There's nothing sweet about charity as a legal penalty. Allowing the likes of Facebook, Google and now Halliburton to settle cases by making non-profit donations doesn't serve justice. Victims are denied compensation, while companies gain tax breaks and a do-gooder's aura. US courts shouldn't let alleged wrongdoers off so easily.
The Halliburton settlement makes at least some sense. The $40 billion oil-services giant paid only a $200,000 fine for destroying evidence concerning the 2010 Gulf of Mexico oil spill, but that was the legal maximum. It also donated $55 million to the National Fish and Wildlife Foundation, a non-profit that has led conservation efforts on the Gulf Coast for decades. In this case, the foundation seems deserving.
The donation, however, isn't only a drop in the bucket for Halliburton, it's tax deductible. And, the fine is essentially meaningless. Prosecutors should have filed harsher charges or Congress needs to raise the maximum. About $1.3 billion in civil claims would still cause the company pain but resolution of the criminal exposure falls short of effective deterrence.
Charitable donations are even more troubling in class-action settlements. Facebook, for instance, agreed in 2010 to resolve privacy charges with a package, including $6.5 million for an online-privacy foundation it will control. The users who sued received essentially zilch. Also in 2010, Google paid $8.5 million for allegedly disclosing customer email contacts during the launch of the Buzz social network. Fourteen charities - and no customers - shared the payout.
Federal rules require such settlements to be "fair, reasonable and adequate." These deals failed the test. And, companies shouldn't be allowed to use charitable donations to suggest they're any less culpable.
While the alleged victims might come away empty-handed, their lawyers do not. Legal fees are calculated on the total payout, no matter where it goes. In the Facebook and Google deals, the plaintiffs' attorneys received more than $2 million.
Critics of the Facebook settlement have asked the US Supreme Court to review it. While the court will probably decline, it is growing skeptical of class actions and could jump at the chance to deal these another blow. Greedy lawyers would have only themselves to blame.
