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2017-06-10 09:17:02
Settlements for Company Sins Can No Longer Aid Other Projects, Sessions Says

When companies settle claims of wrongdoing, they are often compelled to pay for environmental or community development projects as well as pay fines and direct compensation to victims. Sometimes the third-party payments are only marginally related to the damages caused by the company’s actions.

To settle claims from the Gulf oil spill, BP was required to spend billions on coastal restoration projects that were not directly related to spill damage. Volkswagen is financing electric vehicle charging stations under its settlement of the diesel emissions cheating scandal. Duke Energy paid for soil restoration on federal land as part of its compensation for air pollution violations at some of its power plants in North Carolina.

That longstanding practice is now under attack on two fronts, potentially jeopardizing a source of financing for initiatives across the country that supporters say have paid great environmental and social dividends. Critics say the practice effectively creates “slush funds” for favored organizations or causes.

Attorney General Jeff Sessions, in a memo issued this week, directed the Justice Department to no longer include funding for projects managed by outside groups in settlements with corporate wrongdoers. The settlement money will instead go exclusively to the federal Treasury or to victims of the company’s actions, Mr. Sessions said.

“It has come to my attention that certain previous settlement agreements involving the department included payments to various nongovernmental, third-party organizations as a condition of settlement with the United States,” Mr. Sessions said. “These third-party organizations were neither victims nor parties to the lawsuits. The department will no longer engage in this practice.”

The policy applies only to future cases.

A bill with similar intent, sponsored by Robert W. Goodlatte, Republican of Virginia, passed a House committee in February. It would prevent the government from using settlement money from civil cases for purposes other than direct victim compensation or remediation, like cleanups of environmental disasters. A version of the bill passed the House last year, but died in the Senate.

This year, groups including the Competitive Enterprise Institute and Americans for Prosperity, both closely linked to the libertarian billionaire brothers Charles G. and David H. Koch, wrote to President Trump criticizing a recent settlement between the Obama administration’s Justice Department and Volkswagen.

The $14.7 billion settlement, over Volkswagen’s use of “defeat devices” to cheat emissions rules, included almost $2 billion that Volkswagen was required to invest in electric vehicle charging stations and other clean vehicle technology. The settlement also directed Volkswagen to pay $2.7 billion to programs that would reduce pollution from diesel cars and trucks. Volkswagen had been accused of manufacturing cars that spewed harmful nitrogen oxides at up to 40 times the levels allowed under the Clean Air Act.

Some of the money was in effect going to pay for clean air initiatives championed by President Barack Obama, the conservative groups said, initiatives that Congress twice refused to fund.

“Having been twice spurned by lawmakers, the Obama administration leveraged the Volkswagen settlement,” the groups charged. All settlement money, they argued, should “instead be deposited into the U.S. Treasury.”

The groups said that Congress has not authorized or provided money for electric vehicle infrastructure. They said the plan represents “an end-run around Congress’s lawmaking power.”

Such settlement funds can be appropriate in cases of environmental wrongdoing, some environmental lawyers said, because the victims are often scattered over large areas or are difficult to identify and compensate directly. At times, the government has ordered a polluter to pay for unrelated environmental restoration projects as restitution; the attorney general’s order would prohibit such deals.

Environmental groups say that settlement funds have gone to critical projects nationwide. The 2012 settlement with BP, in which it agreed to pay to resolve criminal charges, included more than $2 billion for projects aimed at environmental restoration in the Gulf of Mexico, and research into spill prevention and other topics. A 2015 settlement with Duke Energy allocated $4.4 million to stream and river ecosystem restoration in North Carolina.

“You’re killing something that’s worked really well — which is getting violators who’ve broken the law, in some cases in a criminal way, to agree to fund projects to make the air or water cleaner,” said Eric Schaeffer, executive director of the Environmental Integrity Project and the former director of civil enforcement at the Environmental Protection Agency. “What’s wrong with that?”

Mr. Sessions’ new policy directs Justice Department lawyers not to include similar payments in settlements with corporations. “The goals of any settlement are, first and foremost, to compensate victims, redress harm, or punish and deter unlawful conduct,” he said in his memo, dated June 5.

The House bill, known as the Stop Settlement Slush Funds Act of 2017, would turn that policy into law, making it difficult for future administrations to reverse.

Mr. Goodlatte, who co-sponsored the bill, cited the government’s settlement with Volkswagen as an example of the abuse of settlement funds. He also referred to a deal that required Credit Suisse to originate affordable housing loans that generate a minimum of $240 million in credit as part of a settlement related to its handling of mortgages before the global financial crisis. Mr. Goodlatte called that “effectively a donation in the guise of a loan.”

Credit Suisse declined to comment.

Frank Holleman, a senior lawyer for the Southern Environmental Law Center, said that if settlement money for environmental violations goes to the Treasury Department, it may be spent on something else, and prevent restoration of or protection of an affected community or ecosystem.

“You can’t just dump money in the river and it gets clean,” he said. “You have to contribute to a nonprofit that does the work to make it that way. It‘s not just being thrown away or given to these entities — it’s payments for a particular service.”

The money has gone to a variety of environmental projects.

In 2015, Duke Energy, a North Carolina utility, reached a settlement with the Department of Justice over claims that it had violated the Clean Air Act at five of its power plants in the state. The settlement, which contained provisions to prevent further air pollution, including shutting down coal-fired electricity generating units, also required the company to pay a civil penalty and $4.4 million toward environmental mitigation projects.

The mitigation projects included ecosystem restoration — soil restoration in national forests, and restoration of a trout population, or revegetation of Red Spruce trees — and electric vehicle charging infrastructure and energy efficiency programs in poor areas.

Neil Nissan, a spokesman for Duke Energy, said the utility does not take a position on the policy or the bill.

One of the projects the BP settlement money has funded is the restoration of more than 13 miles of beach along a geographical feature known as the Caminada Headlands, which will provide storm protection for Port Fourchon, La., and other nearby areas. BP declined to comment.

David M. Uhlmann, a professor at the University of Michigan Law School and the former chief of the environmental crimes section at the Justice Department, said, “The attorney general’s directive prohibits those laudable third-party payments and, in doing so, needlessly undermines public health and environmental protection efforts.”

He added, ”Congress can and should rely on the Justice Department and regulatory agencies to ensure that companies who commit regulatory violations make appropriate payments to remedy the harm they have caused.”