In a memorandum issued earlier this month, the U.S. Department of Justice (DOJ) clarified how a policy prohibiting settlement payments to third parties, announced in June 2017, will apply in cases handled by DOJ’s Environment and Natural Resources Division. Our prior alert is available here. When DOJ unveiled the policy last June, it left open a number of questions concerning how the policy might affect settlements in environmental cases. DOJ’s new memorandum resolves some of these questions, while also indicating how DOJ will implement the policy in environmental cases.

DOJ’s memorandum signals that the prohibition on third-party payments will not render Supplemental Environmental Projects (SEPs) relics of the past. The memorandum expressly excludes from DOJ’s third-party payment prohibition SEPs performed consistent with EPA’s SEP policy. This reassurance allays prior concerns that DOJ’s new policy would curtail SEPs. DOJ also makes clear that EPA and other agency enforcement actions are not impacted by the new policy unless DOJ agreement is required.

The memorandum illuminates how DOJ will implement the policy’s exception for payments made to “directly remedy” harm to the environment. DOJ intends to limit these payments—exempt from the prohibition on third-party payments—to money paid to address conditions that have a clear nexus to an underlying violation. Thus, in cases brought under the Clean Water Act, DOJ would limit allowable payments to those that would restore the same body of water or watershed impacted by the violation. Similarly, payments in a Clean Air Act case involving a stationary source would be limited to those that address impacts in the same airshed as the source alleged to violated the statute.

Parties seeking to include in settlements exempt payments to remedy environmental harm now also have guidance on how DOJ will handle selection of recipients for such payments. DOJ will consider several factors in selecting recipients, including the ability to complete the work required under the settlement. DOJ will also require measures in any settlement to verify project completion and ensure that the payment does, in fact, fund remediation of harm to the environment resulting from a violation. Any settlement agreement containing these payments will also have to be approved by the Assistant Attorney General for the Environment and Natural Resources Division.

DOJ’s memorandum leaves open the important question of how the government will treat third-party payments in settlements resolving citizen suits against private entities. The memorandum confirms that the policy prohibiting payments to third parties applies only to agreements or consent decrees entered by the United States. The United States (through DOJ) is typically not a party to and cannot veto settlements in citizen suits. However, DOJ’s rationale for the prohibition—payments to third parties inappropriately divert money that should be paid as penalties into the U.S. Treasury—could be advocated in judicial review of citizen suit consent decree payments. This issue may be resolved in future guidance or letters commenting on proposed settlements in citizen suits.