[Federal Register Volume 60, Number 246 (Friday, December 22, 1995)]
[Notices]
[Pages 66706-66712]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31146]
[[Page 66705]]
_______________________________________________________________________
Part III
Environmental Protection Agency
_______________________________________________________________________
Incentives for Self-Policing: Discovery, Disclosure, Correction and
Prevention of Violations; Notice
Federal Register / Vol. 60, No. 246 / Friday, December 22, 1995 /
Notices
[[Page 66706]]
ENVIRONMENTAL PROTECTION AGENCY
[FRL-5400-1]
Incentives for Self-Policing: Discovery, Disclosure, Correction
and Prevention of Violations
AGENCY: Environmental Protection Agency (EPA).
ACTION: Final Policy Statement.
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SUMMARY: The Environmental Protection Agency (EPA) today issues its
final policy to enhance protection of human health and the environment
by encouraging regulated entities to voluntarily discover, and disclose
and correct violations of environmental requirements. Incentives
include eliminating or substantially reducing the gravity component of
civil penalties and not recommending cases for criminal prosecution
where specified conditions are met, to those who voluntarily self-
disclose and promptly correct violations. The policy also restates
EPA's long-standing practice of not requesting voluntary audit reports
to trigger enforcement investigations. This policy was developed in
close consultation with the U.S. Department of Justice, states, public
interest groups and the regulated community, and will be applied
uniformly by the Agency's enforcement programs.
DATES: This policy is effective January 22, 1996.
FOR FURTHER INFORMATION CONTACT: Additional documentation relating to
the development of this policy is contained in the environmental
auditing public docket. Documents from the docket may be obtained by
calling (202) 260-7548, requesting an index to docket #C-94-01, and
faxing document requests to (202) 260-4400. Hours of operation are 8
a.m. to 5:30 p.m., Monday through Friday, except legal holidays.
Additional contacts are Robert Fentress or Brian Riedel, at (202) 564-
4187.
SUPPLEMENTARY INFORMATION:
I. Explanation of Policy
A. Introduction
The Environmental Protection Agency today issues its final policy
to enhance protection of human health and the environment by
encouraging regulated entities to discover voluntarily, disclose,
correct and prevent violations of federal environmental law. Effective
30 days from today, where violations are found through voluntary
environmental audits or efforts that reflect a regulated entity's due
diligence, and are promptly disclosed and expeditiously corrected, EPA
will not seek gravity-based (i.e., non-economic benefit) penalties and
will generally not recommend criminal prosecution against the regulated
entity. EPA will reduce gravity-based penalties by 75% for violations
that are voluntarily discovered, and are promptly disclosed and
corrected, even if not found through a formal audit or due diligence.
Finally, the policy restates EPA's long-held policy and practice to
refrain from routine requests for environmental audit reports.
The policy includes important safeguards to deter irresponsible
behavior and protect the public and environment. For example, in
addition to prompt disclosure and expeditious correction, the policy
requires companies to act to prevent recurrence of the violation and to
remedy any environmental harm which may have occurred. Repeated
violations or those which result in actual harm or may present imminent
and substantial endangerment are not eligible for relief under this
policy, and companies will not be allowed to gain an economic advantage
over their competitors by delaying their investment in compliance.
Corporations remain criminally liable for violations that result from
conscious disregard of their obligations under the law, and individuals
are liable for criminal misconduct.
The issuance of this policy concludes EPA's eighteen-month public
evaluation of the optimum way to encourage voluntary self-policing
while preserving fair and effective enforcement. The incentives,
conditions and exceptions announced today reflect thoughtful
suggestions from the Department of Justice, state attorneys general and
local prosecutors, state environmental agencies, the regulated
community, and public interest organizations. EPA believes that it has
found a balanced and responsible approach, and will conduct a study
within three years to determine the effectiveness of this policy.
B. Public Process
One of the Environmental Protection Agency's most important
responsibilities is ensuring compliance with federal laws that protect
public health and safeguard the environment. Effective deterrence
requires inspecting, bringing penalty actions and securing compliance
and remediation of harm. But EPA realizes that achieving compliance
also requires the cooperation of thousands of businesses and other
regulated entities subject to these requirements. Accordingly, in May
of 1994, the Administrator asked the Office of Enforcement and
Compliance Assurance (OECA) to determine whether additional incentives
were needed to encourage voluntary disclosure and correction of
violations uncovered during environmental audits.
EPA began its evaluation with a two-day public meeting in July of
1994, in Washington, D.C., followed by a two-day meeting in San
Francisco on January 19, 1995 with stakeholders from industry, trade
groups, state environmental commissioners and attorneys general,
district attorneys, public interest organizations and professional
environmental auditors. The Agency also established and maintained a
public docket of testimony presented at these meetings and all comment
and correspondence submitted to EPA by outside parties on this issue.
