Posted November 23, 2010 in Government by Jennifer King

You hear about it every day: Companies fined for breaking laws, defrauding customers, selling unsafe products and more. But what happens to that money once a company is found guilty and has to pay? Does it reward the victims? Go toward slashing the federal deficit? Something else? The answer is: It depends.

Typically fines (also known as civil penalties) go to either the U.S. Treasury or the victims. Which one actually receives the money depends on the laws broken.

For example, the Sarbanes-Oxley Act, which protects investors from accounting fraud, says that if a company profited from breaking the law, it must turn over those profits and pay civil penalties.

If it turns over both profits and pays a penalty, the money can be given to the victims. But, if the company didn’t profit and only has to pay a civil penalty, the U.S. Treasury gets the penalty and victims get nothing. The government then can do what it wants with the money.

But many laws don’t pay victims under any circumstances.

For example, the U.S. Department of Transportation can fine airlines $27,500 per passenger when a commercial plane sits on the tarmac for more than three hours. If you’re a passenger stuck in that unfortunate situation, $27,500 might lessen the pain. Unfortunately, you won’t see a dime of it. The money goes straight to the Treasury. It doesn’t even necessarily get spent improving your air travel experience.

Regulators argue that even if the passengers don’t receive the money, the penalty serves to punish the company. It discourages airlines from leaving passengers stranded in the first place.

At times, the government will negotiate separate payments – in addition to the civil penalties – to ensure victims are rewarded. With the BP oil spill, for example, the company agreed to pay civil penalties, which will go to the government. But it also agreed to put money into a victims’ fund and pay clean-up costs.

Victims who agree not to sue BP, or to drop existing lawsuits, are eligible for the victims’ fund. People and companies can still file lawsuits against BP to cover their losses, but aren’t eligible for money from the fund.

 

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http://blogs.lawyers.com/2010/11/who-gets-the-money-when-a-company-gets-fined/