thank you, Mr. Chairman and Members of the 
Committee.
    Congress' power of the purse and its authority under the 
appropriations clause to direct where government money will be 
spent is a key component of our constitutional system of checks 
and balances.
    The authority has roots in the Magna Carta, and it was a 
substantial factor in the development of constitutional 
democracy in England. The colonial legislatures leveraged their 
taxation power into the power of appropriation, laying the 
groundwork for American independence.
    The authors of the Constitution vested the right of 
appropriation in the legislative branch. They did so, as James 
Madison explained in the Federalist No. 58, to ensure that 
government is directly accountable to the people and to provide 
Congress ``a key check on the power of the other branches.''
    The current practice of allowing government attorneys to 
negotiate settlements that require other parties to make 
payments to individuals or entities who are not involved in the 
underlying dispute or damaged by the defendant's action 
circumvents the appropriations process and undermines Congress' 
power of the purse. The practice allows those government 
lawyers to provide payments to persons or entities without 
congressional authorization to do so.
    The practice creates numerous difficulties. As a practical 
matter, Federal attorneys are poorly suited to choose which 
persons or entities should receive a financial windfall. The 
system is unfair to other potential beneficiaries who did not 
collect the handout.
    The system lacks transparency. What factors determine which 
group will receive a payment? Who makes that decision? Are 
political considerations weighed? As the U.S. Attorneys' Manual 
recognizes, the practice creates ``actual or perceived 
conflicts of interest and other ethical issues.'' One such 
issue is the potential for settlement payments to be directed 
to political allies or to further the political or personal 
ends of the government attorney.
    A second ethical issue is the risk that payments to 
unrelated third-parties will be strong-armed from defendants 
who seek to avoid publicity or debarment.
    The fallacy of tolerating this practice is reflected in 
settlement decisions like those requiring private entities to 
provide a $1 million endowment to the U.S. Coast Guard Academy, 
a $5 million endowment to the Seton Hall Law School, and a $2.4 
billion payment to the National Fish and Wildlife Foundation. 
Such windfalls should not be bestowed by executive branch 
attorneys negotiating settlements with anxious defendants. 
Congress, acting with its power of the purse, has the right to 
determine which payments should be made.
    For these reasons, I support enactment of the Stop 
Settlement Slush Funds Act of 2016. I encourage the Committee 
to consider clarifying the act that the act would apply to 
settlements in both civil and criminal matters that require 
private defendants to make donations or payments to persons or 
entities not involved in the dispute or injured by the 
defendant's actions.
    Thank you.
    [The prepared statement of Mr. Figley follows:]
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    Mr. Marino. Thank you, sir.
    Professor Uhlmann?

 TESTIMONY OF DAVID M. UHLMANN, ESQ., DIRECTOR, ENVIRONMENTAL 
 LAW AND POLICY PROGRAM, THE UNIVERSITY OF MICHIGAN LAW SCHOOL

    Mr. Uhlmann. Thank you, Chairman Marino, Congressman 
Johnson, and Members of the Subcommittee, for inviting me to 
testify today.
    A case I prosecuted at the Justice Department, where I 
served for 17 years before becoming a law professor, highlights 
why third-party payments often are needed to address the harm 
caused by regulatory violations. The case involved John Morrell 
& Company, which until the mid-1990's was the largest employer 
in the State of South Dakota. Morrell operated a slaughterhouse 
in Sioux Falls that discharged waste into the Big Sioux River.
    Under the terms of its Clean Water Act permit, Morrell was 
required to treat its waste to limit the concentration of 
ammonia nitrogen, and other pollutants that could harm the 
river. The permit also required Morrell to test its waste at 
least three times each week and to report all sampling to EPA 
and the State of South Dakota. Instead, over a period of more 
than a decade, Morrell officials engaged in a conspiracy to 
violate the Clean Water Act, discharging ammonia at levels 
nearly 40 times those allowed under the law and lying to 
conceal those violations.
    I provide additional details about the case in my written 
testimony, but suffice it to say that the illegal scheme was so 
well-known within the company that the senior vice president in 
charge of the Sioux Falls facility repeatedly asked, ``Who's 
going to jail this month?'' when he signed the falsified 
discharge monitoring reports.
    The Justice Department prosecuted Morrell under the Clean 
Water Act but could not prove the extent of the harm to the 
river because Morrell had concealed its violations for years.
    With the approval of the Federal district court, the 
Morrell plea agreement created the Big Sioux River 
Environmental Trust Fund to support cleanup efforts on the 
river and to restore recreational opportunities for communities 
harmed by the company's misconduct. Morrell paid a $2 million 
criminal fine and $1 million in restitution and community 
service to the Big Sioux River Environmental Trust Fund.
    While Morrell was a criminal case, it is instructive about 
the shortcomings of the proposed legislation. Environmental 
violations cause significant harm to our communities. In some 
cases, the harm can be addressed by restitution to individuals, 
which the proposed legislation would not disturb. In the 
overwhelming majority of cases, however, the harm is 
generalized. Air is polluted; water is contaminated. Everyone 
in the community suffers, and third-party payments are the only 
remedies. These are not minor violations but serious breaches 
of the rule of law that cause real harm and have real 
consequences.
    I have three concerns about the Stop Settlement Slush Funds 
Act of 2016.
    First, the bill would undermine the Justice Department's 
ability to hold corporations responsible for the harm caused by 
violations of our environmental laws but also our civil rights 
laws, our consumer protection laws, food and drug laws, and 
antitrust laws. The bill prohibits only donations but it never 
defines that term, which could be construed by courts to apply 
to all third-party payments. In addition, while the bill 
exempts payments for actual harm, it does not state that actual 
harm includes generalized harm like what occurred in Morrell.
    Second, the bill's focus on civil settlements rests on a 
faulty premise, namely that generalized harm occurs in criminal 
cases but not in civil cases. There's no principled reason why 
corporations should be required to remediate the harm they 
cause in criminal cases but not required to do so in civil 
cases. If harm only could be addressed in criminal cases, it 
would encourage law enforcement personnel to pursue criminal 
prosecution in matters that might otherwise be resolved by 
civil settlements, which would risk overcriminalization of 
regulatory violations.
    Third, Congress is simply not able to legislate to address 
all harm that occurs in our communities every time a regulatory 
violation occurs. No one disputes that Congress has the power 
of the purse. And for that reason, the Miscellaneous Receipts 
Act and the Antideficiency Act impose significant limits on 
third-party payments in both plea agreements and civil 
settlements. But corporations who engage in wrongdoing, not the 
general public, should be responsible for addressing the harm 
caused by their violations.
    I share the Subcommittee's desire to ensure that all third-
party payments serve the public interest and law enforcement 
objectives. Law enforcement is a sacred trust, and officials 
who have the honor of representing the people of the United 
States must serve the common good and not their personal 
interests.
    In my view, third-party payments must be negotiated 
separately from criminal or civil penalties, must address the 
harm caused by violations, and cannot augment Federal agency 
programs. I also might impose a limit on the percentage of 
funds that could be devoted to these payments. But those terms 
are nowhere to be found in the proposed legislation.
    Thank you again for inviting me to testify, and I'd be 
pleased to answer your questions.
    [The prepared statement of Mr. Uhlmann follows:*]
---------------------------------------------------------------------------
    *Note: Supplemental material submitted with this statement is not 
printed in this record but is on file with the Committee, and can also 
be accessed at: http://docs.house.gov/meetings/JU/JU05/20160428/104872/
HHRG-114-JU05-Wstate-UhlmannD-20160428-SD001.pdf.

