A one-page memorandum from Attorney General Jeff Sessions could cause significant changes to how settling defendants can use supplemental environmental projects (SEPs) in settling Department of Justice (DOJ) environmental enforcement actions.

The June 5 memorandum 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 this dispute.” Attorney General Sessions justified the change as necessary to redirect to the U.S. Treasury funds that settling defendants may have otherwise paid to third-party non-governmental organizations as part of a settlement. The memorandum includes three short exemptions to the policy: a payment or loan that “directly remedies the harm that is sought to be redressed, including for example, harm to the environment”; a payment for legal or other professional services rendered in connection with the case; and restitution and forfeiture otherwise expressly authorized by statute.

However, by limiting the exception to payments that “directly” remedy harm to the environment, the new policy closes the door to some third-party administered SEPs that do not directly clean up pollution but that nevertheless provide related environmental benefits. Under the government’s existing SEP policy, an alleged violator may agree to undertake an environmentally beneficial project related to the violation in exchange for mitigation of the civil penalty to be paid to the government. U.S. Environmental Protection Agency (EPA) guidance counsels that a SEP is supposed to “go beyond what could legally be required in order for the defendant to return to compliance, and secure environmental and/or public health benefits in addition to those achieved by compliance with applicable laws.” (See U.S. Environmental Protection Agency, Supplemental Environmental Projects Policy, 2015 Update (March 10, 2015) at 1.)

EPA also views SEPs as an opportunity to promote and evaluate technological innovations which would reduce pollution and potentially lead to better standard industry practices. For example, as part of the government’s settlement with Volkswagen for its circumventing of emissions controls, Volkswagen plans to provide approximately $2 billion over ten years to a third-party limited liability company to fund zero emission vehicle infrastructure, education, and access. Similarly, as part of a larger civil settlement of alleged Clean Air Act violations at a Texas refinery, BP agreed to retrofit buses and light-duty vehicles owned by school districts surrounding the refinery to run on natural gas.

Sometimes the dollar reduction to the civil penalty is on a one-to-one basis; other times the settling defendant will contribute more to the SEP than they would have paid in direct civil penalty. The settling defendant may prefer to spend more on a SEP because it reduces the negative optics of a large civil penalty, because it provides greater opportunity for positive community engagement, and because the settling defendant may benefit (indirectly or directly) from the SEP. States and local authorities often encourage SEP projects as well, particularly if they are co-plaintiffs with the United States and the projects contemplated are anticipated to have tangible human health and environmental benefits. While the memorandum does not prohibit SEPs that are merely related to the violation but not directly remedying the harm sought to be addressed, settling defendants now will be required to manage those SEPs themselves rather than paying a third-party NGO to do it for them. Yet settling defendants have historically often found it easier to pay a third party with experience or expertise in a particular area—such as wetlands restoration—rather than trying to set up and implement the project themselves. This opportunity to outsource implementation is now foreclosed.

The memorandum does leave some questions unanswered. EPA refers larger enforcement cases to DOJ but retains jurisdiction over many administrative enforcement actions. The Attorney General’s memorandum does not mention administrative settlements between EPA and the settling defendant, and it remains to be seen whether EPA intends to follow DOJ’s lead or to continue allowing third-party SEPs in administrative enforcement actions. Companies should closely monitor how EPA and DOJ reconcile the Attorney General’s memorandum with the government’s longstanding SEP policies.