The Department of Justice (DOJ) issued a memorandum, dated March 12, 2020, ending a long-standing practice of allowing companies to reduce civil penalties by performing Supplemental Environmental Projects (SEPs). DOJ states in the memo that SEPs violate the Miscellaneous Receipts Act (MRA), 31 U.S.C. § 3302, which requires funds received on behalf of the United States to be deposited in the Treasury. According to the DOJ, civil penalties are considered to be funds received by the government and, therefore, diverting that money to third parties is inconsistent with the MRA, absent authorization by Congress.
SEPs have been the norm in U.S. Environmental Protection Agency (EPA) civil enforcement cases for the past 20-30 years. Companies have been able to reduce civil penalties by up to 80% by performing in-kind environmentally-beneficial projects. A frequently used SEP has been retrofitting of diesel engines for school buses and other governmental motor vehicles. This SEP has been specifically authorized by Congress and, according to the memo, is one SEP that will continue, but only in mobile-source cases.
The memo leaves open the option for Congress to authorize further exceptions. In the meantime, attorneys negotiating SEPs on behalf of their clients will no longer have the benefit of reducing the total penalty sum by the cost of implementing an environmentally-friendly project in a community. It’s a loss for businesses and the communities in which they operate. Our experience is that money spent on SEPs, such as replacing lead-glass windows or changing out PCB-light ballasts in schools (two SEPs our clients have implemented recently), often put penalty dollars to better use than simply depositing the money in the U.S. Treasury.