The recent identification of stolen or stranded assets as another asset class to which the PtP concept can be applied has surfaced a number of new PtP foundations. Already, the PtP Project has issued a case study focusing on one foundation that emerged from this asset class—Kazakhstan’s BOTA Foundation—which came into being out of the confiscated proceeds of a bribe paid to the then-president of this Central Asian country.
Now, however, a new route to the capture of significant resources from illegal activity has come into view: settlements from legal cases in which corporations have been charged with improper, illegal, or negligent behavior.
While such settlements often involve penalty payments to governments, the penalty payments are also often accompanied by settlements in which the offending company agrees to commit resources to help ameliorate a problem similar to one that its behavior helped to perpetuate. Thus, for example, to offset the damage done by the explosion of their Deepwater Horizon drilling rig in the Gulf of Mexico and the subsequent leak of millions of barrels of oil into the surrounding ecosystem, oil giant BP and its drilling partner, Transocean, were required to commit US$20.8 billion for reclamation and recovery efforts in the Gulf region of the United States. Similarly, BNP Parabus paid $8.9 billion in fines and settlement costs for violating U.S. anti-money-laundering laws, with $850 million going to support criminal justice enforcement efforts in the United States.
While these settlement funds are often set up under government auspices, (e.g., the BNP Parabus funds ended up in the hands of the Manhattan District Attorney to finance a new criminal justice grant program), in a number of cases they were used to capitalize private, charitable foundations. Examples of these include the following:
Year founded: 1984
Combined PtP-style endowment amount (committed): $3.8 billion
Amount awarded, 2016: $226.9 million
Net assets as of 2016: $197.7 million (via Annual Report)
Created by the U.S. Congress in 1984, NFWF is the nation’s largest conservation grant-maker, working in all 50 states and U.S. territories. NFWF is an independent 501(c)(3) nonprofit organization, governed by a 30-member Board of Directors approved by the Secretary of the Interior. The Foundation has undertaken more than 16,000 projects through grants to independent environmental organizations of all sizes. During 2016, the Foundation awarded a total of US$226.9 million in grants, and estimates its cumulative conservation impact to more than $3.8 billion since its founding in 1984.
NFWF receives and disburses funds from environmental settlements through three revenue streams or settlement formats. From the point of view of PtP, the key one is the Community Service Payments (CSPs) and Restitution fund disbursed through the Impact-Directed Environmental Accounts (IDEA) program. This program manages a nationwide portfolio of accounts arising from legal and regulatory actions involving natural resources and the environment, with financial commitments topping US$3.8 billion as of 2016. In 2016, the Foundation disbursed $127.4 million in IDEA funds.
NFWF was a major recipient of funds resulting from the settlement paid by BP and Transocean in the Deepwater Horizon case, receiving $2.544 billion, and establishing the Gulf Environmental Benefit Fund to administer these settlement monies. Of the 2016 IDEA fund total noted above, $100.6 million derived from the Deepwater Horizon funds.
Year founded: 1982 (HRF); 1985 (HRIF)
Combined PtP-style endowment amount: $13.5 million
Combined amounts awarded, lifetime: $47 million
Net assets as of 2015: $42,857,709 (via Guidestar)
Both the Hudson River Foundation and its Hudson River Improvement Fund were the result of PtP-style transactions stemming from environmental impact settlements.
The Hudson River Foundation came about as a result of a settlement known as the “Scenic Hudson Decision,” the culmination of a 17-year (1963-1981) legal dispute which defeated Consolidated Edison’s plan to embed the world’s largest pumped storage hydroelectric plant into the face of Storm King Mountain near Cornwall, New York. The sustained, concerted advocacy campaign by civil society actors, including Scenic Hudson and the Hudson River Fishermen’s Association, led to a 1980 settlement accord known as the “Hudson River Peace Treaty.” This agreement cancelled the proposed hydropower plant, mandated that the land become a park, and required Con Ed to donate $12 million to endow a Hudson River Foundation to study the river—in other words, to create a new PtP-type foundation.