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                   __________

    Mr. Marino. Thank you.
    I will now recognize myself for my 5 minutes of 
questioning.
    First of all, it's a pleasure to be talking with brother 
prosecutors. I do want to make clear that we kept the bill as 
narrow or simple as possible because we wanted to hear what you 
had to say as far as, perhaps, expanding on issues. And just 
through your opening statements, I can see areas where we need 
to expand civil, criminal--do we say ``funds,'' you know, 
instead of ``donations'' and explanations.
    But, as a prosecutor, I would like to first ask, there's 
been some concern about this curtailing prosecutorial 
authority. And, as a prosecutor, as far as discretion is 
concerned, we all know that there are multiple ways to resolve 
a case. So how would this not resolve a case? Why do you think 
it would prevent--if you do--why do you think it would prevent 
a prosecutor's discretion in moving forward with a case?
    And I'd ask Congressman Lungren if you could address that, 
and each one of you, please.
    Mr. Lungren. Well, in answer, I would say I don't think it 
unnecessarily restricts prosecutors. As I understand the way 
the bill stands now, it prohibits mandatory donations but not 
redress to individuals as affected.
    One of the arguments I see that has been made is that in 
criminal cases this has been allowed. But certain criminal 
statutes have very specific authorities to do this, and you 
have to say, why would the Congress give them specific 
authority if in fact they have general authority? I think it's 
because Congress looked at those specific cases to say, in 
these matters, we can allow a more generalized redress.
    And the third point I would make is this. If, in fact, the 
harm has been done to the public and is so diffuse that you 
can't identify those who are the proximate sufferers of it, if 
you can prove in court, as a legal matter, that damage has been 
done but it is diffuse, then the money ought to go to the 
Federal Government, and the Federal Government ought to decide 
through the regular appropriation process how those funds ought 
to be expended.
    Look, it's a natural thing. As attorney general, I liked 
the great flexibility I had, but I remember the largest case we 
did, I think, was the famous tobacco case. California got the 
largest amount of money from that, but, as I recall, I was not 
able to direct those funds under the California constitution. 
They went into the general fund. I would've liked to have. I 
thought I had a superior idea as to where they should go. 
Unfortunately, the California constitution said otherwise.
    I think, similarly, the U.S. Constitution, as Senator Byrd 
explained in his statement that I have in my statement, it is 
the most representative and the most open of our branches.
    Mr. Marino. Okay. Thank you.
    Professor Figley?
    Mr. Figley. I think Congressman Lungren's last point is 
exactly right. If there has been general harm, money can go 
into the general Treasury, and Congress can decide the best 
places to spend it, as opposed to having any government--any 
Department of Justice official make that determination.
    Mr. Marino. Thank you.
    Professor Uhlmann?
    Mr. Uhlmann. So Congress has already determined that 
criminal penalties go to the Crime Victims Fund, civil 
penalties go to the civil Judgment Fund. So the idea that 
additional moneys that might be paid as part of either plea 
agreements or civil settlements is somehow going to revert back 
to the Federal Treasury for Congress to then reappropriate is a 
complete misnomer. It would require changing how all criminal 
penalties are directed by Congress. It would require changing 
how all civil settlements are directed.
    But it also misses a broader point, which is Congress has 
also has said that restitution to victims takes priority over 
all penalties in the criminal system. And as I've already 
discussed and as we can certainly discuss at greater length, it 
is simply not always possible to identify individual victims to 
meet the requirements of Federal law. The environmental example 
is the easiest one, but the same concerns arise in other 
regulatory schemes.
    And so, to your question, Mr. Chairman, we would deprive 
prosecutors and civil enforcement attorneys of their ability to 
address the generalized harm that occurs in these cases. So 
we'd get half a loaf in every case. We'd get criminal penalties 
or civil fines. We'd get individualized restitution. We 
couldn't address the harm to our communities.
    And there are hundreds, if not thousands, of these 
violations every year. Congress is not going to be able to 
legislate for each one of them. And so this is, I think, the 
best way--you know, clear rules about what is allowed and what 
isn't allowed in these third-party payments is the best way to 
proceed, not by prohibiting them, as this legislation would do.
    Mr. Marino. Okay. I'm going to take some liberties here, if 
my colleagues don't mind. We don't have a full panel here.
    You do understand that if a specific victim can be 
identified that prosecutors have the authority to address that 
issue and recoup funds for those specific individuals. But if a 
specific entity cannot be identified or if there is collateral 
damage, I still have an issue with an agency--and, thinking as 
a prosecutor, as we do, that discretion or that authority is 
very powerful and good in 99.9 percent of the cases. But 
Congress does appropriate. And I err on the side of the 
Constitution, the fact that, okay, those funds must go to the 
Treasury, but I don't have a problem with discussing and 
expanding on the ability of Justice or EPA requesting from 
Congress additional funds because of X, Y, and Z. We still have 
to appropriate, and the appropriation process for the last 20 
or 30 years is not what it was designed to be in the 
Constitution under all Administrations.
    So that's my problem with that, Professor. And you look 
like you want to respond to something, so please go ahead.
    Mr. Uhlmann. Yeah, no, I mean, I think it's a great 
question. And I appreciate the Chairman's concern here. Two 
thoughts.
    One, you know, a great example of a case that's sort of 
happening right now is Volkswagen. Everybody's familiar with 
the Volkswagen debacle. Volkswagen had defeat devices on its--a 
lot of its cars that allowed them to evade the requirements in 
the United States under the Clean Air Act.
    There are a lot of victims, and there are a lot of 
consumers who were defrauded. And I don't see anything in the 
proposed legislation that would prevent those individual 
victims from being compensated by Volkswagen.
    Mr. Marino. Please bear in mind, this is just exactly why 
we're having this hearing.
    Mr. Uhlmann. Right. Right. Absolutely.
    Mr. Marino. Okay.
    Mr. Uhlmann. But I think that even the skeletal, sort of 
trimmed-down version of the bill that we had before, that we've 
started with, preserves the restitution for those individual 
car owners.
    Mr. Marino. Yeah.
    Mr. Uhlmann. But what about the rest of us? I mean, 
Volkswagen's conduct--you know, some news reports have 
suggested that hundreds of people will die because of the 
nitrogen oxide that Volkswagen cars emitted into the 
environment. How do we address that harm?
    Mr. Marino. I don't dispute that with you. But I believe 
that's Congress' responsibility.
    Mr. Uhlmann. Well, but is Congress going to--so for each of 
these cases? Are we going to have the Volkswagen Harm Act? Are 
we going to have the Exxon Harm Act? The BP Harm Act? I mean, 
you see----
    Mr. Marino. No. We're going to go through the appropriation 
process by which any department or agency requests money for 
its original budget.
    Mr. Uhlmann. Of course. And EPA--I'm not sure how well 
their budgets are faring in this Congress, but EPA does have--
you know, makes a budget request every year to address air 
pollution.
    Mr. Marino. Sure.
    Mr. Uhlmann. But my point is, you know, how do we address 
