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Linney and Jansen write about possible impact on CFIUS of state-level real estate scrutiny

2023 DSIR Report Deeper Dive

2023 DSIR Deeper Dive: Pixel & Other Website Technologies

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On May 5, Attorney General Merrick Garland <a href="https://www.justice.gov/ag/page/file/1499241/download" target="_blank" rel="noopener">announced the return of supplemental environmental projects (SEPs)</a> in U.S. Department of Justice (DOJ) settlements. SEPs are voluntary projects intended to benefit the environment that are performed by corporate defendants in environmental enforcement settlements. Prior to being banned at DOJ in 2020, SEPs had been in use for decades and included projects like testing the public’s blood for lead, reducing diesel emissions from school buses, wetlands and stream restoration, and repairing hiking trails. SEPs were popular among corporate defendants, nongovernmental organizations, local communities, and the government agencies and DOJ prosecuting attorneys that used them to resolve environmental enforcement cases before trial. DOJ announced its new SEP policy on the same day that the Environmental Protection Agency (EPA) and <a href="https://www.justice.gov/opa/pr/justice-department-launches-comprehensive-environmental-justice-strategy" target="_blank" rel="noopener">DOJ revealed a new environmental justice strategy</a>, including the creation of an Office of Environmental Justice within the Environment and Natural Resources Division (ENRD) at DOJ.  In reversing the prior administration’s policy, Garland announced that the “current policy is more restrictive and less tailored than necessary to address concerns that these agreements could be used to inappropriately fund projects unrelated to the harm involved in the matters.” Garland’s new policy specifically reversed a 2017 memorandum from former Attorney General Jeff Sessions that prohibited settlement payments to third parties in judicial settlements. But at that time, many argued that the Sessions memo did not explicitly prohibit SEPs. It was not until Jeffrey Bossert Clark, the former assistant attorney general of ENRD, issued a subsequent memo in March 2020 that it was clear that DOJ had barred use of SEPs.  Critics of SEPs have claimed that the projects violate two federal statutes. First, the Miscellaneous Receipts Act requires federal officers receiving civil penalty funds (“money for the government”) to deposit those funds into the U.S. Treasury. Second, the Anti-Deficiency Act also specifically bars federal employees from spending funds in excess of what Congress has appropriated.  But supporters of SEPs argue the projects should not technically be considered payments made by defendants in lieu of civil penalties and are not dollars that are actually collected by DOJ (or any other federal agency). SEP money is spent by defendants on environmental projects and never passes through government hands, nor is it used to fund federal government projects. In 2015, <a href="https://www.epa.gov/enforcement/2015-update-1998-us-epa-supplemental-environmental-projects-policy" target="_blank" rel="noopener">EPA issued a comprehensive policy update</a> addressing many long-standing legal concerns regarding SEPs.  In announcing the new SEP policy at DOJ, Garland announced additional parameters that appear aimed at quelling concerns that SEPs could violate the Miscellaneous Receipts Act or infringe upon Congress’ appropriations authority. Under DOJ’s new policy, SEPs must satisfy the following requirements:  <ul> 	<li>Settlement agreements including SEPs must “define with particularity the nature and scope of the specific project or projects that the defendant has agreed to fund.”</li> 	<li>SEPs “must have a strong connection to the underlying violation or violations of federal law at issue in the enforcement action” and “must be consistent with the underlying statute being enforced and advance at least one of the objectives of that statute.” SEPs should “reduce the detrimental effects of the underlying violation” and “the likelihood of similar violations in the future.”</li> 	<li>DOJ is prohibited from identifying any “particular third party to receive payments to implement” or benefit from a SEP.</li> 	<li>SEPs are only available “before an admission or finding of liability in favor of the United States, and the Justice Department and its client agencies must not retain post-settlement control over the disposition or management” of project funds “except for ensuring that the parties comply with the settlement.”</li> 	<li>No SEP can be “used to satisfy the statutory obligation of the Justice Department or any other federal agency to perform a particular activity. Nor shall any such settlement provide the Justice Department or any other federal agency with additional resources to perform a particular activity for which the Justice Department or any other federal agency, respectively, receives a specific appropriation.”</li> 	<li>Finally, no SEP can “require payments to non-governmental third parties solely for general public educational or awareness projects; solely in the form of contributions to generalized research, including at a college or university; or in the form of unrestricted cash donations.”</li> </ul>  Garland has directed DOJ to revise the Justice Manual to include these new SEP guidelines. There is also a pending interim final rule that will rescind the Trump-era rule explicitly barring SEPs (28 C.F.R. § 50.28). While it is possible that DOJ will immediately begin accepting SEP proposals in environmental settlements, DOJ may wait until after the interim final rule proceeds through notice and comment. Any litigation of the interim final rule, as seems possible given prior opposition to SEPs, could result in further delays to implementation of SEPs in environmental enforcement settlements. SEP opponents could seek to enjoin the interim final rule, or DOJ could wait until litigation has been resolved before approving SEPs in settlements. Indeed, DOJ might be hesitant to immediately include SEPs in settlements because an adverse ruling in any litigation challenging the interim final rule would potentially undo dozens of, if not more, judicial settlements negotiated and finalized while the interim final rule is under legal challenge.  Despite Garland’s attempts to reduce the risk of misuse of SEPs, these attempts appear unlikely to persuade critics. After decades of bipartisan support for SEPs, the projects became a source of partisan rancor in the 2010s, and that appears unlikely to change with their reintroduction. One of the main beneficiaries of the SEP policy are corporate defendants that might prefer to do something environmentally beneficial for the communities impacted by their alleged violations of environmental law rather than cut a large check to the U.S. Treasury. No defendant in an environmental enforcement case is required to perform a SEP. But given the likelihood of continued controversy and the uncertain legal challenges ahead for DOJ’s reintroduced SEP policy, some defendants may opt out of SEPs.

Supplemental Environmental Projects Set to Return with New Guidelines

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