Interim Policy on Compliance Incentives for Small Businesses

SUMMARY: The Office of Enforcement and Compliance Assurance (EPA) is

issuing this Final Policy on Compliance Incentives for Small

Businesses. This Final Policy is intended to promote environmental

compliance among small businesses by providing them with incentives to

participate in compliance assistance programs or to conduct

environmental audits and to then promptly correct violations. The

Policy accomplishes this in two ways: by setting forth guidelines for

the Agency to reduce or waive penalties for small businesses that make

good faith efforts to correct violations, and by providing guidance for

States and local governments to offer these incentives.

EFFECTIVE DATE: This Policy is effective June 10, 1996.

FURTHER INFORMATION CONTACT: David Hindin, 202-564-2235, Office of

Regulatory Enforcement, Mail Code 2248-A, or Karin Leff, 202-564-7068,

Office of Compliance, Mail Code 2224-A, United States Environmental

Protection Agency, 401 M Street, S.W., Washington, D.C. 20460.

SUPPLEMENTARY INFORMATION: Pursuant to this Policy, EPA will refrain

from initiating an enforcement action seeking civil penalties, or will

mitigate civil penalties, whenever a small business makes a good faith

effort to comply with environmental requirements by receiving on-site

compliance assistance or promptly disclosing the findings of a

voluntarily conducted environmental audit, subject to certain

conditions. These conditions require that the violation: is the small

business's first violation of the particular requirement; does not

involve criminal conduct; has not and is not causing a significant

health, safety or environmental threat or harm; and is remedied within

the corrections period. Moreover, EPA will defer to State actions that

are consistent with the criteria set forth in this Policy.

This Final Policy supersedes the Interim version of the Policy

issued in June 1995. See 60 FR 32675, June 23, 1995. The Agency revised

the Interim version based on the comments we received from the public

in response to the Federal Register notice, as well as the comments we

received from EPA Regional offices and States. The major change in this

final version of the Policy is to allow small businesses to obtain the

penalty relief provided by this Policy not only by using on-site

compliance assistance, but also by conducting an environmental audit,

and promptly disclosing and correcting the violations. There are two

reasons for this change. First, this addresses the major criticism of

the Interim Policy that there are few on-site compliance assistance

programs sponsored or run by government agencies. Thus, this change

enables more small businesses to use the Policy. Second, fairness

suggests that if small businesses who seek tax-payer funded compliance

assistance from the government can get penalty relief, then businesses

who spend their own money to do an audit, should be able to get similar

relief.

We also have slightly modified the penalty relief guidelines in

section F of the Policy. Guidelines 1 and 2 remain the same as they

were in the June 1995 Interim version. We have added a new third

guideline which states:

3. If a small business meets all of the criteria, except it has

obtained a significant economic benefit from the violation(s) such

that it may have obtained an economic advantage over its

competitors, EPA will waive up to 100% of the gravity component of

the penalty, but may seek the full amount of any economic benefit

associated with the violations. EPA retains this discretion to

ensure that small businesses that comply with public health

protections are not put at serious marketplace disadvantage by those

who have not complied. EPA anticipates that this will occur very

infrequently.

This new guideline is necessary to ensure that we continue to

provide a national level playing field. Small businesses that make

significant expenditures to comply with the law should not be put at an

economic disadvantage by those who did not comply. Most of the other

changes in the final Policy are clarifications or editorial in nature.

The entire text of the Policy appears below.

Dated: May 10, 1996.

Steven A. Herman,

Assistant Administrator, Office of Enforcement and Compliance

Assurance, United States Environmental Protection Agency.

A. Introduction

This document sets forth the U.S. Environmental Protection Agency's

Policy on Compliance Incentives for Small Businesses. This Policy is

one of the 25 regulatory reform initiatives announced by President

Clinton on March 16, 1995, and implements, in part, the Executive

Memorandum on Regulatory Reform, 60 FR 20621, April 26, 1995.

