Attorney General Jeff Sessions has issued a memo to Department of Justice staff and 94 United States Attorney’s Offices barring them from third-party settlements.

The June 5 memo prohibits entering into any agreement on behalf of the United States in settlement of federal claims or charges that directs or provides for a settlement payment to non-governmental, third parties that were not directly harmed by the conduct.

“When the federal government settles a case against a corporate wrongdoer, any settlement funds should go first to the victims and then to the American people— not to bankroll third-party special interest groups or the political friends of whoever is in power,” Sessions said in a statement. “Unfortunately, in recent years the Department of Justice has sometimes required or encouraged defendants to make these payments to third parties as a condition of settlement. With this directive, we are ending this practice and ensuring that settlement funds are only used to compensate victims, redress harm, and punish and deter unlawful conduct.”

Under the Obama and Bush  administrations, the Justice Department repeatedly required settling parties to pay settlement funds to third party community organizations that were not directly involved in the litigation or harmed by the defendant’s conduct. Pursuant to the Attorney General’s memorandum, that practice “will immediately stop.”

The memo makes it clear that there are only “three limited exemptions” to the policy. It does not apply to “an otherwise lawful payment or loan that provides restitution to a victim that or that otherwise directly remedies the harm that is sought to be redressed.” The policy does not apply to payments for legal or other professional services rendered in connection with the case, nor does to cover payments expressly authorized by statute, including restitution and forfeiture.

The new policy applies to all civil and criminal cases litigated under the of the direction of the attorney general, and includes civil settlement agreements, cy press agreements or provisions, plea agreements, non –prosecution agreements, and deferred prosecution agreements.

An example of a third party being added to a government settlements is a Justice Department case settled in August 2012 by Gibson Guitar. The company entered into a criminal enforcement agreement resolving a criminal investigation into allegations that the company violated the Lacey Act by illegally purchasing and importing ebony wood from Madagascar and rosewood and ebony from India.

The enforcement agreement required Gibson to pay a penalty amount of $300,000. The agreement also provided for a community service payment of $50,000 to the National Fish and Wildlife Foundation “to be used to promote the conservation, identification and propagation of protected tree species used in the musical instrument industry and the forests where those species are found.” The foundation, despite the windfall, was not a victim of the alleged crime and had no direct connection to the case.

In a more recent case, a 2016 settlement with Goldman Sachs directed the firm to pay $240 million in “financing and/or donations” to groups promoting affordable housing.

House Judiciary Committee Chairman Bob Goodlatte (R-Va.) praised the Department of Justice’s decision to prohibit the use of third party settlements,

“Over the last few years, the House Judiciary Committee has conducted an extensive investigation into the Obama Administration’s mortgage lending settlements,” he said. “We have found that the Department of Justice was systematically subverting Congress’s spending power by requiring settling parties to donate money to activist groups. The practice is wrong no matter which party is in power.”

Goodlatte said his committee “is examining stunning evidence showing that contrary to its sworn testimony, the Obama Justice Department went out of its way to keep settlement funds from going to conservative non-profits.”

Earlier this year, Goodlatte introduced the Stop Settlement Slush Funds Act of 2017 (H.R. 732).The bill would bar the Department of Justice and all other government agencies from requiring defendants to donate money to outside groups as part of their settlement agreements with the federal government.

The legislation passed the House Judiciary Committee on February 7, 2017, by a vote of 17-8.

An investigation by the House Judiciary and Financial Services Committees revealed that, in approximately just two years, the Obama Administration’s Justice Department used mandatory donations to direct nearly a billion dollars to activist groups. The yearlong investigation concluded with allegations that the Department of Justice “was pushing and even requiring settling defendants to donate money to non-victim third-parties. Donations can earn up to double credit against defendants' overall payment obligations, while credit for direct relief to consumers is merely dollar-for-dollar.

“What is more, documents show that groups that stood to gain from these mandatory donations lobbied the Justice Department to include them in settlements,” Goodlatte said. “It has funneled third-party groups as much as $880 million dollars in just the last two years. These payments occur entirely outside of the Congressional appropriations and grant oversight process. What is worse, in some cases, DOJ-mandated donations restore funding that Congress specifically cut.”

The Financial CHOICE Act, a Dodd-Frank overhaul currently winding its way through the House of Representatives, included similar prohibitions on the inclusion of unaffected third parties in federal settlements.