the air pollution caused by Volkswagen, or the harm to the Gulf 
of Mexico ecosystem caused by BP. The whole idea of these 
payments is they allow, not the taxpayer, but the company 
involved to pay for the harm that they did in cases where harm 
is not identifiable to individuals.
    Mr. Marino. And this isn't the time or place to discuss the 
extent of the damage. I mean, that's for another hearing. But I 
have used way over my time. I----
    Mr. Lungren. Mr. Chairman, could I just respond a little 
bit?
    Mr. Marino. As long as my colleagues agree.
    Go ahead.
    Mr. Lungren. And the answer--I think we've given an answer 
to the question. The question is, how do we remediate that 
damage that was done? As trained lawyers, we prove it.
    It seems to me the agency or the Justice Department makes 
the allegation that this amount of extra pollution has been 
crated, that would seem to me to be an evidence of the damages 
to be paid or additional damages to be paid. Whoever is the 
appropriate executive branch agency comes to the Congress, 
makes the case that this additional impact on the environment 
has occurred, this amount of money has been extracted from the 
perpetrator, and we believe that using this amount of money or 
a portion of it to respond to it is appropriate. And then 
Congress makes the decision.
    Mr. Marino. Yeah.
    Mr. Lungren. The other thing is, as I understand, in the 
bill, you allow specifically remediation of environmental 
damage----
    Mr. Marino. Yes.
    Mr. Lungren [continuing]. But it has to be proven. It has 
to be proven. Let's not forget that. We're talking about 
proving it.
    And, again, if the impact is so diffuse but you can still 
get a sum of money for it, run it through the appropriation 
process, where Congress, if it does its job properly, ought to 
be able to respond in appropriate fashion.
    Mr. Marino. All right.
    Professor, do you----
    Mr. Figley. Very briefly.
    The complexity of the problem--somebody has caused a 
general, diffuse difficulty for the American people--can't be 
resolved by deciding that this particular university or 
environmental organization should receive money as opposed to 
this one.
    Mr. Marino. Yeah.
    Mr. Figley. If that decision is going to be made, it is 
much better that it be made through the appropriations process 
than by a Department of Justice official.
    Mr. Marino. Good point.
    I now beg forgiveness from my colleagues and recognize the 
Ranking Member of the Subcommittee, my friend, Mr. Johnson.
    Mr. Johnson. Thank you, Mr. Chairman.
    I can't resist asking Professor Uhlmann to offer the 
response that I see he's burning to make.
    Mr. Uhlmann. I have such a good poker face.
    No, I agree with Professor Figley. I mean, this notion of 
direct--you know, it's a famous case now. It involves the 
current Governor of New Jersey. I won't name him, but, you 
know, when he was U.S. attorney, funds were directed to his law 
school. And that shouldn't happen. And I think everybody agrees 
that have shouldn't happened. I don't know, I even think the 
Governor of New Jersey might agree that was a mistake, in 
hindsight.
    But it's not the case, as Professor Figley suggests, that 
environmental prosecutors, my former colleagues, are handing 
out money to their favorite environmental charities. The 
practice at the Justice Department, codified now--I mean, made 
clear in two separate policy documents--first, one that was 
issued over my signature in December of 2000 and then another 
that was issued in the Bush administration by Assistant 
Attorney General Ron Tenpas--require that the funds only go to 
organization that Congress has already identified as 
organizations that can receive this type of funding.
    So I think it's important to sort of describe what's really 
going on here and recognize that the funds that we're talking 
about--the funds in the Gibson Guitar case that Congressman 
Lungren has talked about went to an organization so it could 
address the harm caused by illegal logging operations. Congress 
had designated that organization, established that 
organization, to receive this type of funding.
    It's not going to everybody's favorite environmental 
groups; it is not going to law schools. But I agree with both 
of my colleagues on the panel that it shouldn't be going to 
those organizations, and I'd have no objection to Congress 
saying that can't happen.
    Mr. Johnson. Well, tell me now, if relief must be a direct, 
point-to-point remediation of harms, how do you directly remedy 
the damage of an oil spill wherein the damage--or whereby the 
damage is to all of the birds along the shore? So, in other 
words, a bunch of oily birds, how do you directly remedy the 
harm done to those birds?
    Yes?
    Mr. Lungren. I think you do what we've done in the past, 
which is require the companies responsible to pay for the 
remediation.
    Mr. Johnson. Well----
    Mr. Lungren. It doesn't stop them from hiring----
    Mr. Johnson. How would----
    Mr. Lungren. It doesn't stop them from hiring 
organizations----
    Mr. Johnson. How would you do that?
    Mr. Lungren [continuing]. Who know how to do that.
    Mr. Johnson. How would the company actually remediate the 
harm to all of the birds?
    Mr. Lungren. Well, as they've done in the past. They hire 
groups that actually go out and do it. I don't see any problem 
with that. I will say this, though.
    Mr. Johnson. Well, isn't that a donation?
    Mr. Lungren. There's no problem with that, as long as it's 
specifically to--no. If it--if you look at the language of the 
bill, that is not a donation. It is a service that is rendered 
as----
    Mr. Johnson. Well, you would make----
    Mr. Lungren [continuing]. A result of the remediation. So 
in that sense, that is not a donation, as I understand the 
terms of the bill as written.
    Mr. Johnson. But the order, pursuant to the litigation, 
would direct a--would be to an entity to actually remediate----
    Mr. Lungren. Right.
    Mr. Johnson [continuing]. The harm.
    Mr. Lungren. That would be a service. As I understand the 
language of the bill, that would be allowed. That would not be 
considered a donation. That's made an exception to the 
definition of donation. I do know this.
    Mr. Johnson. What's the difference?
    Mr. Lungren. The difference is, that's the way the law was 
written.
    Mr. Johnson. Well----
    Mr. Lungren. Secondly, I would say this. I have not been 
able to see any improvement in the wastewater, anywhere that I 
have been, as a result of a million dollar donation to the U.S. 
Coast Guard Alumni Association.
    Mr. Johnson. Well, now, I mean, you take one particular 
example and try to make it the norm. And I would--I would 
suggest that that's not the norm. Same way the Governor of New 
Jersey directing funding to his alma mater, it's an anomaly, 
and we don't want to throw the baby out with the bathwater 
here.
    What do you say to that, Professor Uhlmann?
    Mr. Uhlmann. Well, that expression, I think, captures the 
whole problem here. I mean, there is no question that there 
is--there are circumstances where this authority could be 
abused, and we've come up with some isolated examples of where 
it might have been in the past.
    I mean, I don't want to be on record saying that, you know, 
the payment to the Coast Guard, which I'm not familiar with all 
the details about, or even the Seton Hall donation was an abuse 
of authority, but they could be. And I think limits on the 
authority in that way could be helpful. I do think they are 
already provided by existing policy, so I'm not sure that 
there's something to add here for Congress.
    But look, I think clear rules of the road, which is one of 
the suggestions that Congressman Lungren made, are always 
helpful. I think clarifying what is and is not acceptable about 
third-party payments could be helpful. But this misnomer that 
somehow third-party payments are a way that people are self-
dealing, are pursuing partisan agendas, are engaging in 
