EC-G-2002-149
Audit Policy Interpretive Guidance
January 1997
Office of Regulatory Enforcement
U.S. Environmental Protection Agency
Washington, D.C.
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w
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WASHINGTON, D.C. 20460
JAN 151997
OFFICE OF
ENFORCEMENT AND
COMPLIANCEASSURANCE
MEMORANDUM
SUBJECT: Issuance of Audit Policy Interpretive Guidance
FROM: Steven A. .
Assistant Administrator
TO: Regional Administrators
Assistant Attorney General, Environment and Natural Resources Division
Attached is the "Audit Policy Interpretive Guidance' that the ORE-led "Quick Response
Team" (QRT) has developed since issuance of the Audit Policy, formerly known as the policy on
"Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations,"60
Fed. Reg. 66706 (December 22, 1995).
As you may recall, we established the QRT to make expeditious, fair, and nationally
consistent recommendations concerning the applicabile of the policy to specific enforcement
cases. This Interpretive Guidance builds upon the July 1994 "Redelegations" effort, which
focused Headquarters' involvement on case-specific matters raising issues of national significance
e.g., novel interpretations of the Audit Policy). The attached guidance is based upon nationally
significant issues that have confronted the QRT in consulting with Regions on more than two
dozen cases over the past several months. During the process of evaluating these cases, the QRT
has identified numerous interpretive issues that could benefit from further guidance.
This Interpretive Guidance document - presented as a series of generic Questions and
Answers -- is intended to aid both the government and the regulated community in implementing
the Audit Policy. Within the next two weeks, we anticipate that it will be publicly available via
the Internet, at http://es.inel. gov/oeca/epapolguid. html, and through the Audit Policy Docket at
Waterside Mall in Washington D.C. (202-260-7548). The QRT welcomes comment on this
Interpretive Guidance and suggestions for additional interpretive issues that may be appropriate
for resolution in future guidance. As new issues warranting guidance arise, ORE will issue
addenda to this Guidance and will place any such updates in these two locations. We also are
working to make all of these items-easily accessible on the Agency's Local Area Network (LAN)
system and we will apprise you of our progress in that regard.
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I very much appreciate the efforts of the Audit Policy QRT in developing this guidance,
and I encourage you to take advantage of the QRT's extensive experience and expertise in dealing
with Audit Policy issues. As you will note from the membership list attached to the end of the
Interpretive Guidance, the QRT is led by the Office of Regulatory Enforcement and is comprised
of senior staff and managers from all civil enforcement media, the criminal enforcemenprogram,
the federal facilities program, the OECA compliance and policy offices, two Regions, and the
Department of Justice. The broad participation on the QRT. its senior level of involvement, and
its intensive effort to resolve these issues swiftly in the attached guidance, all demonstrate the
strong commitment of OECA and the Clinton Administration to ensuring that implementation of
the Audit Policy continues to be an even greater success in the months ahead and beyond.
I encourage you to contact me, or to have your staff contact Gary A. Jonesi (Audit QRT
Chair) at 202-564-4002, if you have any questions regarding this Interpretive Guidance.
Attachment
cc: OECA Office Directors
ORE Division Directors
Regional Counsel
Regional Enforcement Coordinators
Chief Environmental Enforcement Section, Department of Justice
Deputy & Assistant Chiefs, Environmental Enforcement Section, Department of Justice
Audit Policy Quick Response Team
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Explanatory Note
This document was prepared by EPA's Audit Policy "Quick Response Team" (QRT). The QRT
is chaired by the Office of Regulatory Enforcement, and it is charged with making expeditious,
fair, and nationally consistent recommendations concerning the applicability of the December 22.
1995 policy on "Incentives lor Self-Policing: Discovery. Disclosure. C.'orrection and Prevention of
Violations'' (referred to in this document as the final Audit Policy) to specific enforcement cases.
A copy of the final Audit Policy is provided as Attachment 1 to this document.
As of the date of this document, the QRT has evaluated more tan two dozen cases for potential
Audit Policy application, most of which have resulted in significant gravity-based penalty
reductions. Attachments 2 and 3 summarize some of those cases in the "Audit Policy Update"
newsletters. During the process of evaluating these cases, the QRT has identified several
interpretive issues that could benefit from further guidance. This interpretive guidance document,
presented as a series of Questions and Answers (Qs and As), is intended to aid in implementation
of the Audit Policy. It includes discussion of many of the most significant issues raised to the
QRT's attention. The QRT welcomes comment on this document, and on additional interpretive
issues that may be appropriate for resolution in future guidance. A list of QRT members is
presented in Attachment 4.
This document sets forth guidance for the Agency's use in exercising its enforcement discretion.
It is not final agency action and it does not create any rights, duties, obligations, or defenses,
implied or otherwise, in any third parties.
This document can be found on the Internet at http://es.inel.gov/oeca/epapolguid.html, and in
EPA's Audit Policy Docket located at the EPA Headquarters Air Docket, at Waterside Mall in
Washington, D.C. (202-260-7548). Revisions or additions to this guidance also will be made
publicly available at these two locations.
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Audit Policy Interpretive Guidance
TABLE OF CONTENTS
Summary of Questions and Answers iv
Interpretive Issues:
Voluntary Discovery (Section D.2. of Audit Policy)
Discovery of Violations During Audits Required By Settlements 1
Discovery of Violations Under Clean Air Act Title V Permit Applications 2
Prompt Disclosure (Section D.3. of Audit Policy)
Consolidation of Similar Disclosures 3
Submitting Information Without Disclosing Specific Violations 4
Requirement For Disclosures To Be In Writing and to EPA 5
Definition Of When A Violation "May Have Been Discovered" 6
Disclosure Before Violations Occur 7
Repeat Violations (Section D.7. of Audit Policy)
Determining Whether Repeat Violations Bar Penalty Mitigation ,8
Informal Enforcement Responses and Repeat Violations 9
Applicability (Section G. of Audit Policy)
Further Penalty Reductions Beyond The Audit Policy 10
Inconsistencies Between Audit Policy and Statute-Specific
Penalty Policies 11
Applicability of Audit Policy in Litigation 12
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Degree of Conformance to The Audit Policy's Conditions 13
Miscellaneous
EPA Inspections While Audits Are Being Performed 14
Impact Of Prior Owner or Operator's Pattern of Violations On Subsequent
Owner/Operator's Eligibility Under The Audit Policy 15
Resolving Audit Policy Determinations Through Informal Or
Formal Means 16
Background Information:
Policy on "Incentives for Self-Policing: Discovery,
Disclosure, Correction and Prevention of Violations,"
60 Fed. Reg. 66706 (December 22, 1995) Attachment I
Audit Policy Update, Vol. 1, No. 1 (April 1996): lists
disclosures and settlements under the Audit Policy, EPA contacts
for making disclosures, etc Attachment 2
Audit Policy Update (January 1997): lists disclosures and settlements
under the Audit Policy, EPA contacts for making disclosures, etc Attachment 3
List of Audit Policy "Quick Response Team" (QRT)
Members Attachment 4
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Summary of Questions and Answers
Below is a summary of key points raised in the Interpretive Guidance's Questions and Answers. Not every rationale,
supporting reference, and subtlety associated with these issues are included in this summary. Readers are advised to
see the full text of the Qs and As immediately following this summary.
1. Can a violator be deemed to have voluntarily discovered its violations where the violations are discovered
during the conduct of a compliance audit that is required as part of a binding settlement?
Where a violator - without any legal obligation to do so -- already has committed to conducting a compliance
audit prior to any formal or informal enforcement response ( e.g.. complaint filing or other circumstance
described in Section 1I.D.4. of the policy), an obligation to conduct such an audit with the same material
scope and purpose can be incorporated into a binding settlement with EPA without automatically
disqualifying violations discovered under the audit from obtaining penalty mitigation under the Audit Policy.
(See Question #1 on page 1 for more detailed explanation.)
2. Can violations identified in a required compliance certification accompanying an initial application for a
Clean Air Act Title V operating permit be eligible for penalty mitigation under the final Audit Policy?
Generally no, because discovery of violations in these circumstances is not considered voluntary in light of
the comprehensive Title V requirements to inquire, analyze, and certify as to compliance when applying for a
permit. Where an applicant can demonstrate that its inquiry exceeded its obligations under 40 C.F.R. § 70.5,
however, EPA may on a case-by-case basis consider the discovery of violations during such an inquiry to be
voluntary and potentially eligible for penalty mitigation under the policy. Where permit application
requirements under other environmental statutes do not impose a similarly comprehensive duty to inquire
about, analyze, and report violations, violations discovered pursuant to such permit application requirements
may qualify as voluntary discovery and, thus, are potentially eligible for Audit Policy penalty mitigation.
(See Question #2 on page 2 for more detailed explanation.)
3. In order to comply with the prompt disclosure requirement, must an entity planning to perform an audit of
numerous similar facilities send a separate notification to EPA within 10 days of discovering each violation,
or can the violator consolidate its disclosures and submit them to EPA later?
A violator may consolidate its submission of certain information to EPA, but the disclosure of potential
violations still must be made to EPA within 10 days of discovering a violation. Thus, where a violator
discovers a violation at one facility but there is reason to believe that similar violations may have occurred at
other facilities, the potential violations at all facilities must be disclosed to EPA within 10 days of the initial
discovery. At a minimum, such disclosures in these circumstances must contain the identity and location of
all facilities that may raise similar compliance concerns, and a description of the potential violations. The
violator may supplement such disclosures by sending to EPA more detailed consolidated information after the
audit of all facilities has been completed, as long as the audit is concluded within a reasonably expeditious
time. (See Question #3 on page 3 for more detailed explanation.)
