On June 5, 2017, Attorney General Jeff Sessions issued a memo prohibiting DOJ from including payments to third party non-government entities in civil and criminal settlements. This memo will have far reaching consequences for settlements in environmental cases. In effect, the memo appears to bar the inclusion of supplemental environmental projects (SEPs) from environmental settlements in which DOJ plays a role.
The memo includes an exception for “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.” It is unclear how broadly this exception will be interpreted: is it only meant to cover direct remediation of the resultant environmental harm such as the cleanup of an illegal discharge to a river, or could it cover payments to community organizations that will undertake efforts to reduce discharges of the same pollutant in the same watershed? Further it is unclear whether the new policy would prohibit a quasi-governmental organization such as the National Park Foundation from receiving funds in a DOJ settlement.
SEPs are environmentally beneficial projects related to the violation, which a settling defendant can undertake in lieu of a portion of the penalty to be paid. For example, a factory that violates conditions of its Clean Air Act Title V permit may undertake a SEP to fund retrofits of diesel school buses to reduce air pollution in the community. SEPs have been part of environmental settlements for decades. They are a tool EPA and DOJ use to foster environmental and public health benefits, which is supported by provisions in criminal statutes and the U.S. Sentencing Guidelines.
Elimination of SEPs is likely to make settlement negotiations more challenging. Companies and DOJ will no longer have the option of proposing a SEP to bridge the gap in fine settlement negotiations. Instead, when an impasse is reached, both sides are now more likely to face the costly proposition of litigation. Companies should keep this policy change in mind in all environmental settlement agreements with DOJ, as it will impact both current negotiations and those to come.
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