Voluntary Environmental Self-Policing and Self-Disclosure Interim Policy Statement

ENVIRONMENTAL PROTECTION AGENCY

[FRL-5184-4]

Voluntary Environmental Self-Policing and Self-Disclosure Interim

Policy Statement

AGENCY: Environmental Protection Agency (EPA).

ACTION: Interim policy statement and request for comment.

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SUMMARY: The Environmental Protection Agency (EPA) announces and

requests comment on an interim policy to provide incentives for

regulated entities that conduct voluntary compliance evaluations and

also disclose and correct violations. These incentives include

eliminating or substantially reducing the gravity component of civil

penalties and not referring cases for criminal prosecution where

specified conditions are met. The policy also states that EPA will not

request voluntary audit reports to trigger enforcement investigations.

This interim policy was developed in close consultation with EPA's

regional offices and the Department of Justice, and will be applied

uniformly by the Agency's enforcement programs.

DATES: This interim policy statement is effective as interim guidance

15 days after publication, in order to give the Agency time to

coordinate implementation of the policy throughout EPA Headquarters and

the Regions. EPA urges interested parties to comment on this interim

policy in writing. Comments must be received by EPA at the address

below by June 2, 1995.

ADDRESSES: Submit three copies of comments to the U.S. EPA Air Docket,

Mail Code 6102, 401 M Street, SW, Washington, D.C. 20460, attention:

Docket #C-94-01.

FOR FURTHER INFORMATION CONTACT: Additional documentation relating to

the development of this interim policy is contained in the

environmental auditing public docket. Documents from the docket may be

requested 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 Geoff Garver or Brian Riedel, at

(202) 564-4187.

SUPPLEMENTARY INFORMATION:

I. Background

A. Introduction

One of the Environmental Protection Agency's most important

responsibilities is obtaining compliance with federal laws that protect

public health and safeguard the environment. That goal can be achieved

only with the voluntary cooperation of thousands of businesses and

other regulated entities subject to these requirements. Today, EPA is

announcing incentives for those who take responsibility for voluntarily

evaluating, disclosing and correcting violations. These incentives,

developed after nine months of public meetings and empirical analysis,

are set forth in detail below and take effect in 15 days. At the same

time, EPA expects to continue a dialogue with stakeholders and consider

further refinements to this interim policy. The incentives that EPA is

offering fall into three distinct categories.

First, the Agency will completely eliminate gravity-based (or

``punitive'') penalties for companies or public agencies that

voluntarily identify, disclose and correct violations according to the

conditions outlined in this policy. EPA will also reduce punitive

penalties by up to 75% for [[Page 16876]] companies that meet most, but

not all, of these conditions. Second, EPA will not recommend to the

Department of Justice that criminal charges be brought against a

company acting in good faith to identify, disclose, and correct

violations, so long as no serious actual harm has occurred. Finally,

the Agency will not request voluntary environmental audits to trigger

enforcement investigations.

The incentives offered in this policy have been structured above

all to protect human health and the environment. For example, even

where the conditions for mitigated enforcement are met, EPA will

reserve the right to collect full civil penalties for criminal conduct,

violations that present an imminent and substantial endangerment or

result in serious actual harm, or repeat violations. Sources will not

be allowed to gain an economic advantage over their competitors by

delaying their investment in compliance. Nor will EPA hesitate to bring

a criminal action against individuals responsible for criminal conduct.

EPA is considering additional incentives for voluntary compliance

beyond the benefits offered in the policy today. On April 7, 1995, the

Agency will announce 12 Environmental Leadership Program (ELP) pilot

projects with companies and public agencies to test criteria for

auditing and certification of voluntary compliance programs. If

successful, standards developed through Environmental Leadership could

lead to reduced inspections and public recognition for companies or

agencies with state-of-the-art compliance programs. In keeping with the

President's announcement on March 16, 1995, EPA also will shortly be

announcing additional compliance incentives for small businesses.

