Should individuals be allowed to turn criminal fines into donations for their favorite charities?
U.S. District Judge Janet Arterton recently faced this question and correctly said no. But scholars have raised the question before in response to prosecutors’ use of settlement funds reached in criminal prosecutions of major companies—some totaling billions of dollars—as checks to their favored organizations instead of payments into the general treasury.
The Cherry Hill Construction Case
Arterton’s ruling in the case of United States v. Cherry Hill Construction, Inc. is not only a sound reproof of defendants seeking to turn their criminal fines into checks to charities, but a sound critique of prosecutors’ misappropriation of settlement funds to their favored charities as well.
In Jan. of 2015, 42-year-old Connecticut construction firm Cherry Hill Construction pleaded guilty to filing a false tax return and making a false statement relating to how much money it had paid into its 401(k) plan—a violation of the Employee Retirement Income Security Act of 1974.
Following the plea, but prior to sentencing, a Presentence Investigation Report was prepared that stated that Cherry Hill faced a fine range of $1,200,000 to $2,400,000 and a probation period of 1 to 5 years.
But Cherry Hill’s lawyer made the judge another offer: Why not let the construction company build two homes on behalf of Habitat for Humanity and donate up to $200,000 instead?
The judge rightly refused.
Allowing a defendant to turn a criminal fine into a check to his or her favorite charity would destroy the deterrent and punitive purposes of a fine. Who, with deep pockets at least, would care about breaking the law if the penalty was to cut a check to his favorite charity—particularly if he can claim a tax deduction for the contribution?
More important than the number on the check is where the money goes.
No Statutory Authorization
Arterton stated that federal courts have held it “impermissible for a sentencing court to direct a defendant to make a charitable contribution in lieu of a fine” because that would “allow a judge to divert money that would have been paid to the Treasury to a private organization without statutory authorization.”
But here is the question that wasn’t before the court: If a judge can’t use the justice system to direct private parties to fund their favorite charities instead of the Treasury “without statutory authorization,” why should prosecutors be permitted to do so?
Poor Policy at Work
There are several reasons why this is bad practice.
First, it is unconstitutional: The Justice Department has no authority to use government funds to make donations to whatever party it chooses. This sidesteps the Constitution’s requirement that Congress direct the allocation of public funds by an open vote that taxpayers can look to and evaluate at election time.
Second, when the Justice Department decides who should receive settlement funds, it denies the public any opportunity to learn about or influence how their tax dollars are spent. And it allows the government to secretly play favorites with appropriations.
When former Attorney General Eric Holder reached a $17 billion settlement with Bank of America for alleged mortgage abuse charges, according to Investor’s Business Daily, the Justice Department “buried in the fine print of the deal … a raft of political payoffs to Obama constituency groups. In effect, the government  ordered the nation’s largest bank to create a massive slush fund for Democrat special interests.” Republicans have also been involved in directing money that belongs to the public to other uses. In 2005, the United States Attorney’s Office for the District of New Jersey, while led by then-U.S. Attorney Chris Christie, negotiated a settlement with Bristol-Myers Squibb over securities fraud charges that sent $5 million to Seton Hall University’s law school to endow a chair in business ethics.
Whether it is handed out by Democrats or Republicans, it is always unethical for a lawyer to turn money due to his client—the public, in this case—over to someone else. To avoid this unconstitutional and unsound example of political favoritism, courts and Congress should use Arterton’s decision as a guide for private parties and the Justice Department.
The problems that Arterton pointed out in Cherry Hill’s offer apply just as well to prosecutors’ “charitable” misappropriation of settlement funds and should serve as guidelines for how not to distribute settlement funds in the future.
The court realized that constructing homes for Habitat for Humanity had nothing to do with the harm caused by the defendants’ offense, and that Cherry Hill actually stood to benefit from that “community service” by way of “positive publicity from having its trucks and equipment seen by the public at the Organization’s job site.”
Heritage scholar Paul Larkin has previously proposed solutions to this problem: Either “enlist the aid of federal magistrate judges to review those decisions to ensure that any third-party payments go only to actual victims of any alleged wrongdoing” or “deny the Justice Department the opportunity to make those decisions at all”—just as Arterton denied the opportunity to Cherry Hill.