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UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
JUN 1 3 1995
OFFICE OF
ENFORCEMENTAND
COMPLIANCE ASSURANCE
SUBJECT: Issuance of Interim Policy on^Comphance Incentives for Small Businesses
FROM: Steven A.
Assistant Admini
TO: Assistant Administrators
General Counsel
Regional Administrators
Attached is the Agency's Interim 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 Fed. Reg. 20621 (April 26, 1995).
EPA expects to finalize this Policy, with appropriate revisions, after considering
public comment. This interim Policy will be published in the Federal Register for public
review shortly. Comments should be submitted to Elliott Gilberg, Office of Compliance,
Mail Code 2224-A, and to David Hindin, Office of Regulatory Enforcement/ Mail Code
2248-A, by July 31, 1995. Issues in specific enforcement cases related to this Policy should
be directed to the appropriate division within the Office of Regulatory Enforcement: Steven
Viggiani, Air - Stationary Sources, 202 564-2002; Marc Hillson, Air - Mobile Sources, 202
564-2255; Kathryn Smith, Water, 202 564-3252; Barbara Reilly, Toxics and Pesticides,
202 564-4176; and Susan Garcia, RCRA, 202 564-4013.
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Attachment
cc: (w/attachment)
Small Business Ombudsman
Regional Counsels
Regional Enforcement Coordinators
OECA Office Directors
ORE and OC Division Directors
Workgroup Members
AAG, ENRD, Department of Justice
Chief, EES, ENRD, Department of Justice
Headquarters Library
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A. INTRODUCTION
This document sets forth the Environmental Protection Agency's Interim 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 peftinent 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.
Pursuant to this Interim Policy, EPA will exercise its discretion, under applicable
media-specific policies, to refrain from initiating an enforcement action seeking civil
penalties, or to mitigate civil penalties, whenever a small business makes a good faith effort
to comply with environmental requirements and where there is no criminal behavior gnd no.
significant health, safety or environmental threat. In addition, as announced in the package
of regulatory reform initiatives, EPA is creating special incentives for small businesses who
take the initiative to identify and correct environmental violations by requesting compliance
assistance from the government. In such circumstances, and provided the small business
meets certain other criteria set forth below, EPA will exercise its discretion to waive the
entire penalty. Moreover, EPA will defer to state actions that are consistent with this Policy.
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Compliance Incentives for Small Businesses *** June 1995 Interim Policy ***
page 2
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 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
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 similar
policy for water, toxics, hazardous waste, and other media programs. This interim Policy
sets forth the Agency's implementation of the Executive Memorandum.
C. PURPOSE
This interim Policy is intended to promote environmental compliance among small
businesses by providing incentives for participation in compliance assistance programs, and
encouraging the prompt correction of violations. 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. -
EPA is committed to a strong enforcement and compliance assurance program^ a >
means to protect human health and the environment. We expect this Policy to encourage •
greater participation in compliance assistance programs that offer services to small businesses
(referred to generically as SBAPs in this Policy). The Policy will allow greater openness
among SBAPs and specific facilities, the small business community in general, and other
federal and state officials. It will promote the sharing of information on pollution prevention
measures, cost effective means of compliance and other valuable compliance-related activities
with and among the regulated community. Application of the policy to all media programs
should encourage small businesses to look for "whole facility" approaches to environmental
compliance. Ultimately, by bringing many small businesses into compliance, this Policy will
enhance the quality of our air, water, and land.
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Compliance Incentives for Small Businesses * * * June 1995 Interim Policy * * *
page3
Measuring the success of compliance assistance programs is a critical component of
EPA's ability to assess the results of compliance and enforcement activities. EPA will work
with States to evaluate the effectiveness of this Policy and, in 1997, EPA will consider
whether this Policy should be continued, modified or discontinued.
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 (on a company wide basis). This definition is a simplified version of the CAA
§507 definition of small business. On balance, EPA determined that a single definition
would make implementation of this Policy simple and would allow for consistent application
of the Policy in a multimedia context;
This interim policy is effective immediately. 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 corrective action programs and the
Public Water System Supervision Program under the Safe Drinking Water Act.1 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.
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. 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 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. - ^ ,
1 This Policy does not apply to, corrective action programs (such as CERCLA, RCRA §7003, and
SDWA §1431) because these programs are primarily remedial in nature and generally do not seek
penalties. This Policy does not apply to the Public Water System Supervision Program because EPA
is developing another policy which addresses compliance by small communities.
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Compliance Incentives for Small Businesses * * * June 1995 Interim Policy * * *
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E. CRITERIA FOR CIVIL PENALTY MITIGATION
EPA will eliminate or mitigate its settlement penalty demands against small businesses based
on the following criteria:
1) For purposes of sections F(l) and F(2), the small business has made a good faith effort to
comply with applicable environmental requirements as demonstrated by receiving compliance
assistance from a non-confidential 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.2
Good faith does not exist if an agency specifically offered a compliance assistance program
concerning the relevant regulated activities to the business and it failed to participate in such
program.