In addition to contributing importantly to the conservation of the Hudson River Valley, this settlement, and the foundation it created, had an immense impact on environmental law more generally, establishing the right of citizens to participate in environmental disputes, promoting the emergence of environmental law as a legal specialty, and giving rise to the modern environmental movement.
This 1980 decision also established a precedent of using settlement from river-related legal cases to finance PtP-type foundations supporting environmental improvements. Thus, in 1985 when the State of New York received $1.5 million in fines paid to settle litigation concerning the out-of-state export of Hudson River water by oil tankers it provided these funds to the Hudson River Foundation, which was consequently able to create the Hudson River Improvement Fund, dedicated to supporting projects to enhance public use and enjoyment of the River’s natural, scenic, and cultural resources. This transaction, too, was the result of concerted advocacy by a coalition of civil society groups—including Scenic Hudson, the Hudson River Sloop Clearwater, the Hudson River Fishermen’s Association (now Riverkeeper)—with support from the New York State Department of Environmental Conservation. Building on this core of support, this Improvement Fund has generated resources sufficient to award approximately 854 grants totaling around $7 million.
Year founded: 1977
Combined PtP-style endowment amount: $9.4 million
Amount awarded, lifetime (incl. matching funds): $78 million
Net assets as of 2016: $17.7 million (via Annual Report)
The Virginia Environmental Endowment was established as a result of a US$13.2 million fine levied against Allied Chemical Corporation by the United States District Court for the Eastern District of Virginia in February 1977 for polluting the James River with the insecticide Kepone. With the approval of Judge Robert R. Merhige Jr., $8 million of this fine was paid by Allied to fund the creation of the Virginia Environmental Endowment for the purpose of “improving the quality of Virginia’s environment.” Following this initial PtP transaction, VEE received a total of $1.4 million resulting from five additional settlements between 1981 and 1991, allowing the Endowment to expanded its work in Virginia and into the Kanawha River and Ohio River Valleys.
Year founded: 1991
PtP-style endowment amount total: $5.8 million
Amount awarded, lifetime: $6,010,383
Net assets as of 2016: $5,525,260 (via GuideStar)
The Environmental Endowment for New Jersey was initially founded in April 1991 to receive and administer a US$900,000 settlement of a court case brought under the Federal Water Pollution Control Act. The Endowment has subsequently received an additional $4.9 million in PtP-style funds resulting from the settlement of five other cases. The Endowment distributes funds from settlements of lawsuits brought to enforce compliance with the federal Clean Water Act; as a result, all projects funded by the Endowment must comply with the related Court Orders and must have a clear and direct link to the specific waters impacted by the underlying cases. The Endowment funds 15 to 20 organizations per year, with the average grant being in the range of $5,000 to $10,000. Since commencing operations in 1992, EENJ has awarded a total of 555 environmental grants totaling over $6 million.
Supplemental Environmental Projects (SEPs)
These cases are far from isolated. In fact, U.S. environmental law treats such remediation activity as a matter of policy and has coined a special term for the practice—Supplemental Environmental Projects (SEP). As explained on the U.S. Environmental Protection Agency website:
“Most federal actions against businesses or individuals for failure to comply with the environmental laws are resolved through settlement agreements. As part of a settlement, an alleged violator may voluntarily agree to undertake an environmentally beneficial project related to the violation in exchange for mitigation of the penalty to be paid. A Supplement Environmental Project (SEP) furthers EPA’s goal of protecting and enhancing the public health and the environment. It does not include the activities a violator must take to return to compliance with the law.”
Not all SEP funds are used to seed PtP-type charitable foundations, but no one has ever tracked how many have been. More generally, the use of funds from environmental and other enforcement settlements is a relatively new and exciting form of PtP transaction that the Project is exploring. If you are aware of other foundations, endowments, organizations, or funds resulting from such settlement monies—or ongoing efforts or opportunities to direct such funds into a PtP outcome—we are eager to hear from you. Please email the Project at PtP@p-t-p.org.
This is especially important in view of a recent ruling by recently-appointed U.S. Attorney General Jeff Sessions to terminate U.S. Department of Justice participation in such uses of settlement proceeds.