4. Do submissions of information required by law ( e.£.. late submittal of an EPCRA reporting form, late
submittal of a Clean Water Act discharge monitoring report) meet the requirements for disclosure under the
final Audit Policy where such submissions are unaccompanied by a written disclosure that a violation has or
may have occurred?
No. Late submission of information required to be submitted by itself is not eligible for penalty mitigation
under the policy. The disclosure must also notify EPA that a violation exists or may exist. (See Question #4
on page 4 for more detailed explanation.)
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5. Why must disclosures be in writing and to EPA?
This protects both EPA and the submitter by eliminating any uncertainty about the timing and content of the
disclosure, and it expedites EPA's process of evaluating claims for penalty mitigation. (See Question #5 on
page 5 for more detailed explanation.)
6. At what point does an entity have to disclose to EPA that a violation "may have occurred?"
The regulated entity must disclose violations when there is an objectively reasonable factual basis for
concluding that violations may have occurred. Where the facts underlying the violation are clear but the
existence of a violation is in doubt due to the possibility of differing interpretations of the law, the regulated
entity should disclose the potential violations. (See Question #6 on page 6 for more detailed explanation.)
7. If potential violations are disclosed before they occur, are they eligible for penalty reductions under the final
Audit Policy?
Yes, provided the regulated entity uses all best efforts to avoid the violations. The policy is designed to
encourage disclosure as expeditiously as possible. This can be as late as 10 days after discovery that a
violation occurred or may have occurred, or as early as when a compliance problem is identified. Once the
violation actually occurs, EPA may then mitigate any potential penalty. (See Question #7 on page 7 for more
detailed explanation.)
8. How does EPA determine if disclosed violations are repeated within the 3-year time frame specified in the
final Audit Policy's repeat violations provision?
The 3-year period begins to run when the government or third party has given the violator notice of a specific
violation (e.g.. through a complaint, consent order, notice of violation, receipt of an inspection report, citizen
suit, receipt of penalty mitigation through a compliance assistance project). If the same type of violations or
closely related violations occur at the same facility within three years of such notice, they are repeat violations
and are ineligible for penalty mitigation under the final Audit Policy. (See Question #8 on page 8 for more
detailed explanation.)
9. Do non-penalty enforcement responses such as notices of violation or warning letters constitute a previous
violation for purposes of the policy's repeat violations provision?
Generally yes, as long as the notification identifies specific violations and the allegations are not later
withdrawn or defeated. (See Question #9 on page 9 for more detailed explanation.) '
10. In cases where a 75% gravity-based penalty reduction is appropriate under the Audit Policy, can the penalty
be further reduced in consideration of supplemental environmental projects (SEPs), good faith, or other
factors as justice may require?
Yes, as long as such further penalty mitigation is for activities that go beyond the conditions outlined in the
final Audit Policy, and provided that economic benefit of noncompliance is recovered as required by existing
Agency policies. (See Question #10 on page 10 for more detailed explanation.)
11. Where statute-specific penalty policies provide for different penalty reductions in cases of self-policing or
voluntary disclosure, which policy takes precedence?
The final Audit Policy takes precedence over any other policies that offer penalty reductions for satisfying the
same conditions ((Lg., the voluntary discovery, disclosure, and correction of violations). In most
circumstances, the Audit Policy will offer more generous incentives. (See Question #11 on page 11 for more
detailed explanation.)
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12. Why is use of the final Audit Policy limited to settlement proceedings rather than being applicable also to
adjudicatory proceedings?
The policy is intended to create incentives for self-policing, prompt disclosure, and expeditious correction in a
manner that most effectively allocates scarce Agency resources. Limiting use of the policy to settlement also
reduces transaction costs for the regulated community. Making it the object of adversarial litigation is
inconsistent with this carefully considered approach to streamlining the enforcement process. (See Question
#12 on page 12 for more detailed explanation.)
13. Must the specific conditions of the final Audit Policy be met in order to qualify for penalty reductions, or is
consistency with the general thrust of the policy sufficient ( e.g.. where disclosure of violations occurs within
30 days but not within the 10-day period specified in the policy)?
The specific conditions must be met. If they are not met, EPA instead will utilize the flexibility provided
under its statute-specific penalty policies to recognize good faith efforts and determine the extent to which
penalty reductions are appropriate. (See Question #13 on page 13 for more detailed explanation.)
14. Should the government agree to no inspections, fewer inspections or other limits on enforcement authorities
during the time periods in which an audit is being performed?
Although not explicitly addressed in the final Audit Policy, EPA's longstanding policy is not to agree to limit
its non-penalty enforcement authorities as a provision of settlement or otherwise. While EPA may consider
such a facility to be a lower inspection priority than a facility that is not known to be auditing, whether and
when to conduct an inspection does, and should, remain a matter of Agency discretion. (See Question #14 on
page 14 for more detailed explanation.)
15. If an owner or operator discovers at its facility a violation that began when the facility was owned and/or
operated by a previous entity, can the subsequent owner/operator receive penalty mitigation under the final
Audit Policy? Can the previous owner/operator also obtain such mitigation?
In both cases, the regulated entity must meet all conditions in the final Audit Policy, including the requirement
for prompt disclosure. If there has been an arm's length transaction between the entities and they are
considered separate, there may be situations where a subsequent owner/operator can receive penalty
mitigation while the previous owner/operator cannot ( e.g.. where the subsequent owner discloses violations
promptly to EPA and the previous owner had not disclosed such violations). Separate entities are considered
independently, and applicability of the policy is based on the merits of each individual entity's actions. (See
Question #15 on page 15 for more detailed explanation.)
16. Must all penalty mitigation based upon application of the final Audit Policy be effectuated through one
uniform type of document such as a formal settlement agreement or is there flexibility to use other
mechanisms such as informal letters?
Existing Agency policies determine whether a formal enforcement document such as a consent order is
needed, or whether an informal letter will suffice. Generally, enforceable orders are used unless there is no
pending enforcement action, no penalty, and no outstanding compliance obligations. (See Question #16 on
page 16 for more detailed explanation.)
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#1: Discovery of Violations During Audits Required Bv Settlements
Q: Can a violator be deemed to have "voluntarily" discovered its violations, and thus potentially
be eligible for penalty mitigation under the final Audit Policy, where the violations are
discovered during the conduct of a compliance audit that is required as part of a binding
settlement (e.g.. in a consent decree or consent agreement)?
A: Yes, but only under certain circumstances. The final Audit Policy requires discover)' of violations to
be voluntary in order to obtain any penalty mitigation, and it defines such voluntariness so as to
exclude situations where the violations are "discovered through a compliance audit required to be
performed by the terms of a consent order or settlement agreement." 60 Fed. Reg. 66706, 66708
(Dec. 22, 1995). This language, however, should not be read in isolation, because doing so would
unduly preclude penalty mitigation under the policy and create a significant disincentive for future
settling parties to bind themselves in settlement documents to doing compliance audits. In the same
section of the final policy, two key goals are expressed: (I) to encourage the conduct of audits; and
(2) to "reward those discoveries that the regulated entity can legitimately attribute to its own
voluntary efforts." ]d. at 66708.
Where a violator — without any legal obligation to do so ~ already has committed to conducting a
compliance audit prior to any formal or informal enforcement response ( e.g.. complaint filing or
other circumstance described in Section II.D.4. ofthe policy), an obligation to conduct such an audit
with the same material scope and purpose can be incorporated into a binding settlement with EPA
without automatically disqualifying violations discovered under the audit from obtaining penalty
mitigation under the Audit Policy.' In such cases, EPA should describe the voluntary nature of the
audit in the settlement document, so that it is distinguishable from other provisions that are not
eligible for penalty mitigation under the policy. By allowing audit provisions in settlements to be
potentially eligible for penalty mitigation in these limited circumstances, EPA is able to shape the
content and timing of audits, ensure their performance through enforceable terms, and more
effectively achieve the goals of the final policy.
1 Where there is any indication that the audit is less than completely voluntary C e.g..
the violator committed to doing an audit after some sort of enforcement response as noted
above, where the violator is a small business and received penalty credit under EPA's May
1995 Supplemental Environmental Project (SEP) policy, etc.), the violations discovered as
a result of the audit are not voluntary and are not eligible for penalty mitigation under this
policy.
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#2: Discovery of Violations Under Clean Air Act Title V Permit Applications
Q: Can violations or potential violations that are identified in a required compliance certification
accompanying an initial application for a Clean Air Act (CAA) Title V operating permit be
eligible for penalty mitigation under the final Audit policy?
A: Generally no, because the manner in which such violations are discovered normally will not satisfy
the policy's requirement of "voluntary discovery." Under the final Audit Policy, the violation must
be "identified voluntarily, and not through a legally mandated monitoring or sampling requirement
prescribed by statute, regulation, permit, judicial or administrative order, or consent agreement." 60
Fed. Reg. at 66711. The regulations implementing Title V of the CAA require applicants to analyze
comprehensively and describe completely the source's compliance status, 40 C.F.R. § 70.5(c)(8), and
to include in the required compliance certification a statement that the certification is "based on
information and belief formed after reasonable inquiry." [Emphasis added] 40 C.F.R. § 70.5(d). The
comprehensive nature of the compliance analysis, together with the specific mandate to conduct an
"inquiry" and submit a compliance certification, imposes an affirmative duty for Title V permit
applicants to review the CAA requirements to which the source is subject, and to determine the
source's compliance with each requirement. To do so, applicants must find and analyze any
information needed to determine compliance status, including data generated by existing monitoring
and sampling methods. Since an applicant for a Title V air operating permit cannot certify to
compliance or noncompliance without first evaluating all available relevant information to determine
whether violations exist, a CAA Title V permit applicant generally cannot claim that the discovery of
violations or potential violations was voluntary. 2
This does not foreclose the possibility that an entity might be able to demonstrate that its inquiry
exceeded its obligations under § 70.5, but any such claim would have to be reviewed on a case-by-
case basis. Moreover, if disclosures of noncompliance occur outside the context of the Title V
permit application process, discovery of such violations may be considered voluntary and eligible for
penalty mitigation under the final Audit Policy (e.g.. where both the discovery and disclosure occur
well in advance of, and are not prompted by, the application process). Similarly, disclosures
occurring after the permit application process ( e.g.. prior to a permit decision, or after permit
issuance or denial) potentially could involve voluntary discovery, such as where new or previously
unforeseeable violations are discovered and disclosed. Such determinations, however, would be
made on a case-by-case basis.