The Executive Memorandum provides in pertinent part:

To the extent permitted by law, each agency shall use its

discretion to modify the penalties for small businesses in the

following situations. Agencies shall exercise their enforcement

discretion to waive the imposition of all or a portion of a penalty

when the violation is corrected within a time period appropriate to

the violation in question. For those violations that may take longer

to correct than the period set by the agency, the agency shall use

its enforcement discretion to waive up to 100 percent of the

financial penalties if the amounts waived are used to bring the

entity into compliance. The provisions [of this paragraph] shall

apply only where there has been a good faith effort to comply with

applicable regulations and the violation does not involve criminal

wrongdoing or significant threat to health, safety, or the

environment.

This Policy also implements section 223 of the Small Business

Regulatory Enforcement Fairness Act of 1996, signed into law by the

President on March 29, 1996.

As set forth in this Policy, EPA will refrain from initiating an

enforcement action seeking civil penalties, or will mitigate civil

penalties, whenever a small business makes a good faith effort to

comply with environmental requirements by receiving compliance

assistance or promptly disclosing the findings of a voluntarily

conducted environmental audit, subject to certain conditions. These

conditions require that the violation: is the small business's first

violation of the particular requirement; does not involve criminal

conduct; has not and is not causing a significant health, safety or

environmental threat or harm; and is remedied within the corrections

period. Moreover, EPA will defer to State actions that are consistent

with the criteria set forth in this Policy.

B. Background

The Clean Air Act (CAA) Amendments of 1990 require that States

establish Small Business Assistance Programs (SBAPs) to provide

technical and environmental compliance assistance to stationary

sources. On August 12, 1994, EPA issued an enforcement response policy

for stationary sources which provided that an authorized or delegated

state program may, consistent with federal requirements, either:

(1) Assess no penalties against small businesses that

voluntarily seek compliance assistance and correct violations

revealed as a result of compliance assistance within a limited

period of time; or

(2) Keep confidential information that identifies the names and

locations of specific

[[Page 27985]]

small businesses with violations revealed through compliance

assistance, where the SBAP is independent of the state enforcement

program.

In a further effort to assist small businesses to comply with

environmental regulations, and to achieve health, safety, and

environmental benefits, the Agency is adopting a broader policy for all

media programs, including water, air, toxics, and hazardous waste.

C. Purpose

This Policy is intended to promote environmental compliance among

small businesses by providing incentives for them to participate in on-

site compliance assistance programs and to conduct environmental

audits. Further, the Policy encourages small businesses to

expeditiously remedy all violations discovered through compliance

assistance and environmental audits. The Policy accomplishes this in

two ways: by setting forth a settlement penalty Policy that rewards

such behavior, and by providing guidance for States and local

governments to offer these incentives.

D. Applicability

This Policy applies to facilities owned by small businesses as

defined here. A small business is a person, corporation, partnership,

or other entity who employs 100 or fewer individuals (across all

facilities and operations owned by the entity).1 This definition

is a simplified version of the CAA Sec. 507 definition of small

business. On balance, EPA determined that a single definition would

make implementation of this Policy straightforward and would allow for

consistent application of the Policy in a multimedia context.

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\1\ The number of employees should be considered as full-time

equivalents on an annual basis, including contract employees. Full-

time equivalents means 2,000 hours per year of employment. For

example, see 40 CFR Sec. 372.3.

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This Policy is effective June 10, 1996 and on that date supersedes

the Interim version of this Policy issued on June 13, 1995 and the

September 19, 1995 Qs and As guidance on the Interim version. This

Policy applies to all civil judicial and administrative enforcement

actions taken under the authority of the environmental statutes and

regulations that EPA administers, except for the Public Water System

Supervision Program under the Safe Drinking Water Act.2 This

Policy applies to all such actions filed after the effective date of

this Policy, and to all pending cases in which the government has not

reached agreement in principle with the alleged violator on the amount

of the civil penalty.

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\2\ This Policy does not apply to the Public Water System

Supervision (PWSS) Program because it already has an active

compliance assistance program and EPA has a policy to address the

special needs of small communities. See November 1995 Policy on

Flexible State Enforcement Response to Small Community Violations.

