Seyfarth Synopsis: The U.S. Attorney General has directed the Department of Justice to no longer allow payments to third parties as part of resolving federal cases. For environmental cases, this prohibition could significantly limit, if not ban, the use of SEPs.

Attorney General Jeff Sessions issued a memo last week to all Department of Justice staff and 94 U.S. Attorney’s Offices, prohibiting payments to nongovernmental entities that are not a party to the litigation as part of a negotiated settlement. Several environmental groups have interpreted this memo to altogether ban supplemental environmental projects (SEPs) in matters where DOJ is involved.

We previously blogged about EPA’s updated policy documents involving SEPs. In the environmental context, SEPs are used to allow an alleged violator to voluntarily undertake an environmentally beneficial project related to the violation, in exchange for mitigation of the penalty to be paid. EPA has traditionally viewed SEPs as furthering “EPA’s goal of protecting and enhancing public health and the environment.” For example, one company paid for soil restoration on federal land as part of its compensation for air pollution violations at some of its power plants in North Carolina. Corporate defendants have been agreeable to SEPs as they promote positive public relations.

Not every environmental settlement requires the involvement of DOJ, so for these matters, at least for the moment, SEPs remain available in resolving an alleged violation. But for matters that require referral to DOJ for resolution, it is a different outcome. The Attorney General’s memo prohibits DOJ attorneys from entering into “any agreement on behalf of the United States in settlement of federal claims or charges…that directs or provides for a payment or loan to any non-governmental person or entity that is not a party to the dispute.” By doing this, Sessions is seeking to curb settlement funds from being used to benefit third-party special interest groups or political friends of those in power.

The Sessions’ memo includes two exceptions that may allow SEPs to be utilized in narrow circumstances – when structured so that a governmental entity, instead of a non-governmental organization, receives the SEP benefit, and when the benefit “directly remedies the harm.” It remains to be seen how DOJ will apply these exceptions as the Sessions’ memo does not elaborate as what constitutes a “governmental entity” or the nexus needed to “directly remedy the harm.” What is clear is that corporate defendants will see a reduction in the use of SEPs as part of environmental settlement agreements that are negotiated by the DOJ.