In an immediate change to Department of Justice (DOJ) policy, the Assistant Attorney General for the Environment and Natural Resources Division, Jeffrey Bossert Clark, issued a memorandum on March 12, 2020 that ends the use of Supplemental Environmental Projects (SEPs) in federal environmental enforcement actions.
SEPs are environmentally beneficial projects not required by law, but that a defendant agrees to undertake as part of the settlement of an enforcement action. In exchange for a defendant’s voluntary commitment to perform a SEP as part of a settlement, EPA seeks a reduced civil monetary penalty than what the agency would otherwise seek. Some SEPs required only a financial contribution to a non-profit or governmental entity to be put to environmentally beneficial uses. The memorandum concludes that the use of SEPs violates the federal Miscellaneous Receipts Act. This Act requires that any funds received by the Federal Government must be deposited with the U.S. Treasury unless otherwise authorized by Congress. In Mr. Clark’s view, SEPs violate the Act by misdirecting funds otherwise owed to the Government to non-profit organizations or to other environmentally beneficial projects.
The memorandum provides an extensive legal and policy rationale for this action, a recognition that this will be viewed as a controversial decision not only by the regulated community, but also by regulators who have come to rely on SEPs to accomplish beneficial environmental projects in communities affected by the violation. It is not a surprising conclusion to what has been a progressive narrowing of DOJ settlement policies since 2018.
The most pressing concern is the immediacy of this policy’s application. The memorandum provides no additional grace period and explicitly does not exempt any pending settlement negotiations. Businesses that are currently negotiating a settlement with EPA will be affected by this policy. A potential outcome is that EPA will seek to convert the value of a proposed SEP into civil penalties. Therefore, businesses need to anticipate a larger financial liability from the alleged violation. Secondarily, it may also affect the community’s reaction to a proposed settlement since the community will no longer benefit from a proposed SEP. This could affect the political considerations affecting the settlement’s terms. All of this may change the bargaining position of all the parties, may unbalance the other terms of the proposed agreement, and could affect the viability of a settlement.
Businesses should be mindful this policy applies only to Federal enforcement actions at this point. Many States have individual SEP programs either as a matter of policy, or as a matter of law. Virginia, for example, has codified the availability of SEPs in Section 10.1-1186.2 of the Virginia Code. Therefore, businesses with pending Virginia DEQ enforcement actions should not experience a disruption in current settlement discussions unless EPA is a party to the negotiation.
Businesses currently negotiating settlements with EPA should speak with counsel to assess the impact this policy change may have on their case. WRVB stands ready to assist clients facing environmental enforcement actions.