The Agency is especially interested in comments relating to whether

this interim policy appropriately defines the criteria for determining

whether a self-audit, self-evaluation or disclosure is voluntary;

whether the interim policy adequately preserves the Agency's authority

to assess a gravity penalty component in appropriate cases; and

whether, and according to what criteria, the Agency should consider

giving credit against the economic benefit component of a penalty for

state-of-the-art environmental management systems.

B. Public Process

In May 1994, the Administrator asked the Office of Enforcement and

Compliance Assurance to determine whether additional incentives are

needed to encourage voluntary disclosure and correction of violations

uncovered during environmental audits and self-evaluations.

In developing this interim policy, the Agency held a major two-day

public meeting in July 1994 announced in the Federal Register on June

20, 1994 (59 FR 31914); published a Restatement of Policies Related to

Environmental Auditing in the Federal Register on July 28, 1994 (59 FR

38455); considered over 80 written comments submitted to the

environmental auditing policy docket; held a focus group meeting in San

Francisco on January 19, 1995 with key stakeholders from industry,

trade groups, State environmental commissions, State attorneys general

offices, district attorneys' offices, environmental and public interest

groups, and professional environmental auditing groups; and held a

public comment session in San Francisco on January 20, 1995.

In addition to considering opinion from stakeholders, EPA conducted

its own analysis of relevant facts. For example, the Agency considered

EPA and other Federal policies relating to environmental auditing,

self-disclosure, and correction, as well as incentives suggested by

State and local policies and legislation, and by applications submitted

for the ELP pilot program. The Agency also considered relevant surveys

on auditing practices and incentives.

C. Purpose

This interim policy is intended to promote environmental compliance

by providing greater certainty as to EPA's enforcement response to

voluntary self-evaluations, and voluntary disclosure and prompt

correction of violations. The policy further provides guidance for

States and local authorities in encouraging this behavior among

regulated entities.

Federal laws and regulations set minimum standards for protecting

human health and achieving environmental protection goals such as clean

air and clean water. EPA will continue to uphold these laws through

vigorous enforcement actions that appropriately penalize violators.

Penalties help ensure a level playing field by ensuring that violators

do not obtain an unfair economic advantage over their competitors who

made the necessary investment in compliance. Penalties also promote

protection of the environment and public health by encouraging adoption

of pollution prevention and recycling practices that limit exposure to

liability for pollutant discharges and deterring future violations by

the violator and others.

At the same time, the Agency recognizes that we cannot achieve

maximum compliance without the cooperation of a regulated community

willing to act responsibly by detecting, disclosing, and correcting

violations. Already, regulated entities have many compelling incentives

to implement environmental management/auditing systems, as noted in

EPA's 1986 auditing policy. Indeed, recent surveys show that the vast

majority of large companies engage in environmental auditing and/or

have environmental management systems in place. Nonetheless, EPA has

concluded that the additional incentives in this interim policy will

further promote the regulated community's commitment to adopting

systems for maximizing compliance.

D. Principles for Voluntary Compliance

The interim policy that EPA is announcing today is based on seven

principles:

1. Self-policing by regulated entities can play a crucial role in

finding, fixing and preventing violations.

2. Violations discovered through self-policing should be disclosed

and promptly corrected.

3. Regulated entities that self-police and that voluntarily

disclose and self-correct violations in accordance with this policy

should be assessed penalties that are consistently and predictably

lower than penalties for those who do not.

4. Regulated entities that self-police and voluntarily disclose and

self-correct violations in accordance with this policy should also not

be recommended for criminal prosecution.

5. Providing predictable incentives for voluntary disclosure and

correction of violations identified through self-policing offers a

positive alternative to across-the-board privileges and immunities that

could be used to shield criminal misconduct, drive up litigation costs

and create an atmosphere of distrust between regulators, industry and

local communities.

6. EPA should not seek voluntary environmental audit information to

trigger an investigation of a civil or criminal violation of

environmental laws.

7. To preserve a level playing field, EPA should recover any

economic benefit realized from violations of environmental law.

