I'm Ben Gruber

2013 / 22 September

US Government Wins a Settlement – Where Does the Money Go?


I was skimming through the headlines today to see if any news caught my fancy. The number  – $900 million – was enough for me to take notice. Nearly a billion smackers. That is the amount JP Morgan is offering the US government to settle one of their current cases. As I glazed over the details of the genius scheme that yet another bank pulled to get around regulation in a less than nobel way – I had a thought that I could not believe I was having for the first time. Where in the H-E double hockey sticks does all that money go?

The article I was reading in the NY Times said it was getting divvied up between four government agencies – the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Federal Reserve and the Financial Conduct Authority in London.

But what do they do with it? Apparently the comptroller’s office got $300 million of the money. Seems like a lot.

After a lot of googling and reading of dead end articles, I think I get the basics of how these type of settlements work (although I am not sure about the aforementioned case). The funds normally end up in three main places.

1. Back to the victims of the incident.

2. Back to the Agency that did the prosecution.

3. Into the U.S. Treasury’s general fund, as if it was normal collected tax revenue.

Victims of the Incident

The money going back into the hands of the victims is dependent on a couple of simple factors. One, are the victims of the crime easily identifiable. This makes sense, you have to know a person is a victim and you have to actually be able to find them to be able to repay them. Two, the settlement amount has to be fairly large. The reason for this is because the fund – known as a “fair fund” is set up through a court process that is fairly expensive. So the amount being giving back has to be greater than that amount. If these two requirements are met, the victims get their fair share.

Agency Pockets

In most cases a percentage of the money goes back to the agency that prosecuted the crime. Typically it is only a fraction of the cost of the investigation and all that went into the process in the first place. But, since these agencies usually already have a budget that covers the cost of the their investigations (we can’t expect them to win every time) – the money goes into a coffer – aka a rainy day fund.

The Rest of Us Tax Payers

When there is money left over from the above two or when there is not a victims fund, the money heads back into the U.S. Treasury’s general fund. Again, this is basically treated as tax revenue, theoretically helping us balance the budget.

How much of the money ends in each of these three places percentage wise? I really could not tell you. There did not seem to be any systematic rhyme or reason as far as I could tell. The information is actually roughly given if you look hard enough for each settlement, so it is not a transparency issue per se – it just did not follow an easily discernible pattern from the 10 or so I found.

Anyway. The answer to my question was actually much less “shady” than I original imagined. When the question popped into my head, I had those ominous piano keys go off. But now that I am more knowledgeable on the subject – the tune is much more like when you get a letter right on Wheel of Fortune.

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