United States
Environmental Protection
Agency
Office of Enforcement
and Compliance
Assurance(2248A)
EPA 300-N-03-003
&EPA Enforcement Alert
Volume 6, Number 2
Office of Regulatory Enforcement
April 2003
Financial Assurance Requirements:
A Fundamental Compliance Obligation
Failure to Comply with Financial Assurance Requirements Puts
Human Health and the Environment at Risk
The Casmalia Resources Hazardous
Waste Management Facility was a
252-acre commercial hazardous waste
treatment, storage and disposal facility
located in Santa Barbara County, Cali-
About
Enforcement Alert
Enforcement Alert is published
periodically by the EPA's Office of
Regulatory Enforcement, Office of
Enforcement and Compliance
Assurance to inform and educate
the publicand regulated community
of important environmental
enforcement issues, recenttrends
and significant enforcement
actions.
This information should help the
regulated community anticipate
and prevent violations of federal
environmental law that could
otherwise lead to enforcement
action. Reproduction and wide
dissemination of this publication
are encouraged. For information
on how you can receive this
newsletter electronically, send an
email to the editor.
Director, Office of Regulatory
Enforcement: Walker B. Smith
Editor: Virginia Bueno
bueno.virginia@epa.gov
fornia. Between 1973 and 1989, the fa-
cility accepted approximately 5.6 bil-
lion pounds of waste in its landfills,
ponds, shallow wells, disposal
trenches, and treatment units. The own-
ers and operators of the Casmalia fa-
cility did not provide sufficient funds
to close the facility and care for the
site. In 1991, they abandoned their ef-
forts to properly close the facility and
clean up the site, which subsequently
became known as the Casmalia Re-
sources Superfund Site. The U.S. En-
vironmental Protection Agency (EPA)
estimates that it will cost at least $272
million to remediate this site. Casmalia
is an example of how hazardous waste
facilities' failure to adequately fulfill
their financial assurance obligations can
result in Superfund sites.
Given the importance of prevent-
ing situations like Casmalia, EPA is step-
ping up its enforcement of the Re-
source Conservation and Recovery Act
(RCRA) financial assurance require-
ments that ensure that persons handling
hazardous wastes have adequate funds
to close facilities, clean up any releases
of those wastes, and compensate oth-
ers that are harmed by the release of
hazardous wastes.
This Enforcement Alert focuses on
the financial assurance requirements for
RCRA hazardous waste facilities and
highlights:
Financial assurance require-
ments;
• Financial mechanisms available
for complying with financial assurance
requirements;
• Common violations of finan-
cial assurance requirements;
• Situations that may trigger an
owner's or operator's duty to substi-
tute the financial assurance mechanism;
and
• Significant court decisions ad-
dressing financial assurance require-
ments.
Financial Assurance
Requirements for
Hazardous Waste Facilities
Financial assurance requirements
address the cost of closing a hazard-
ous waste facility in accordance with
RCRA Subtitle C requirements; the an-
nual cost required for post-closure
monitoring and maintenance; liability
coverage for sudden and non-sudden
accidental occurrences; and corrective
action required at solid and hazardous
waste management units. Financial as-
surance requirements under Subtitle C
cover permitted and interim status fa-
cilities. Financial assurance is required
under RCRA Section 3004(a) and (t),
and implementing requirements are
found at 40 C.F.R. Part 264, Subpart H
(for permitted facilities) and at 40 C.F.R.
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Enforcement Alert
Part 265, Subpart H (for interim status
facilities).Where EPA has authorized a
state to operate a hazardous waste pro-
gram in lieu of the federal program, that
state imposes financial assurance regu-
lations that are at least as stringent as
the federal regulations. Owners or op-
erators of facilities located in an autho-
rized state are required to comply with
such state-issued financial assurance
requirements, which are subject to en-
forcement by the state and EPA.
Closure and Post-Closure Require-
ments: Owners or operators of haz-
ardous waste facilities must provide fi-
nancial assurance for closure and post-
closure care. They can accomplish this
through a trust fund, surety bond, let-
ter of credit, insurance policy, or finan-
cial test and corporate guarantee. Own-
ers or operators must maintain finan-
cial assurance until the required closure
and post-closure tasks are completed,
a certification of completion has been
submitted to the appropriate agency, and
the owner or operator has received a
notification from that agency indicat-
ing that financial assurance is no longer
required.
Liability Requirements for Acci-
dents: Owners or operators of hazard-
ous waste facilities must be able to com-
pensate third parties for bodily injury
or property damage that might result
from the accidental release of hazard-
ous wastes. All hazardous waste facili-
ties must demonstrate liability cover-
age for such sudden accidents. Haz-
ardous waste facilities with land-based
units such as landfills must also dem-
onstrate liability coverage for non-sud-
den accidents, defined as events that
take place over time and involve con-
tinuous or repeated exposure to haz-
ardous waste.
