POLICY ON CIVIL PENALTIES
EPA GENERAL ENFORCEMENT POLICY #GM - 21
UNITED STATES ENVIRONMENTAL
PROTECTION AGENCY
EFFECTIVE DATE: FEB I fi mA
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Introduction
This document, Policy on Civil Penalties, establishes a
single set of goals for penalty assessment in EPA administrative
and judicial enforcement actions. These goals - deterrence,
fair and equitable treatment of the regulated community, and
swift resolution of environmental problems - are presented here
in general terms. An outline of the general process for the
assessment of penalties is contained in Attachment A.
A companion document, A Framework for Statute-Specific
Approaches to Penalty Assessments, will also be issued today.
This document provides guidance to the user of the policy on
how to write penalty assessment guidance specific to the user's
particular program. The first part of the Framework provides
general guidance on developing program-specific guidance; the
second part contains a detailed appendix which explains the basis
for that guidance. Thus, the user need only refer to the appendix
when he wants an explanation of the guidance in the first part of
the Framework.
In order to achieve the above Agency policy goals, all
administratively imposed penalties and settlements of civil
penalty actions should, where possible, be consistent with the
guidance contained in the Framework document. Deviations from
the Framework's methodology, where merited, are authorized as
long as the reasons for the deviations are documented. Documen-
tation for deviations from the Framework in program-specific
guidance should be located in that guidance. Documentation for
deviations from the program-specific guidance in calculating
individual penalties should be contained in both the case files
and in any memoranda that accompany the settlements.
The Agency will make every effort to urge administrative
law judges to impose penalties consistent with this policy and
any medium-specific implementing guidance. For cases that go
to court, the Agency will request the statutory maximum penalty
in the filed complaint. And, as proceedings warrant, EPA will
continue to pursue a penalty no less than that supported by the
applicable program policy. Of course, all penalties must be consis-
tent with applicable statutory provisions, based upon the number
and duration of the violations at issue.
Applicability
This policy statement does not attempt to address the
specific mechanisms for achieving the goals set out for penalty
assessment. Nor does it prescribe a negotiation strategy to
achieve the penalty target figures. Similarly, it does not
address differences between statutes or between priorities of
different programs. Accordingly, it cannot be used, by itself,
as a basis for determining an appropriate penalty in a specific
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action. Each EPA program office, in a joint effort with the
Office of Enforcement and Compliance Monitoring, will revise
existing policies, or write new policies as needed. These
policies will guide the assessment of penalties under each
statute in a manner consistent with this document and, to the
extent reasonable, the accompanying Framework.
Until new program-specific policies are issued, the
current penalty policies will remain in effect. Once new
program-specific policies are issued, the Agency should
calculate penalties as follows:
° For cases that are substantially settled,
apply the old policy.
° For cases that will require further sub-
stantial negotiation, apply the new policy
if that will not be too disruptive.
Because of the unique issues associated with civil penal-
ties in certain types of cases, this policy does not apply to
the following areas:
° CERCLA S107. This is an area in which
Congress has directed a particular kind
of response explicitly oriented toward
recovering the cost of Government cleanup
activity and natural resource damage.
° Clean Water Act S 311(f ) and (g). This also
is cost recovery in nature. As in CERCLA
§107 actions, the penalty assessment
approach is inappropriate.
0 Clean Air Act §120. Congress has set out in
considerable detail the level of recovery
under this section. It has been implemented
with regulations which, as required by law,
prescribe a non-exclusive remedy which
focuses on recovery of the economic benefit
of noncompliance. It should be noted, how-
ever, that this general penalty policy builds
upon, and is consistent with the approach
Congress took in that section.
Much of the rationale supporting this policy generally
applies to non-profit institutions, including government entities.
In applying this policy to such entities, EPA must exercise judg-
ment case-by-case in deciding, for example, how to apply the
economic benefit and ability to pay sanctions, if at all. Further
guidance on the issue of seeking penalties against non-profit
entities will be forthcoming.
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Deterrence
The first goal of penalty assessment is to deter people from
violating the law. Specifically, the penalty should persuade the
violator to take precautions against falling into noncompliance
again {specific deterrence) and dissuade others from violating the
law (general deterrence). Successful deterrence is important
because it provides the best protection for the environment. In
addition, it reduces the resources necessary to administer the
laws by addressing noncompliance before it occurs.
If a penalty is to achieve deterrence, both the violator and
the general public must be convinced that the penalty places the
violator in a worse position than those who have complied in a
timely fashion. Neither the violator nor the general public
is likely to believe this if the violator is able to retain an
overall advantage from noncompliance. Moreover, allowing a
violator to benefit from noncompliance punishes those who have
complied by placing them at a competitive disadvantage. This
creates a disincentive for compliance. For these reasons, it
is Agency policy that penalties generally should, at a minimum,
remove any significant economic benefits resulting from failure
to comply with the law. This amount will be referred to as the
"benefit component" of the penalty.
Where the penalty fails to remove the significant economic
benefit, as defined by the program-specific guidance, the case
development team must explain in the case file why it fails to do
so. The case development team must then include this explanation
in the memorandum accompanying each settlement for the signature
of the Assistant Administrator of Enforcement and Compliance
Monitoring, or the appropriate Regional official.
The removal of the economic benefit of noncompliance only
places the violator in the same position as he would have been if
compliance had been achieved on time. Both deterrence and funda-
mental fairness require that the penalty include an additional
amount to ensure that the violator is economically worse off than
if it had obeyed the law. This additional amount should reflect
the seriousness of the violation. In doing so, the penalty will
be perceived as fair. In addition the penalty's size will tend
to deter other potential violators.
In some classes of cases, the normal gravity calculation may
be insufficient to effect general deterrence. This could happen
if, for example, there was extensive noncompliance with certain
regulatory programs in specific areas of the United States. This
would demonstrate that the normal penalty assessments had not been
achieving general deterrence. In such cases, the case development
team should consider increasing the gravity component sufficient to
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achieve general deterrence. These extra assessments should
balance the other goals of this policy, particularly equitable
treatment of the regulated community.
This approach is consistent with the civil penalty
provisions in the environmental laws. Almost all of them
require consideration of the seriousness of the violation.
This additional amount which reflects the seriousness of the
violation is referred to as the "gravity component". The
combination of the benefit and gravity components yields the
"preliminary deterrence figure."
As explained later in this policy, the case development
team will adjust this figure as appropriate. Nevertheless, EPA
typically should seek to recover, at a minimum, a penalty which
includes the benefit component plus some non-trivial gravity
component. This is important because otherwise, regulated
parties would have a general economic incentive to delay
compliance until the Agency commenced an enforcement action.
Once the Agency brought the action, the violator could then
settle for a penalty less than their economic benefit of
noncompliance. This incentive would directly undermine the
goal of deterrence.
