The reach of supplemental environmental projects (SEPs), a 40-year old EPA policy used in enforcement settlements, has been truncated under a recent memo issued by U.S. Attorney General Jeff Sessions. The memo specifically prohibits attorneys in the U.S. Department of Justice (DOJ) from entering into agreements on behalf of the United States, which directs or provides for a settlement in which the defendant makes a payment to nongovernmental third-party organizations (NGOs) that were not directly harmed by the misconduct. While the memo does not specifically refer to EPA’s SEP policy, the memo’s language mirrors that in H.R. 732, the Stop Settlement Slush Funds Act, which would also prohibit third-party payments and which specifically references remedies for harm caused to the environment.
SEPs go beyond compliance
As defined by the EPA, a “SEP” is an environmentally beneficial project or activity that is not required by law but that a defendant agrees to undertake as part of the settlement of an enforcement action.
“SEPs are projects or activities that go beyond what could legally be required to allow the defendant to return to compliance and secure environmental and/or public health benefits in addition to those achieved by compliance with applicable laws,” says the EPA.
Bankrolling third parties
“When the federal government settles a case against a corporate wrongdoer, any settlement funds should go first to the victims and then to the American people—not to bankroll third-party special interest groups or the political friends of whoever is in power,” said Sessions in conjunction with the memo’s release. “Unfortunately, in recent years the Department of Justice has sometimes required or encouraged defendants to make these payments to third parties as a condition of settlement. With this directive, we are ending this practice and ensuring that settlement funds are only used to compensate victims, redress harm, and punish and deter unlawful conduct.”
The DOJ notes that under the Obama administration, the department repeatedly required settling parties to pay settlement funds to third-party community organizations that were not directly involved in the litigation or harmed by the defendant’s conduct. “This practice will immediately stop,” says the DOJ.
Exceptions
The memo allows three “limited” exceptions to this policy. First, the policy does not apply to an otherwise lawful payment or loan that provides restitution to a victim or that otherwise directly remedies the harm that is sought to be redressed, including, for example, harm to the environment or from official corruption. Second, the policy does not apply to payments for legal or other professional services rendered in connection with the case. Third, the policy does not apply to payments expressly authorized by statute, including restitution and forfeiture.
Legislating a nexus
Those who support payments to third parties in SEPs note EPA’s policy requires a strong connection between the violation and the third party. In testifying in the House in April 2016 on an earlier version of H.R. 732, David M. Uhlmann, director of the Environmental Law and Policy Program at the University of Michigan Law School, noted that the bill would “preclude third-party payments even in cases when there is a nexus to the underlying violation, and third-party payments are the best way for defendants to redress the harm caused by their conduct.”
Before joining the Michigan faculty, Uhlmann served for 17 years in the DOJ, the last 7 years as chief of the Environmental Crimes Section.
“I would recommend that any Congressional action focus on codifying the positive features of existing Justice Department and EPA policies,” testified Uhlmann. “It would be reasonable to require a nexus between any third-party payments and the violations that are addressed by settlement agreements. It also would be reasonable to insist that third-party payments are negotiated separately from criminal fines or civil penalties and do not create conflicts of interest. And it might be reasonable to impose caps on third-party payments and to make clear that third-party payments cannot be used to fund programs that Congress has determined should be de-funded. Unfortunately, the proposed legislation includes none of these salutary terms.”