Good Question: Where Does Money From Government Fines Go?
MINNEAPOLIS (WCCO) -- A Japanese air bag maker will have to pay at least $70 million dollars in fines to the U.S. government over the next five years.
Takata Corporation copped to mishandling a defect that killed at least eight people and left others, including one Minnesota woman, blind.
The government hands out billions in fines every year, but where does that money go? Good question.
"It's a great question to ask because it depends. And I hate when people give that as a dodge, but it does," Carlson School of Management Professor Paul Vaaler said.
In the Takata airbag case, the $70 million will go straight to the general United State Treasury. The same thing happened when the U.S. government imposed a $35 million fine on General Motors in 2014 over problems with the ignition switches.
According to the Department of Transportation, the Treasury decides where to allocate all civil penalties imposed by the National Highway Transportation Safety Administration.
"They'll set it in a way that it gets the company, or the individual, to think twice about doing it again," Vaaler said.
He said the funds often end up in the general U.S. Treasury because much of the harm done can be considered "general." The government also uses that money to reimburse the cost of the investigation.
However, the fine allocations differ for each department and can sometimes go to programs that help victims. When the Securities and Exchange Commission fined J.P. Morgan $13 billion in 2013, $2 billion went to the U.S. Treasury to settle claims, $7 billion went to state and federal housing agencies and $4 billion went to help struggling homeowners.
"As restitution for the victims, if we can identify who those victims are of the crime, the individuals that were hurt by the company action for it," Valeer said. "Often, we can't though."
When BP paid billions for the oil spill, some of that money went to wildlife and water-quality restoration.
Vaaler said these companies do pay these large fines and, in some cases, can't write off the loss.
But, as for whether they make a difference to the companies' bottom lines, he said it's often the case and not the cost that does the most damage.
"The fine itself might be something that the corporation can pay, but what it says in terms of the liability that incurred and the signal that it sends about the reputation can be much more costly."
Vaaler also said the fines are often the tip of the iceberg in what companies can pay.