Fair and Equitable Treatment of the Regulated Community
The second goal of penalty assessment is the fair and
equitable treatment of the regulated community. Fair and
equitable treatment requires that the Agency's penalties must
display both consistency and flexibility. The consistent
application of a penalty policy is important because otherwise
the resulting penalties might be seen as being arbitrarily
assessed. Thus violators would be more inclined to litigate
over those penalties. This would consume Agency resources and
make swift resolution of environmental problems less likely.
But any system for calculating penalties must have enough
flexibility to make adjustments to reflect legitimate differences
between similar violations. Otherwise the policy might be
viewed as unfair. Again, the result would be to undermine
the goals of the Agency to achieve swift and equitable resolu-
tions of environmental problems.
Methods for quantifying the benefit and gravity components
are explained in the Framework guidance. These methods signifi-
cantly further the goal of equitable treatment of violators.
To begin with, the benefit component promotes equity by re-
moving the unfair economic advantage which a violator may have
gained over complying parties. Furthermore, because the benefit
and gravity components are generated systematically, they
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will exhibit relative consistency from case to case. Because
the methodologies account for a wide range of relevant factors,
the penalties generated will be responsive to legitimate
differences between cases.
However, not all the possibly relevant differences between
cases are accounted for in generating the preliminary deterrence
amount. Accordingly, all preliminary deterrence amounts should
be increased or mitigated for the following factors to account
for differences between cases:
° Degree of willfulness and/or negligence
° History of noncompliance.
° Ability to pay.
° Degree of cooperation/noncooperation.
° Other unique factors specific to the
violator or the case.
Mitigation based on these factors is appropriate to the extent
the violator clearly demonstrates that it is entitled to miti-
gation.
The preliminary deterrence amount adjusted prior to the
start of settlement negotiations yields the "initial penalty
target figure". In administrative actions, this figure
generally is the penalty assessed in the complaint. In judicial
actions, EPA will use this figure as the first settlement goal.
This settlement goal is an internal target and should not be
revealed to the violator unless the case development team feels
that it is appropriate. The initial penalty target may be
further adjusted as negotiations proceed and additional
information becomes available or as the original information is
reassessed.
Swift Resolution of Environmental Problems
The third goal of penalty assessment is swift resolution
of environmental problems. The Agency's primary mission is to
protect the environment. As long as an environmental violation
continues, precious natural resources, and possibly public
health, are at risk. For this reason, swift correction of
identified environmental problems must be an important goal of
any enforcement action. In addition, swift compliance conserves
Agency personnel and resources.
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The Agency will pursue two basic approaches to promoting
quick settlements which include swift resolution of environmental
problems without undermining deterrence. Those two approaches
are as follows:
1. Provide incentives to settle and institute prompt
remedial action.
EPA policy will be to provide specific incentives to settle,
including the following:
° The Agency will consider reducing the
gravity component of the penalty for
settlements in which the violator already
has instituted expeditious remedies to
the identified violations prior to the
commencement of litigation.1/ This would
be considered in the adjustment factor
called degree of cooperation/noncoopera-
tion discussed above.
° The Agency will consider accepting additional
environmental cleanup, and mitigating the
penalty figures accordingly. But normally,
the Agency will only accept this arrangement
if agreed to in pre-litigation settlement.
Other incentives can be used, as long as they do not result in
allowing the violator to retain a significant economic benefit.
2. Provide disincentives to delaying compliance.
The preliminary deterrence amount is based in part upon
the expected duration of the violation. If that projected period
of time is extended during the course of settlement negotiations
due to the defendant's actions, the case development team should
adjust that figure upward. The case development team should
consider making this fact known to the violator early in the negot
ation process. This will provide a strong disincentive to delay
compliance.
17 For the purposes of this document, litigation is deemed to
begin:
° for administrative actions - when the
respondent files a response to an adminis-
trative complaint or when the time to
file expires or
° for judicial actions - when an Assistant
United States Attorney files a com-
plaint in court.
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Intent of Policy and Information Requests for Penalty Calculations
The policies and procedures set out in this document and in
the Framework for Statute-Specific Approaches to Penalty Assessment
are intended solely for the guidance of government personnel.
They are not intended and cannot be relied upon to create any
rights, substantive or procedural, enforceable by any party in
litigation with the United States. The Agency reserves the right
to act at variance with these policies and procedures and to change
them at any time without public notice. In addition, any penalty
calculations under this policy made in anticipation of litigation
are exempt from disclosure under the Freedom of Information Act.
Nevertheless as a matter of public interest, the Agency may
elect to release this information in some cases.
Courtney M. Price
Assistant Administrator for
Enforcement and Compliance Monitoring
Attachment
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ATTACHMENT A
Outline of Civil Penalty Assessment
I. Calculate Preliminary Deterrence Amount
A. Economic benefit component and
B. Gravity component
(This yields the preliminary deterrence amount.)
II. Apply Adjustment Factors
A. Degree of cooperation/noncooperation (indicated through
pre-settlement action.)
B. Degree of willfulness and/or negligence.
C. History of noncompliance.
D. Ability to pay (optional at this stage.)
E. Other unique factors (including strength of case,
competing public policy concerns.)
(This yields the initial penalty target figure.)
III. Adjustments to Initial Penalty Target Figure After
Negotiations Have Begun
A. Ability to pay (to the extent not considered in
calculating initial penalty target.)
B. Reassess adjustments used in calculating initial
penalty target. (Agency may want to reexamine
evidence used as a basis for the penalty in the
light of new information.)
C. Reassess preliminary deterrence amount to reflect
continued periods of noncompliance not reflected
in the original calculation.
D. Alternative payments agreed upon prior to the
commencement of litigation.
(This yields the adjusted penalty target figure.)
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A FRAMEWORK FOR STATUTE-SPECIFIC APPROACHES
TO PENALTY ASSESSMENTS:
IMPLEMENTING EPA'S POLICY ON CIVIL PENALTIES
EPA GENERAL ENFORCEMENT POLICY #GM - 22
UNITED STATES ENVIRONMENTAL
PROTECTION AGENCY
EFFECTIVE DATE:
FEB I 6 1984
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Contents Page
Introduction 1
Writing a Program-Specific Policy 2
I. Developing a Penalty Figure 2
II. Calculating a Preliminary Deterrence Amount 2
III. Adjusting the Preliminary Deterrence Amount 3
to Derive the Initial Penalty Target Figure
IV. Adjusting the Initial Penalty Target Figure 4
During Negotiations
Use of the Policy in Litigation 4
Use of the Policy as a Feedback Device 5
Appendix 6
Introduction 6
The Preliminary Deterrence Amount 6
I. The Benefit Component 6
A. Benefit from delayed costs 7
B. Benefit from avoided costs 9
C. Benefit from competitive advantage 10
D. Settling a case for an amount less than 11
the economic benefit component
II. The Gravity Component 13
A. Quantifying the gravity of a violation 13
B. "Gravity factors 14
Initial and Adjusted Penalty Target Figure 16
I. Flexibility-Adjustment Factors 17
A. Degree of willfulness and/or negligence 17
B. Degree of cooperation/noncooperation 19
C. History of noncompliance 21
D. Ability to pay 23
E. Other unique factors 24
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Appendix (Con't)
II. Alternative Payments 24
III. Promoting Consistency 27
Use of Penalty Figure in Settlement Negotiations 28
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Introduction
This document, A Framework for Statute-Specific Approaches
to Penalty Assessment, provides guidance to the user of the
Policy on Civil Penalties on how to develop a medium-specific
penalty policy. Such policies will apply to administratively
imposed penalties and settlements of both administrative and
judicial penalty actions.