In addition to considering opinion and information from
stakeholders, the Agency examined other federal and state policies
related to self-policing, self-disclosure and correction. The Agency
also considered relevant surveys on auditing practices in the private
sector. EPA completed the first stage of this effort with the
announcement of an interim policy on April 3 of this year, which
defined conditions under which EPA would reduce civil penalties and not
recommend criminal prosecution for companies that audited, disclosed,
and corrected violations.
Interested parties were asked to submit comment on the interim
policy by June 30 of this year (60 FR 16875), and EPA received over 300
responses from a wide variety of private and public organizations.
(Comments on the interim audit policy are contained in the Auditing
Policy Docket, hereinafter, ``Docket''.) Further, the American Bar
Association SONREEL Subcommittee hosted five days of dialogue with
representatives from the regulated industry, states and public interest
organizations in June and September of this year, which identified
options for strengthening the interim policy. The changes to the
interim policy announced today reflect insight gained through comments
submitted to EPA, the ABA dialogue, and the Agency's practical
experience implementing the interim policy.
C. Purpose
This policy is designed to encourage greater compliance with laws
and regulations that protect human health and the environment. It
promotes a higher standard of self-policing by waiving gravity-based
penalties for
[[Page 66707]]
violations that are promptly disclosed and corrected, and which were
discovered through voluntary audits or compliance management systems
that demonstrate due diligence. To further promote compliance, the
policy reduces gravity-based penalties by 75% for any violation
voluntarily discovered and promptly disclosed and corrected, even if
not found through an audit or compliance management system.
EPA's enforcement program provides a strong incentive for
responsible behavior by imposing stiff sanctions for noncompliance.
Enforcement has contributed to the dramatic expansion of environmental
auditing measured in numerous recent surveys. For example, more than
90% of the corporate respondents to a 1995 Price-Waterhouse survey who
conduct audits said that one of the reasons they did so was to find and
correct violations before they were found by government inspectors. (A
copy of the Price-Waterhouse survey is contained in the Docket as
document VIII-A-76.)
At the same time, because government resources are limited, maximum
compliance cannot be achieved without active efforts by the regulated
community to police themselves. More than half of the respondents to
the same 1995 Price-Waterhouse survey said that they would expand
environmental auditing in exchange for reduced penalties for violations
discovered and corrected. While many companies already audit or have
compliance management programs, EPA believes that the incentives
offered in this policy will improve the frequency and quality of these
self-monitoring efforts.
D. Incentives for Self-Policing
Section C of EPA's policy identifies the major incentives that EPA
will provide to encourage self-policing, self-disclosure, and prompt
self-correction. These include not seeking gravity-based civil
penalties or reducing them by 75%, declining to recommend criminal
prosecution for regulated entities that self-police, and refraining
from routine requests for audits. (As noted in Section C of the policy,
EPA has refrained from making routine requests for audit reports since
issuance of its 1986 policy on environmental auditing.)
1. Eliminating Gravity-Based Penalties
Under Section C(1) of the policy, EPA will not seek gravity-based
penalties for violations found through auditing that are promptly
disclosed and corrected. Gravity-based penalties will also be waived
for violations found through any documented procedure for self-
policing, where the company can show that it has a compliance
management program that meets the criteria for due diligence in Section
B of the policy.
Gravity-based penalties (defined in Section B of the policy)
generally reflect the seriousness of the violator's behavior. EPA has
elected to waive such penalties for violations discovered through due
diligence or environmental audits, recognizing that these voluntary
efforts play a critical role in protecting human health and the
environment by identifying, correcting and ultimately preventing
violations. All of the conditions set forth in Section D, which include
prompt disclosure and expeditious correction, must be satisfied for
gravity-based penalties to be waived.
As in the interim policy, EPA reserves the right to collect any
economic benefit that may have been realized as a result of
noncompliance, even where companies meet all other conditions of the
policy. Economic benefit may be waived, however, where the Agency
determines that it is insignificant.
After considering public comment, EPA has decided to retain the
discretion to recover economic benefit for two reasons. First, it
provides an incentive to comply on time. Taxpayers expect to pay
interest or a penalty fee if their tax payments are late; the same
principle should apply to corporations that have delayed their
investment in compliance. Second, it is fair because it protects
responsible companies from being undercut by their noncomplying
competitors, thereby preserving a level playing field. The concept of
recovering economic benefit was supported in public comments by many
stakeholders, including industry representatives (see, e.g., Docket,
II-F-39, II-F-28, and II-F-18).
2. 75% Reduction of Gravity
The policy appropriately limits the complete waiver of gravity-
based civil penalties to companies that meet the higher standard of
environmental auditing or systematic compliance management. However, to
provide additional encouragement for the kind of self-policing that
benefits the public, gravity-based penalties will be reduced by 75% for
a violation that is voluntarily discovered, promptly disclosed and
expeditiously corrected, even if it was not found through an
environmental audit and the company cannot document due diligence. EPA
expects that this will encourage companies to come forward and work
with the Agency to resolve environmental problems and begin to develop
an effective compliance management program.