2 EPA emphasizes that this approach is based on the unique language of the Title V
permit application regulations. Where other statutory permit application programs ( e.n.. theRCRA
hazardous waste permit program, the Clean Water Act NPDES permit program, the Clean Air Act
Acid Rain permit program, the Safe Drinking Water Act Underground Injection Control program) do
not impose a similarly comprehensive duty to inquire about, analyze, and report violations at the
permit application stage, violations discovered pursuant to such permit application requirements may
qualify as voluntary discovery and, thus, are potentially eligible for Audit Policy penalty mitigation.
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#3: Consolidation of Similar Disclosures
Q: In order to comply with the prompt disclosure requirement under the final Audit Policy, must
an entity planning to perform an audit of numerous similar facilities send a separate
notification to EPA within 10 days of discovering each violation, or can the violator
consolidate its disclosures and submit them to EPA later?
A: Consolidation of disclosures is acceptable in certain circumstances, provided the Audit Policy's
"prompt disclosure" requirement is met. This provision recognizes EPA's need to have clear and
timely notice of violations, so that the Agency can respond quickly and appropriately to potential
health or environmental risks and can accurately evaluate a company's compliance status. 60 Fed.
Reg. at 66708. Prompt disclosure is also evidence of the regulated entity's good faith in wanting to
achieve or return to compliance as soon as possible. 60 Fed. Reg. at 66708-66709. The policy
requires that disclosure be made within 10 days of discovery that a violation has occurred or may
have occurred, except where an applicable statute or regulation requires reporting in a shorter time
frame. The Agency has the flexibility to accept later disclosures in situations where "reporting within
10 days is not practical because the violation is complex and compliance cannot be determined within
that period," as long as "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." 60
Fed. Reg. at 66708.
EPA encourages the conduct of intensive company-wide or multi-facility audits, and a consolidated
reporting framework may be appropriate in certain circumstances. Specifically, although a
consolidated reporting arrangement may take many forms depending on the duration and scope of the
proposed audit, the audit must be completed expeditiously and the reporting arrangement must
ensure that EPA receives sufficient specific information up front to allow it to respond to any health
or environmental risks that may stem from the violations. At a minimum, this must include the
identity and location of all facilities that may raise similar compliance concerns and a description of
the potential violations. (EPA recognizes that the description of potential violations may be generic
in nature where the numerous facilities being audited conduct similar operations.) Providing this
minimal information within 10 days should not be an undue hardship, and it will be a significant help
to EPA in its efforts to process requests for Audit Policy penalty mitigation in an expeditious
manner.
As long as the initial disclosure contains this minimum information and complies with the time
period set out in the final Audit Policy, the Agency recognizes that the prompt disclosure requirement
can allow for such disclosures to be supplemented at a later time ( e.g.. the audit results concerning
the suspected violations can be consolidated into a subsequent submission to EPA). In such cases,
EPA would consider the prompt disclosure requirement to have been met because the timeliness of
disclosure would be based upon the initial submission of information. The Agency notes, however,
that it will consider disclosures to be untimely where factual inferences can be drawn about other
probable violations (e.g.. where the violator's operations and practices are homogeneous in nature) if
the above-mentioned minimum information regarding such violations are not disclosed within the 10-
day period specified in the final Audit Policy.
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#4: Submitting Information Without Disclosing Specific Violations
Q: Do submissions of information required by law fe.g.. late submittal of an EPCRA
reporting form, late submittal of a Clean Water Act discharge monitoring report)
meet the requirements for disclosure under the final Audit Policy where such
submissions are unaccompanied by a written disclosure that a violation has or may
have occurred?
A: No. Under the final Audit Policy, an entity must fully disclose that specific violations
occurred or may have occurred, and such disclosure must be made promptly within the
specified time period in order to be eligible for penalty mitigation. 60 Fed. Reg. at 66711.
The conditions of the policy are not fulfilled by the mere disclosure of facts or other
information. The policy's explicit reference to "specific violations" is meant to require
clear notice to EPA that a compliance problem has occurred or exists, and protects the
regulated entity by eliminating any doubt as to whether a disclosure has been made. Late
submission of required information without any accompanying disclosure concerning the
existence of possible violations does not constitute "full disclosure of a specific violation"
under the Audit Policy. Full disclosure of potential violations is necessary for EPA to get
"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." 60 Fed. Reg. at 66708. Without
a specific reference to the fact that the information is being submitted late and that it
constitutes or may constitute a violation, EPA will not have clear notice of the potential
violations and its ability to respond to potential threats may be hampered.
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#5: Requirement For Disclosures To Be In Writing and to EPA
Q: Why must disclosures under the final Audit Policy be in writing and to EPA?
A: Disclosures under the Audit Policy must be "in writing to EPA," 60 Fed. Reg. at 66711,
because prompt written disclosure to EPA gives it "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." 60 Fed. Reg. at 66708. Also, the policy recognizes that government
resources are limited. It serves the interests of both the disclosing entity and the
government to be absolutely clear about the full character and extent of the disclosure.
Otherwise, unnecessary energy is expended in determining whether an oral disclosure
occurred. Also, requiring disclosures to be in writing and to EPA has the effect of
expediting EPA's process of evaluating claims for penalty mitigation under the final Audit
Policy. Where EPA receives oral notice of violation from those who would like Audit
Policy penalty mitigation, Agency staff are encouraged to advise the disclosing entity as to
the importance of putting the disclosure in writing.
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#6: Definition Of When A Violation "Mav Have Occurred"
Q: At what point does a party have to disclose to EPA that a violation "may have
occurred" in order to qualify for penalty mitigation under the final Audit Policy?
A: The final Audit Policy requires that a regulated entity fully disclose "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." 60 Fed. Reg. at 66711
[emphasis added]. The policy explains that the Agency added the phrase "or may have
occurred" to respond to comments received on the Interim Audit Policy, and to clarify
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 about whether the violation occurred. 60 Fed. Reg. at 66709.
The regulated entity should report possible violations to the Agency when there is a
reasonable basis for concluding that the violations have occurred. Two components go
into this analysis: (1) an evaluation of known facts; and (2) application of legal
requirements to such facts. Absolute factual and legal certainty is not necessary in order
to require disclosure under the policy. This is particularly true where there is a reasonable
certainty as to the facts underlying potential violations. For example, if a company
discovers a release violation due to inadequate design of equipment used at one facility
and this same equipment is used at other facilities it owns throughout the country, an
inference can be drawn that other violations may have occurred and the company should
disclose these other possible violations to the Agency at the same time it discloses the
initial violation. Although additional data concerning the other facilities may be disclosed
to EPA more than 10 days later, the initial disclosure should include information as to the
identity, location, and nature of the suspected violations at such other facilities (see
Question and Answer #3 above). In this situation, the company should investigate its
other facilities to verify whether the violations actually occurred, perform any necessary
corrective measures or remediation, and comply with the other criteria articulated in the
Audit Policy in order to receive penalty mitigation for these other violations.
Even where the facts underlying a possible violation are clearly known, there may be some
doubt as to whether such facts give rise to a violation as a matter of law (e.g.. due to
differing legal interpretations). As long as there is an objectively reasonable factual basis
upon which to base a possible violation, disclosure should occur and EPA will make a
definitive determination concerning whether such facts actually present a violation of law.
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#7: Disclosure Before Violations Occur
Q: If potential violations arc disclosed before they occur, arc they eligible for penalty
reductions under the final Audit Policy?
A: Generally yes. For example, if the violations cannot be avoided despite the regulated
entity's best efforts to comply (e.g.. where an upcoming requirement to retrofit a tank
cannot be met due to unforeseeable technological barriers), EPA may mitigate the gravity-
based penalty once the violation actually occurs.
The policy requires violators to disclose violations fully and promptly, and it defines such
prompt disclosure generally to require disclosure "within 10 days (or such shorter period
provided by law) after it has discovered that the violation has occurred, or may have
occurred." 60 Fed. Reg. at 66711. The use of the past tense in this phrase reflects EPA's
recognition of the most common types of disclosure that occur, Le., involving past
violations (as opposed to possible future violations). Nevertheless, the essence of this
requirement in the policy is on prompt self-disclosure of compliance deficiencies. The
language requiring disclosure generally "within 10 days" should not be read to preclude
disclosure as early as possible, including before the violation actually has occurred. Once
the violation actually occurs, these violations may be eligible for Audit Policy penalty
mitigation where a violator can establish to EPA's satisfaction based on objective evidence
that it has employed all best efforts to avoid the violations. By allowing for disclosure as
soon as possible, the policy may even encourage potential violators to work with EPA in a
way that can minimize or eliminate the compliance concern before it actually occurs.
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#8: Determining Whether Reneat Violations Bar Penalty Mitigation
Q: How does EPA determine if disclosed violations fall within the 3-year time period specified in
the final Audit Policy's repeat violations provision?