In the Policy on Civil Penalties, the Environmental
Protection Agency establishes a single set of goals for penalty
assessment. Those goals - deterrence, fair and equitable
treatment of the regulated community, and swift resolution of
environmental problems - will be substantially impaired unless
they are pursued in a consistent fashion. Even different
terminology could cause confusion that would detract from the
achievement of these goals. At the same time, too much rigidity
will stifle negotiation and make settlement impossible.
The purpose of this document is to promote the goals of
the Policy on Civil Penalties by providing a framework for
medium-specific penalty policies. The Framework is detailed
enough to allow individual programs to develop policies that
will consistently further the Agency's goals and be easy to
administer. In addition, it is general enough to allow each
program to tailor the policy to the relevant statutory provi-
sions and the particular priorities of each program.
While this document contains detailed guidance, it is not
cast in absolute terms. Nevertheless, the policy does not
encourage deviation from this guidance in either the development
of medium-specific policies or in developing actual penalty
figures. Where there are deviations in developing medium-
specific policies, the reasons for those changes must be
recorded in the actual policy. Where there are deviations from
medium-specific policies in calculating a penalty figure, the
case development team must detail the reasons for those changes
in the case file. In addition, the rationale behind the deviations
must be incorporated in the memorandum accompanying the settlement
package to Headquarters or the appropriate Regional official.
This document is divided into two sections. The first one
gives brief instructions to the user on how to write a medium-
specific policy. The second section is an appendix that gives
detailed guidance on implementing each section of the instruc-
tions and explains how the instructions are intended to further
the goals of the policy.
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Writing a Program Specific Policy
Summarized below are those elements that should be present
in a program-specific penalty policy. For a detailed discus-
sion of each of these ideas, the corresponding portions of the
appendix should be consulted.
I. Developing a Penalty Figure
The development of a penalty figure is a two step process.
First the case development team must calculate a preliminary
deterrence figure. This figure is composed of the economic
benefit component (where applicable) and the gravity component.
The second step is to adjust the preliminary deterrence figure
through a number of factors. The resulting penalty figure is
the initial penalty target figure. In judicial actions, the
initial penalty target figure is the penalty amount which the
government normally sets as a goal at the outset of settlement
negotiations. It is essentially an internal settlement goal and
should not be revealed to the violator unless the case development
team feels it is appropriate. In administrative actions, this
figure generally is the penalty assessed in the complaint.
While in judicial actions, the government's complaint will request
the maximum penalty authorized by law.
This initial penalty target figure may be further adjusted
in the course of negotiations. Each policy should ensure that
the penalty assessed or requested is within any applicable
statutory constraints, based upon the number and duration of
violations at issue.
II. Calculating a Preliminary Deterrence Amount
Each program-specific policy must contain a section on
calculating the preliminary deterrence figure. That section
should contain materials on each of the following areas:
° Benefit Component. This section should
explain:
a. the relevent measure of economic benefit
for various types of violations,
b. the information needed,
c. where to get assistance in computing
this figure and
d. how to use available computer systems
to compare a case with similar previous
violations.
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° Gravity Component. This section should first
rank different types of violations according
to the seriousness of the act. In creating
that ranking, the following factors should be
cons idered:
a. actual or possible harm,
b. importance to the regulatory
scheme and
c. availability of data from other
sources.
In evaluating actual or possible harm, your scheme should
consider the following facts:
° amount of pollutant,
° toxicity of pollutant,
° sensitivity of the environment,
° length of time of a violation and
° size of the violator.
The policy then should assign appropriate dollar amounts
or ranges of amounts to the different ranked violations to
constitute the "gravity component". This amount, added to the
amount reflecting economic benefit, constitutes the preliminary
deterrence figure.
Ill. Adjusting the Preliminary Deterrence Amount to Derive the
Initial Penalty Target Figure (Prenegotiation Adjustment)
Each program-specific penalty policy should give detailed
guidance on applying the appropriate adjustments to the pre-
liminary deterrence figure. This is to ensure that penalties also
further Agency goals besides deterrence (i.e. equity and swift
correction of environmental problems). Those guidelines should
be consistent with the approach described in the appendix. The
factors may be separated according to whether they can be con-
sidered before or after negotiation has begun or both.
Adjustments (increases or decreases, as appropriate) that
can be made to the preliminary deterrence penalty to develop an
initial penaly target to use at the outset of negotiation include:
° Degree of willfulness and/or negligence
° Cooperation/noncooperation through pre-
settlement action.
0 History of noncompliance.
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° Ability to pay.
0 Other unique factors (including strength of
case, competing public policy considerations).
The policy may permit consideration of the violator's ability
to pay as an adjustment factor before negotiations begin. It
may also postpone consideration of that factor until after negoti-
ations have begun. This would allow the violator to produce
evidence substantiating its inability to pay.
The policy should prescribe appropriate amounts, or ranges
of amounts, by which the preliminary deterrence penalty should
be adjusted. Adjustments will depend on the extent to which
certain factors are pertinent. In order to preserve the penalty's
deterrent effect, the policy should also ensure that, except for
the specific exceptions described in this document, the adjusted
penalty will: 1) always remove any significant economic benefit
of noncompliance and 2) contain some non-trivial amount as a
gravity component.
IV. Adjusting the Initial Penalty Target During Negotiations
Each program-specific policy should call for periodic reas-
sessment of these adjustments during the course of negotiations.
This would occur as additional relevant information becomes avail-
able and the old evidence is re-evaluated in the light of new
evidence. Once negotiations have begun, the policy also should
permit adjustment of the penalty target to reflect "alternative
payments" the violator agrees to make in settlement of the case.
Adjustments for alternative payments and pre-settlement corrective
action are generally permissible only before litigation has
begun.
Again, the policy should be structured to ensure that any
settlement made after negotiations have begun reflects the
economic benefit of noncompliance up to the date of compliance
plus some non-trivial gravity component. This means that if
lengthy settlement negotiations cause the violation to continue
longer than initially anticipated, the penalty target figure
should be increased. The increase would be based upon the extent
that the violations continue to produce ongoing environmental
risk and increasing economic benefit.
