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Environment & Energy Report

Justice Department Ends Use of Environmental Settlements Tool

March 13, 2020, 7:12 PM

The Justice Department has ended a nearly 30-year practice of letting companies make amends for pollution-related violations by performing environmentally beneficial projects, according to a memo posted Friday on the agency’s website.

The new policy takes effect immediately, wrote Assistant Attorney General Jeffrey Bossert Clark, who heads the Justice Department’s Environment and Natural Resources Division.

Stopping the use of supplemental environmental projects (SEPs) cuts against the wishes of many in the business community, who favored the projects as a way of lowering their fines while also letting them perform projects that improve their public image.

SEPs traditionally have been used to let businesses and individuals volunteer do environmentally beneficial projects in exchange for lower fines.

But the practice of using supplemental environmental projects “has been controversial for decades,” and they “are as problematic as direct cash payments to third parties,” Clark wrote.

The number of SEPs that the federal government issues has gradually been falling in recent years. From 2010 to 2015, Justice agreed to an average of 14.2 SEPs per year, but since then the yearly average has fallen to 9.3.

One prominent example of a project came in December 2018, when an Arkansas-based chemical facility owned by Georgia-Pacific Chemicals LLC agreed to spend $1.8 million on three SEPs to resolve air pollution violations. Under the settlement, the company was required to build a pulp mill collection tank and oxygen injection system, as well as conduct fence-line monitoring for hydrogen sulfide.

Diverted From Treasury

In his memo, Clark said that defendants were able to reduce their civil penalties by 80% or more if they agreed to perform a SEP. That arrangement violated the Miscellaneous Receipts Act, Clark wrote, referencing a statute that prevents cash from legal settlements from being diverted from the Treasury to third parties.

He further repudiated the argument that defendants who agree to perform a SEP should receive a lesser fine because the project reduces the severity of the offense.

“The severity of the underlying offense is a historic fact by the time any enforcement action would even kick off,” Clark wrote. “SEPs are not time machines that can return to the point of the offense and soften the blow of an impending violation to the public or the environment.”

‘Not Money Savers’

Francis X. Lyons, a former attorney with the Justice Department’s environmental enforcement section during the Clinton administration, said the decision will come as “a great disappointment to regulated community members who often take advantages of SEPs, and a disappointment to rank and file case teams at DOJ and EPA.”

Clark’s memo is, “in my view, a fairly significant change in over 30 years of enforcement policy,” said Lyons, now an environmental attorney with Schiff Hardin LLP.

Kevin Minoli, an environmental attorney with Alston & Bird LLP and former EPA acting general counsel, said SEPs don’t lessen the ultimate cost of a penalty.

“SEPs are not money savers for companies, but they do more good, in a lot of people’s eyes, than simply paying a penalty into the Treasury,” Minoli said. “There’s a long history of SEPs making meaningful differences in the environmental space, and it’s unfortunate that those are not going to be an option for the companies and the federal agencies.”

Moreover, safeguards are in place to ensure that companies don’t perform SEPs that aren’t related to the violation at issue, and don’t advertise their projects as being undertaken at their own initiative, Minoli said.

In his memo, however, Clark wrote that the nexus between a violation and a SEP “is necessarily indirect,” because the policy doesn’t require that SEPs “directly remedy the actual harm caused by the violation in a manner that can be seen as ameliorating in some way the consequences of the underlying offense.”

History of SEPs

Clark also wrote that he recognizes the history of SEPs being included in consent decrees and settlements since the 1980s.

“Because of this long history, I recognize the disruption this new policy could have on existing cases, particularly those in the final stages of negotiation where the parties have long included SEPs as part of the proposed settlement,” Clark wrote.

In August 2019, Clark issued a memo prohibiting SEPs in settlements involving state and local governments. Instead, defendants should pay customary fines, in full, to the Treasury, Clark wrote.

To contact the reporter on this story: Stephen Lee in Washington at stephenlee@bloombergenvironment.com

To contact the editor responsible for this story: Gregory Henderson at ghenderson@bloombergenvironment.com

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