A: Violations are considered to be repeat violations that are not eligible for penalty mitigation when the
subsequently discovered and disclosed violations are: (1) the same or closely related to the original
violations and have occurred at the same facility within the past three years; or (2) part of a pattern of
federal, State, or local violations by the company's parent organization, if any, within the past five
years. 60 Fed. Reg. at 66712. The purpose of the repeat violations provision in the policy is to
"deter irresponsible behavior and protect the public and environment." 60 Fed. Reg. at 66706. It
also "provides companies with a continuing incentive to prevent violations, without being unfair to
regulated entities responsible for managing hundreds of facilities." 60 Fed. Reg. at 66706.
Two questions must be answered in order to determine whether the violations are repeat violations
ineligible for penalty mitigation under the final Audit Policy: (I) when the 3-year period begins; and
(2) whether the violations which are disclosed, and for which the violator seeks penalty mitigation,
fall within the subsequent 3-year period. As to the first question, the 3-year period begins to run
when the violator first receives notice of the original violations. 3 Such notice can take several forms,
including notification by EPA or a State or local agency through receipt of a judicial or
administrative order, consent agreement or order, complaint, conviction or plea agreement, notice of
violation such as a letter or inspection report, notice during an inspection, or even through a third
party complaint (e.g.. in a citizen suit). A violator also may be put on notice of particular
environmental violations when it obtains penalty mitigation for such violations from EPA, a State, or
a local agency (e.g.. under CPA's Small Business Compliance Incentives policy ). As noted in the
final Audit Policy, these circumstances collectively "identify situations in which the regulated
community has had clear notice of its noncompliance and an opportunity to correct." 60 Fed. Reg. at
66709. Where a government or third party has given such notice of noncompliance, the same or
closely related violations cannot be repeated within the subsequent 3-year period following such
notice. Thus, the 3-year period begins to run when such clear notice of noncompliance is received, 4
without regard to when the original violations cited in that notice actually occurred.
As to the second question, EPA looks to whether the disclosed violations actually occurred within
the 3-year period following the original notice/mitigation. If the violations occurred within this
period, they would be considered repeat violations and would not be eligible for penalty mitigation
under the policy because corrective measures should have prevented such a recurrence. If, however,
those violations occurred either before the original notice of noncompliance was received by the
violator or after the 3-year period running from the original notice, they would not be considered
repeat violations under the final Audit Policy. Thus, repeat violations are determined by the date
that such subsequent violations occur, without regard to when notice of such subsequent violations
is given to the violator.
3 Typically, the Agency will provide written notice of violations because it recognizes the
significant benefits to providing such notice in writing, including the minimization of uncertainty
concerning when such notice was received and its contents.
4 In determining whether a "pattern of violations" has occurred within the past five years,
notice of earlier violations is less relevant. The inquiry into whether a pattern exists more
appropriately focuses on the dates that all violations actually occurred.
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#9: Informal Enforcement Responses and Repeat Violations
Q: Do non-penalty enforcement responses such as notices of violation or warning letters
constitute a previous violation for purposes of the policy's repeat violations
provision?
A: Generally yes. The repeat violations provision defines such violations to encompass
formal and informal enforcement responses, and nonenforcement responses that result in
penalty mitigation. 60 Fed. Reg. at 66712 (specifically including a reference to any
violation identified in a "... notice of violation.") The common theme is that a
government entity has notified the violator that it believes a violation has occurred, and, as
a result, the government reasonably can expect the regulated entity to take whatever steps
are necessary to prevent similar violations.
Notices of violation (NOVs) and warning letters may be worded in many different ways
(e.g.. sometimes alleging particular violations and sometimes speaking only generally in
terms of an upcoming need to comply with a new requirement). The title or caption on
such documents is not necessarily dispositive for purposes of the repeat violations
provision. The substance of the NOV, warning letter, or other correspondence -- usually
found in the text of such documents -- determines whether it provides notice of an alleged
violation. If such documents give the regulated entity notice of allegations of specific
deficiencies in compliance and those allegations are not later withdrawn or defeated, any
subsequent violations would be considered repeat violations if they occurred within the
time periods outlined in the final Audit Policy. If, however, the substance of the document
merely provides a prospective statement of new requirements not yet violated C e.g.. in a
compliance assistance guide), the notice or letter would not be considered an enforcement
response for purposes of the repeat violations provision.
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#10: Further Penalty Reductions Bevond The Audit Policy
Q: In cases where a 75% gravity-based penalty reduction is appropriate under the final
Audit Policy, may the penalty be further reduced in consideration of supplemental
environmental projects (SEPs), good faith, or "other factors as justice may require"
as long as any economic benefit of noncompliance (GBN) is recovered?
A: Where a 75% gravity-based penalty reduction is appropriate under the final Audit Policy,
further penalty reductions may be obtained for activities that go beyond the specific
conditions required under the final Audit Policy. For example, further reductions
generally may be warranted where a violator agrees to undertake a supplemental
environmental project (SEP) and the project meets the criteria established for SEPs in the
Agency's SEP Policy. The Audit Policy, however, precludes "additional penalty
mitigation for satisfying the same or similar conditions." 60 Fed. Reg. at 66712. Thus, if
the particular project that the violator proposes to undertake as a SEP must be carried out
in order to receive a penalty reduction under the audit policy, additional credit may not be
given under the SEP Policy. For example, where EPA determines that an audit must be
carried out at a large complex facility in order to prevent a recurrence of violations, SEP
credit may not be provided for conducting this audit. Note, however, that SEP credit
could be provided if EPA determined that such an audit was not necessary to prevent a
recurrence of violations.
Similarly, additional penalty reductions for good faith and "other factors as justice may
require" may be provided only where the specific activities justifying those reductions are
not required in order to receive a 75% penalty reduction under the Audit Policy. Thus, the
prompt disclosure of a violation ordinarily would not qualify a company for additional
good faith penalty reductions since the disclosure clearly is required by the Audit Policy.
On the other hand, a violator that takes steps to correct and remediate a violation in a
manner that is above and beyond the steps normally expected in order to qualify for
mitigation under the Audit Policy (e.g.. quicker or more extensive correction) may qualify
for a good faith reduction.
As to economic benefit of noncompliance (EBN), the Audit Policy restates the Agency's
longstanding position that recovery of any significant EBN is important in order to
preserve a level playing field for the regulated community. The Audit Policy does not
revise or modify any other Agency policies (e.g.. the SEP Policy) concerning recovery of
EBN.
Audit Policy Interpretive Guidance
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#11: Inconsistencies Between Audit Policy and Statute-Specific Penalty Policies
Q: Where statute-specific penalty policies provide for different penalty reductions in
cases of self-policing or voluntary disclosure, which policy takes precedence?
A: The final Audit Policy states clearly that it "supersedes any inconsistent provisions in
media-specific penalty or enforcement policies" but that such policies continue to apply
where they are not inconsistent. [Emphasis added] 60 Fed. Reg. at 66712. (If not
inconsistent, the Audit Policy states that such existing EPA enforcement policies continue
to apply in conjunction with the Audit Policy provided that the regulated entity has not
already received penalty mitigation for similar self-policing or voluntary disclosure
activities. 60 Fed. Reg. at 66712.) In most circumstances, the final Audit Policy will
result in a greater penalty mitigation than under any media-specific penalty or enforcement
policy. In such cases, the Audit Policy's greater penalty reductions take precedence.
In some circumstances, however, the Audit Policy may provide for less penalty mitigation
("e.g.. 75% penalty reductions where the violations arc not discovered through a systematic
discovery, as opposed to potential 80% or greater reductions for such cases under another
penalty policy). Here too, the Audit Policy takes precedence. This is because the Audit
Policy is a more recent and more detailed statement as to the precise national strategy for
providing incentives for self-policing, prompt disclosure, and expeditious correction and
remediation. Therefore, in order to qualify for 75% penalty reductions or greater for
activities related to voluntary discovery, disclosure, and remediation/correction, the Audit
Policy provides a minimum standard of behavior that must be met.5 As long as the criteria
in the Audit Policy are met, the certainty and national consistency provided by the penalty
reductions in the Audit Policy would apply.
5 For activities unrelated to voluntary discovery, disclosure, and remediation/correction,
additional penalty mitigation is available as described in Question and Answer #10.
Audit Policy Interpretive Guidance
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#12: Applicability of Audit Policy in Litigation
Q: Why is use of the final Audit Policy limited to settlement proceedings rather than
being applicable also to adjudicatory proceedings?
A: The final Audit Policy expressly limits its applicability to settlement contexts, and states
that "[i]t is not intended for use in pleading, at hearing, or trial," 60 Fed. Reg. at 66712,
because the Agency wanted to create these incentives for self-policing, prompt disclosure,
and expeditious correction in a manner that most effectively allocates scarce Agency
resources and reduces transaction costs for the regulated community. Subjecting the
policy to litigation and judicial review is inconsistent with this carefully considered
approach to streamlining the enforcement process. As noted in the final Audit Policy,
EPA intends to apply the policy uniformly in settlements across all of the Agency's
enforcement programs. However, where enforcement matters are not resolved through
settlement, but instead proceed to litigation, the Audit Policy is not applicable, and any
attempt to apply the policy in such contexts is inappropriate.
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#13: Degree of Conformance to The Audit Policy's Conditions
Q: Must the specific conditions of the final Audit Policy be met in order to qualify for
penalty reductions, or is consistency with the general thrust of the policy sufficient
(e.g.. where disclosure of violations occurs within 30 days but not within the 10-day
period specified in the policy)?