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This Policy sets forth how the Agency expects to exercise its

enforcement discretion in deciding on an appropriate enforcement

response and determining an appropriate civil settlement penalty for

violations by small businesses. It states the Agency's views as to the

proper allocation of enforcement resources. This 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. This Policy is to be used for settlement purposes and is

not intended for use in pleading, or at hearing or trial. To the extent

that this Policy may differ from the terms of applicable enforcement

response policies (including penalty policies) under media-specific

programs, this document supersedes those policies. This Policy

supplements, but does not supplant the August 12, 1994 Enforcement

Response Policy for Treatment of Information Obtained Through Clean Air

Act Section 507 Small Business Assistance Programs.

E. Criteria for Civil Penalty Mitigation

EPA will eliminate or mitigate its settlement penalty demands

against small businesses based on the following criteria:

1. The small business has made a good faith effort to comply with

applicable environmental requirements as demonstrated by satisfying

either a. or b. below.

a. Receiving on-site compliance assistance from a government or

government supported program that offers services to small businesses

(such as a SBAP or state university), and the violations are detected

during the compliance assistance. If a small business wishes to obtain

a corrections period after receiving compliance assistance from a

confidential program, the business must promptly disclose the

violations to the appropriate regulatory agency.

b. conducting an environmental audit (either by itself or by using

an independent contractor) and promptly disclosing in writing to EPA or

the appropriate state regulatory agency all violations discovered as

part of the environmental audit pursuant to section H of this Policy.

For both a. and b. above, the disclosure of the violation must

occur before the violation was otherwise discovered by, or reported to

the regulatory agency. See section I.1 of the Policy below. Good faith

also requires that a small business cooperate with EPA and provide such

information as is necessary and requested to determine applicability of

this Policy.

2. This is the small business's first violation of this

requirement. This Policy does not apply to businesses that have

previously been subject to an information request, a warning letter,

notice of violation, field citation, citizen suit, or other enforcement

action by a government agency for a violation of that requirement

within the past three years. This Policy does not apply if the small

business received penalty mitigation pursuant to this Policy for a

violation of the same or a similar requirement within the past three

years. If a business has been subject to two or more enforcement

actions for violations of environmental requirements in the past five

years, this Policy does not apply even if this is the first violation

of this particular requirement.

3. The business corrects the violation within the corrections

period set forth below.

Small businesses are expected to remedy the violations within the

shortest practicable period of time, not to exceed 180 days following

detection of the violation. However, a small business may take an

additional period of 180 days, i.e., up to a period of one year from

the date the violation is detected, only if necessary to allow a small

business to correct the violation by implementing pollution prevention

measures. For any violation that cannot be corrected within 90 days of

detection, the small business should submit a written schedule, or the

agency should issue a compliance order with a schedule, as appropriate.

Correcting the violation includes remediating any environmental harm

associated with the violation,3 as well as implementing steps to

prevent a recurrence of the violation.

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\3\ If significant efforts will be required to remediate the

harm, the Policy will not apply since criterion 4 is likely not to

have been satisfied.

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4. The Policy applies if:

a. The violation has not caused actual serious harm to public

health, safety, or the environment; and

b. The violation is not one that may present an imminent and

substantial endangerment to public health or the environment; and

c. The violation does not present a significant health, safety or

[[Page 27986]]

environmental threat (e.g., violations involving hazardous or toxic

substances may present such threats); and

d. The violation does not involve criminal conduct.

F. Penalty Mitigation Guidelines

EPA will exercise its enforcement discretion to eliminate or

mitigate civil settlement penalties as follows.

1. EPA will eliminate the civil settlement penalty in any

enforcement action if a small business satisfies all of the criteria in

section E.

2. If a small business meets all of the criteria, except it needs a

longer corrections period than provided by criterion 3 (i.e., more than

180 days for non-pollution prevention remedies, or 360 days for

pollution prevention remedies), EPA will waive up to 100% of the

gravity component of the penalty, but may seek the full amount of any

economic benefit associated with the violations.4

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\4\ The ``gravity component'' of the penalty includes everything

except the economic benefit amount. In determining the appropriate

amount of the gravity component of the penalty to mitigate, EPA

should consider the nature of the violations, the duration of the

violations, the environmental or public health impacts of the

violations, good faith efforts by the small business to promptly

remedy the violation, and the facility's overall record of

compliance with environmental requirements.