Owners or operators may provide
financial assurance for liability cover-
age through a trust fund, surety bond,
letter of credit, insurance policy, or fi-
nancial test and corporate guarantee.
Owners or operators must maintain fi-
nancial assurance until closure is com-
pleted, a certification of completion has
been submitted to the appropriate
agency, and the owner or operator has
received a notification from the appro-
priate agency indicating that financial
assurance is no longer required. Liabil-
ity coverage is generally not required
during the post-closure period.
Situations Triggering Need
to Replace Financial
Mechanisms
EPA's regulations require owners or
operators of hazardous waste facilities
Financial Mechanisms
• A trust fund allows an owner or operator to set aside money in
increments according to a phased-in schedule (known as the pay-in period).
At the end of the pay-in period, the facility will have enough money set aside
to cover its financial assurance costs, and will have funds specifically
earmarked for closure, post-closure care, and liability requirements.
• A surety bond is a guarantee by a surety company that the owner's or
operator's financial assurance obligations will be fulfilled. If the owner or
operator fails to pay or perform as specified in a bond, the surety company
will become liable.
• A letter of credit is a guarantee by a financial institution that covers the
owner's or operator's closure or post-closure care obligations. The
appropriate agency may draw on the letter of credit if the owner or operator
fails to perform.
• An insurance policy guarantees that funds will be available for closure
or post-closure care in the event that the owner or operator fails to perform.
Once closure or post-closure care begins, the insurer will be responsible for
paying out funds, up to the face value of the policy, as directed by the
appropriate agency.
• An owner or operator with the financial assets to absorb the costs of
closure, post-closure care, and liability obligations may comply with financial
assurance requirements by using the financial test. EPA's regulations set
out the criteria that an owner or operator must meet to pass the financial
test.
• An owner or operator may arrange a corporate guarantee by
demonstrating that its corporate parent, grandparent, or sibling, or other firm
with which it has a substantial business relationship, meets the financial test
requirements on the owner's or operator's behalf. The corporate guarantor is
required to perform closure or post-closure care, or to establish a trust fund,
where the owner or operator fails to perform.
April 2003
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Enforcement Alert
to replace the facility's financial mecha-
nisms in certain situations. The most
common situations, which involve the
incapacity of the institution issuing the
financial mechanism, are discussed be-
low:
• If the institution issuing a letter
of credit declares bankruptcy or has
its issuing authority suspended or re-
voked by the relevant state or federal
agency, the owner or operator of the
hazardous waste facility has 60 days
to establish other financial assurance.
• The financial institution issuing a
surety bond must be listed as an ac-
ceptable surety of federal bonds in Cir-
cular 570 of the U.S. Department of
the Treasury. If the surety company en-
ters bankruptcy or has its authority to
issue surety bonds suspended or re-
voked by Treasury, the owner or op-
erator of the hazardous waste facility
has 60 days to establish other financial
assurance. Copies of Circular 570 and
interim changes may be obtained di-
rectly from the Government Printing
Office by calling (202) 512-1800. In-
terim changes are published in the Fed-
eral Register and at http://
www.fms.treas.gov/c570/c570.html as
they occur.
• An insurance company must be
licensed to transact the business of in-
surance, or must be eligible to provide
insurance as an excess or surplus lines
insurer, in one or more states. If the
insurance company becomes bankrupt
or has its authority to issue insurance
suspended or revoked, the owner or
Common Violations of the Financial
Assurance Requirements
• Failure to obtain financial assurance.
• Failure to substitute financial assurance based on the issuing financial
institution's incapacity, through, for example, bankruptcy, rehabilitation, or
removal from the U.S. Department of Treasury's Circular 570.
• Failure to maintain current cost estimates for closure and post-closure
care.
• Failure to adjust closure or post-closure care costs for inflation. An owner
or operator is required to adjust the estimated closure or post-closure care
costs for inflation 60 days prior to the anniversary date of the establishment of
the financial mechanism.
• Failure to adjust financial assurance coverage within 60 days after an
increase in the adjustment to closure or post-closure care cost estimates.
• Failure to notify the appropriate agency, within 10 days, of the com-
mencement of a bankruptcy proceeding naming the owner or operator as
debtor.
• Failure of an owner or operator relying on the financial test to: (1) update
the facility's financial information annually; (2) notify the appropriate agency of
the owner's or operator's intent to obtain alternate financial assurance; or (3)
obtain alternate financial assurance within 90 days after the end of the fiscal
year in which the owner or operator no longer meets the financial test require-
ments.
operator of the hazardous waste facil-
ity has 60 days to establish other liabil-
ity coverage.