A: Tlie specific conditions must be met. Although the final Audit Policy is intended as
guidance, the Summary section states EPA's intent to apply the policy uniformly across
the Agency's enforcement programs. 60 Fed. Reg. at 66706. Those who disclose
violations after the policy's January 22, 1996 effective date have been put on notice as to
the behavior that is expected in order to get penalty reductions. EPA also has the
discretion to apply the policy to disclosures occurring prior to the policy's effective date.
In such cases, however, if the policy's conditions have not been met, EPA instead will
utilize the flexibility provided under its statute-specific penalty policies to recognize good
faith efforts and determine the extent to which penalty reductions are appropriate.
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#14; EPA Inspections While Audits Arc Being Performed
Q: Should the government agree to no inspections, fewer inspections, or other limits on
its enforcement authorities during the time periods in which an audit is being
performed?
A: Although not explicitly addressed in the final Audit Policy, EPA's longstanding policy is
not to agree to limit its non-penalty enforcement authorities as a provision of settlement or
otherwise. While EPA may consider such a facility to be a lower inspection priority than a
facility that is not known to be auditing, whether and when to conduct an inspection does,
and should, remain a matter of Agency discretion. If the Agency's inspection or other
enforcement authorities were limited, this could compromise the Agency's ability to
respond to citizen complaints or site conditions posing a potentially serious threat to
human health or the environment, or its ability to assure the public as to the compliance
status of a given facility.
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#15: Impact Of Prior Owner or Operator's Pattern of Violations On Subsequent
Owner/Operator's Eligibility Under The Audit Policy
Q: If an owner or operator ("owner/operator") discovers at its facility a violation that
began when the facility was owned and/or operated by a previous entity, may the
subsequent owner/operator receive penalty mitigation under the final Audit Policy?
May the previous owner/operator also obtain such mitigation?
A: The subsequent owner/operator may obtain penalty mitigation if it meets all of the policy's
conditions, including prompt disclosure to EPA as soon as it discovers the violation. For
purposes of the final Audit Policy, the previous owner/operator's actions will not be
imputed to the successor, except where the relationship between the companies makes
imputing such actions appropriate ("e.g.. where the subsequent owner/operator is a wholly
owned subsidiary of, and controlled by, the previous owner operator). For example, if
there has been an arm's length transaction between the entities and they are considered
separate ("e.g.. where the subsequent owner/operator is not considered merely a continuing
enterprise), there may be situations where a subsequent owner/operator may receive
penalty mitigation while the previous owner/operator cannot. One such situation would
be where the previous owner/operator had discovered a violation during the time that it
owned the facility but did not disclose such a violation to EPA. In such a case, the
previous owner would fail to meet the policy's prompt disclosure condition and it would
be ineligible for penalty mitigation under the final Audit Policy. If the subsequent
owner/operator disclosed the violation to EPA promptly after it discovered the violation,
it still could be eligible for penalty mitigation under the Audit Policy. Thus, separate
entities are considered independently, and applicability of the policy is based on the merits
of each individual entity's actions.
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#16: Resolving Audit Policy Determinations Through Informal Or Formal Means
Q: Must all penalty mitigation based upon application of the final Audit Policy be
effectuated through one uniform type of document such as a formal settlement
agreement or is there flexibility to use other mechanisms such as informal letters?
A: Where applicability of the policy arises in the context of settling a pending enforcement
action, the penalty mitigation will be effectuated through the normal process used to settle
pending cases in the various media-specific programs that EPA enforces - normally
through formal enforceable settlement agreements.6
Even in enforcement matters that have not yet matured into pending cases (Le., before any
complaint is filed), an enforceable order normally is used in order to ensure payment of
any penalties and/or completion of any compliance obligations. This would occur: (I)
when the final Audit Policy would provide for 75% mitigation; (2) if an economic benefit
penalty component was being recovered; or (3) where any compliance measures are
necessary.
EPA specifically stated in the policy that it may require a regulated entity to 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." 60
Fed. Reg. at 66711. EPA also notes that it may require as a condition of settlement that any
penalty mitigation premised on the final Audit Policy be contingent upon the completeness and
accuracy of the violator's representations.
In the absence of a pending enforcement action, where 100% of the gravity-based penalty
is being waived and there is no economic benefit penalty component and no outstanding
compliance obligations, several of EPA's media-specific enforcement policies do not
require that resolution of the matter occur through a formal settlement document. The
final Audit Policy applies to enforcement settlements for all the regulatory statutes under
which EPA seeks gravity based penalties. Flexibility is necessary to meet the myriad
settlement conditions that may be employed as part of such settlements and the numerous
objectives to be accomplished. The use of a uniform document for self-disclosure
settlements could hamper the settlement process and may even prevent EPA from meeting
some objectives of the underlying case ("e.g.. the need to expedite resolution of the case).
Regardless of the approach taken to effectuate such penalty mitigations, EPA will track
this data for purposes of implementing the repeat violations provision and it will
"independently of FOIA, make publicly available any compliance agreements reached
under the policy." 60 Fed. Reg. 66709.
6 In matters where judicial action is contemplated, EPA consults with the Department
of Justice (DOJ) in the Audit Policy determination. Where judicial actions are
pending, DOJ approves and files formal consent decrees.
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mcnt I
Friday
December 22, 1995
E
s
Part 111
Environmental
Protection Agency
Incentives for Self-Policing: Discovery, ^
Disclosure, Correction ana Prevention
Violations; Notice
66705
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wuwiuj i y ui.ou,i\o.&io/tn
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Federal Register / Vol. 60, No. 246 / Friday, December 22,1995 / Notices
66707
violations that arc pronpily disclosed
and corrected, and whicn 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-Watcrhouse survey is
contained in the Docket as document
Vlll-A-76.)
At the same lime, 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-Watcrhouse 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 thefrequency 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 retraining from rouline
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(l) of the policy, EPA
will not seek gravity-based penalties for
violations found through auditing that
arc promptly disclosed and corrected.
Gravity-basedptnalties will also be
waived for viwtions found through any
documented procedure for *if-(iUccing,
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, ll 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 (sec,
e.g.. Docket, II-F-39, n-F-28, and II-F-
18)
/. 75% Reduction of Gravity
The policy appropriatelylimits 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-basedpenalties 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 theAgencv
believes that all of the conditions in
D(2) through D(9) arc reasonable end
essential to achieving compliance This
change also responds to requests for
greater clarity end predictability.
3. No Recommendations forCrimincl
Prosecution
EPA has never recommended criminal
prosecution of a regulated entity based
on voluntary disclosure ofviolations
discovered through audits and disclosed
to the government before an
investigation was already under way.
Thus. EPA will not recommend criminal
prosecution for a regulatcdentity 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,whe^
corporate officials are consciously
involved in or willfully blind to
violations, or conceal or condone
noncompliance Since the regulate c
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 thecrlminal
conduct of any culpble individual.
Even where all afthe conditions of
this policy are not met, however.it is
important to remember thatEPA r:ay
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, end correction apply in both
cases. This represents a clarification of
the interim policy, not a-substantive
change.
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66708
Federal Register / Vol. 60, No. 246 / Friday, December 22, 1995/ Notices
A. 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.
£ Conditions
Section D describes the nine
conditions that a regulated entity must
meet in order for theAgency 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(l)), EPA will reducegTavity-
based penalties by 75%.
. Discovery of the Violation Through
an Environmental Audit or Due
Diligence
Under Section D(l), 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
z. 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 ofNPDES 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-l8 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 Lhe 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 reportsfrom the
regvlated community.
Urider Section D(4), disclosure of the
violation should be made withisic
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
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Federal Register / Vol. 60, No 246 / Friday, December 22,1995/ Notices
66709
to achieve or return to compliance as
soon as possible
In the final policy, the Agency has
added the words, ' or may nave
occurred," to the senLence, "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. EPAwill,
independently of FOLA, 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.l 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 "whistleblower" 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
canying out any removal or remedial
action required bylaw), end
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 others (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 achieveor
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 tosecure 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
rec\irrence of&c 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
commcntcrs (sec, c 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
ID(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 vears. This
provides companieswith a continuing
incentive to prevent violations, without
being unfair to regulated entities
responsible for managing hundreds of
facilities. It would be unreasonable to *
provide unlimitedamnestv for repeated
violations of the same requirement.
The term "violation" includes any
violation subject to a federal orsute
civil judicial or administrative order,
consent agreement, confliction orplea
agreement Recognizing that minor
violations are sometimes settled without
a formal action in court, the tennaiso
covers any act or omission forwhich the
regulated entity has received apenalty
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 arc 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 ether
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, D-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 coveredby
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
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66710
Federal Register / Vol, 60, No. 248 ! Friday, December 12, 1S95 ' Notices
assistance in determining the facts of
eav relafc-i isolations suggested by the
dr-ciciurc. 35c"trie c'isdwssj
violation itself. This was added to allow
tie E-ieticy to obtain infarriatiGn about
ariV violations indicated by the
disclosure, even where the violation is
r.o'.irjtiaUy identified by the regulated
e v
r ¦ Opposition w Privilege
The .Agency remains firmly opposed
tol&e establishment of a statutory
ericestiary privilege for environmental
ev£::j for the following reasons:
: Privilege,irv definition. invites
s-a-crerr insread-oftfce openness needed
to bciidpublic tnjs; in indusiiy's afeifiiy
ta-sflr-colice. American h«- - Lhc
i:-.'alge '.bit thepublic; places on fair
as«ss ra (he facis. The Supreme Court.
:o:ejaaip!e, has said of privileges that.
¦¦ 'n\satevw their origins. these
e,vc?j :ians to the demand for every
si*.'5 evidence are not lightly created
"0" expansively cero'irued. for they ate
iscstoeation of [he search for truth
'Cr.i-.i J States v. Xixon. 4IS U.S. 683
US"*). Federal courts have
i-.ir.irr.ously refused lo recognize a
p.-; ij'ijgfi for environmental audits in (he
iDr/.sxi of government investigations.