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3. If a small business meets all of the criteria, except it has

obtained a significant economic benefit from the violation(s) such that

it may have obtained an economic advantage over its competitors, EPA

will waive up to 100% of the gravity component of the penalty, but may

seek the full amount of the significant economic benefit associated

with the violations. EPA retains this discretion to ensure that small

businesses that comply with public health protections are not put at a

serious marketplace disadvantage by those who have not complied. EPA

anticipates that this situation will occur very infrequently.

If a small business does not fit within guidelines 1, 2 or 3

immediately above, this Policy does not provide any special penalty

mitigation. However, if a small business has otherwise made a good

faith effort to comply, EPA has discretion, pursuant to its applicable

enforcement response or penalty policies, to refrain from filing an

enforcement action seeking civil penalties or to mitigate its demand

for penalties.5 Further, these policies allow for mitigation of

the penalty where there is a documented inability to pay all or a

portion of the penalty, thereby placing emphasis on enabling the small

business to finance compliance. See Guidance on Determining a

Violator's Ability to Pay a Civil Penalty of December 1986. Penalties

also may be mitigated pursuant to the Interim Revised Supplemental

Environmental Projects Policy of May 1995 (60 F.R. 24856, 5/10/95) and

Incentives for Self-Policing: Discovery, Disclosure, Correction and

Prevention of Violations Policy of December 1995 (60 FR 66706, December

22, 1996).

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\5\ For example, in some media specific penalty policies, if

good faith efforts are undertaken, the penalty calculation

automatically factors in such efforts through a potentially smaller

economic benefit or gravity amount.

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G. Compliance Assistance

1. Definitions and Limitations

Compliance assistance 6 is information or assistance provided

by EPA, a State or another government agency or government supported

entity to help the regulated community comply with legally mandated

environmental requirements. Compliance assistance does not include

enforcement inspections or enforcement actions.7

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\6\ Compliance assistance is sometimes called compliance

assessments or technical assistance.

\7\ Of course, during an inspection or enforcement action, a

facility may receive suggestions and information from the regulatory

authority about how to correct and prevent violations.

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In its broadest sense, the content of compliance assistance can

vary greatly, ranging from basic information on the legal requirements

to specialized advice on what technology may be best suited to achieve

compliance at a particular facility. Compliance assistance also may be

delivered in a variety of ways, ranging from general outreach through

the Federal Register or other publications, to conferences and computer

bulletin boards, to on-site assistance provided in response to a

specific request for help.

The special penalty mitigation considerations provided by this

Policy only apply to civil violations which were identified as part of

an on-site compliance assistance visit to the facility. If a small

business wishes to obtain a corrections period after receiving

compliance assistance from a confidential program, the business must

promptly disclose the violations to the appropriate regulatory agency

and comply with the other provisions of this Policy. This Policy is

restricted to on-site compliance assistance because the other forms of

assistance (such as hotlines) do not expose a small business to an

increased risk of enforcement and do not provide the regulatory agency

with a simple way to determine when the violations were detected and

thus when the violations must be corrected. In short, small businesses

do not need protection from penalties as an incentive to use the other

types of compliance assistance.

2. Delivery of On-Site Compliance Assistance by Government Agency or

Government Supported Program

Before on-site compliance assistance is provided under this Policy

or a similar State policy, businesses should be informed of how the

program works and their obligations to promptly remedy any violations

discovered. Ideally, before on-site compliance assistance is provided

pursuant to this Policy or similar State policy, the agency should

provide the facility with a document (such as this Policy) explaining

how the program works and the responsibilities of each party. The

document should emphasize the responsibility of the facility to remedy

all violations discovered within the corrections period and the types

of violations that are excluded from penalty mitigation (e.g.,

violations that caused serious harm). The facility should sign a simple

form acknowledging that it understands the Policy. Documentation

explaining the nature of the compliance assistance visit and the

penalty mitigation guidelines is essential to ensure that the facility

understands the Policy.

At the end of the compliance assistance visit, the government agent

should provide the facility with a list of all violations observed and

report within 10 days any additional violations identified resulting

from the visit, but not directly observed, e.g., results from review

and analysis of data or information gathered during the visit. Any

violations that do not fit within the penalty mitigation guidelines in

the Policy--e.g., those that caused serious harm--should be identified.