conflict--you know, creating conflicts of interest, I mean, 
it's not the Justice Department I served in. And I served there 
for 17 years in both Democratic and Republican administrations. 
And I think it's unfair to describe the government in that way 
or suggest that that's what's happening in these cases.
    These are real harms that don't have identifiable victims 
that the government is trying to address, as it is obligated to 
do so, to do justice in its cases.
    Mr. Johnson. Thank you, Professor. In your written 
testimony, you observe that the practical effect of H.R. 5063 
may be to generate more criminal enforcement of environmental 
cases.
    Could the Justice Department have brought the Morrell case 
you cite in your written testimony as a civil case, and what 
other types of cases might also be brought in criminal instead 
of civil actions as a result of H.R. 5063?
    Mr. Uhlmann. Well, Morrell, very definitely, could have 
been either a criminal or civil case. I think the evidence that 
we were able to amass about statements like who's going to jail 
this month, there was another--there was a document that 
actually said the detailed violations, and the cover memo said 
this--this document has been destroyed at the plant and should 
be destroyed by you after reading it. So my fellow former 
prosecutors will understand why we got pretty excited about 
that as a criminal case.
    But the reality, under the environmental laws and under 
most of our public health and safety laws, is that prosecutors 
enjoy enormous discretion about whether any particular 
violation is going to be criminal or civil. And so, you know, 
I've written about a lot and focused a lot about the need to 
exercise that discretion in an appropriate way to limit 
criminal enforcement to the most egregious violations.
    But look, in the close calls, and there are a lot of close 
calls that we ask the Justice Department to make and that we 
trust them to make properly, you know, if they feel like they 
can redress the harm to the communities if they bring a 
criminal case but can't do so in a civil case, it's going to 
tip the balance toward criminal enforcement. At least in some 
cases it otherwise might be left for civil enforcement, and 
that's the concern I was raising.
    Mr. Johnson. Thank you.
    And with that, I'll yield back, Mr. Chairman.
    Mr. Marino. You know, this--we are all attorneys up here. I 
don't know if that's a good thing or a bad thing, but this is 
just actually one of the most interesting discussions that I 
have had the privilege of chairing since I've been here.
    And the Chair now recognizes another prosecutor from the 
State of Texas, a former U.S. Attorney, Congressman Ratcliffe.
    Mr. Ratcliffe. Thank you, Mr. Chairman.
    I thank the witnesses for being here today.
    You know, I've been grateful over the last several months 
to have the opportunity to participate in something called the 
``Article I Project.'' It's a network of House and Senate 
Members focused on reclaiming, as unnecessary as that may seem, 
reclaiming the Article I powers of Congress and limiting the 
ever-expanding executive branch.
    And I think this hearing, I agree with you, Mr. Chairman, 
very interesting, and it really underscores the critical need 
for Congress to reassert the separation of powers. In this 
case, it seems to me especially so in response to what appears 
to be really an outrageous overreach by the Administration and 
disregard for Congress' constitutional power of the purse.
    This Department of Justice scheme of funneling money to 
activist groups, some of those groups where Congress has 
specifically denied funding, Federal funding, is especially 
troubling, as a former prosecutor and someone that's worked 
closely with the Department of Justice. And, you know, equally 
troubling is the fact that the Department of Justice, not only 
have they been less than forthcoming, it seems, in response to 
this Committee's investigation, but essentially have doubled 
down on a practice that would appear to ignore the Constitution 
and lacks transparency with regard to the appropriations 
process that allows the American people to hold their 
government accountable, and instead, here we see money that 
should go to the U.S. Treasury going to DOJ selected winners 
and losers. In fact, DOJ picking winners and losers from groups 
that stand to gain from these settlements, and in some cases, 
who have actually lobbied DOJ to receive them.
    So beyond the constitutional concern, I'm troubled by a 
lack of transparency and a host of ethical issues that this 
scheme would present. And the idea that a Department of Justice 
official can direct immense sums of money to a pet organization 
or political allies with zero accountability is something that 
I would think would trouble all of us, Republicans and 
Democrats.
    So let me start out, Congressman Lungren, great to see you 
again back here on the Hill. You talked about this grant 
phenomenon in your testimony at both the State and Federal 
level. I know you've seen it as the attorney general in 
California, these grants being these, to quote you, coerced 
payments to entities that are mandated by officials acting with 
the full power and majesty of the government.
    Let me ask you this. First of all, do you think that this 
scheme that the Department of Justice, my words, has doubled 
down on, do you think it violates the Constitution, number one? 
And secondly, would you--depending on your answer, would you 
elaborate on why you think the allocation to Congress of the 
power to spend Federal funds is critical to the separation of 
powers that I talked about?
    Mr. Lungren. Well, first of all, thank you very much, a 
fellow Notre Dame Domer. I appreciate that.
    I have been concerned, over the years I was in Congress, at 
the failure of Congress to assert itself appropriately. And 
when you study the Constitution, the Constitutional Convention, 
and the arguments made in the Federalist Papers, it is very 
clear that they felt that the power to extract funds and to 
spend funds on the part of the government was one of the 
potentials for tyranny. And I'm not suggesting we're involved 
in tyranny, but it is an essential bedrock principle that the 
Founding Fathers talked about.
    They made a conscious decision, I think, to make Congress 
Article I. The first thing they thought about when setting up 
the government was the most representative branch of the 
government. Then they also felt that it was important, between 
the Senate and the House, that the House be given primary 
responsibilities in these matters, even though I think we 
forfeit that right in some of the legislative legerdemain that 
takes place where we send a bill over to the other side, they 
take everything out except the title, and then they send it 
back so that the revenue bill didn't start in the House, 
essentially.
    But they did that because they knew that the Members of the 
House had to go before the people more often than anybody else, 
and that, therefore, if the average citizen--if the citizenry 
felt that there was a violation of that trust in that most 
important area, they could respond. To the extent that gets 
placed in a gray area, and I think this is--look, if you're 
talking about a couple of dollars here and there, all right. 
But Senator Everett Dirksen once said a billion dollars here, a 
billion dollars there, pretty soon you're talking about real 
money.
    Now, as I understand it, we're talking about a billion 
dollars in just the time that the Congress had the temerity to 
ask the Justice Department what they were doing. That doesn't 
sound to me like an olive branch to the House of 
Representatives.
    And the last point I would make is this. I happen to 
applaud what Professor Uhlmann did at the Justice Department. I 
think you were moving in the right direction. But despite his 
best efforts, you still had, in 2006, that million dollars 
going to the Coast Guard Alumni Association on a matter of the 
environment.
