On June 7, 2017, the United States Department of Justice (DOJ) issued a policy memorandum dated June 5, 2017 that prohibits the allocation of settlement funds to non-governmental, third-party organizations, as a condition of settling any civil lawsuit or criminal prosecution with the United States. Going forward, the policy memo raises doubts about the use of Supplemental Environmental Projects (SEPs) in settlements with the federal government. 

In general, SEPs allow defendants to undertake an environmentally beneficial project as part of a settlement in lieu of paying some portion of assessed civil penalties to the government. Moreover, defendants often allocate funds in SEPs to non-governmental, third party organizations to implement previously-established or new projects. Now, however, DOJ’s policy memo prohibits the allocation of SEP funds to third-party organizations in settlements with the United States and requires that the defendants or the government implement any such projects. This development is expected to have a chilling effect on projects undertaken by third party organizations, and potentially on SEPs generally, given the limited project options that government agencies offer and/or resource and expertise limitations of defendants. Settlements with third parties and/or state agencies are not directly affected by this action.

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