If the violations cannot all be corrected within 90 days, the facility

should be requested to submit a schedule for remedying the violations

or a compliance order setting forth a schedule should be issued by the

agency.

3. Requests for On-Site Compliance Assistance

EPA, States and other government agencies do not have the resources

to provide on-site compliance assistance to all small businesses that

request such assistance. This Policy does not create any right or

entitlement to compliance assistance. A small business that requests

on-site compliance assistance will not necessarily receive such

assistance. If a small business requests on-site compliance assistance

(or any other type of assistance) and the

[[Page 27987]]

assistance is not available, the government agency should provide a

prompt response indicating that such assistance is not available. The

small business should be referred to other public and private sources

of assistance that may be available, such as clearinghouses, hotlines,

and extension services provide by some universities. In addition, the

small business should be informed that it may obtain the benefits

offered by this Policy by conducting an environmental audit pursuant to

the provisions of this Policy.

H. Environmental Audits

For purposes of this Policy, an environmental audit is defined as

``a systematic, documented, periodic and objective review by regulated

entities of facility operations and practices related to meeting

environmental requirements.'' See EPA's new auditing policy, entitled

Incentives for Self-Policing, 60 FR 66706, 66711, December 22, 1995.

The violation must have been discovered as a result of a voluntary

environmental audit, 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:

(1) emissions violations detected through a continuous emissions

monitor (or alternative monitor established in a permit) where any such

monitoring is required;

(2) violations of National Pollutant Discharge Elimination System

(NPDES) discharge limits detected through required sampling or

monitoring; or

(3) violations discovered through an audit required to be performed

by the terms of a consent order or settlement agreement.

The small business must fully disclose a 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 or

the appropriate state or local government agency.

I. Enforcement

To ensure that this Policy enhances and does not compromise public

health and the environment, the following conditions apply:

1. Violations detected through inspections, field citations,

reported to an agency by a member of the public or a ``whistleblower''

employee, identified in notices of citizen suits, or previously

reported to an agency as required by applicable regulations or permits,

remain fully enforceable.

2. A business is subject to all applicable enforcement response

policies (which may include discretion whether or not to take formal

enforcement action) for all violations that had been detected through

compliance assistance and were not remedied within the corrections

period. The penalty in such action may include the time period before

and during the correction period.

3. A State's or EPA's actions in providing compliance assistance is

not a legal defense in any enforcement action. This Policy does not

limit EPA or a state's discretion to use information on violations

revealed through compliance assistance as evidence in subsequent

enforcement actions.

4. If a field citation is issued to a small business (e.g., under

the Underground Storage Tank program 8), the small business may

provide information to the Agency to show that specific violations

cited in the field citation are being remedied under a corrections

schedule established pursuant to this Policy or similar State policy.

In such a situation, EPA would exercise its enforcement discretion not

to seek civil penalties for those violations.

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\8\ The Underground Storage Tank (UST) field citation program

provides for substantially reduced penalties in exchange for the

rapid correction of certain UST violations for first time violators.

See Guidance for Federal Field Citation Enforcement, OSWER Directive

9610.16, October 1993.

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J. Applicability to States \9\

EPA recognizes that states are partners in enforcement and

compliance assurance. Therefore, EPA will defer to state actions in

delegated or approved programs that are generally consistent with the

criteria set forth in this Policy. Whenever a State agency provides a

correction period to a small business pursuant to this Policy or a

similar policy, the agency should notify the appropriate EPA Region.

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\9\ States includes tribes.

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This notification will assure that federal and state enforcement

responses are properly coordinated.

K. Public Accountability

Within three years of the effective date of this Policy, EPA will

conduct a study of the effectiveness of this Policy in promoting

compliance among small businesses. EPA will make the study available to

the public. EPA will make publicly available the terms of any EPA

agreements reached under this Policy, including the nature of the

violation(s), the remedy, and the schedule for returning to compliance.

[FR Doc. 96-13713 Filed 5-31-96; 8:45 am]

BILLING CODE 6560-50-P