Use of the Policy In Litigation
Each program-specific policy should contain a section on
the use of the policy in litigation. Requests for penalties
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should account for all the factors identified in the relevant
statute and still allow for compromises in settlement without
exceeding the parameters outlined in this document. (For each
program, all the statutory factors are contained in the Frame-
work either explicitly or as part of broader factors.) For admin-
istrative proceedings, the policy should explain how to formulate
a penalty figure, consistent with the policy. The case develop-
ment team will put this figure in the administrative complaint.
In judicial actions, the EPA will use the initial penalty
target figure as its first settlement goal. This settlement
goal is an internal target and should not be revealed to the
violator unless the case development team feels it is appro-
priate. In judicial litigation, the government should request
the maximum penalty authorized by law in its complaint. The
policy should also explain how it and any applicable precedents
should be used in responding to any explicit requests from a
court for a minimum assesment which the Agency would deem
appropriate.
Use of the Policy as a Feedback Device
Each program-specific policy should first explain in detail
what information needs to be put into the case file and into the
relevant computer tracking system. Furthermore, each policy
should cover how to use that system to examine penalty assessments
in other cases. This would thereby assist the Agency in making
judgments about the size of adjustments to the penalty for the
case at hand. Each policy should also explain how to present
penalty calculations in litigation reports.
Courtney M. Price
Assistant Administrator for
Enforcement and Compliance Monitoring
Attachment
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APPENDIX
Introduction
This appendix contains three sections. The first two sections
set out guidelines for achieving the goals of the Policy on Civil
Penalties. The first section focuses on achieving deterrence by
assuring that the penalty first removes any economic benefit from
noncompliance. Then it adds an amount to the penalty which reflects
the seriousness of the violation. The second section provides
adjustment factors so that both a fair and equitable penalty will
result and that there will be a swift resolution of the environmental
problem. The third section of the framework presents some practical
advice on the use of the penalty figures generated by the policy.
The Preliminary Deterrence Amount
The Policy on Civil Penalties establishes deterrence as an
important goal of penalty assessment. More specifically, it speci-
fies that any penalty should, at a minimum, remove any significant
benefits resulting from noncompliance. In addition, it should
include an amount beyond removal of economic benefit to reflect
the seriousness of the violation. That portion of the penalty
which removes the economic benefit of noncompliance is referred to
as the "benefit component;" that part of the penalty which reflects
the seriousness of the violation is referred to as the "gravity
component." When combined, these two components yield the "prelim-
inary deterrence amount."
This section of the document provides guidelines for calcu-
lating the benefit component and the gravity component. It will
also present and discuss a simplified version of the economic
benefit calculation for use in developing quick penalty deter-
minations. This section will also discuss the limited circum-
stances which justify settling for less than the benefit component.
The uses of the preliminary deterrence amount will be explained
in subsequent portions of this document.
I. The Benefit Component
In order to ensure that penalties remove any significant
economic benefit of noncompliance, it is necessary to have
reliable methods to calculate that benefit. The existence of
reliable methods also strengthens the Agency's position in both
litigation and negotiation. This section sets out guidelines for
computing the benefit component. It first addresses costs which
are delayed by noncompliance. Then it addresses costs which are
avoided completely by noncompliance. It also identifies issues
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to be considered when computing the benefit component for those
violations where the benefit of noncompliance results from factors
other than cost savings. This section concludes with a discussion
of the proper use of the benefit component in developing penalty
figures and in settlement negotiations.
A. Benefit from.delayed costs
In many instances, the economic advantage to be derived from
noncompliance is the ability to delay making the expenditures
necessary to achieve compliance. For example, a facility which
fails to construct required settling ponds will eventually have to
spend the money needed to build those ponds in order to achieve
compliance. But, by deferring these one-time nonrecurring costs
until EPA or a State takes an enforcement action, that facility
has achieved an economic benefit. Among the types of violations
which result in savings from deferred cost are the following:
° Failure to install equipment needed to meet
discharge or emission control standards.
° Failure to effect process changes needed
to eliminate pollutants from products or
waste streams.
0 Testing violations, where the testing still
must be done to demonstrate achieved com-
pliance.
° Improper disposal, where proper disposal is
still required to achieve compliance.
° Improper storage where proper storage is still
required to achieve compliance.
° Failure to obtain necessary permits for dis-
charge, where such permits would probably be
granted. (While the avoided cost for many
programs would be negligible, there are pro-
grams where the the permit process can be
expensive).
The Agency has a substantial amount of experience under
the air and water programs in calculating the economic benefit
that results from delaying costs necessary to achieve compliance.
This experience indicates that it is possible to estimate the
benefit of delayed compliance through the use of a simple formula.
Specifically, the economic benefit of delayed compliance may be
estimated at: 5% per year of the delayed one-time capital cost
for the period from the date the violation began until the date
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compliance was or is expected to be achieved. This will be
referred to as the "rule of thumb for delayed compliance" method.
Each program may adopt its own "rule of thumb" if appropriate.
The applicable medium-specific guidance should state what that
method is.
The rule of thumb method can usually be used in making
decisions on whether to develop a case or in setting a penalty
target for settlement negotiations. In using this rule of thumb
method in settlement negotiations, the Agency may want to make
the violator fully aware that it is using an estimate and not
a more precise penalty determination procedure. The decision
whether to reveal this information is up to the negotiators.
The "rule of thumb" method only provides a first-cut estimate
of the benefit of delayed compliance. For this reason, its use
is probably inappropriate in situations where a detailed analysis
of the economic effect of noncompliance is needed to support or
defend the Agency's position. Accordingly, this "rule of thumb"
method generally should not be used in any of the following cir-
cumstances:
° A hearing is likely on the amount of the
penalty.
° The defendant wishes to negotiate over the
amount of the economic benefit on the basis
of factors unique to the financial condition
of the company.
° The case development team has reason to
believe it will produce a substantially
inaccurate estimate; for example, where the
defendant is in a highly unusual financial
position, or where noncompliance has or will
continue for an unusually long period.
There usually are avoided costs associated with this type
of situation. Therefore, the "rule of thumb for avoided costs"
should also be applied. (See pages 9-10). For most cases, both
figures are needed to yield the major portion of the economic
benefit component.
When the rule of thumb method is not applicable, the economic
benefit of delayed compliance should be computed using the Meth-
odology for Computing the Economic Benefit of Noncompliance.
This document, which is under development, provides a method
for computing the economic benefit of noncompliance based on a
detailed economic analysis. The method will largely be a refined
version of the method used in the previous Civil Penalty Policy
issued July 8, 1980, for the Clean Water Act and Title I of the
Clean Air Act. It will also be consistent with the regulations
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implementing Section 120 of the Clean Air Act. A computer
program will be available to the Regions to perform the analysis,
together with instructions for its use. Until the Methodology
is issued, the economic model contained in the July 8, 1980,
Civil Penalty Policy should be used. It should be noted that
the Agency recently modified this guidance to reflect changes in
the tax law.