^'- " , United States 132
r.iO. e, 9-K) fD.Conn. 1990}
iustictUtHi. or a arlv iicgt; "would
e::'?rJve!v impede (EPA'sJsbility 10
I,He Clean H'aier Act, and v.-o/Jd
b» contrary to stated puMi®oltey."l
J.^r^iteen months have ailed to
sraa'jce anv evidence ihst a privilege is
r.e»;ad.Public testimony on she interim
or die eav^roanwnt. reflect crinitcal
conduct or repeated noncompliance, or
allow-- one company to make a
substantial profit at the expense of its
law-abiding crnnpetitors. Where a state
has obtained appropriate sas&lons
needed to deter siicb misconduct, there
is no need for EPA action.
K. SecjM of Pcfcy
^.Phii -Q^>-e!opec t.'iR drc.Lin?n is
a policy to guide settlement actions.
EPA employees will be expected 10
follow this policy, and the Agency vriB
late sujft vo assure national consktend!
in application. l:or example, the Agency
'•.Hi! jnake_ public anv tompHanee ""
ajreements reactied-undcr-tais policy,
in order to provide the rcg\ilaw.d
eommutiity with fair notice of decisions
a.*td greater accountability Vo affeevs-d
Qomctuirjdcs. Many ;n the regulated
catr.monity recommended ibat the
Agency convert the policy imo a
TemlaiioTi because cr.ee fell it mijh:
ensure grcaisi consistency and
predictafciliiy. iVbilc EPA is hkir.g steps
to ensure consistency and ¦prediclabiV,",;'
and believes that it n il] be sueecssni!.
Agency will consider this issue ar.d
inli provide notkc ',f it determines (c«;
a ruierit-iklng is appropriate
I!. Statement of Policy: (oceitu'ves: for
Sclf-ltfiictng
Disccvsry. Disclosure. Correcliofl one'
Freventfan
A Pm-pose
This policy is desigred ('/ errharce
proloctiori of human health and the
environment by encouraging regulated
enliucs to 'iclijalaidy discover, disdess.
correct and prevent iiola}ionsDfIed®r=".
KiMrarmieniai 1 c^iccmcr ts.
B. DefiniUons
For pufposes of this poiicv, the
iollo'.vir.g denrjitiotis apply
"Environmental Audit" has the
dcfinititMi ^iven ttA in EPA's 1986
audit potic;' an environmental feuditi-i
1 c , "a systematic, documented,
periodic and tsbipclivi: review by
KgaUted cn<\lics of facilttv operatioite
and practices related to meeting
environmental requirements.
"Due Diligence" encompasses '.be
regulated entity's systematic efforts
appropriate to the sii« and nature of i:s
business, to prevent, Octcci and correct
¦nolaLi-em Lwatigh ill af lb; fallaiving
(a) Compliance policies, slamiards
and procedures that identify heiv
employees and agents are to meet the
requirements of rc^ulalioW,
permits and other sources of authority
fw environmenlal requirements;
(bi AssigsirmtTi! of overall
nesponsibiiity for overseeing compliance
with policies, standards, arid
procedures, end assignment of specific
responsibility for assuring ratnjlfaoce
at exh facility or ope»tion:
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Federal Register / Vol. 60, No 246/Friday, December 22,1995/ Notices 66711
(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 the 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 then that
portion representing a defendant's
economic gain from non-compliance.
(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
longs the regulated entity satisfies all
of Ins conditions of Section D(2) .
throu8hI)t9) below.
3. No Criminal Recommendations
fa) 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.
'I. No Routine Request for Audits
EPA will riot 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 comet violations
according to the criteria for due
diligence outlined in Section B. EPA
may require as a condition of penalty
mitigation that a description ot 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;
lb) viobtions of National Pollutant
Discharge Elimination System (NPDES)
discharge limits detected through
re uirecf sampling or monitoring;
vio Jifons 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 "v
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
respited entity;
fb) notice of a citizen suit;
(c) the filing of a complaint by a third
E(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 aniropriate
measures as determineoby 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 decrefparticularly
where compliance or remeafel 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 toprevent a recurrence of
the violation, wich may include
impovements to its environmental
auatiag or due diligence efforts;
-------
66712
Federal Register / Vol. 60,No.246/Friday, December 22, 1995/ Notices
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 pari of a
pattern of 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, stale 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 ihe
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 iis full discretion to
recover any economic benefit gained as "
a result of noncompliance to preserve a
"level playing fiela" in whicn 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, aswell as to blanket
immunities for violations thatreflect
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
lo take necessary actions to protect
public health or Ihc environment by
enforcing against any violations of
federal law.
G. Applicability
{l)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 thfi extent that existing EPA
enforcement policies arc not
inconsistenl, 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 lo 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 stales 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 docs not
create any Tights, duties, obligations, or
defenses, implied or otherwise, in any
third parlies.
(4) This policy should be used
whenever applicable in settlement
negotiations lor boih administrative and
civil judicial enforcement actions It is
not intended for use in pleading, at
hearing or al trial The policy maybe
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 policv
in encouraging:
(a) changes in compliance behavior
within the regulated community,
including improved compliance rates;
fb) prompt disclosure and correction
of violations, including timely and
accurate compliance with reporting
requirements;
(cj corporate compliance programs
that are successful in preventing
violations, improving "nvironmenta!
performance, and pier oting public
disclosure;
(d) consistency among slate programs
thai provide incentives for voluntary
compliance.
EPA will make the s'.ucy 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 ihc schedule
lor returning to compliance.
I. Effective Date
This policv is effective January 22,
1996
Dated: December is,1896.
Steven A. Herman,
/Issisian/ Administrator for Enfoicmenl one
Compliance Assurance.
[?5t Dec. 95-31146 Filed 12-21-95: 8:45 ami
BILLING CODE «»0-S0-P
-------
Attachment 2
®AUDIT POLICY UPDATE
¦MMmMtaaatttmmtmammm^mn(,,,,1m—|
53 Disclosures Under
Audit Policy, Including
13 Settled Cases
To date. 53 companies have come
forward and disclosed environmental
violations to EPA under the interim
and final Audit/Self-Policing
Policies. Of the 53 companies, EPA
has settled eases with 13 companies
and is in the process of negotiating
the remaining cases. In the 13
settled cases, EPA waived all
penalties against 12 companies and
greatly reduced the penalties for I
company.
Companies Receiving Audit Policy
Relief:
Austin Sculpture, Pharr, TX"
Auto Trim, Inc., Brownsville, TX
Bortec Industrial, El Paso, TX
Gobar Systems, Brownsville, TX
Invacare, McAllen, TX..
Lambda Electronics, McAllfen,. TX . .
Magnatek, i Brownsville, TX
Midwestern Machinery, Minneapolis, MN
Norton Company, Stevensville/j.TX
TRW Vehicle -Safety Systems, McAllen, TX
TRW Automotive Product Remanu. ,McAl1en, TX '
Teccor ElectipStlics, Brownsville, TX
Thomson Saginav/'feall Screw, Saginaw, MI'
The final Audit" Policy was
announced on Dftcemb^r 22, 1995 as
part of the Clinton Administration' s
Reinvention of Environmental
Regulation. Under the final Audit
Policy, EPA will greatly reduce --
and may waive completely penalties
lor companies that voluntarily'"
disclose and fix violations
discovered through environmental
audits or compliance management
programs.
Penalty Waiver in Minnesota PCB
Case
A 48-year-old Minnesota company
that refurbishes business equipment
voluntarily discovered and corrected
violations involving improper storage
Vol.1, No.1 April 1996
and use of Polychlorinated Biphenyls
(PCBs) contained in business
equipment it purchased. PCBs,
regulated under the Toxic Substances
Control Act, are persistent
bioaccumlators which cause birth
defects, hormonal disruptions, and
possibly cancer in humans and
animals .
In correcting the violation, the
company properly disposed of over 195
lbs of PCBs contained in 65 large
capacitors" that were being unsafely
stored. The Audit policy made it
possible to reduce the original
penalty amount of $15,000 to zero.
Substantial Penalty Reduction
in Michigan TRI Case
A Michigan manufacturer of
p,re,<;ision metal parts for airplanes
voluntarily discovered and corrected
its failure to file Toxic Release
Inventory (trt1 reoorts required
.unde.f...the Emergency Planning and
Co^unity Right-to-Know Act;„l{£PCRA) •
The TRI^reports provide information
to communities and the public-about
- toxic releases., to the envir.Qijment
' which in turn has been an impetus for
industry to dramatically reduce toxic
releases, ,,,Juc>.caJ, .communities and
citizens ..have. .the. right to know this
^.information„tO..make decisions
vaffecting'their lives and families.
¦ The Audit Policy made it possible to
reduce Thomsonts original penalty
from $60,797 to $5,000.
As part of the settlement, Thomson
performed a Supplemental
Environmental Project (SEP) which
. inwniwd. t-ho »-<»»Diacement of 2500 lbs.
, of solvents withasafe water-based
process. Another required SEP will
eliminate the use of over 7000 lbs.
per year of other toxic chemicals.
Penalty Waiver in 11 Texas
Hazardous Waste Cases
The remaining settled cases involve
11 Texas companies that operate
facilities in the Maquiladora (U.S.
Border) regionin Mexico. These
companies had violated the transport
manifest provisions of the Resource,
-------
conservation, and Recovery Act
(RCRA), e.g., failure to include
an accurate EPA identifi.cation number
for-the hazardous waste, generator,
or transporter on the manifest forms.