Gravity-based penalties will be reduced 75% only where the company
meets all conditions in Sections D(2) through D(9). EPA has eliminated
language from the interim policy indicating that penalties may be
reduced ``up to'' 75% where ``most'' conditions are met, because the
Agency believes that all of the conditions in D(2) through D(9) are
reasonable and essential to achieving compliance. This change also
responds to requests for greater clarity and predictability.
3. No Recommendations for Criminal Prosecution
EPA has never recommended criminal prosecution of a regulated
entity based on voluntary disclosure of violations discovered through
audits and disclosed to the government before an investigation was
already under way. Thus, EPA will not recommend criminal prosecution
for a regulated entity that uncovers violations through environmental
audits or due diligence, promptly discloses and expeditiously corrects
those violations, and meets all other conditions of Section D of the
policy.
This policy is limited to good actors, and therefore has important
limitations. It will not apply, for example, where corporate officials
are consciously involved in or willfully blind to violations, or
conceal or condone noncompliance. Since the regulated entity must
satisfy all of the conditions of Section D of the policy, violations
that caused serious harm or which may pose imminent and substantial
endangerment to human health or the environment are not covered by this
policy. Finally, EPA reserves the right to recommend prosecution for
the criminal conduct of any culpable individual.
Even where all of the conditions of this policy are not met,
however, it is important to remember that EPA may decline to recommend
prosecution of a company or individual for many other reasons under
other Agency enforcement policies. For example, the Agency may decline
to recommend prosecution where there is no significant harm or
culpability and the individual or corporate defendant has cooperated
fully.
Where a company has met the conditions for avoiding a
recommendation for criminal prosecution under this policy, it will not
face any civil liability for gravity-based penalties. That is because
the same conditions for discovery, disclosure, and correction apply in
both cases. This represents a clarification of the interim policy, not
a substantive change.
[[Page 66708]]
4. No Routine Requests for Audits
EPA is reaffirming its policy, in effect since 1986, to refrain
from routine requests for audits. Eighteen months of public testimony
and debate have produced no evidence that the Agency has deviated, or
should deviate, from this policy.
If the Agency has independent evidence of a violation, it may seek
information needed to establish the extent and nature of the problem
and the degree of culpability. In general, however, an audit which
results in prompt correction clearly will reduce liability, not expand
it. Furthermore, a review of the criminal docket did not reveal a
single criminal prosecution for violations discovered as a result of an
audit self-disclosed to the government.
E. Conditions
Section D describes the nine conditions that a regulated entity
must meet in order for the Agency not to seek (or to reduce) gravity-
based penalties under the policy. As explained in the Summary above,
regulated entities that meet all nine conditions will not face gravity-
based civil penalties, and will generally not have to fear criminal
prosecution. Where the regulated entity meets all of the conditions
except the first (D(1)), EPA will reduce gravity-based penalties by
75%.
1. Discovery of the Violation Through an Environmental Audit or Due
Diligence
Under Section D(1), the violation must have been discovered through
either (a) an environmental audit that is systematic, objective, and
periodic as defined in the 1986 audit policy, or (b) a documented,
systematic procedure or practice which reflects the regulated entity's
due diligence in preventing, detecting, and correcting violations. The
interim policy provided full credit for any violation found through
``voluntary self-evaluation,'' even if the evaluation did not
constitute an audit. In order to receive full credit under the final
policy, any self-evaluation that is not an audit must be part of a
``due diligence'' program. Both ``environmental audit'' and ``due
diligence'' are defined in Section B of the policy.
Where the violation is discovered through a ``systematic procedure
or practice'' which is not an audit, the regulated entity will be asked
to document how its program reflects the criteria for due diligence as
defined in Section B of the policy. These criteria, which are adapted
from existing codes of practice such as the 1991 Criminal Sentencing
Guidelines, were fully discussed during the ABA dialogue. The criteria
are flexible enough to accommodate different types and sizes of
businesses. The Agency recognizes that a variety of compliance
management programs may develop under the due diligence criteria, and
will use its review under this policy to determine whether basic
criteria have been met.
Compliance management programs which train and motivate production
staff to prevent, detect and correct violations on a daily basis are a
valuable complement to periodic auditing. The policy is responsive to
recommendations received during public comment and from the ABA
dialogue to give compliance management efforts which meet the criteria
for due diligence the same penalty reduction offered for environmental
audits. (See, e.g., II-F-39, II-E-18, and II-G-18 in the Docket.)
EPA may require as a condition of penalty mitigation that a
description of the regulated entity's due diligence efforts be made
publicly available. The Agency added this provision in response to
suggestions from environmental groups, and believes that the
availability of such information will allow the public to judge the
adequacy of compliance management systems, lead to enhanced compliance,
and foster greater public trust in the integrity of compliance
management systems.