B. Benefit from avoided costs
Many kinds of violations enable a violator to permanently
avoid certain costs associated with compliance.
° Cost savings for operation and maintenance of
equipment that the violator failed to install.
° Failure to properly operate and maintain
existing control equipment.
° Failure to employ sufficient number of
adequately trained staff.
° Failure to establish or follow precautionary
methods required by regulations or permits.
° Improper storage, where commercial storage is
reasonably available.
° Improper disposal, where redisposal or cleanup
is not possible.
° Process, operational, or maintenance savings
from removing pollution equipment.
° Failure to conduct necessary testing.
As with the benefit from delayed costs, the benefit com-
ponent for avoided costs may be estimated by another "rule of
thumb" method. Since these costs will never be incurred, the
estimate is the expenses avoided until the date compliance is
achieved less any tax savings. The use of this "rule of thumb"
method is subject to the same limitations as those discussed in
the preceding section.
Where the "rule of thumb for avoided costs" method cannot
be used, the benefit from avoided costs must be computed using
the Methodology for Computing the Economic Benefit of Noncom-
pliance . Again, until the Metholology is issued, the method
contained in the July 8, 1980, Civil Penalty Policy should be
used as modified to reflect recent changes in the tax law.
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C. Benefit from competitive advantage
For most violations, removing the savings which accrue
from noncompliance will usually be sufficient to remove the
competitive advantage the violator clearly has gained from
noncompliance. But there are some situations in which noncom-
pliance allows the violator to provide goods or services which
are not available elsewhere or are more attractive to the
consumer. Examples of such violations include:
° Selling banned products.
° Selling products for banned uses.
0 Selling products without required labelling
or warnings.
° Removing or altering pollution control
equipment for a fee, (e.g., tampering with
automobile emission controls.)
° Selling products without required regula-
tory clearance, (e.g., pesticide registra-
tion or premanufacture notice under TSCA.)
To adequately remove the economic incentive for such viola-
tions, it is helpful to estimate the net profits made from the
improper transactions (i.e. those transactions which would not
have occurred if the party had complied). The case development
team is responsible for identifying violations in which this
element of economic benefit clearly is present and significant.
This calculation may be substantially different depending on the
type of violation. Consequently the program-specific policies
should contain guidance on identifying these types of violations
and estimating these profits. In formulating that guidance, the
following principles should be followed:
The amount of the profit should be based on
the best information available concerning
the number of transactions resulting from
noncompliance.
Where available, information about the
average profit per transaction may be used.
In some cases, this may be available from
the rulemaking record of the provision
violated.
The benefit derived should be adjusted to
reflect the present value of net profits
derived in the past.
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lt is recognized that the methods developed for estimating
the profit from those transactions will sometimes rely substan-
tially on expertise rather than verifiable data. Nevertheless,
the programs should make all reasonable efforts to ensure that
the estimates developed are defensible. The programs are encour-
aged to work with the Office of Policy, Planning and Evaluation
to ensure that the methods developed are consistent with the
forthcoming Methodology for Computing the Economic Benefit of
Noncompliance and with methods developed by other programs. The
programs should also ensure that sufficient contract funds are
available to obtain expert advice in this area as needed to
support penalty development, negotiation and trial of these kinds
of cases.
D. Settling cases for an amount less than the economic
benef it
As noted above, settling for an amount which does not remove
the economic benefit of noncompliance can encourage people to
wait until EPA or the State begins an enforcement action before
complying. For this reason, it is general Agency policy not to
settle for less than this amount. There are three general areas
where settling for less than economic benefit may be appropriate.
But in any individual case where the Agency decides to settle for
less than enconomic benefit, the case development team must detail
those reasons in the case file and in any memoranda accompanying
the settlement.
1. Benefit component involves insignificant amount
It is clear that assessing the benefit component and
negotiating over it will often represent a substantial commitment
of resources. Such a commitment of resources may not be warranted
in cases where the magnitude of the benefit component is not likely
to be significant, (e.g. not likely to have a substantial impact on
the violator's competitive positions). For this reason, the case
development team has the discretion not to seek the benefit com-
ponent where it appears that the amount of that component is
likely to be less than $10,000. (A program may determine that
other cut-off points are more reasonable based on the likelihood
that retaining the benefit could encourage noncomplying behavior.)
In exercising that discretion, the case development team should
consider the following factors:
° Impact on violator; The likelihood that
assessing the benefit component as part
of the penalty will have a noticeable
effect on the violator's competitive
position or overall profits. If no such
effect appears likely, the benefit com-
ponent should probably not be pursued.
° The size of the gravity component: If the
gravity component is relatively small, it
may not provide a sufficient deterrent, by
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itself, to achieve the goals of this policy.
° The certainty of the size of the benefit
component: If the economic benefit is quite
well defined, it is not likely to require
as much effort to seek to include it in the
penalty assessment. Such circumstances also
increase the likelihood that the economic
benefit was a substantial motivation for the
noncompliance. This would make the inclusion
of the benefit component more necessary to
achieve specific deterrence.
It may be appropriate not to seek the benefit component in
an entire class of violation. In that situation, the rationale
behind that approach should be clearly stated in the appropriate
medium-specific policy. For example, the most appropriate way
to handle a small non-recurring operation and maintenance vio-
lation may be a small penalty. Obviously it makes little sense
to assess in detail the economic benefit for each individual
violation because the benefit is likely to be so small. The
medium-specific policy would state this as the rationale.
2. Compelling public concerns
The Agency recognizes that there may be some instances where
there are compelling public concerns that would not be served by
taking a case to trial. In such instances, it may become necessary
to consider settling a case for less than the benefit component.
This may be done only if it is absolutely necessary to preserve
the countervailing public interests. Such settlements might be
appropriate where the following circumstances occur:
° There is a very substantial risk of creating
precedent which will have a significant
adverse effect upon the Agency's ability
to enforce the law or clean up pollution
if the case is taken to trial.
° Settlement will avoid or terminate an
imminent risk to human health or the
environment. This is an adequate
justification only if injunctive relief
is unavailable for some reason, and if
settlement on remedial responsibilities
could not be reached independent of any
settlement of civil penalty liability.
° Removal of the economic benefit would
result in plant closings, bankruptcy, or
other extreme financial burden, and there
is an important public interest in allow-
ing the firm to continue in business.
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Alternative payment plans should be fully
explored before resorting to this option.
Otherwise, the Agency will give the per-
ception that shirking one's environmental
responsibilities is a way to keep a failing
enterprise afloat. This exemption does not
apply to situations where the plant was
likely to close anyway, or where there is a
likelihood of continued harmful noncompliance.