E. Relationship to Emerging Standards

EPA also recognizes the development of and growing reliance on

international voluntary environmental management standards in the U.S.

and other [[Page 16877]] countries. These standards, if properly

crafted and implemented, can provide a powerful tool for organizations

to improve their overall compliance with environmental requirements and

move beyond compliance through innovative approaches to pollution

prevention. In addition to issuing this interim policy, EPA will

continue to pursue a dialogue with interested parties and to pilot

policy approaches through programs such as the ELP to determine how EPA

can make use of and encourage these standards.

II. Interim Policy

A. Definitions

For purposes of this interim policy, the following definitions

apply:

``Environmental auditing'' has the definition given to it in EPA's

1986 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.''

``Environmental audit report'' means all documentation of

information relating to an environmental audit, but not including the

factual information underlying or testimonial evidence relating to such

information.

``Regulated entity'' means any entity, including a federal, state,

and municipal facility, regulated under the federal environmental laws

that EPA administers.

``Self-evaluation'' means an assessment, not necessarily meeting

all the criteria of a full environmental audit, by a regulated entity

of its compliance with one or more environmental requirements.

``Voluntary'' means not required by statute, regulation, permit,

order, or agreement.

B. Conditions

The conditions for reducing civil penalties and not making criminal

referrals in accordance with Sections II.C. and II.D. of this interim

policy are as follows:

1. Voluntary self-policing. The regulated entity discovers a

violation through a voluntary environmental audit or voluntary self-

evaluation appropriate to the size and nature of the regulated entity;

and

2. Voluntary disclosure. The regulated entity fully and voluntarily

discloses the violation in writing to all appropriate federal, state

and local agencies as soon as it is discovered (including a reasonable

time to determine that a violation exists), and prior to (1) the

commencement of a federal, state or local agency inspection,

investigation or information request; (2) notice of a citizen suit; (3)

legal complaint by a third party; or (4) the regulated entity's

knowledge that the discovery of the violation by a regulatory agency or

third party was imminent; and

3. Prompt correction. The regulated entity corrects the violation

either within 60 days of discovering the violation or, if more time is

needed, as expeditiously as practicable; and

4. Remediation of imminent and substantial endangerment. The

regulated entity expeditiously remedies any condition that has created

or may create an imminent and substantial endangerment to human health

or the environment; and

5. Remediation of harm and prevention of repeat violations. The

regulated entity implements appropriate measures to remedy any

environmental harm due to the violation and to prevent a recurrence of

the violation; and

6. No lack of appropriate preventive measures. The violation does

not indicate that the regulated entity has failed to take appropriate

steps to avoid repeat or recurring violations; and

7. Cooperation. The regulated entity cooperates as required by EPA

and provides such information as is reasonably necessary and required

by EPA to determine applicability of this policy. Cooperation may

include providing all requested documents and access to employees and

assistance in any further investigations into the violation.

Where appropriate, EPA may require that to satisfy any of these

conditions, a regulated entity must enter into a 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.

C. Reduce Civil Penalties for Voluntarily Disclosed and Promptly

Corrected Violations

1. Incentive

Regulated entities will be eligible for the following reductions in

civil penalties:

a. EPA will eliminate all of the gravity component of the penalty

for violations by regulated entities that meet conditions 1 through 7

outlined in Section II.B., except for violations involving (i) criminal

conduct by the regulated entity or any of its employees, or (ii) an

imminent and substantial endangerment, or serious actual harm, to human

health or the environment.

b. EPA may mitigate up to 75% of the unadjusted gravity component

of the penalty, taking into account any of conditions 1-7 in Section

II.B. that are met, in the following cases:

(i) cases in which most but not all of the conditions in Section

II.B. are met; or

(ii) cases involving an imminent and substantial endangerment, but

not serious actual harm, in which all the conditions in Section II.B.

are met; or

(iii) cases involving the disclosure of criminal conduct in which

all the conditions in Section II.B. are met.

c. 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

through noncompliance. However, EPA may forgive the entire penalty for

violations which meet conditions 1 through 7 outlined in Section II.B.

and, in EPA's discretion, do not merit any penalty due to the

insignificant amount of any economic benefit.