2. Voluntary Discovery and Prompt Disclosure
Under Section D(2) of the final policy, the violation must have
been identified voluntarily, and not through a monitoring, sampling, or
auditing procedure that is required by statute, regulation, permit,
judicial or administrative order, or consent agreement. Section D(4)
requires that disclosure of the violation be prompt and in writing. To
avoid confusion and respond to state requests for greater clarity,
disclosures under this policy should be made to EPA. The Agency will
work closely with states in implementing the policy.
The requirement that discovery of the violation be voluntary is
consistent with proposed federal and state bills which would reward
those discoveries that the regulated entity can legitimately attribute
to its own voluntary efforts.
The policy gives three specific examples of discovery that would
not be voluntary, and therefore would not be eligible for penalty
mitigation: emissions violations detected through a required continuous
emissions monitor, violations of NPDES discharge limits found through
prescribed monitoring, and violations discovered through a compliance
audit required to be performed by the terms of a consent order or
settlement agreement.
The final policy generally applies to any violation that is
voluntarily discovered, regardless of whether the violation is required
to be reported. This definition responds to comments pointing out that
reporting requirements are extensive, and that excluding them from the
policy's scope would severely limit the incentive for self-policing
(see, e.g., II-C-48 in the Docket).
The Agency wishes to emphasize that the integrity of federal
environmental law depends upon timely and accurate reporting. The
public relies on timely and accurate reports from the regulated
community, not only to measure compliance but to evaluate health or
environmental risk and gauge progress in reducing pollutant loadings.
EPA expects the policy to encourage the kind of vigorous self-policing
that will serve these objectives, and not to provide an excuse for
delayed reporting. Where violations of reporting requirements are
voluntarily discovered, they must be promptly reported (as discussed
below). Where a failure to report results in imminent and substantial
endangerment or serious harm, that violation is not covered under this
policy (see Condition D(8)). The policy also requires the regulated
entity to prevent recurrence of the violation, to ensure that
noncompliance with reporting requirements is not repeated. EPA will
closely scrutinize the effect of the policy in furthering the public
interest in timely and accurate reports from the regulated community.
Under Section D(4), disclosure of the violation should be made
within 10 days of its discovery, and in writing to EPA. Where a statute
or regulation requires reporting be made in less than 10 days,
disclosure should be made within the time limit established by law.
Where reporting within ten days is not practical because the violation
is complex and compliance cannot be determined within that period, the
Agency may accept later disclosures if the circumstances do not present
a serious threat and the regulated entity meets its burden of showing
that the additional time was needed to determine compliance status.
This condition recognizes that it is critical for EPA to get timely
reporting of violations in order that it might have clear notice of the
violations and the opportunity to respond if necessary, as well as an
accurate picture of a given facility's compliance record. Prompt
disclosure is also evidence of the regulated entity's good faith in
wanting
[[Page 66709]]
to achieve or return to compliance as soon as possible.
In the final policy, the Agency has added the words, ``or may have
occurred,'' to the sentence, ``The regulated entity fully discloses
that a specific violation has occurred, or may have occurred * * *.''
This change, which was made in response to comments received, clarifies
that where an entity has some doubt about the existence of a violation,
the recommended course is for it to disclose and allow the regulatory
authorities to make a definitive determination.
In general, the Freedom of Information Act will govern the Agency's
release of disclosures made pursuant to this policy. EPA will,
independently of FOIA, make publicly available any compliance
agreements reached under the policy (see Section H of the policy), as
well as descriptions of due diligence programs submitted under Section
D.1 of the Policy. Any material claimed to be Confidential Business
Information will be treated in accordance with EPA regulations at 40
C.F.R. Part 2.
3. Discovery and Disclosure Independent of Government or Third Party
Plaintiff
Under Section D(3), in order to be ``voluntary'', the violation
must be identified and disclosed by the regulated entity prior to: the
commencement of a federal state or local agency inspection,
investigation, or information request; notice of a citizen suit; legal
complaint by a third party; the reporting of the violation to EPA by a
``whistleblower'' employee; and imminent discovery of the violation by
a regulatory agency.
This condition means that regulated entities must have taken the
initiative to find violations and promptly report them, rather than
reacting to knowledge of a pending enforcement action or third-party
complaint. This concept was reflected in the interim policy and in
federal and state penalty immunity laws and did not prove controversial
in the public comment process.
4. Correction and Remediation
Section D(5) ensures that, in order to receive the penalty
mitigation benefits available under the policy, the regulated entity
not only voluntarily discovers and promptly discloses a violation, but
expeditiously corrects it, remedies any harm caused by that violation
(including responding to any spill and carrying out any removal or
remedial action required by law), and expeditiously certifies in
writing to appropriate state, local and EPA authorities that violations
have been corrected. It also enables EPA to ensure that the regulated
entity will be publicly accountable for its commitments through binding
written agreements, orders or consent decrees where necessary.