    Madison said it best. He talked about if--if men were 
angels, we wouldn't need government. But men are not angels, so 
we need government. But then he said: Once you decide those who 
are in the government--in the government, you have to figure 
out how to govern the govern. And the answer he gave, as I 
mention in my paper is, you pit ambition against ambition.
    In one sense you pit one branch of government against 
another. That's what we do. And one of the ways you do that is 
you give primacy to the House of Representatives for spending 
matters. It is not neat. It is not pretty. It is not the most 
efficient way of doing things, but that is the genius of our 
Founding Fathers that they thought, as Justice Scalia said many 
times: The greatest protection for our civil liberties and 
against their invasion was the construct of government that we 
set up.
    And I think that's lost in today's debate, and Congress has 
got to be one of those branches of government that understands 
their responsibility, understands their role, and understands 
the limits of all branches of government.
    I'm sorry it was a long-winded answer. It gave me a chance 
to----
    Mr. Ratcliffe. No, I enjoyed your answer. Thanks, 
Congressman.
    And my time has expired, but if the Chairman would beg my 
indulgence. I have one quick question I really want to ask 
Professor Figley because we were both at the Department of 
Justice. I'm not sure if we were there at the same time.
    But I'm curious about your experience with respect to the 
mandatory payments to nonvictim third-parties. More 
importantly, how has this practice evolved in recent years, and 
most particularly, in your opinion, what do you think is the 
driving force behind this?
    Mr. Figley. I never had anything to do with it when I was 
at Justice. I mainly defended tort cases, big ones, but tort 
cases.
    My concern here is that we saw, as our mission in life, 
protecting the Judgment Fund and protecting the people's money. 
Here, I think the practice gets away from that.
    Professor Uhlmann talked about the Gulf Oil spill and the 
money there. There's a $2.4 billion grant to one particular 
environmental organization, and it may be a perfectly good one, 
but I think it would have been much better to have had all of 
the environmental organizations interested in receiving a $2.4 
billion grant, apply for it and go through procedures where 
there would be transparency and clarity about where the money 
was going and why it was going to that particular entity.
    Mr. Ratcliffe. I appreciate your response.
    And I appreciate the Chairman's indulgence. With that, I 
yield back.
    Mr. Marino. The Chair now recognizes the Ranking Member of 
the full Judiciary Committee, another attorney, Congressman 
Conyers.
    Mr. Conyers. Thank you, Chairman Marino.
    I welcome all the witnesses, of course.
    Our former colleague witness here today argued that 
enforcement--agency enforcement decisions must be motivated by 
the public interest and not politically motivated self-
interest.
    And so, Professor Uhlmann, what guidance, what laws 
currently exist to promote the public interest in settlement 
agreements, in your view?
    Mr. Uhlmann. Well, I absolutely agree with former 
Congressman Lungren that that is the role of law enforcement. 
And, of course, all the laws that are within the purview of 
this Committee are laws that are designed to promote the public 
interest, protect the public from the--from a whole host of 
potential harms.
    Congress already passed the Miscellaneous Receipts Act, 
which ensures that funds that are--have been directed by 
Congress can't be redirected by agencies. Congress already 
passed the Antideficiency Act, which ensures that these sort of 
third-party payments that we're talking about can't be used to 
augment agency budgets. The agencies can't have a role in 
administering the funds.
    Congress already designated certain organizations to 
receive payments like those we're talking about. In fact, like 
the payment in the Gulf Oil spill that Professor Figley is 
talking about, this notion that somehow all the environmental 
groups should have lined up and petitioned the Justice 
Department for funding, I mean, respectfully, you know, that 
would give me far more concern than what the Justice Department 
did.
    They made sure that the money went to an organization that 
Congress already established in the public interest. And I 
happen to share the concern about the size of that payment, but 
it went, as it should have, to an organization that Congress 
determined should receive these funds. And then, as I indicate 
in my testimony, there are a number of policy statements that 
the Justice Department and the various regulatory agencies have 
developed to do just what you're talking about, Congressman 
Conyers.
    You know, I suppose those could be codified by Congress, 
but they do exist in each of the various--at the Justice 
Department in each of the various regulatory agencies.
    Mr. Conyers. Did anyone want to add to this question?
    Mr. Figley. If I might, Congressman.
    Mr. Conyers. Yes, Mr. Figley.
    Mr. Figley. I think that presents a false choice. We have 
$2.4 billion. Is it for Justice to decide to give it to this 
organization or to set up a way for different organizations to 
apply to the Department of Justice for the $2.4 billion? 
Neither of those is the answer.
    The answer is, put the money back in the Treasury, let 
Congress decide how the money will be utilized, and if there is 
to be a grant program, it should be administered through the 
appropriations process.
    Mr. Conyers. Uh-huh. Mr. Chairman Emeritus.
    Mr. Lungren. See, I'm bothered by the example of the 
Housing and Urban Development's Housing Counseling Assistance 
Program. My last year here--last term here in Congress, we 
voted on some very tough budgets, as you know. We had to 
eliminate that, we thought, that 1 year, $88 million. The next 
year we came back, my very last year in the Congress, we came 
back with a budget that granted, I think it was 55 percent of 
that total, and then we maintained it at that level. That's 
what we thought in terms of our budget priorities. And yet if 
you look at the Citibank settlement as well as provisions in 
the Bank of America settlement, $150 million worth of mandated 
donations went to those housing nonprofits, which essentially 
reversed the decision of Congress.
    Now, you might say, and we might agree, that Housing 
Counseling Assistance is an appropriate program, but it seems 
to me if Congress, looking at all the priorities out there, 
made the decision that it could only be funded at half of what 
it had been before, then that money should be----
    Mr. Conyers. Okay.
    Mr. Lungren [continuing]. That additional money ought to be 
determined by Congress, not by HUD.
    Mr. Conyers. All right. Let me close with this final 
question about Mr. Figley's recommendation that H.R. 5063 apply 
to criminal settlement agreements.
    Professor Uhlmann, what would--affect would that have on 
criminal enforcement cases?
    Mr. Uhlmann. You know, if this type of language also 
applied in criminal cases, it would just shut down the Justice 
Department's ability to address a lot of the harm that's caused 
by criminal violations of our public health and safety laws. 
And it would give corporations a free pass for the harm they 
caused.
    Now, Congressman Lungren suggested, you know, go prove it 
in court. But so much of the kind of harm to communities, harm 
to society that we're talking about is not possible to prove, 
certainly not beyond a reasonable doubt, and even--even by 
clear and convincing evidence, where it is not possible to 
monetize. And it's those companies, not the American taxpayers, 
who should be addressing that harm.
    And so it's particularly important to have this authority 
in criminal cases because if our criminal authorities are being 
exercised properly, those are the worst violations that cause 
the most harm. And the companies who engage in that misconduct 
