The Justice Department’s Third-Party Payment Practice, the Antideficiency Act, and Legal Ethics

Over the last two presidential administrations, the Department of Justice has directed settling parties to pay some settlement money, not into the U.S. Treasury, but to a third party who was not a party to the suit or a victim of a crime or a tort. Those directives raise several important legal issues because the practice is tantamount to the Department distributing funds that are the property of the United States. The practice has gone largely unnoticed for years, but recently has come under scrutiny by journalists, commentators, and the House of Representatives.

The Justice Department’s third-party payment practice is an improper and unlawful disbursement of funds that, by law, must be deposited into the U.S. Treasury, the bank account of the U.S. people. Several different sources of law—the Appropriations Clause and Antideficiency Act implicitly, the Miscellaneous Receipts Act and state ethical rules expressly—separately and together demand that government lawyers deposit into the U.S. Treasury funds they receive in the settlement of cases. No private lawyer could give away a client’s settlement money, and no government lawyer may do so either. It is time for this unlawful practice to end.

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