The final policy requires the violation to be corrected within 60
days, or that the regulated entity provide written notice where
violations may take longer to correct. EPA recognizes that some
violations can and should be corrected immediately, while others (e.g.,
where capital expenditures are involved), may take longer than 60 days
to correct. In all cases, the regulated entity will be expected to do
its utmost to achieve or return to compliance as expeditiously as
possible.
Where correction of the violation depends upon issuance of a permit
which has been applied for but not issued by federal or state
authorities, the Agency will, where appropriate, make reasonable
efforts to secure timely review of the permit.
5. Prevent Recurrence
Under Section D(6), the regulated entity must agree to take steps
to prevent a recurrence of the violation, including but not limited to
improvements to its environmental auditing or due diligence efforts.
The final policy makes clear that the preventive steps may include
improvements to a regulated entity's environmental auditing or due
diligence efforts to prevent recurrence of the violation.
In the interim policy, the Agency required that the entity
implement appropriate measures to prevent a recurrence of the
violation, a requirement that operates prospectively. However, a
separate condition in the interim policy also required that the
violation not indicate ``a failure to take appropriate steps to avoid
repeat or recurring violations''--a requirement that operates
retrospectively. In the interest of both clarity and fairness, the
Agency has decided for purposes of this condition to keep the focus
prospective and thus to require only that steps be taken to prevent
recurrence of the violation after it has been disclosed.
6. No Repeat Violations
In response to requests from commenters (see, e.g., II-F-39 and II-
G-18 in the Docket), EPA has established ``bright lines'' to determine
when previous violations will bar a regulated entity from obtaining
relief under this policy. These will help protect the public and
responsible companies by ensuring that penalties are not waived for
repeat offenders. Under condition D(7), the same or closely-related
violation must not have occurred previously within the past three years
at the same facility, or be part of a pattern of violations on the
regulated entity's part over the past five years. This provides
companies with a continuing incentive to prevent violations, without
being unfair to regulated entities responsible for managing hundreds of
facilities. It would be unreasonable to provide unlimited amnesty for
repeated violations of the same requirement.
The term ``violation'' includes any violation subject to a federal
or state civil judicial or administrative order, consent agreement,
conviction or plea agreement. Recognizing that minor violations are
sometimes settled without a formal action in court, the term also
covers any act or omission for which the regulated entity has received
a penalty reduction in the past. Together, these conditions identify
situations in which the regulated community has had clear notice of its
noncompliance and an opportunity to correct.
7. Other Violations Excluded
Section D(8) makes clear that penalty reductions are not available
under this policy for violations that resulted in serious actual harm
or which may have presented an imminent and substantial endangerment to
public health or the environment. Such events indicate a serious
failure (or absence) of a self-policing program, which should be
designed to prevent such risks, and it would seriously undermine
deterrence to waive penalties for such violations. These exceptions are
responsive to suggestions from public interest organizations, as well
as other commenters. (See, e.g., II-F-39 and II-G-18 in the Docket.)
The final policy also excludes penalty reductions for violations of
the specific terms of any order, consent agreement, or plea agreement.
(See, II-E-60 in the Docket.) Once a consent agreement has been
negotiated, there is little incentive to comply if there are no
sanctions for violating its specific requirements. The exclusion in
this section applies to violations of the terms of any response,
removal or remedial action covered by a written agreement.
8. Cooperation
Under Section D(9), the regulated entity must cooperate as required
by EPA and provide information necessary to determine the applicability
of the policy. This condition is largely unchanged from the interim
policy. In the final policy, however, the Agency has added that
``cooperation'' includes
[[Page 66710]]
assistance in determining the facts of any related violations suggested
by the disclosure, as well as of the disclosed violation itself. This
was added to allow the agency to obtain information about any
violations indicated by the disclosure, even where the violation is not
initially identified by the regulated entity.
F. Opposition to Privilege
The Agency remains firmly opposed to the establishment of a
statutory evidentiary privilege for environmental audits for the
following reasons:
1. Privilege, by definition, invites secrecy, instead of the
openness needed to build public trust in industry's ability to self-
police. American law reflects the high value that the public places on
fair access to the facts. The Supreme Court, for example, has said of
privileges that, ``[w]hatever their origins, these exceptions to the
demand for every man's evidence are not lightly created nor expansively
construed, for they are in derogation of the search for truth.'' United
States v. Nixon, 418 U.S. 683 (1974). Federal courts have unanimously
refused to recognize a privilege for environmental audits in the
context of government investigations. See, e.g., United States v.
Dexter, 132 F.R.D. 8, 9-10 (D.Conn. 1990) (application of a privilege
``would effectively impede [EPA's] ability to enforce the Clean Water
Act, and would be contrary to stated public policy.'')
