On June 5, 2017, Attorney General Jeff Sessions issued a memorandum prohibiting Department of Justice attorneys from entering into federal environmental settlements that require the regulated entity to make cash payments to third parties as part of a supplemental environmental project (SEP). SEPs have been used as a component of environmental enforcement settlements for several years to offset civil penalties that would otherwise be paid to the government. The theory behind SEPs is that financial resources expended by an alleged violator to settle an enforcement action are better used to improve environmental conditions with a nexus to the alleged violation, rather than being placed in government hands. In the past, SEPs have taken the form of a project undertaken directly by the alleged violator or payment of funds to a third party.

Attorney General Sessions indicated that, historically, cash SEP payments have been made to non-governmental, third party organizations that “were neither victims nor parties to the lawsuits.” The new policy prohibits settlements requiring payments or loans to any third party that is not a party to the case being settled. The memo outlines three exceptions to the policy: payments that provide restitution to a victim or otherwise remedy the harm that is sought to be redressed; payments for legal or other professional services rendered in connection with the case; and, payments expressly authorized by statute.

Non-government organizations and some industry advocates fear the new policy could “cripple” the use of SEPs that have been a staple in environmental settlements for decades, which may prompt increased litigation costs. However, proponents of the policy, including members of Congress who have filed legislation having a similar impact, lament that historical settlement practices coerce alleged violators to make payments to groups with little or no involvement in the matter.