The manifest forms are critical for
tracking hazardous waste to help
ensure its proper treatment,
recycling and disposal and to prevent
uncontrolled release of these
dangerous chemicals which can cause
serious harm to public health and the
environment.
The companies came forward after
EPA Region 6 presented the interim
audit policy at the Reynossa
Maquiladora Association Annual
Environmental Forum in July 1995.
Thereafter EPA waived all
for all of the companies Mfuijfet
audit policy. Norma 11
for these types of ystfilawjan-s range
from $20,000 to
v V
Audit Policy DoSlcet Contains^
Wealth of Information
epa establp^t^d the Audit ^
Docket to ^flvax^inforinatitir
environmental auditing*publ
available/^|h add"itidri~to hundreds of
letters £gft$P*other documents^the.
Docket emttains COiT^
Audit; ^ Policy1 Provider "...
Significantlnramtives to . ->
Discover; Diisalosa and Correct
SnyiTOnxnentali Violations
;- Under: the.'. fpolicing
Policy, EPA will/ i»6t jseeJc; gtavity~ ¦
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EPA to Shortly Issue Q&As
EPA plans to issue a Question and
Answer document on the Final
Audit/Self-Policino Policy by the end
of May 1996. Thet ^fcA documsnr.>will be
available in the Audit Policy Docket.
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Attachment 3
O EPA Audit Policy Update
January.. 1997
Enforcement and Compliance Assurance
EPA 300-N-97-00
FROM THE ASSISTANT ADMINISTRA TOR:
Voluntary auditing programs play an important role in helping
companies meet their obligations to comply with environmental law. |
V EPA's Audit Policy, effective in January of 1996, encourages .
self-policing by cutting penalties for any violations that are discovered,
disclosed and corrected through voluntary audits or compliance management
programs. Nor will EPA recommend criminal prosecution of regulated
entities in these circumstances, although individuals remain liable for their
own criminal conduct. The policy includes safeguards to protect the public
and the environment, excluding violations that may result in serious harm or
risk, reflect repeated noncompliance or criminal conduct, or allow a company
to realize a significant economic gain from its noncompliance. (See page 4
for a more complete summary).
So far, 105 companies have disclosed violations under of the policy proving
that environmental auditing can be encouraged* blanket amnesties
or audit privileges that would excuse serious misconduct, frustrate
enforcement, encourage secrecy, boost litigation, and/or lead to public
distrust. This newsletter is the second in a series of updates on
implementation of EPA's audit policy, and includes information on
settlements, interpretive guidance, and similar state policies. A complete
copy of the audit policy and copies of settlements discussed below can be
obtained by calling (202) 260-7548 or faxing (202) 260-4400 and referencing
docket number C-94-01. For more information, call Brian Riedel, editor of
Audit Policy Update, at (202) 564-4187.
Sieve Herman, Assistant Administrate
Office of Enforcement and Compliance Assurano
llOS Compiifile*||;,
Disclose _yioUtioM:!fp
Under Audit Policy
To date; .105 cboqpmieB ^
have disclosed envttn-|y;
mental vwlalkras at mbrc: :
than 3SO fac^itiesmKler? "
the EPA interim and final
Aodit/Self-Policing ' ' jy •
Policies. Among these
disclosures, EPA has
already settled cases/;';.
matten with 40 companies
and 48 facilities, and has.
agreed to waive all potal;
ties in most of these cues.
Three recent settlements
are featured in this month'b
issue. ¦
I "• -
Companies Receiving Audit
IPolicy Relief:
Acadia Polymers, Irongate, VA
Alyeska Pipeline, Pnidhoe Bay, AK (2 facilities)
Austin Sculpture, Pharr, TX
4uto Trim, Inc., Brownsville, TX
Baldwin Piano & Organ, Trumann, AR
Bortec Industrial Inc., El Paso, TX
BP Exploration&OK Inc., Port Angeles, \VA
CENEX, Laurel, MT
Clearwater Co., Pittsburgh, PA
Coilcraft, Inc.. El Paso, TX
Cook Composites & Polymers. N. Kansas City, M(
General Electric Corp., Waterford, NY
Gobar Systems, Inc., Brownsville, TX
Goulston Technologies, Inc., Monroe, NC
Hasbro, Inc., El Paso, TX
Invacare, Inc., McAllen, TX
Eingsford Products, Louisville, KY
Koch Refining Co.. Corpus Christi,TX
Lambda Electronics, Inc., McAllen, TX
Magnetek, Inc., Brownsville, TX
Microfoam Corp., Utica, NY
Midwestern Machinery, Minneapolis, MN
Minolta Co., Ramsey, NJ
No ton Company, Stephenville, TX
O Neill Industries, Philadelphia, PA
Outboard Marine Corp., El Paso, TX
Ozark-Mahoning Co., Tulsa, OK
Shure Brothers, Inc., El Paso, TX
Siemens Electromechanical Co., El Paso, TX
Simplot Dairy Products, Nampa, ID
Suilbeam-ester Co., Bay Springs, MS
Suimbesm-ester co., Coushatta, LA
Sunbeam-Oster Co., Hattiesburg, MS
Sunbeam-Oster Co., McMinnville, TN
Sunbeam-ester Co., Neosho, MO (2 facilities)
Sunbeam-ester Co., Shnbata, MS
Sunbeam-ester Co., Waynesboro, MS
Transportation Electronics, El Paso, TX
TRW Vehicle Safety Systems, McAllen, TX
TRW Automotive Products Remfg., McAllen, TX
Teccor Electronics, Inc., Brownsville, TX
Thomson Saginaw Ball Screw, Saginaw, Ml
Unocal Corp., Cook Inlet, AK
Vastar Resources Inc., La Plata county, CO
Wells Manufacturing Co., McAllen, TX
Zeneca, Inc., Wilmington, DE
Breakdown of Settlements by Typo
-RCRA
TSCA
CAA
ToMk 40 eompwtfM. 4t
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GG: Curbing Methanol Emissions from
Storage Tanks
General Electric, Inc. voluntarily discovered, disclosed
and corrected violations of the Clean Air Act (CAA) at
its silicone manufacturing facility in Waterford, New
York. The violations resulted from a lack of proper
pollution control equipment on two methanol storage
tanks. Methanol fumes are a hazardous air pollutant
that contributes to smog and can cause serious health
problems. EPA and the Department of Justice agreed to
waive the substantial "gravity-based" component of the
penalty, which reduced the actual penalty in the case to
$60,684, reflecting the amount of economic benefit the
company gained from noncompliance.
DO.) APPLAUDS GE SETTLEMENT
"This is a great example of what happens when
companies examine their facilities, identify
problems, fix them, and let the public know. It
illustrates this Administration's commitment to
provide incentives for those who perform prompt
and responsible environmental audits. "
Lois Schifler, Assistant Attorney Genera
Environmental and Natural Resources Divisioi
Department of Jiutia
VASTAR: Cutting CO Emissions
Vastar Resources Inc., a natural gas production company,
voluntarily discovered, disclosed and corrected Clean Air
Act (CAA) violations involving lack of proper pollution
control equipment to limit the emission of carbon monoxide
(CO) at facilities located on the Southern Ute Indian
Reservation in La Plata County, Colorado. High levels of
CO can cause serious health problems - especially for young
children, elderly and those with heart and respiratory
ailments. However, EPA does not believe that CO levels
were that high in this case. The company disclosed the
violations after it took over operation of the facility nom
another company and conducted a compliance audit. The
company then quickly brought itself into compliance by
installing the proper control equipment, which will reduce
CO emissions by 3,700 tons or 80% per year. Because the
company met all of the conditions of the Audit Policy, the
gravity-based penalty of several hundred thousand dollars
was waived. Under the settlement, the company's penalty
was limited to $137,949, which represents the economic
benefit the company gained from not initially installing the
proper equipment.
CENEX: Helping Prevent Manufacture of
Unsafe Chemicals
CENEX, Inc., a Montana company, disclosed and corrected
its failure to file reports under the inventory Update Rule
(IUR) of the Toxic Substances Control Acl (TSCA). The 1TO
requires manufacturers of chemicals listed on EPA's TSCA
Inventory to report current data on production volume, plant
site and site-limited status. This data forms the basis for
distinguishing which chemicals must undergo a review for .
health and environmental effects. Under the Audit Policy,
EPA mitigated $318,750 which represents 75% of the
unadjusted gravity-based penalty, resulting in a total penalty
of $106,250.
OZARK-MAHONING: Cleaning Up & Reporting
Spill of Ferric Sulfated Hydrofluoric Acid
Penalties were completely waived under the Audit Policy for
the Ozark-Mahoning Company which voluntarily
discovered, disclosed and corrected CERCLA and NPDES
reporting violations at its Tulsa, Oklahoma facility. The
company had failed to report to the National Response
Center a spill of two CERCLA hazardous substances, ferric
sulfate and hydrofluoric acid, in violation of CERCLA
103(a). The company promptly remediated the spill area and
state authorities verified proper remediation.
In other violations, the company incorrectly reported pH
values under its NPDES permit on four occasions. High
acidity (pH) levels in waters can have a profoundly harmful
effect on water quality and ecosystems. Accurate reporting
of pH levels is critical for monitoring and maintaining water
quality and ecosystem. Because the company met all of the
Policy conditions and did not gain economically from the
CERCLA and NPDES violations, the penalties were reduced
to zero. Ordinarily the penalties for these types would have
been approximately $8,250 for the CERCLA violation and
$40,000 (SI0,000 maximum for each) for the four NPDES
violations.