2. Eighteen months have failed to produce any evidence that a
privilege is needed. Public testimony on the interim policy confirmed
that EPA rarely uses audit reports as evidence. Furthermore, surveys
demonstrate that environmental auditing has expanded rapidly over the
past decade without the stimulus of a privilege. Most recently, the
1995 Price Waterhouse survey found that those few large or mid-sized
companies that do not audit generally do not perceive any need to;
concern about confidentiality ranked as one of the least important
factors in their decisions.
3. A privilege would invite defendants to claim as ``audit''
material almost any evidence the government needed to establish a
violation or determine who was responsible. For example, most audit
privilege bills under consideration in federal and state legislatures
would arguably protect factual information--such as health studies or
contaminated sediment data--and not just the conclusions of the
auditors. While the government might have access to required monitoring
data under the law, as some industry commenters have suggested, a
privilege of that nature would cloak underlying facts needed to
determine whether such data were accurate.
4. An audit privilege would breed litigation, as both parties
struggled to determine what material fell within its scope. The problem
is compounded by the lack of any clear national standard for audits.
The ``in camera'' (i.e., non-public) proceedings used to resolve these
disputes under some statutory schemes would result in a series of time-
consuming, expensive mini-trials.
5. The Agency's policy eliminates the need for any privilege as
against the government, by reducing civil penalties and criminal
liability for those companies that audit, disclose and correct
violations. The 1995 Price Waterhouse survey indicated that companies
would expand their auditing programs in exchange for the kind of
incentives that EPA provides in its policy.
6. Finally, audit privileges are strongly opposed by the law
enforcement community, including the National District Attorneys
Association, as well as by public interest groups. (See, e.g., Docket,
II-C-21, II-C-28, II-C-52, IV-G-10, II-C-25, II-C-33, II-C-52, II-C-48,
and II-G-13 through II-G-24.)
G. Effect on States
The final policy reflects EPA's desire to develop fair and
effective incentives for self-policing that will have practical value
to states that share responsibility for enforcing federal environmental
laws. To that end, the Agency has consulted closely with state
officials in developing this policy, through a series of special
meetings and conference calls in addition to the extensive opportunity
for public comment. As a result, EPA believes its final policy is
grounded in common-sense principles that should prove useful in the
development of state programs and policies.
As always, states are encouraged to experiment with different
approaches that do not jeopardize the fundamental national interest in
assuring that violations of federal law do not threaten the public
health or the environment, or make it profitable not to comply. The
Agency remains opposed to state legislation that does not include these
basic protections, and reserves its right to bring independent action
against regulated entities for violations of federal law that threaten
human health or the environment, reflect criminal conduct or repeated
noncompliance, or allow one company to make a substantial profit at the
expense of its law-abiding competitors. Where a state has obtained
appropriate sanctions needed to deter such misconduct, there is no need
for EPA action.
H. Scope of Policy
EPA has developed this document as a policy to guide settlement
actions. EPA employees will be expected to follow this policy, and the
Agency will take steps to assure national consistency in application.
For example, the Agency will make public any compliance agreements
reached under this policy, in order to provide the regulated community
with fair notice of decisions and greater accountability to affected
communities. Many in the regulated community recommended that the
Agency convert the policy into a regulation because they felt it might
ensure greater consistency and predictability. While EPA is taking
steps to ensure consistency and predictability and believes that it
will be successful, the Agency will consider this issue and will
provide notice if it determines that a rulemaking is appropriate.
II. Statement of Policy: Incentives for Self-Policing
Discovery, Disclosure, Correction and Prevention
A. Purpose
This policy is designed to enhance protection of human health and
the environment by encouraging regulated entities to voluntarily
discover, disclose, correct and prevent violations of federal
environmental requirements.
B. Definitions
For purposes of this policy, the following definitions apply:
``Environmental Audit'' has the definition given to it in EPA's
1986 audit policy on environmental auditing, i.e., ``a systematic,
documented, periodic and objective review by regulated entities of
facility operations and practices related to meeting environmental
requirements.''
``Due Diligence'' encompasses the regulated entity's systematic
efforts, appropriate to the size and nature of its business, to
prevent, detect and correct violations through all of the following:
(a) Compliance policies, standards and procedures that identify how
employees and agents are to meet the requirements of laws, regulations,
permits and other sources of authority for environmental requirements;
(b) Assignment of overall responsibility for overseeing compliance
with policies, standards, and procedures, and assignment of specific
responsibility for assuring compliance at each facility or operation;
[[Page 66711]]
(c) Mechanisms for systematically assuring that compliance
policies, standards and procedures are being carried out, including
monitoring and auditing systems reasonably designed to detect and
correct violations, periodic evaluation of the overall performance of
the compliance management system, and a means for employees or agents
to report violations of environmental requirements without fear of
retaliation;
(d) Efforts to communicate effectively the regulated entity's
standards and procedures to all employees and other agents;
(e) Appropriate incentives to managers and employees to perform in
accordance with the compliance policies, standards and procedures,
including consistent enforcement through appropriate disciplinary
mechanisms; and
(f) Procedures for the prompt and appropriate correction of any
violations, and any necessary modifications to the regulated entity's
program to prevent future violations.
