The Trump administration is considering the establishment of a $1.7 billion fund to compensate the president’s allies and others investigated by the Justice Department under President Joseph R. Biden Jr., creating an ethical and political minefield for Republicans and the department’s leadership.
The unusual plan, which Democrats and former government officials criticized as a vast political slush fund financed by taxpayers, is being fast-tracked, but has yet to be finalized or approved, according to people familiar with the situation who spoke on the condition of anonymity to discuss internal deliberations.
The Justice Department is modeling the program, in part, on a landmark $760 million settlement fund the Obama administration created to compensate Native American farmers and ranchers who were deprived access to federal subsidies for decades, one of those people said. Payments in that settlement came from the Judgment Fund, an uncapped pot of money that does not require congressional approval to make payments and is maintained by the Treasury Department.
The proposal comes in response to various claims President Trump has made against a federal government he himself controls. He has sought compensation for the leak of his tax returns during his first term, as well as the investigations into his handling of classified documents after he left office and into his 2016 campaign’s potential ties to Russia.
The idea of establishing a government fund to pay Mr. Trump’s political allies has gained traction internally as the Justice Department and White House try to resolve a $10 billion lawsuit Mr. Trump filed in January against the Internal Revenue Service. The judge overseeing that case is considering throwing out Mr. Trump’s suit because it is ridden with perceived conflicts of interest and the potential for self-dealing.
It was not immediately clear where the fund would draw money from. But officials with the Treasury Department have been part of internal discussions, one of the people familiar with the matter said.
A compensation fund for Trump allies but not for the president himself would offer a short-term fix, allowing the president to receive a deliverable benefit from the lawsuit before the judge could dismiss it, according to officials briefed on its details.
The fund would also address Mr. Trump’s separate pair of administrative claims against the Justice Department for its previous investigations into him. Mr. Trump has asked for $230 million for those claims.
ABC News reported the fund proposal on Thursday. The White House did not immediately respond to a request for comment.
People in Mr. Trump’s orbit have for months discussed a compensation fund for his allies who incurred significant legal fees during the various investigations that ensnared Mr. Trump and his aides. It could extend to the nearly 1,600 people charged in connection with the attack on the Capitol on Jan. 6, 2021 but will not be limited to his allies.
The move, which is likely to include compensating those Trump supporters who ransacked the Capitol, would represent the culmination of the government’s comprehensive effort to rewrite history. The proposal would, in many respects, act as a bookend to Mr. Trump’s issuance of clemency to those convicted of crimes during the Capitol riot — felons now valorized by his appointees as heroic and as “survivors” who have been victimized.
The Justice Department under Mr. Trump’s control has prosecuted his enemies on flimsy evidence, dropped cases against defendants he favors and demolished anti-corruption and national security units. Yet those moves have not prompted public outrage comparable to the backlash over its handling of the release of the Jeffrey Epstein files.
The compensation plan could be political poison for Republicans already weakened by Mr. Trump’s plummeting popularity ahead of the midterm elections.
“An insane level of corruption — even for Trump,” Senator Elizabeth Warren, a Massachusetts Democrat, wrote on X on Thursday night. “A $1.7 BILLION slush fund for Trump’s hand-picked stooges to hand money to January 6 insurrectionists and his political allies.”
Brandon DeBot, a senior attorney adviser at New York University’s Tax Law Center, called the proposed fund an “absurd and extraordinary” exchange for dropping a lawsuit that the government would have fiercely fought against anyone other than Mr. Trump.
The situation also places the acting attorney general, Todd Blanche, the former lead lawyer on Mr. Trump’s defense team, in a difficult position. Moderate Republicans in the Senate, including Thom Tillis of North Carolina, have said they would support Mr. Blanche’s potential permanent nomination for the job if he were to recognize that the Jan. 6 attacks were a disgrace.
Mr. Blanche had resisted a push by Ed Martin, who ran the Justice Department’s weaponization working group and represented Jan. 6 defendants, to pay restitution to any of the rioters, according to a person familiar with the discussions. It is not clear what has changed. In recent days, Mr. Blanche, a former federal prosecutor in Manhattan, has made it clear that he believes that some of the convicted rioters were treated too harshly.
Mr. Trump’s suit against the I.R.S. turns on the leak of his tax returns to The New York Times in 2019. Mr. Trump, two of his sons and his family business demanded at least $10 billion in the suit, arguing that the I.R.S. should have done more to prevent a former contractor from leaking tax information to The Times and ProPublica.
The case sits on shaky legal ground. Kathleen M. Williams, the judge on the case, in the Southern District of Florida, has questioned whether Mr. Trump’s lawsuit is valid given that as president, he controls both the lawyers bringing the suit and the government attorneys who have to respond to it. It is a basic legal principle that the two sides in a lawsuit must be actually opposed to each other.
Otherwise, there is not a conflict for a judge to even consider when assessing the underlying merits of the case. Judge Williams ordered Mr. Trump and the Justice Department to write briefs by May 20 outlining whether they were in opposition.
She also asked six prominent outside lawyers to evaluate whether the lawsuit could proceed at all given the self-dealing involved in the president seeking damages from an agency that he directly controls.
On Thursday night, the lawyers outlined a series of questions that the judge should consider asking the Justice Department — and which officials there might find awkward to answer. Those lawyers suggested the court grill the department about measures lawyers involved in the case have taken to ensure that they can act in the “independent” interests of the I.R.S., not those of the president.
They also said the judge could delve into whether the I.R.S. has made certain that any settlement discussions with the president “are conducted at arm’s length and without risk of collusion.”
But Mr. Trump’s insistence on taking vengeance has created chaos and confusion at the highest levels of his own administration. To avoid having to explain themselves, the Justice Department and White House are now racing to iron out a settlement and withdraw the suit before the judge can evaluate its legitimacy, The Times reported this week.
Another potential settlement option discussed within the Justice Department is for the I.R.S. to agree to drop any audits of Mr. Trump, his family and his businesses in exchange for Mr. Trump dropping the lawsuit.
Attorneys both inside and outside the government have identified clear defenses to Mr. Trump’s suit, and former Justice Department officials have said it would be egregious for the department not to even contest Mr. Trump’s claims.
But a ruling from the judge stating that Mr. Trump’s suit is so collusive that it is legally invalid would further highlight the unusual decision to settle the case.
“I don’t understand how the judgment fund could pay someone independent of an actual lawsuit,” said Gilbert Rothenberg, a former Justice Department tax lawyer who signed a friend-of-the-court brief in the case outlining how the government could defend against Mr. Trump’s claims. “That strikes me as rather bizarre.”