should be held accountable.
    And I worry if the Committee were to accept Professor 
Figley's recommendation, it would just make a potentially bad 
bill worse.
    Mr. Conyers. I think you're probably right.
    I know we could continue this discussion, but my time has 
expired, and I thank you all for this very important hearing.
    Mr. Marino. I do have one more question I'd like to throw 
out to all three of you gentlemen, but I'm starting to get 
flashes back of law school when we talk about the proximate 
cause in Cardozo and Palsgraf, and the whole nine yards. I 
mean, when--that can go forever.
    But, Professor Uhlmann, there's no question that I support 
the fact that Justice, the agency, can see that those that are 
directly injured receive the funds to compensate and to even go 
further than compensating. But let's talk a second about the 
banking settlements, which trouble me.
    Mandatory donations that did not conform to EPA guidelines 
that you cite with respect to the amount of credit given for 
donations. There's credit given. Lack of oversight. There's 
lack of oversight in all this. That's probably in addition to 
the issue concerning Congress controlling the purse strings. 
That's the next thing that really bothers me, lack of 
oversight, where is it going and why.
    Augmenting agency funds by reinstating funding, Congress 
specifically cut. So what say you?
    Mr. Uhlmann. You know, I think the Chairman's concerns are 
reasonable. I mean, I understand where you're coming from.
    Mr. Marino. Thank you.
    Mr. Uhlmann. And I think, you know, in the area where I 
work, which wasn't banking, there are pretty clear rules of the 
road that are governing how the Justice Department and EPA 
exercise its authority.
    If that needs to be done across the government to ensure 
that other sectors have similar rules, then that should be 
done. Whether the best way to do it is legislation or whether 
the best way to do it is policy statements, I'd, you know, 
defer to the Committee about, but--or the Subcommittee about.
    But I would say this. If the Subcommittee were to 
legislate--I mean, I think it's far better to legislate through 
positive rules that say these are the things you're allowed to 
do, and certainly then to add, and these are the things you're 
not allowed to do.
    If there are things that we think are good--and I think 
there's actually a lot that we would agree is good. I think 
we--we don't want--in fact, I think your opening statement, or 
perhaps it was the full Committee's Chairman's opening 
statement, recognized that there can be generalized harm, and 
companies should be on the hook for that if they break the law.
    You know, we should be--you know, we shouldn't lose sight 
of the fact that companies that break the law get a significant 
advantage, competitive advantage against other companies who 
follow the law. And so, you know, they're properly punished 
when they break the law, and if they cause harm, they should 
compensate the communities that have been harmed for doing so.
    And so, you know, I--I mean, I certainly felt as we--this 
sort of all grew up when I was at Justice, and I did feel at 
times like we were kind of in an open--open field where there 
was the potential for the kinds of things that the Chairman's 
described happening. And so I really wanted rules. And I even 
might have thought at some--at some point that maybe Congress 
should write those rules. But Congress wasn't writing them, so 
wewrote them.
    And we tried to be--wetried to be principled, 
notwithstanding the fact that that one case happened on my 
watch. Although it was a case brought--I now know which case 
Congressman Lungren was talking about. It was brought by the 
U.S. attorney in Connecticut.
    Mr. Lungren. Oh.
    Mr. Uhlmann. My office was not involved. I think it was a 
deferred prosecution agreement. We didn't do those. But, you 
know, the bottom line is there's so much good here and so 
much--well, there's so much bad that happens that we need to 
address, and I think it's good to address that. We want the 
government to address that.
    We're not taking money away from the taxpayers. We're not 
taking away the money that this Congress--and every Congress 
has the Article I authority to appropriate. We are saying 
corporations should pay for the harm they cause. And we don't 
want--and I would--I think it would be a shame if there was 
legislation that let companies off the hook and prevented the 
government from being able to address those harms.
    Mr. Figley. Mr. Chairman.
    Mr. Marino. Processor Figley, would you like to respond? 
You don't have to, but if you'd like to.
    Mr. Figley. Well, very briefly. Nobody's saying let 
corporations off the hook. The question is, when you get money 
from them, who should decide where that money goes? And that's 
something that I don't think the Department of Justice should 
be in the business of doing.
    And I--I have the highest opinion of the Department of 
Justice and the attorneys that work there. It is a bulwark of 
inertia in the very best direction. Throughout the Department, 
people do what they think is right. They don't try to serve 
their own purposes. But it shouldn't be the business of the 
Department of Justice to dole out money, particularly grants of 
billions of dollars.
    Mr. Marino. Okay.
    Mr. Lungren. Mr. Chairman, I----
    Mr. Marino. Professor.
    Mr. Lungren. I have the greatest respect for Professor 
Uhlmann. I really do think he did very good things in the 
Department leading in the right direction. Two of his responses 
cause me pause, however.
    In the one case, he said if this bill were to pass, there 
would be a tendency, perhaps, for officials of the Justice 
Department to move cases from civil side to criminal side. But 
then in response now to if it applied to the criminal side, it 
would be, we couldn't go forward because you have to prove 
guilt beyond a reasonable doubt.
    I think the dilemma lies in what do we believe about 
proving cases? As prosecutors, we all know--and in California, 
I was responsible for the ultimate cases, the death penalty 
cases. We all know, in our gut, people that were guilty that 
were never successfully prosecuted. Why? Because we couldn't 
prove beyond a reasonable doubt.
    Mr. Marino. Sure.
    Mr. Lungren. That's the way the system works.
    And for some reason, to be hung up on the fact that, man, 
if you have to go to court, you've got to prove these cases and 
we've got to prove what the dimensions of the harm are bother 
me. That's what we do. That's part of the requirement in our 
system, and we don't catch all the malefactors that way, and we 
don't punish all the harm that has been done because the system 
is set up that to protect the innocent, we accept those things.
    So I would like us to have more proof regarding these 
things. And then with respect to the money, the only reason 
these monies are given is because of the power and the majesty 
of the government. I used to remind my prosecutors, you know, 
always keep in the back of your mind you could be wrong. 
Because if, in fact, you have someone who is guilty, you should 
bring the power and the majesty of the government against him, 
but if you haven't, think how unfair that is to an individual.
    And so there's a certain sense of humility that we have to 
maintain in all this. And I do believe, and I firmly believe 
this, with the people that work with me at the California 
Department of Justice and with those that I know at the U.S. 
Department of Justice, they are good people. They are trying to 
do the right thing, but sometimes even good people have to have 
guidelines that--of restraint, and the Constitution gives us 
that, and maybe we ought to look at the Constitution 
occasionally.
    Mr. Marino. Well, gentlemen, this has been an incredible 
discussion. I have the utmost confidence and faith in the 
frontline prosecutors. It's just if we learn to keep the 
politics, not pointing the finger at anybody, out of this, 