• P0=*.0*A"*0 =+s • g*« ¦ *#~»>
• PRAISE for EPA'S POLICY
• '7/ is an excellent policy which worked as intended in our case
• Compliance with the terms of the policy results in penalty
j elimination or mitigation. This encourages proactive
• environmentally responsible behavior by companies trying to do
• the right thing in terms of complying with our nations
environmental laws "
» Peter J. Flatter
f Pre ride ai, Midwestern Machinery Co., inc
•
¦
! "It [The Audit Policy] worked quite wellfor us
• Rosa Delgido
¦ WarehouK Muugcr, Auitio Sculpture
Page 2
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Vudlt/Dlsclosure Can Affect Decision to Prosecute / Audit Policy Interpretive Guidance Released
/X
\t least three companies have not been charged with an
nvironmental crime due -to their voluntary disclosure of
violations uncovered in an audit or internal investigation and
their cooperation in the investigation and prosecution of
subsidiary corporations or culpable individuals. While EPA
has not formally invoked the 1995 Audit Policy in these
cases, the decision not to charge them criminally stemmed
from the same considerations now expressly set forth in the
Audit Policy.
For example, in one such case, on February' 7, 1996, the
United States Department of Justice announced that Chiquita
Brand, International was not prosecuted due to its voluntary
disclosure that its subsidiary, John Morrell and Company,
had illegally dumped slaughterhouse waste into the Big
Sioux River in Sioux Falls, South Dakota for years and had
deliberately submitted false discharge monitoring reports to
conceal its crimes. John Moirell and Company and several
ofMorrell's corporate officials now stand convicted of
conspiracy and various Clean Water Act felonies, but the
government declined to prosecute Chiquita, citing the parent
company's voluntary disclosure and cooperation as the prime
factors. The Office of Criminal Enforcement, Forensics, and
Training is establishing a process whereby criminal
enforcement consideration of the Audit Policy will be made
by a committee at the headquarters level. For questions
regarding application of the Audit Policy in the criminal
context, contact Michael Penders at (202) 564-2480.
cT\
J The Agency's Audit Policy Quick Response Team
w (QRT) has completed work on the Audit Policy
Interpretive Guidance which addresses 16 issues arrising
under the Policy. The Guidance, covers such issues as:
• When Repeat Violations Bar Penalty Mitigation
. When a Violation "May Have Been Discovered"
. Discover}' of Violations Under CAA Title V
Permit Applications
. Discovery of Violations During Audits Required
by Settlements
The Interpretive Guidance is in the Audit Policy Docket
and available on the OECA Home Page at:
http: lies, inel.gov/oeca/epapolguid.html
The QRT was formed to expeditiously, fairly, and
consistently resolve nationally significant issues involving
application of the Audit Policy in specific cases. Each major
media enforcement program, the Department of Justice and
EPA Regions are represented on the QRT, which is chaired
by the Office of Regulator)' Enforcement within EPA's
Office of Enforcement and Compliance Assurance (OECA).
For more information on the Guidance, call Gary Jonesi at
i 564-4002.
^(202):
iiiiniiii urn 11 n illinium tin in iiiiiiiii illinium i iiiiii iiiiiiiiii
Florida and California Adopt Policies Similar to Audit Policy
U.S. EPA Regional Administrator John H. Hankinson, Jr., in a letter dated September 26, 1996, applauded the state of Florida
for adopting a policy modeled on EPA's. Mr. Hankinson reassured Virginia Wetherell, Secretary of the Florida Department
of Environmental Protection (DEP) that, "EPA would cooperate closely with Florida by eliminating duplicative reporting or
burdensome paperwork." Hankinson said, "[W]e see no need for any additional administrative or bureaucratic processes that
may burden Florida's ability to carry out its environmental programs."
"/ am very pleased the EPA is working with the Department to streamline the procedure and reduce the amount ofpaperwork
required of regulated interests who desire to take advantage of EPA's and DEP's self-audit policies. This determination by EPA
is a significant addition to the incentives we have identified for regulated interests to establish a self-audit program. The policy
is good for business and good for the environment and offers an excellent opportunity for EPA, DEP and regulated interests
to work in partnership toward mutually beneficial goals. "
Virginia 13 Wetherell
scoretiry, Florida DEP
A copy of the letter is available in the Audit Policy Docket. For further information about the Florida DEP Directive on
Incentives for Self-Evaluation, contact Molly Palmer at (206) 553-6521. The California EPA also has recently adopted an audit
policy similar to the U.S. EPA Audit Policy. For further information about the Cal EPA Policy on Incentives for Self-
Evaluation, contact Gerald Johnston at (9 16) 322-7310.
Page 3
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Settled Audit Policy Case/Matter Documents
Contained in Audit Policy Docket
The Audit Policy Docket contains document related-to cases
and matters settled under the Audit Policy to date. Examples
of documents include disclosure letters, EPA responses,
Consent Agreements and Consent Orders, and letters of
intent not to enforce. In addition, the Docket contains
hundreds of other documents, such as the new Interpretive
Guidance, and comments and letters related to the Policy and
environmental auditing. The Docket is accessible by calling
(202) 260-7548 or faxing (202) 260-4400 and referencing
docket number C-94-01.
Other Self-Disclosure Programs
The EPA Audit Policy is but one example of how compliance
incentives have encouraged companies to disclose and
correct violations without providing blanket amnesties. Other
examples include the TSCA Compliance Audit Program
(CAP) and EPA Region 7's Subpart 000 (Clean Air Act,
testing and reporting) voluntary Compliance Program.
Under CAP, about 125 companies disclosed approximately
11,000 "substantial risk" TSCA section 8(e) reports in
exchange for reduced penalties and an overall penalty cap of
$1 million per company. Under the Subpart 000 program, 52
nonmetallic mineral processing companies in Missouri self-
disclosed violations of air emission (NSPS) reporting and/or
testing requirements in exchange for dramatically reduced
penalties. In both programs, participants paid the economic
benefit they gained from noncompliance. For more
information about the TSCA CAP, call Caroline Abeam at
(202) 564-4163, or about the subpart 000 program, call
Becky Dolph, at (913) 551 -7281.
Summary of Audit Policy
Voluntary audit programs play an important role in helping
companies meet their obligation to comply with environmental
laws. EPA's audit policy, effective in January of 1996, will
greatly reduce and sometimes eliminate penalties for
companies that discover, disclose and correct violations
through voluntary audits or compliance management programs,
while including safeguards to protect the public and the
environment from the most serious violations.
851 The Policy requires companies to:
promptly disclose and correct violations,
prevent recurrence of the violation, and
remedy any environmental harm.
¦5" The Policy excludes:
repeated violations,
violations that result in serious actual harm, and
violations that may present an imminent and
substantial endangerment.
Corporations remain criminally liable for violations resulting
from willful or conscious avoidance of their legal duties, and
individuals remain liable for criminal wrongdoing. EPA
retains discretion to recover the economic benefit gained as a
result of noncompliance, so that companies will not be able to
obtain an economic advantage over their competitors by
delaying investment in compliance. Companies that do not
discover violations through an auditor CMS, yet meet all of
the other Policy conditions, will receive 75% mitigation of
gravity-based penalties.
The Final Audit/Self-Policing policy was published in the
Federal Register on December 22,1996 (60 FR 66706). It took
effect on January 22, 1996. For further information, contact the
Audit Policy Docket or call 202-564-4187.
& WHO TO CALL;
HA
Regulated: entities that wish, to take
advantage of the Policy should fax or send
1 written disclosure to ,&e appropriate EPA Regional
sontact listed below. Note that the written disclosure must
>e made within 10 days of the violation's discovery:
Region 1 ( CT,ME,MA^JH,RI,VT), Sam Silverman:
617-565-3441 (telephone) 0141 (fix)
Region 2 (NJ,hr^,PR,^|JohnVtlfc:
212-637-4059/4035
Region 3 (PE,DQ^,pKvA,WV), Janet Viniski:
215-566-2999/2905 s. vl.;.-; .• ¦
Region 4 (AL,FL,GA,KY,MS,NC,SC,TN), ¦
Bill Anderson: 404-562-9655/9663 >
llegion 5 (DL,IN,MI^4N,OH,WI), Tinka Hyde:
312-886-9296/353-1120 " : ~
Region 6 (AR,LA^NM,OK,TX), Barbara Greenfield:
214-665-2210/7446
IRegion 7 (IA,KStMO,NE), Becky Dolph:
913-551-728117925
IRegion 8 (CO,MT,ND,SD,UT,WY), Michael Risnen
303-3 12-6890/6953
Region 9 (AZ,CA,HI,NV), Leslie Guinan:
415-744-1339
Region 10 (AK,lD,OR,WA), Jackson Fox
206-553-1073/0163
Page 4
taSlftbcy fc n^mind pnUktfy by EPA-OBCA to pmndt »ifi
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Attachment 4
Audit Policy "Quick Response Team" (QRT)
Gary Jonesi. Chair (Office of Regulatory Enforcement (ORE),OECA)
Brian Riedel, Vice Chair (Office of Planning and Policy Analysis, OECA)
Michael Penders (Office of Criminal Enforcement, Forensics, and Training, OECA)
Mark Garvey (Toxics and Pesticides Enforcement Division, ORE, OECA)
Nadine Steinberg (Water Enforcement Division, ORE, OECA)
Leslie Oif (Air Enforcement Division, ORE, OECA)
Caroline Makepeace (Multimedia Enforcement Division, ORE, OECA)
Joan Olmstead (RCRA Enforcement Division, ORE, OECA)
Mimi Guernica (Office of Compliance, OECA)
Jean Rice (Federal Facilities Enforcement Office, OECA)
Joel Blumstein (Office of Environmental Stewardship, EPA Region I)
Bertram Frey (Office of Regional Counsel, EPA Region V)
Karen Dworkin (Environmental Enforcement Section, U .S. Department of Justice)
Audit Policy Interpretive Guidance
January 1997
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