3. Litigation practicalities
The Agency realizes that in certain cases, it is highly unlikely
the EPA will be able to recover the economic benefit in litigation.
This may be due to applicable precedent, competing public interest
considerations, or the specific facts, equities, or evidentiary
issues pertaining to a particular case. In such a situation it is
unrealistic to expect EPA to obtain a penalty in litigation which
would remove the economic benefit. The case development team then
may pursue a lower penalty amount.
II. The Gravity Component
As noted above, the Policy on Civil Penalties specifies that
a penalty, to achieve deterrence, should not only remove any eco-
nomic benefit of noncompliance, but also include an amount reflecting
the seriousness of the violation. This latter amount is referred
to as the "gravity component." The purpose of this section of the
document is to.establish an approach to quantifying the gravity
component. This approach can encompass the differences between
programs and still provide the basis for a sound consistent treat-
ment of this-issue.
A. Quantifying the gravity of a violation
Assigning a dollar figure to represent the gravity of a vio-
lation is an essentially subjective process. Nevertheless, the
relative seriousness of different violations can be fairly
accurately determined in most cases. This can be accomplished
by reference to the goals of the specific regulatory scheme and
the facts of each particular violation. Thus, linking the dollar
amount of the gravity component to these objective factors is a
useful way of insuring that violations of approximately equal
seriousness are treated the same way.
Such a linkage promotes consistency. This consistency
strengthens the Agency's position both in negotiation and before
a trier of fact. This approach consequently also encourages
swift resolution of environmental problems.
Each program must develop a system for quantifying the
gravity of violations of the laws and regulations it administers.
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This development must occur within the context of the penalty
amounts authorized by law for that program. That system must
be based, whenever possible, on objective indicators of the
seriousness of the violation. Examples of such indicators are
given below. The seriousness of the violation should be based
primarily on: 1) the risk of harm inherent in the violation at
the time it was committed and 2) the actual harm that resulted
from the violation. In some cases, the seriousness of the
risk of harm will exceed that of the actual harm. Thus, each
system should provide enough flexibility to allow EPA to consider
both factors in assessing penalties.
Each system must also be designed to minimize the possi-
bility that two persons applying the system to the same set of
facts would come up with substantially different numbers. Thus,
to the extent the system depends on categorizing events, those
categories must be clearly defined. That way there is little
possibility for argument over the category in which a violation
belongs. In addition, the categorization of the events relevant
to the penalty decision should be noted in the penalty develop-
ment portion of the case file.
B. Gravity Factors
In quantifying the gravity of a violation, a program-specific
policy should rank different types of violations according to the
seriousness of the act. The following is a suggested approach to
ranking the seriousness of violations. In this approach to rank-
ing, the following factors should be considered:
° Actual or possible harm: This factor
focuses on whether (and to what extent)
the activity of the defendant actually
resulted or was likely to result in an
unpermitted discharge or exposure.
0 Importance to the regulatory scheme: This
factor focuses on the importance of the
requirement to achieving the goal of the
statute or regulation. For example, if
labelling is the only method used to pre-
vent dangerous exposure to a chemical,
then failure to label should result in a
relatively high penalty. By contrast, a
warning sign that was visibly posted but
was smaller than the required size would
not normally be considered as serious.
° Availability of data from other sources:
The violation of any recordkeeping or
reporting requirement is a very serious
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matter. But if the involved requirement
is the only source of information, the
violation is far more serious. By contrast,
if the Agency has another readily available
and cheap source for the necessary infor-
mation, a smaller penalty may be appro-
priate. (E.g. a customer of the violator
purchased all the violator's illegally
produced substance. Even though the
violator does not have the required
records, the customer does.)
0 Size of violator: In some cases, the
gravity component should be increased
where it is clear that the resultant
penalty will otherwise have little
impact on the violator in light of the
risk of harm posed by the violation.
This factor is only relevant to the
extent it is not taken into account by
other factors.
The assessment of the first gravity factor listed above,
risk or harm arising from a violation, is a complex matter. For
purposes of ranking violations according to seriousness, it is
possible to distinguish violations within a category on the basis
of certain considerations, including the following:
0 Amount of pollutant: Adjustments for the
concentration of the pollutant may be
appropriate, depending on the regulatory
scheme and the characteristics of the
pollutant. Such adjustments need not be
linear, especially if the pollutant can
be harmful at low concentrations.
0 Toxicity of the pollutant: Violations
involving highly toxic pollutants are more
serious and should result in relatively
larger penalties.
° Sensitivity of the environment: This
factor focuses on the location where the
violation was committed. For example,
improper discharge into waters near a
drinking water intake or a recreational
beach is usually more serious than dis-
charge into waters not near any such use.
° The length of time a violation continues:
In most circumstances, the longer a
violation continues uncorrected, the
greater is the risk of harm.
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Although each program-specific policy should address each
of the factors listed above, or determine why it is not relevant,
the factors listed above are not meant to be exhaustive. The
programs should make every effort to identify all factors rele-
vant to assessing the seriousness of any violation. The programs
should then systematically prescribe a dollar amount to yield a
gravity component for the penalty. The program-specific policies
may prescribe a dollar range for a certain category of violation
rather than a precise dollar amount within that range based on
the specific facts of an individual case.
The process by which the gravity component was computed must
be memorialized in the case file. Combining the benefit component
with the gravity component yields the preliminary deterrence amount.
In some classes of cases, the normal gravity calculation may
be insufficient to effect general deterrence. This could happen
if there was extensive noncompliance with certain regulatory
programs in specific areas of the United States. This would
demonstrate that the normal penalty assessments had not been
achieving general deterrence. The medium specific policies should
address this issue. One possible approach would be to direct the
case development team to consider increasing the gravity component
within a certain range to achieve general deterrence. These extra
assessments should be consistent with the other goals of this
policy.
Initial and Adjusted Penalty Target Figure
The second goal of the Policy on Civil Penalties is the
equitable treatment of the regulated community. One important
mechanism for promoting equitable treatment is to include the
benefit component discussed above in a civil penalty assessment.
This approach would prevent violators from benefitting economi-
cally from their noncompliance relative to parties which have
complied with environmental requirements.
In addition, in order to promote equity, the system for
penalty assessment must have enough flexibility to account for
the unique facts of each case. Yet it still must produce enough
consistent results to treat similarly-situated violators similarly.
This is accomplished by identifying many of the legitimate differ-
ences between cases and providing guidelines for how to adjust
the preliminary deterrence amount when those facts occur. The
application of these adjustments to the preliminary deterrence
amount prior to the commencement of negotiation yields the initial
penalty target figure. During the course of negotiation, the case
development team may further adjust this figure to yield the
adjusted penalty target figure.
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Nevertheless, it should be noted that equitable treatment is
a two-edged sword. While it means that a particular violator will
receive no higher penalty than a similarly situated violator, it
also means that the penalty will be no lower.