might just sleep better at night knowing that with the amount 
of prosecutors that we have, not only at Justice but at the 
State and local levels. And I certainly appreciate what you've 
contributed today.
    Yielding now to the gentleman for further questions.
    Mr. Johnson. Thank you, Mr. Chairman. And I associate 
myself with the remarks that you are in the process of making 
about our dear friends here.
    But I would like to ask Professor Figley, since you served 
in the civil division of the Justice Department, have you had 
any experience showing that unlawful conduct was the direct and 
proximate cause of an injury, direct and proximate cause? I 
mean, that's a standard that does not currently exist in civil 
enforcement actions. Is that correct?
    Mr. Figley. I fought against that in a number of cases 
brought against the government. Occasionally, we would bring 
big suits, and I had million dollar settlements in a case where 
a corporate officer parked a car in high, dry grass in a 
national park and caused a huge forest fire, and another case 
where there was a government-owned irradiation facility where a 
capsule holding radioactivity cracked and it contaminated the 
whole facility, and it was worth millions of dollars. And 
there, we'd have to prove it up or show----
    Mr. Johnson. Have to prove proximate cause.
    Mr. Figley. Yes. Did the defendant's act cause in fact what 
happened, and was it connected close enough in time and space--
and you talk about Palsgraf--and what seems reasonable to 
people making hard political choices, that it's close enough to 
establish liability?
    And in those two cases, we were able to convince the 
defense attorneys that we had the goods. Your car starts a 
forest fire because of the catalytic converter, there's not 
much question. And there wasn't much question with the cracked 
capsule. So we were able to prove our cases and accomplish a 
settlement.
    Mr. Johnson. With direct and proximate cause being a new 
standard that is proposed by this legislation, what--I mean, so 
proximate cause is not the same as direct proximate--direct 
proximate cause, is it? That's kind of like a heightened 
standard. There is just absolutely no deviation between points, 
causation.
    Mr. Figley. When we talk about causation and negligence, 
there's two parts. First is cause in fact.
    Mr. Johnson. Right.
    Mr. Figley. Did what you do, if you hadn't done it, it 
wouldn't have happened. So if you were speeding down the New 
Jersey Turnpike going 40 miles over the speed limit, and when 
you got to Maryland, you drove cautiously, and you hit a little 
old lady walking across the street, your action of speeding 
through New Jersey for 2 hours was a cause in fact of your 
hitting the little old lady, because she wouldn't have been in 
the street if you'd gotten there later.
    Now, the question about liability then turns on, is there 
proximate cause? Is this close enough in time and space that 
the law will say, yes, there should be liability? Or is it too 
far removed? And most courts would say speeding in New Jersey 4 
hours ago is too far removed to impose liability. But both--to 
establish liability, you have to prove both parts. And I don't 
see a difference between direct cause and cause in fact, which 
is what I was talking about.
    Mr. Johnson. Well, yeah, I mean, if that same person 
speeding hit--ran into a--ran up on a curb and hit a ladder 
upon which someone was washing windows, and then that person 
fell off the ladder and went through the windshield of a car, I 
guess--I mean, a direct and proximate cause----
    Mr. Figley. There's clearly direct cause. Now, whether 
you're going to have proximate cause and liability is the 
harder question.
    Mr. Johnson. I guess I'm trying to--I'm trying to come up 
with a scenario where you may not have a direct cause, but you 
do have causation from--that was proximately caused. You do 
have a damage that was proximately caused as opposed to 
directly caused. And I'm just curious as to why the language 
``direct and proximate cause'' appears in this legislation, and 
I wonder what effect the requirement of having to prove direct 
and proximate cause would have on secondary remediation of 
unlawful conduct.
    Mr. Figley. I would see the proximate cause part being a 
limitation so that if there's a direct cause, there also has to 
be a proximate cause. But the direct cause is the easy one. It 
wouldn't have happened but for this thing going on, there would 
not be a direct cause.
    Mr. Johnson. It's definitely a heightened requirement of 
proof. Is that correct, Professor Uhlmann?
    Mr. Uhlmann. Of course, I teach criminal law and not tort 
law, but the--I mean, I think Professor Figley is right that 
there are two separate causation concepts that govern both 
criminal law and tort law. I mean, causation is an issue in the 
criminal law as well, and so there has to be actual cause in 
fact. There has to be proximate cause.
    This term ``direct'' does come out of--I'm not sure where 
it comes from. So, you know, we're not--the Chair said we're 
not in markup. If we were, I would suggest that a better term 
would be ``actual'' rather than ``direct,'' which is, I think, 
the correct term from tort law.
    Although, frankly, and I think this is what Professor 
Figley was suggesting, something--proximate cause by itself 
would be sufficient because you can't--something can't be the 
proximate cause without also being a cause in fact. Something 
could be a cause in fact without being the proximate cause. So 
we tend to focus on proximate cause, although it does need to 
be linked in the chain of causation to be proximate--to 
proximately cause something.
    Mr. Figley. In some States, the elements of negligence are 
listed as duty, breach of duty, proximate cause, and damages. 
In other States, they're listed as duty, breach of duty, cause 
in fact, proximate cause, and damages. So as with so many 
things, it varies with State law.
    Mr. Johnson. Well, thank you. And I will conclude by saying 
that, Professor Lungren, you've missed your calling. I think 
you should be on the academic side also. But thank you all.
    Mr. Marino. Thank you. I think, in closing, I can shed some 
light on direct and proximate cause that's referred--that's 
specifically delineated in the Crime Victims' Act, Title 18, 
USC section 3771(c) and--in general, the term ``crime victim'' 
means a person directly and proximately harmed as a result of 
the commission of a Federal offense or an offense in the 
District of Columbia.
    So I mean, we make a lot of--I tell you, what you folks did 
for me today, tonight I'm going to have nightmares about law 
school exams, okay, with proximately and related and direct and 
how far do we go from, as my friend's example of the speeding 
car hits a ladder, the guy falls off the ladder through the 
windshield, the guy in the car hits somebody else, destroys 
this.
    Mr. Uhlmann. Kind of like a law school hypothetical, isn't 
it?
    Mr. Marino. I don't even want to even think about it.
    Mr. Lundgren. That was in Mad, Mad, Mad World.
    Mr. Marino. Yeah. Thank you so very much. This concludes 
today's hearing.
    I can't tell you how much that we have enjoyed this 
discussion. Please do not hesitate, if you care to, to send us 
recommendations, additions, deletions. This is how good law is 
made. We congressmen, as soon as we get elected, we think we're 
taller, smarter, and better looking, but this is how good law 
is made when we reach out to everyone who has a dog in the hunt 
and the expertise of people like you so we don't have to go 
back. And we can't anticipate everything, but I think my 
colleague will agree with me, having discussions like this just 
is the right thing to do.
    So without objection, all Members will have 5 legislative 
days to submit additional written questions for the witnesses 
or additional materials for the record. This hearing is now 
adjourned, and thank you very much.
    [Whereupon, at 11:40 a.m., the Subcommittee was adjourned.]

