Environmental Protection Agency, December 18, 1995
I. Explanation of Policy
A. Introduction
The Environmental Protection Agency (EPA) 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., noneconomic 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 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 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. 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 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 "whistle-blower" 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 other (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 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 information 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, "whatever 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.,
nonpublic) 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 [sic], 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;
(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 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 noncompliance. (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; [or]
(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.
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 or 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 benefits 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
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
right, 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 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.