2) This is the small business's first violation of this requirement. This Policy applies to
businesses that have not previously been subject to a warning letter, notice of violation, field
citation, or other enforcement action by a government agency for a violation of that
requirement within the past five years. If a business has been subject to multiple
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 policy does not apply if:
a) The violation has caused actual serious harm to public health, safety, or the
environment; or .
b) The violation may present an imminent and substantial endangerment to public
health or the environment; or
c) The violation presents a significant health, safety or environmental threat {e.g., •.
violations involving hazardous or toxic substances may present such threats).
4) The violation does not involve criminal conduct.
2 If the compliance or technical assistance program keeps the information obtained confidential
(i.e., does not share or disclose facility specific information on compliance status with a regulatory
agency), this Policy does not apply. However, if a small .business wishes to obtain a corrections
period after receiving compliance assistance from a confidential program, die business need only
disclose the violations to the appropriate regulatory agency pursuant to criterion 1 and comply with
the other provisions of this Policy.
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Compliance Incentives for Small Businesses * * * June 1995 Interim Policy * * * . page 5
5) 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. Small businesses may take up to 90 days following detection of the violation
to correct the violation, or to take substantial steps to correct the violations (e.g. apply for
necessary permits, secure financing, order equipment). For violations that cannot be
corrected within 90 days, the correction period may be extended for an additional period not
to exceed 90 days, so long as the business enters into a written agreement that sets forth the
additional correction period and any additional steps to be undertaken by the business to
achieve compliance. The schedule may extend for 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 where the
small business corrects the violation by implementing pollution prevention measures.
Correcting the violation includes remediating any environmental harm associated with the
violation.3 Any corrections period longer than 180'days should be incorporated into an
enforceable order. The requirements of the correction period should be made clear to the
small business prior to offering compliance assistance.
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 the small business meets all of the criteria, except it needs a longer
corrections period than provided by criterion 5 (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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3. If a small business has not met all the criteria above, but has otherwise made a
good faith effort to comply, EPA has discretion, pursuant to its applicable policies, to refrain
from filing an enforcement action seeking civil penalties or to mitigate its demand for
3 If significant efforts will be required to remediate the harm, criterion 3 is likely not to have
been satisfied.
4 In determining how much of the gravity component of the penalty is appropriate, 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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Compliance Incentives for Small Businesses * * * June 1995 Interim Policy * * *
page 6
penalties to the maximum extent appropriate. These policies generally recognize good faith
efforts to comply and 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.
G. OTHER FACTORS
To ensure that this Policy enhances and does not compromise public health and the
environment, the following conditions apply: ' • - '
1. Violations detected through federal, state, or local enforcement inspections or 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 business's good faith efforts to correct violations detected during compliance
assistance should be considered as a mitigating factor in determining an appropriate
enforcement response or penalty in a subsequent enforcement action. However, 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.
H. APPLICABILITY TO STATES
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 guidelines set forth in this Policy.
This Policy does not require SBAPs to provide to EPA information that identities the
names or locations of specific businesses that are found to be in violation through compliance
assistance. EPA recommends, however, that whenever an agency provides a correction
period to a small business, the agency notify the appropriate EPA Region or state of its
action, to assure that federal and state enforcement responses to the identified violations are
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Compliance Incentives for Small Businesses * * * June 1995 Interim Policy * * *
page?
consistent. A state program that offers confidentiality may not also offer a corrections period
for the same violations (see footnote 2).5
In developing this Policy, EPA balanced thr^e primary considerations. First, the
Agency is seeking to prpvide States with ample opportunity to adopt innovative approaches to
environmental compliance. Thus, the Policy provides the parameters within which States
have flexibility to tailor SBAPs to their needs.
Second, EPA recognizes that participation in SBAPs by individual businesses is
typically voluntary. Assistance is provided generally upon request. Thus, the Agency is
seeking to assure states of the ability to provide incentives that will encourage many small
businesses to participate in SBAPs.
Third, the environmental statutes covered by* this Policy generally require, as a
condition of delegation or authorization, that programs be consistent with Federal
requirements and that states have the authority to take appropriate enforcement action with
respect to violations.6 Thus, EPA has an obligation to ensure that state SBAPs are
structured so as to maintain an appropriate level of enforcement authority within delegated or
authorized state programs. The Agency believes this Policy will allow states sufficient
latitude to use an appropriate combination of delegated state enforcement authority and
compliance assistance activity to improve compliance in the small business community.
5 The CAA §507 policy establishes criteria for EPA approval of SBAPs in State Implementation
Plans to satisfy the mandate in the CAA, and addresses confidential assistance in that context.
6 For example, the Resource Conservation and Recovery Act provides that the Administrator
may authorize-any State to administer and enforce the Act unless he finds, among other things, that
"such program does not provide adequate enforcement of compliance with the requirements of1 the
Act. 42 U.S.C. §6926(b).
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