2. Discussion

a. Providing a clear and significant reduction in civil penalties

for companies that assume responsibility for finding, disclosing and

correcting violations will create a strong incentive for regulated

entities to prevent or fix violations before EPA expends enforcement

resources. The policy states clearly the conditions under which EPA

will forgive all or part of the gravity component of a penalty for

voluntary disclosure and correction;

b. The policy appropriately preserves the concept of recovering

economic benefit, except where it is insignificant, as recommended by a

broad spectrum of commenters, including industry commenters;

c. Retaining EPA's discretion to collect the gravity component of

the penalty in appropriate cases, such as where a violation involves

criminal conduct, or imminent and substantial endangerment, will help

to deter the most egregious environmental violations. At the same time,

by preserving flexibility to reduce the gravity element by up to 75%

for good faith efforts to disclose and promptly comply even in those

cases, the policy will retain an appropriate compliance incentive.

D. Limit Criminal Referrals for Voluntary Disclosure and Correction of

Violations

1. Incentive

EPA will not recommend to the Department of Justice that criminal

[[Page 16878]] charges be brought against a regulated entity where EPA

determines that conditions 1-7 in Section II.B. above for reduction of

civil penalties are met, and the violation does not demonstrate or

involve (1) a prevalent corporate management philosophy or practice

that concealed or condoned environmental violations; (2) high-level

corporate officials' or managers' conscious involvement in or willful

blindness to the violation; or (3) serious actual harm to human health

or the environment. This policy does not apply to criminal acts of

individual managers or employees. Where EPA determines pursuant to this

Section that a criminal referral to the Department of Justice is

unwarranted, EPA may nonetheless proceed with civil enforcement in

accordance with Section II.C. of this policy or other applicable

enforcement response and penalty policies.

2. Discussion

The policy will promote candid and thorough self-policing by

providing greater certainty as to how EPA will exercise its criminal

investigative discretion to encourage voluntary disclosure and prompt

correction by regulated entities.

E. Eliminate Routine Requests for Audit Reports in Pre-Enforcement

Proceedings

1. Incentive

EPA will not request a voluntary environmental audit report to

trigger a civil or criminal investigation. For example, EPA will not

request an audit in routine inspections. Once the Agency has reason to

believe a violation has been committed, EPA may seek through an

investigation or enforcement action any information relevant to

identifying violations or determining liability or extent of harm.

2. Discussion

a. This policy makes clear that EPA will not routinely request

audit reports. At the same time, the policy in no way limits the right

of regulated entities to claim common law privileges (e.g., attorney-

client and work product) as appropriate. EPA believes that this

clarification, along with the other incentives in this interim policy,

should greatly reduce any perception that environmental audits may be

used unfairly in environmental enforcement.

b. With respect to federal facilities, although federal facility

environmental audit reports may be accessible to the public under the

Freedom of Information Act (FOIA) in certain circumstances, EPA cannot

utilize FOIA to request information from other federal agencies. Thus,

EPA will apply this policy on requests for audit reports to federal

(and state and municipal) facilities the same as it does for other

regulated entities.

F. Applicability

This interim policy applies to violations under all of the federal

environmental statutes that EPA administers and supersedes (unless

otherwise noted) any conflicting or inconsistent provisions in the

media-specific penalty or enforcement response policies and EPA's 1986

Environmental Auditing Policy Statement. Existing enforcement policies

will continue to apply in conjunction with this interim policy, except

where inconsistent with this policy. In addition, where appropriate,

EPA's Supplemental Environmental Project Policy may at EPA's discretion

be applied in conjunction with this policy.

III. Favor These Incentives Over Broad Privileges and Immunities

This interim policy offers a positive alternative to across-the-

board privileges and immunities that could be used to shield criminal

misconduct, drive up litigation costs and create an atmosphere of

distrust between regulators, industry and local communities.