``Environmental audit report'' means the analysis, conclusions, and
recommendations resulting from an environmental audit, but does not
include data obtained in, or testimonial evidence concerning, the
environmental audit.
``Gravity-based penalties'' are that portion of a penalty over and
above the economic benefit., i.e., the punitive portion of the penalty,
rather than that portion representing a defendant's economic gain from
non-compliance. (For further discussion of this concept, see ``A
Framework for Statute-Specific Approaches to Penalty Assessments'',
#GM-22, 1980, U.S. EPA General Enforcement Policy Compendium).
``Regulated entity'' means any entity, including a federal, state
or municipal agency or facility, regulated under federal environmental
laws.
C. Incentives for Self-Policing
1. No Gravity-Based Penalties
Where the regulated entity establishes that it satisfies all of the
conditions of Section D of the policy, EPA will not seek gravity-based
penalties for violations of federal environmental requirements.
2. Reduction of Gravity-Based Penalties by 75%
EPA will reduce gravity-based penalties for violations of federal
environmental requirements by 75% so long as the regulated entity
satisfies all of the conditions of Section D(2) through D(9) below.
3. No Criminal Recommendations
(a) EPA will not recommend to the Department of Justice or other
prosecuting authority that criminal charges be brought against a
regulated entity where EPA determines that all of the conditions in
Section D are satisfied, so long as the violation does not demonstrate
or involve:
(i) a prevalent management philosophy or practice that concealed or
condoned environmental violations; or
(ii) high-level corporate officials' or managers' conscious
involvement in, or willful blindness to, the violations.
(b) Whether or not EPA refers the regulated entity for criminal
prosecution under this section, the Agency reserves the right to
recommend prosecution for the criminal acts of individual managers or
employees under existing policies guiding the exercise of enforcement
discretion.
4. No Routine Request for Audits
EPA will not request or use an environmental audit report to
initiate a civil or criminal investigation of the entity. For example,
EPA will not request an environmental audit report in routine
inspections. If the Agency has independent reason to believe that a
violation has occurred, however, EPA may seek any information relevant
to identifying violations or determining liability or extent of harm.
D. Conditions
1. Systematic Discovery
The violation was discovered through:
(a) an environmental audit; or
(b) an objective, documented, systematic procedure or practice
reflecting the regulated entity's due diligence in preventing,
detecting, and correcting violations. The regulated entity must provide
accurate and complete documentation to the Agency as to how it
exercises due diligence to prevent, detect and correct violations
according to the criteria for due diligence outlined in Section B. EPA
may require as a condition of penalty mitigation that a description of
the regulated entity's due diligence efforts be made publicly
available.
2. Voluntary Discovery
The violation was identified voluntarily, and not through a legally
mandated monitoring or sampling requirement prescribed by statute,
regulation, permit, judicial or administrative order, or consent
agreement. For example, the policy does not apply to:
(a) emissions violations detected through a continuous emissions
monitor (or alternative monitor established in a permit) where any such
monitoring is required;
(b) violations of National Pollutant Discharge Elimination System
(NPDES) discharge limits detected through required sampling or
monitoring;
(c) violations discovered through a compliance audit required to be
performed by the terms of a consent order or settlement agreement.
3. Prompt Disclosure
The regulated entity fully discloses a specific violation within 10
days (or such shorter period provided by law) after it has discovered
that the violation has occurred, or may have occurred, in writing to
EPA;
4. Discovery and Disclosure Independent of Government or Third Party
Plaintiff
The violation must also be identified and disclosed by the
regulated entity prior to:
(a) the commencement of a federal, state or local agency inspection
or investigation, or the issuance by such agency of an information
request to the regulated entity;
(b) notice of a citizen suit;
(c) the filing of a complaint by a third party;
(d) the reporting of the violation to EPA (or other government
agency) by a ``whistleblower'' employee, rather than by one authorized
to speak on behalf of the regulated entity; or
(e) imminent discovery of the violation by a regulatory agency;
5. Correction and Remediation
The regulated entity corrects the violation within 60 days,
certifies in writing that violations have been corrected, and takes
appropriate measures as determined by EPA to remedy any environmental
or human harm due to the violation. If more than 60 days will be needed
to correct the violation(s), the regulated entity must so notify EPA in
writing before the 60-day period has passed. Where appropriate, EPA may
require that to satisfy conditions 5 and 6, a regulated entity enter
into a publicly available written agreement, administrative consent
order or judicial consent decree, particularly where compliance or
remedial measures are complex or a lengthy schedule for attaining and
maintaining compliance or remediating harm is required;
6. Prevent Recurrence
The regulated entity agrees in writing to take steps to prevent a
recurrence of the violation, which may include improvements to its
environmental auditing or due diligence efforts;
[[Page 66712]]
7. No Repeat Violations
The specific violation (or closely related violation) has not
occurred previously within the past three years at the same facility,
or is not part of a pattern of federal, state or local violations by
the facility's parent organization (if any), which have occurred within
the past five years. For the purposes of this section, a violation is:
(a) any violation of federal, state or local environmental law
identified in a judicial or administrative order, consent agreement or
order, complaint, or notice of violation, conviction or plea agreement;
or
(b) any act or omission for which the regulated entity has
previously received penalty mitigation from EPA or a state or local
agency.