I. Flexibility-Adjustment Factors
The purpose of this section of the document is to establish
additional adjustment factors to promote flexibility and to iden-
tify management techniques that will promote consistency. This
section sets out guidelines for adjusting penalties to account for
some factors that frequently distinguish different cases. Those
factors are: degree of willfulness and/or negligence, degree of
cooperation/noncooperation, history of noncompliance, ability to
pay, and other unique factors. Unless otherwise specified, these
adjustment factors will apply only to the gravity component and
not to the economic benefit component. Violators bear the burden
of justifying mitigation adjustments they propose based on these
factors.
Within each factor there are three suggested ranges of
adjustment. The actual ranges for each medium-specific policy
will be determined by those developing the policy. The actual
ranges may differ from these suggested ranges based upon program
specific needs. The first, typically a 0-20% adjustment of the
gravity component, is within the absolute discretion of the case
development team. }_/ The second, typically a 21-30% adjustment,
is only appropriate in unusual circumstances. The third range,
typically beyond 30% adjustment, is only appropriate in extra-
ordinary circumstances. Adjustments in the latter two ranges,
unusual and extraordinary circumstances, will be subject to scrutiny
in any performance audit. The case development team may wish to
reevaluate these adjustment factors as the negotiations progress.
This allows the team to reconsider evidence used as a basis for
the penalty in light of new information.
Where the Region develops the penalty figure, the appli-
cation of adjustment factors will be part of the planned Regional
audits. Headquarters will be responsible for proper application
of these factors in nationally-managed cases. A detailed dis-
cussion of these factors follows.
A. Degree of Willfulness and/or Negligence
Although most of the statutes which EPA administers are
strict liability statutes, this does not render the violator's
1/ Absolute discretion means that the case development team
may make penalty development decisions independent of EPA
Headquarters. Nevertheless it is understood that in all
judicial matters, the Department of Justice can still review
these determinations if they so desire. Of course the authority
to exercise the Agency's concurrence in final settlements is
covered by the applicable delegations.
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willfulness and/or negligence irrelevant. Knowing or willful
violations can give rise to criminal liability, and the lack
of any culpability may, depending upon the particular program,
indicate that no penalty action is appropriate. Between these
two extremes, the willfulness and/or negligence of the violator
should be reflected in the amount of the penalty.
In assessing the degree of willfulness and/or negligence,
all of the following points should be considered in most cases:
° How much control the violator had over the
events constituting the violation.
° The forseeability of the events consti-
tuting the violation.
° Whether the violator took reasonable
precautions against the events con-
stituting the violation.
° Whether the violator knew or should have
known of the hazards associated with the
conduct.
0 The level of sophistication within the
industry in dealing with compliance issues
and/or the accessibility of appropriate
control technology (if this information is
readily available). This should be balanced
against the technology forcing nature of the
statute, where applicable.
° Whether the violator in fact knew of the
legal requirement which was violated.
It should be noted that this last point, lack of knowledge
of the legal requirement, should never be used as a basis to
reduce the penalty. To do so would encourage ignorance of
the law. Rather, knowledge of the law should serve only to
enhance the penalty.
The amount of control which the violator had over how
quickly the violation was remedied is also relevent in certain
circumstances. Specifically, if correction of the environmental
problem was delayed by factors which the violator can clearly
show were not reasonably foreseeable and out of its control, the
penalty may be reduced.
The suggested approach for this factor is for the case
development team to have absolute discretion to adjust the
penalty up or down by 20% of the gravity component. Adjustments
in the + 21-30% range should only be made in unusual circumstances.
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Adjustments for this factor beyond + 30% should be made only in
extraordinary circumstances. Adjustments in the unusual or
extraordinary circumstance range will be subject to scrutiny in
any audit of performance.
R. Degree of Cooperation/Noncooperation
The degree of cooperation or noncooperation of the violator
in remedying the violation is an appropriate factor to consider in
adjusting the penalty. Such adjustments are mandated by both the
goals of equitable treatment and swift resolution of environmental
problems. There are three areas where this factor is relevant.
1. Prompt reporting of noncompliance
Cooperation can be manifested by the violator promptly
reporting its noncompliance. Assuming such self-reporting is not
required by law, such behavior should result in the mitigation of
any penalty.
The suggested ranges of adjustment are as follows. The case
development team has absolute discretion on any adjustments up to
+ 10% of the gravity component for cooperation/noncooperation.
Adjustments can be made up to + 20% of the gravity component, but
only in unusual circumstances. In extraordinary circumstances,
such as self reporting of a TSCA premanufacture notice violation,
the case development team may adjust the penalty beyond the + 20%
factor. Adjustments in the unusual or extraordinary circumstances
ranges will be subject to scrutiny in any performance audit.
2. Prompt correction of environmental problems
The Agency should provide incentives for the violator to
commit to correcting the problem promptly. This correction must
take place before litigation is begun, except in extraordinary
circumstances.V But since these incentives must be consistent
with deterrence, they must be used judiciously.
2/ For the purposes of this document, litigation is deemed to
begin:
0 for administrative actions - when the
respondent files a response to an adminis-
trative complaint or when the time to
file expires or
° for judicial actions - when an Assistant
United States Attorney files a com-
plaint in court.
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The circumstances under which the penalty is reduced depend
on the type of violation involved and the source's response to
the problem. A straightforward reduction in the amount of the
gravity component of the penalty is most appropriate in those
cases where either: 1) the environmental problem is actually cor-
rected prior to initiating litigation, or 2) ideally, immediately
upon discovery of the violation. Under this approach, the reduction
typically should be a substantial portion of the unadjusted gravity
component.
In general, the earlier the violator instituted corrective
action after discovery of the violation and the more complete
the corrective action instituted, the larger the penalty
reduction EPA will consider. At the discretion of the case
development team, the unadjusted gravity component may be
reduced up to 50%. This would depend on how long the environ-
mental problem continued before correction and the amount of any
environmental damage. Adjustments greater than 50% are permitted,
but will be the subject of close scrutiny in auditing performance.
It should be noted that in some instances, the violator
will take all necessary steps toward correcting the problem but
may refuse to reach any agreement on penalties. Similarly, a
violator may take some steps to ameliorate the problem, but
choose to litigate over what constitutes compliance. In such
cases, the gravity component of the penalty may be reduced up
to 25% at the discretion of the case development team. This
smaller adjustment still recognizes the efforts made to correct
the environmental problem, but the benefit to the source is not
as great as if a complete settlement is reached. Adjustments
greater than 25% are permitted, but will be the subject of close
scrutiny in auditing performance.
In all instances, the facts and rationale justifying the
penalty reduction must be recorded in the case file and in-
cluded in any memoranda accompanying settlement.
