Attorney General Sessions issued a new policy this past week, Prohibition on Settlement Payments to Third Parties, in response to increased criticism by GOP regarding payments to liberal activist groups as part of a federal settlement. The GOP has criticized the Obama DOJ for agreeing to allow big banks and corporations to pay these groups when they are sued by the federal government. As much as $3B in payments to “non-victim entities” were identified by investigators for recent settlements.
The new DOJ policy broadly bans the practice with the following three exceptions. The prohibition does not apply to
(1) an otherwise lawful payment or loan that provides restitution to a victim or that otherwise directly remedies the harm that is sought to be redressed including, for example, harm to the environment or from official corruption;
(2) payments for legal or other professional services rendered in connection with the case; or
(3) payments expressly authorized by statute, including restitution and forfeiture.
The implications for this new DOJ policy are important for EPA’s Supplemental Environmental Project (SEP) Policy, which has been popular policy with many corporate defendants who wish to settle with the federal government for various environmental enforcement actions. Using SEPs, defendants are often more willing to agree to a settlement with the federal government – and sometimes for larger amounts – when the settlement includes a combination of civil or criminal fines augmented by payments for SEPs. Critics of the practice of paying non-victim entities argue that civil or criminal fines should go to the U.S. Treasury or payments should go to the restitution of victims, not third party environmental groups.
Although EPA’s SEP policy has not yet been withdrawn or revised in response to DOJ’s new policy, the implications for the continued use of SEPs could be in jeopardy in some cases. Most certainly the DOJ policy would bar any payments to third party environmental groups, like Sierra Club, for education or grassroots purposes. However, arguably, SEPs could still be used to fund environmental restoration projects that directly benefit the victims or community impacted by the underlying environmental offense.
While the scope of future SEPs is uncertain, what is certain is that any SEP request by a defendant in a future settlement proceeding will receive far greater scrutiny than in the past.