At a time when the federal government is facing fiscal challenges, it is receiving record amounts of revenue from at least one source: criminal fines and penalties paid by major corporations.
The latest contributor is the Swiss UBS AG bank, which on Wednesday agreed to pay $500 million in criminal fines and penalties to the U.S. government for its role in the growing scandal over the rigging of global benchmark interest rates. (UBS also agreed to pay the Commodity Futures Trade Commission $700 million to resolve civil allegations.)
UBS joined a long list of companies that have shelled out billions of dollars in criminal fines and penalties to the U.S. government in 2012. In July, the British drugmaker GlaxoSmithKline agreed to pay a $956 million criminal fine to settle a healthcare fraud case. And in September, the Taiwan-based AU Optronics Corp was fined $500 million for price fixing in the market for liquid crystal display panels.
So where does all the money go?
Well, it depends. Penalties, which don't involve a conviction, mostly go directly to the U.S. Treasury. On the other hand, fines imposed on individuals and companies convicted of federal crimes are mostly deposited into a pool called the Crime Victims Fund.
The fund was established by the Victims of Crime Act of 1984 to fund state-run victim assistance and compensation programs. They cater to victims of a wide range of crimes, including child sexual abuse and domestic violence, but not the actual victims of corporate fraud.
In the fund's most recent fiscal year, which ended on Sept. 30, it took in a record $2.7 billion, ending the year with a total of more than $8 billion.
But while the fund is taking in record amounts, its spending is not keeping pace because of limits set by law. In 2000, Congress set caps on the amount the fund could spend each year as a way to provide more stability in the future. While the cap has been raised several times over the last 12 years, it has stayed at $705 million a year for the last three fiscal years. That cap will remain in place under an agreement between Congress and President Barack Obama that keeps the government running at current spending levels through March 27, 2013.
Steve Derene, executive director of the National Association of VOCA Assistance Administrators, whose members administer money from the federal fund, is hoping that Congress will raise the cap. He said as a result of the limits, grants made by the fund in 2012 were actually 30 percent less, in real dollars, than 2000 grants.
"The fund itself is not running short," said Derene. "Our problem has been getting money out of the fund for victims services."
While the fund is doing well, it is nevertheless losing out on many major criminal penalties collected by the Justice Department. When companies sign non-prosecution agreements or deferred prosecution agreements, they often agree to pay a penalty as opposed to a fine. Such penalties go directly to the U.S. Treasury, not to the fund.
UBS, for example, agreed to pay $400 million as part of a non-prosecution agreement. That money will go to the Treasury, said Derene. Only a $100 million fine that UBS Securities Japan Co, Ltd, agreed to pay as part of a guilty plea will go into the Crime Victims Fund.
Derene said he's concerned that more and more money will not make it into the fund as a result of non-prosecution and deferred agreements in which companies pay penalties.
"They're the functional equivalent of a fine," said Derene.
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