March 25, 2015

The Growing Threat of ‘Enforcement Slush Funds’

by Andrew J. Pincus, Mayer Brown LLP

Federal prosecutors and regulators have extraordinarily broad discretion to decide who to target in enforcement investigations, what to charge them with, and how much to demand as the price for a settlement.

This is the topic of a new paper, released this week by the U.S. Chamber Institute for Legal Reform, Enforcement Slush Funds: Funding Federal and State Agencies with Enforcement Proceeds.

In just about every other area of the law, government actions can be stopped if they are arbitrary and capricious—but decisions to prosecute or settle are unreviewable. (Of course, defendants have the theoretical right to fight charges in court, but the accompanying cost and reputational harm forces almost everyone to settle.)

Prosecutors should be guided by the public interest in exercising this expansive authority, but today the profit motive too often trumps the public interest. Statutes allowing law enforcement officials to retain a share of litigation proceeds are skewing enforcement priorities by elevating the self-interest in revenue maximization over the broader public interest.

Just one example: the Justice Department’s well-documented abuse of civil forfeiture authority—which permits prosecutors to retain forfeiture proceeds to fund their own activities. As forfeitures ballooned fifty-fold over a 25-year period, independent observers found that allowing authorities to retain forfeited assets distorted enforcement priorities by incentivizing the pursuit of more valuable assets rather than more dangerous criminals.

And prosecutors don’t just use settlements to fund themselves—they also use them to channel donations to favored private groups. That is a clear abuse of government authority.

These practices are one of the key reasons for the well-documented “enforcement swarm” phenomenon. When prosecutors and regulators can spend their share of the settlement pie on themselves or on private-sector allies, it is no wonder that everyone wants a piece of the action and therefore focuses on the same, potentially lucrative targets. That misallocation of resources is plainly contrary to the public interest.

These practices are also starkly inconsistent with the Constitutional structure, which grants Congress the power of the purse. Statutes permitting executive branch officials to generate revenues and decide how to spend them—entirely outside of the congressional appropriations process—violate fundamental separation of powers principles. Action by Congress is essential to restore the constitutional balance and ensure that the overall public interest, not the self-interest of executive branch officials, drives enforcement activities.

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