On March 12, the U.S. Department of Justice (DOJ) Environment and Natural Resources Division (ENRD) issued guidance ending its decades-long practice of permitting private defendants in civil settlements to expend funds to provide environmentally beneficial goods and services to third parties in lieu of civil penalty payments. Defendants have long preferred to undertake supplemental environmental projects (SEPs) in lieu of paying larger penalties, and government enforcement lawyers saw SEPs as a valuable tool to encourage settlements. DOJ now finds that these SEPs violate the federal Miscellaneous Receipts Act, which requires federal officers receiving funds on behalf of the United States to deposit those funds into the United States Treasury. “Moving forward, [SEPs] will no longer be part of the suite of relief the Environment and Natural Resources Division seeks in its cases (unless specifically authorized by Congress), both in light of their inconsistency with law and their departure from sound enforcement practices,” according to ENRD’s memorandum. ENRD’s new policy is prospective and will not affect SEPs in existing settlements.
While this ENRD policy statement does not address directly SEPs in Environmental Protection Agency (EPA) administrative settlements, an EPA spokeswoman was quoted in a recent trade press article as saying, “In light of DOJ’s new memorandum, EPA will no longer include SEPs in administrative settlement agreements, other than diesel emission reduction SEPs, which Congress exempted.” It remains to be seen whether EPA will take any formal steps to amend or rescind the agency’s current SEP policy, last revised in 2015. This action by ENRD bookends DOJ and ENRD memoranda in recent years that chipped away at the use of SEPs in settlements. For example, then-Attorney General Jeff Sessions issued a memorandum in June 2017 ending the practice of allowing payments to third parties who were not parties to the lawsuit or settlement. In August 2019, ENRD issued a memorandum preventing the use of SEPs in settlements involving state or local governments.