8. Other Violations Excluded
The violation is not one which (i) resulted in serious actual harm,
or may have presented an imminent and substantial endangerment to,
human health or the environment, or (ii) violates the specific terms of
any judicial or administrative order, or consent agreement.
9. Cooperation
The regulated entity cooperates as requested by EPA and provides
such information as is necessary and requested by EPA to determine
applicability of this policy. Cooperation includes, at a minimum,
providing all requested documents and access to employees and
assistance in investigating the violation, any noncompliance problems
related to the disclosure, and any environmental consequences related
to the violations.
E. Economic Benefit
EPA will retain its full discretion to recover any economic benefit
gained as a result of noncompliance to preserve a ``level playing
field'' in which violators do not gain a competitive advantage over
regulated entities that do comply. EPA may forgive the entire penalty
for violations which meet conditions 1 through 9 in section D and, in
the Agency's opinion, do not merit any penalty due to the insignificant
amount of any economic benefit.
F. Effect on State Law, Regulation or Policy
EPA will work closely with states to encourage their adoption of
policies that reflect the incentives and conditions outlined in this
policy. EPA remains firmly opposed to statutory environmental audit
privileges that shield evidence of environmental violations and
undermine the public's right to know, as well as to blanket immunities
for violations that reflect criminal conduct, present serious threats
or actual harm to health and the environment, allow noncomplying
companies to gain an economic advantage over their competitors, or
reflect a repeated failure to comply with federal law. EPA will work
with states to address any provisions of state audit privilege or
immunity laws that are inconsistent with this policy, and which may
prevent a timely and appropriate response to significant environmental
violations. The Agency reserves its right to take necessary actions to
protect public health or the environment by enforcing against any
violations of federal law.
G. Applicability
(1) This policy applies to the assessment of penalties for any
violations under all of the federal environmental statutes that EPA
administers, and supersedes any inconsistent provisions in media-
specific penalty or enforcement policies and EPA's 1986 Environmental
Auditing Policy Statement.
(2) To the extent that existing EPA enforcement policies are not
inconsistent, they will continue to apply in conjunction with this
policy. However, a regulated entity that has received penalty
mitigation for satisfying specific conditions under this policy may not
receive additional penalty mitigation for satisfying the same or
similar conditions under other policies for the same violation(s), nor
will this policy apply to violations which have received penalty
mitigation under other policies.
(3) This policy sets forth factors for consideration that will
guide the Agency in the exercise of its prosecutorial discretion. It
states the Agency's views as to the proper allocation of its
enforcement resources. The policy is not final agency action, and is
intended as guidance. It does not create any rights, duties,
obligations, or defenses, implied or otherwise, in any third parties.
(4) This policy should be used whenever applicable in settlement
negotiations for both administrative and civil judicial enforcement
actions. It is not intended for use in pleading, at hearing or at
trial. The policy may be applied at EPA's discretion to the settlement
of administrative and judicial enforcement actions instituted prior to,
but not yet resolved, as of the effective date of this policy.
H. Public Accountability
(1) Within 3 years of the effective date of this policy, EPA will
complete a study of the effectiveness of the policy in encouraging:
(a) changes in compliance behavior within the regulated community,
including improved compliance rates;
(b) prompt disclosure and correction of violations, including
timely and accurate compliance with reporting requirements;
(c) corporate compliance programs that are successful in preventing
violations, improving environmental performance, and promoting public
disclosure;
(d) consistency among state programs that provide incentives for
voluntary compliance.
EPA will make the study available to the public.
(2) EPA will make publicly available the terms and conditions of
any compliance agreement reached under this policy, including the
nature of the violation, the remedy, and the schedule for returning to
compliance.
I. Effective Date
This policy is effective January 22, 1996.
Dated: December 18, 1995.
Steven A. Herman,
Assistant Administrator for Enforcement and Compliance Assurance.
[FR Doc. 95-31146 Filed 12-21-95; 8:45 am]
BILLING CODE 6560-50-P