                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

 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
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
                   __________



     Prepared Statement of Joel A. Mintz, Professor of Law, 
              Nova Southeastern University College of Law
    My name is Joel A. Mintz. I am a Professor of Law at Nova 
Southeastern University College of Law, where I have taught 
Environmental Law and related subjects since 1982. Prior to that, for 
six years, I was an attorney and chief attorney with the U.S. 
Environmental Protection Agency (EPA) in Chicago and Washington, D.C. I 
have written or co-written three books and numerous law review articles 
regarding environmental enforcement, which is the major focus of my 
academic research.
    I am submitting this statement in respectful opposition to the bill 
titled ``Stop Settlement Slush Funds Act of 2016.'' I believe that this 
bill, if enacted will severely undercut an immensely valuable 
environmental and public health protection program, EPA's Supplemental 
Environmental Program (SEP). It will also interfere unduly with the 
discretion presently afforded to (and needed by) federal agencies and 
prosecutors.
    A Supplemental Environmental Program (SEP) is defined in EPA's 
March, 2015 policy on the subject as ``an environmentally beneficial 
project or activity that is not required by law, but that a defendant 
agrees to undertake as part of the settlement of an enforcement 
action.'' According to the Agency, ``SEPs are projects or activities 
that go beyond what could be legally required in order for the 
defendant to return to compliance, and secure environmental benefits in 
addition to those achieved by compliance with applicable laws.'' Their 
primary purpose is to encourage and obtain environmental and public 
health benefits that may not otherwise have occurred in the settlement 
of an enforcement action. They advance worthy and important goals, 
including (among others) protecting children's health, preventing 
pollution, securing the development of innovative pollution control 
technologies, and ensuring environmental justice.
    The Random House Dictionary of the English Language defines the 
phrase ``slush fund'' as ``a sum of money used for illicit or corrupt 
political purposes, as for buying influence or votes, bribing public 
officials, or the like.'' The SEPs permitted by EPA cannot be fairly 
considered slush funds in any sense. Instead they are limited and 
prudent exercises of enforcement discretion that benefit the Agency, 
regulated parties, and local communities alike.
    To be acceptable to EPA, all proponents of SEPs projects must 
establish a ``substantial nexus,'' i.e. a relationship between the 
alleged violation and the project proposed. For that reason, SEPs are 
generally carried out at the site where the violation occurred, at a 
different site within the same ecosystem, or within the same immediate 
geographic area. Moreover, to ensure that SEP funds are not used 
improperly, EPA has established--and enforced--strict limitations on 
how those funds may be spent.
    Thus, for example, SEP monies may not be used in support of general 
public educational or public environmental awareness projects; as 
contributions to environmental research at a college or university; as 
cash donations to community groups, environmental organizations, state 
local or federal governmental entities or any third parties; to support 
beneficial projects unrelated to environmental protection; and in 
conjunction with projects to be undertaken with federal financial 
assistance. Similarly, SEPs may not provide additional resources to 
support any specific activities performed by EPA employees or 
contractors, or for any activity for which EPA receives a specific 
appropriation. SEPs may also not provide funds to perform work done on 
any federal property, or for any project performed by a federal agency 
other than EPA.
    To the best of my knowledge, these limitations are taken seriously 
by EPA when they assess the acceptability of SEP proposals. They 
establish appropriate, realistic, and effective prohibitions of illicit 
or corrupt implementation of SEPs in individual case settlements.
    At the same time, EPA's judicious approach to SEPs prevents the 
possibility that violators will be permitted to benefit too greatly 
from the performance of a SEP. Thus, the Agency's SEPs Policy does not 
alter the obligation of an environmental violator to remedy its 
violations expeditiously. Nor does it excuse violators from their 
obligation to pay penalties that recoup the economic benefit that a 
violator has gained from noncompliance with the law, along with 
``gravity-based'' penalties reflecting the environmental harm caused by 
the violation. The money from both types of financial penalties must be 
remitted directly to the United States Treasury.
    Notably, SEPs can create ``win-win'' scenarios for all parties 
involved, including regulators, regulated companies, and local 
communities. SEPs demonstrate EPA's willingness to cooperate with the 
regulated community, and they create a more flexible regulatory 
climate. SEPs also benefit environmental violators by reducing some of 
the civil penalties those parties would otherwise have to pay. They 
help repair corporate public images that would otherwise be further 
harmed by negative environmental publicity; and they promote 
settlements, allowing businesses to avoid the costs and risks of 
litigation. Finally, SEPs increase the likelihood that communities 
forced to bear the burden of environmental degradation will benefit 
directly from enforcement actions against violators.
    Regrettably, the proposed Stop Settlement Sludge Funds Act appears 
likely to prohibit many of the important benefits now provided by EPA's 
SEPs program. The bill's definition of the term ``donation'' 
specifically excludes ``any payment by a party to provide restitution 
for or otherwise remedy the actual harm (including to the environment), 
directly and proximately caused by the alleged conduct of the party 
that is the basis for the settlement agreement.'' This exception is too 
narrowly drawn to allow for numerous beneficial uses of SEP monies. 
Thus, for example, the bill would appear to ban the following entirely 
legitimate, appropriate uses of SEP funds that are currently permitted 
by EPA:

        1)  Pollution prevention projects that improve plant procedures 
        and technologies, and/or operation and maintenance practices, 
        that will prevent additional pollution at its source;

        2)  Environmental restoration projects including activities 
        that protect local ecosystems from actual or potential harm 
        resulting from the violation;

        3)  Facility assessments and audits, including investigations 
        of local environmental quality, environmental compliance 
        audits, and investigations into opportunities to reduce the 
        use, production and generation of toxic materials;

        4)  Programs that promote environmental compliance by promoting 
        training or technical support to other members of the regulated 
        community; and

        5)  Projects that provide technical assistance or equipment to 
        a responsible state or local emergency response entity for 
        purposes of emergency planning or preparedness.

    Each of these types of programs provide important protections of 
human health and the environment in communities that have been harmed 
by environmental violations. However, because they are unlikely to be 
construed as redressing ``actual (environmental) harm, directly and 
proximately caused'' by the alleged violator, the bill before this 
committee would prohibit every one of them.
    My other objection to the proposed Stop Settlement Slush Funds Act 
is more broad. In my view, this bill inappropriately reduces the 
discretion that federal agencies and prosecutors need to do their jobs 
in a fair and effective fashion. In its decision in the landmark case 
of Heckler v. Chaney, 470 U.S. 821 (1985), the U.S. Supreme Court took 
note of the importance of leaving decisions to prosecute or not 
prosecute in the hands of administrative agency personnel and 
prosecutors. The Court noted that ``an agency decision not to enforce 
involves a complicated balancing of a number of factors that are 
peculiarly within its expertise. . . .The agency is far better equipped 
than the courts to deal with the many variables involved in the proper 
ordering of its priorities.'' Id. at 831-832.
    This same rationale clearly applies to the terms of the settlement 
agreements that a federal agency or prosecutor chooses to enter into. 
Such settlements involve numerous complicated technical issues as well 
as important judgments respecting the use of limited prosecutorial 
resources. Their terms are best left in the hands of expert agencies 
and prosecutors, rather than dictated by Congress or the federal 
courts.
    In sum, the bill before you will harm the interests of Americans 
who have been the victims of unlawful pollution by arbitrarily and 
unreasonably limiting many of the benefits those people may now receive 
through SEP settlement agreements. This bill will discourage settlement 
of environmental enforcement cases and place greater burdens on 
regulated firms and regulators alike. It will inhibit the advancement 
of technology and the restoration of damaged natural resources. It will 
also unwisely intrude on the discretion of federal agencies and 
prosecutors. For these reasons, with respect, I recommend that you vote 
against this bill.

                                
   Response to Questions for the Record from David M. Uhlmann, Esq., 
   Director, Environmental Law and Policy Program, The University of 
                          Michigan Law School


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