A. Discussion

1. Penalty immunity provisions for voluntary disclosures of

violations can give lawbreakers an economic advantage over their law-

abiding competitors. It makes sense to give substantial penalty

reductions for those who come forward with their violations and

promptly correct them, but to maintain a level playing field, the

federal and state governments must be able to recoup the economic

benefit of violations.

2. A principal rationale for environmental audit privileges and

penalty immunities for voluntary disclosures is to reduce the exposure

of regulated entities that conduct self-evaluations and act on the

findings by immediately correcting violations. EPA has addressed this

concern with the incentives for disclosure and correction outlined

above.

3. Privilege runs counter to efforts to open up environmental

decisionmaking and encourage public participation in matters that

affect people's homes, workplaces and communities.

4. An environmental audit privilege could be misused to shield bad

actors or to frustrate access to crucial factual information.

5. Environmental audit privileges and penalty immunities could

encourage increased litigation as opposing lawyers battle over what is

privileged or immune from penalties and what is not. Litigation over

the scope of the privileges and immunities could burden our already

taxed judicial system, drain government and private resources, and in

some cases prevent quick action to address environmental emergencies.

6. The Supreme Court has noted, ``privileges are not lightly

created nor expansively construed for they are in derogation of the

search for the truth.'' United States v. Nixon, 418 U.S. 683, 710

(1974). Moreover, the self-evaluation privilege has regularly and

uniformly been rejected by the courts in cases where documents were

sought by a governmental agency.

IV. Consequences for States

EPA recognizes that states are important partners in federal

enforcement, and that it is desirable to create a climate in which

states can be innovative. At the same time, EPA is required to

establish a certain minimum consistency in federal enforcement, so that

the sanctions a business faces for violating federal law do not depend

on where the business is located.

Accordingly, to maintain national consistency:

A. EPA will scrutinize enforcement more closely in states with

audit privilege and/or penalty immunity laws and may find it necessary

to increase federal enforcement where environmental self-evaluation

privileges or penalty immunities prevent a state from obtaining:

1. information needed to establish criminal liability;

2. facts needed to establish the nature and extent of a violation;

3. appropriate penalties for imminent and substantial endangerment

or serious harm to human health or the environment, or from recovering

economic benefit;

4. appropriate sanctions or penalties for criminal conduct and

repeat violations; or

5. prompt correction of violations, and expeditious remediation of

those that involve imminent and substantial endangerment to human

health or the environment.

B. EPA will bring to the state's attention any provisions of state

audit privilege and/or penalty immunity statutes that raise any of the

concerns outlined above, and will work with the state to address those

concerns and ensure that federal requirements are satisfied.

[[Page 16879]]

V. Limitations on Applicability of This Policy

This interim policy sets forth internal guidelines which amend

EPA's penalty policies in situations involving voluntary self-policing,

disclosure and correction. In conjunction with the applicable penalty

policy, these guidelines will aid EPA personnel in proposing

appropriate penalties or negotiating settlements in administrative and

judicial enforcement actions. The interim policy also serves to

structure the Agency's enforcement authority and states the Agency's

view as to the proper allocation of its enforcement resources.

Deviations from these guidelines, where merited, are authorized so long

as the reasons for the deviations are documented.

This interim policy is not final agency action, but is intended

solely as guidance. It is not intended, nor can it be relied upon, to

create any rights enforceable by any party in litigation with the

United States. EPA officials may decide to follow the guidance provided

in this interim policy or to act at variance with the guidance based on

analysis of case-specific facts and circumstances. Application of this

policy to the facts of any individual case is at the sole discretion of

EPA and is not subject to review by any court. In addition, the policy

has no effect on the calculation of any cleanup costs, remedial costs,

natural resources damages or emergency response costs associated with a

violation. EPA reserves the right to change this interim policy at any

time without public notice.

Dated: March 30, 1995.

Steven A. Herman,

Assistant Administrator for Enforcement and Compliance Assurance.

[FR Doc. 95-8218 Filed 3-31-95; 8:45 am]

BILLING CODE 6560-50-P