• An owner or operator using the
financial test must send updated in-
formation to the appropriate agency
within 90 days after the close of each
fiscal year to provide alternate financial
assurance.
Significant Court Decisions
Address Financial
Assurance Requirements
Owners and operators of RCRA haz-
ardous waste facilities that fail to ob-
tain or maintain acceptable financial as-
surance are in violation of the law. EPA
and authorized states have taken en-
forcement actions against persons and
entities not in compliance with finan-
cial assurance requirements.
In Safety-Kleen, Inc. (Pinewood) v.
Wyche, 274 F. 3d 846 (4th Cir. 2001),
the court held that financial assurance
requirements are exempt from the au-
tomatic stay provisions under the Bank-
ruptcy Act. The court held that South
Carolina, a state authorized to run the
program under RCRA, can issue and
enforce orders to force companies to
comply with financial assurance re-
quirements during bankruptcy. The
court concluded that the RCRA finan-
cial assurance requirements fall within
the government's "regulatory exception"
from the bankruptcy automatic stay
provision because the financial assur-
ance regulations serve the primary pur-
pose of deterring environmental mis-
conduct. "Stated more positively, the
[financial assurance] regulations serve
to promote environmental safety in the
design and operation of hazardous waste
facilities. The incentive for safety is
obvious: the availability and cost of a
bond will be tied directly to the struc-
tural integrity of a facility and the sound-
April 2003
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6ERA
United States
Environmental Protection Agency
Office of Regulatory Enforcement
(2248A)
Washington, D.C. 20460
Official Business
Penalty for Private Use $300
'Enforcement Alert' newsletter
ness of its day-to-day operations." Id.
at 866.
In U.S. v. Power Engineering Co.,
191 F.3d 1224 (10th Cir. 1999), the
Tenth Circuit Court of Appeals upheld
Useful Corrmliance
Assistance Resources
Office of Enforcement and
Compliance Assurance:
http://www.epa.gov/compliance
RCRA Enforcement Division:
http://www.epa.gov/compliance/civil/
programs/rcra/index.html
RCRA Financial Assurance
Website:
http://www.epa.gov/osw/
hazwaste.htm#finance
RCRA Online:
http://www.epa.gov/rcraonline
National Compliance Assistance
Clearinghouse:
http://www.epa.gov/clearinghouse
Compliance Assistance Centers:
http://www.assistancecenters.net
Small Business Gateway:
http://www.epa.gov/smallbusiness
EPA's Audit Policy:
http://oecaftp.sdc-moses.com/
compliance/incentives/auditing/
a district court decision granting EPA's
request for an injunction requiring the
Power Engineering Company to imme-
diately comply with financial assurance
requirements to ensure funds would be
available to close its hazardous waste
management units and to abate releases
of hazardous waste from its facility.
Power Engineering had illegally dis-
posed of and managed hazardous waste
for many years, and the hazardous
waste, in some instances, had migrated
into the groundwater and released into
a nearby river. The 10th Circuit, in af-
firming the district court decision, re-
quired the company to immediately pro-
vide $3.5 million in financial assurance.
Self-Disclosure of Financial
Assurance Violations
The use of effective financial assur-
ance mechanisms is necessary to en-
sure the protection of human health and
the environment.
EPA encourages owners or opera-
tors who believe they may be in viola-
tion of these requirements to take ad-
vantage of the Agency's Audit Policy,
Incentives for Self-Policing: Discov-
ery, Disclosure, Correction and Preven-
tion of Violations, 60 F.R. 66,706
(Dec. 22,1995). The Audit Policy elimi-
nates gravity-based penalties for own-
ers or operators that voluntarily dis-
cover, promptly disclose, and expedi-
tiously correct violations of federal en-
vironmental law.
Further information about the
Policy may be found at http://
www.epa.gov/compliance/incentives/
auditing/auditpolicy.html. Owners or
operators interested in conducting an
audit or disclosing violations should con-
tact the appropriate EPA Regional of-
fice. Owners or operators with facili-
ties located in more than one Region
should contact Phil Milton, EPA's Of-
fice of Regulatory Enforcement, Office
of Enforcement and Compliance Assur-
ance, (202) 564-5029, or email:
milton.philip@epa.gov.
For more information on RCRA
financial assurance requirements,
contact Lynn Holloway, Office of
Regulatory Enforcement, Office of En-
forcement and Compliance Assurance,
(202) 564-4241 or email:
holloway.lynn@epa.gov.
For compliance assistance infor-
mation, contact Sharie Centilla, (202)
564-0697, Email: centilla.sharie@epa.gov.
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