Notice & Comment

New Justice Department Guidance on Supplemental Environmental Projects in Civil Settlements with Private Defendants

Last week, Jeff Clark, the Assistant Attorney General of the Environment and Natural Resources Division (ENRD), delivered a fascinating speech at the Case Western Reserve University’s Burke Center for Environmental Law. Video of his remarks is here.

Among other things, Clark discussed Justice Department guidance he issued the week before concerning supplemental environmental projects (SEPs) in civil settlements with private defendants. The nineteen-page memorandum is available here.

Here is the introduction to the memorandum (footnotes omitted):

This Memorandum is issued as an exercise of my authority both (1) to construe the governing sources of law as a necessary part of ensuring any and all enforcement actions I authorize and every position taken in court in cases that I supervise comport with the law; and (2) to exercise appropriate prosecutorial discretion as to both civil and criminal enforcement cases.

The Miscellaneous Receipts Act, 31 U.S.C. § 3302, requires any federal officer receiving funds on behalf of the United States to deposit them in the Treasury. That allows Congress to decide how to appropriate those dollars under its constitutional authority. Civil penalties are “money for the Government” within the meaning of the Miscellaneous Receipts Act. Attempts in consent decrees and settlement agreements to divert cash from the Treasury to third parties have long been deemed improper and inconsistent with the Miscellaneous Receipts Act, absent authorization from Congress. In addition to and distinct from their inconsistency with the law, such practices also constitute improper policy, in that they allocate budgetary discretion to officials who are not specifically designated to make such decisions. Indeed, any payment to non-victim third parties required by a settlement, even without the reduction of penalties, raises concerns.

Some agencies (including the Environmental Protection Agency (EPA), working with the Justice Department prior to the issuance of this Memorandum), have entered into settlements that require defendants to expend funds to provide goods or services to third parties in lieu of the payment of penalties. This practice has been denominated Supplemental Environmental Projects or “SEPs” for short. These agencies and the Department have relied on the rationale that SEPs do not trade penalties for projects because there is no penalty owed to the government until the settlement is finalized. While these agencies and the Department have relied in good faith on this rationale, it has been controversial for decades, and it does not provide a basis for including such provisions moving forward. These in-kind payments in exchange for a reduction of a penalty are as problematic as direct cash payments to third parties. Indeed, the policy on which EPA and the Department previously relied to justify these payments recognizes that a given SEP can result in direct penalty mitigation of 80% (or less). In other words, all things being equal, if a defendant agrees to perform a $1 million SEP, it can reduce its civil penalties by $800 thousand (or less). In effect, this represents a “conversion rate” for SEPs into civil penalties. Given this acknowledged mathematical relationship between penalties and SEPs, the conclusion is inescapable that SEPs violate the Miscellaneous Receipts Act. Moving forward, they therefore 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.

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