3. Delaying compliance
Swift resolution of environmental problems will be encour-
aged if the violator clearly sees that it will be financially
disadvantageous for the violator to litigate without remedying
noncompliance. The settlement terms described in the preceding
section are only available to parties who take steps to correct a
problem prior to initiation of litigation. To some extent, this
is an incentive to comply as soon as possible. Nevertheless, once
litigation has commenced, it should be clear that the defendant
litigates at its own risk.
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In addition, the methods for computing the benefit component
and the gravity component are both structured so that the penalty
target increases the longer the violation remains uncorrected.
The larger penalty for longer noncompliance is systematically
linked to the benefits accruing to the violator and to the con-
tinuing risk to human health and the environment. This occurs
even after litigation has commenced. This linkage will put the
Agency in a strong position to convince the trier of fact to
impose such larger penalties. For these reasons, the Pol icy
on Civil Penalties provides substantial disincentives to litigat-
ing without complying.
C. History of noncompliance
Where a party has violated a similar environmental require-
ment before, this is usually clear evidence that the party was
not deterred by the Agency's previous enforcement response.
Unless the previous violation was caused by factors entirely out
of the control of the violator, this is an indication that the
penalty should be adjusted upwards.
In deciding how large these adjustments should be, the case
development team should consider the following points:
° How similar the previous violation was.
° How recent the previous violation was.
° The number of previous violations.
° Violator's response to previous violation(s)
in regard to correction of the previous
problem.
Detailed criteria for what constitutes a "similar violation"
should be contained in each program-specific policy. Neverthe-
less a violation should generally be considered "similar1' if the
Agency's previous enforcement response should have alerted the
party to a particular type of compliance problem. Some facts
that indicate a "similar violation" was committed are as follows:
° The same permit was violated.
° The same substance was involved.
0 The same process points were the source
of the violation.
° The same statutory or regulatory provision
was violated.
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° A similar act or omission (e.g. the failure
to properly store chemicals) was the basis
of the violation.
For purposes of this section, a "prior violation" includes
any act or omission for which a formal enforcement response has
occurred (e.g. notice of violation, warning letter, complaint,
consent decree, consent agreement, or final order). It also
includes any act or omission for which the violator has pre-
viously been given written notification, however informal, that
the Agency believes a violation exists.
In the case of large corporations with many divisions or
wholly-owned subsidiaries, it is sometimes difficult to deter-
mine whether a previous instance of noncompliance should trigger
the adjustments described in this section. New ownership often
raises similar problems. In making this determination, the case
development team should ascertain who in the organization had
control and oversight responsibility for the conduct resulting
in the violation. In some situations the same persons or the
same organizational unit had or reasonably should have had
control or oversight responsibility for violative conduct. In
those cases, the violation will be considered part of the com-
pliance history of that regulated party.
In general, the case development team should begin with
the assumption that if the same corporation was involved, the
adjustments for history of noncompliance should apply. In
addition, the case development team should be wary of a party
changing operators or shifting responsibility for compliance to
different groups as a way of avoiding increased penalties. The
Agency may find a consistent pattern of noncompliance by many
divisions or subsidiaries of a corporation even though the
facilities are at different geographic locations. This often
reflects, at best, a corporate-wide indifference to environmental
protection. Consequently, the adjustment for history of noncom-
pliance should probably apply unless the violator can demonstrate
that the other violating corporate facilities are independent.
The following are the Framework's suggested adjustment
ranges. If the pattern is one of "dissimilar" violations,
relatively few in number, the case development team has absolute
discretion to raise the penalty amount by 35%. For a relatively
large number of dissimilar violations, the gravity component can
be increased up to 70%. If the pattern is one of "similar"
violations, the case development team has absolute discretion to
raise the penalty amount up to 35% for the first repeat violation,
and up to 70% for further repeated similar violations. The case
development team may make higher adjustments in extraordinary
circumstances, but such adjustments will be subject to scrutiny
in any performance audit.
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P. Ability to pay
The Agency will generally not request penalties that are
clearly beyond the means of the violator. Therefore EPA should
consider the ability to pay a penalty in arriving at a specific
final penalty assessment. At the same time, it is important
that the regulated community not see the violation of environ-
mental requirements as a way of aiding a financially troubled
business. EPA reserves the option, in appropriate circumstances,
of seeking a penalty that might put a company out of business.
For example, it is unlikely that EPA would reduce a penalty
where a facility refuses to correct a serious violation. The same
could be said for a violator with a long history of previous vio-
lations. That long history would demonstrate that less severe
measures are ineffective.
The financial ability adjustment will normally require a
significant amount of financial information specific to the
violator. If this information is available prior to commence-
ment of negotiations, it should be assessed as part of the
initial penalty target figure. If it is not available, the
case development team should assess this factor after commence-
ment of negotiation with the source.
The burden to demonstrate inability to pay, as with the
burden of demonstrating the presence of any mitigating circum-
stances, rests on the defendant. If the violator fails to
provide sufficient information, then the case development team
should disregard this factor in adjusting the penalty. The
National Enforcement Investigations Center (NEIC) has developed
the capability to assist the Regions in determining a firm's
ability to pay. Further information on this system will be made
available shortly under separate cover.
When it is determined that a violator cannot afford the
penalty prescribed by this policy, the following options should
be considered:
° Consider a delayed payment schedule: Such a
schedule might even be contingent upon an
increase in sales or some other indicator of
improved business. This approach is a real
burden on the Agency and should only be
considered on rare occasions.
° Consider non-monetary alternatives, such as
public service activities: For example, Tn
the mobile source program, fleet operators
who tampered with pollution control devices
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on their vehicles agreed to display anti-
tampering ads on their vehicles. Similar
solutions may be possible in other industries.
° Consider straight penalty reductions as a last
recourse: If this approach is necessary, the
reasons for the case development team's
conclusion as to the size of the necessary
reduction should be made a part of the formal
enforcement file and the memorandum accompany-
ing the settlement. jV
° Consider joinder of the violator's individual
owners: This is appropriate if joinder is
legally possible and justified under the
c i rcumstances.
Regardless of the Agency's determination of an appropriate
penalty amount to pursue based on ability to pay considerations,
the violator is still expected to comply with the law.
E. Other unique factors
Individual programs may be able to predict other factors
that can be expected to affect the appropriate penalty amount.
Those factors should be identified and guidelines for their use
set out in the program-specific policies. Nevertheless, each
policy should allow for adjustment for unanticipated factors
which might affect the penalty in each case.
It is suggested that there be absolute discretion to adjust
penalties up or down by 10% of the gravity component for such
reasons. Adjustments beyond the absolute discretion range will
be subject to scrutiny during audits. In addition, they will
primarily be allowed for compelling public policy concerns or the
strengths and equities of the case. The rationale for the reduction
must be expressed in writing in the case file and in any memoranda
accompanying the settlement. See the discussion on pages 12 and
13 for further specifics on adjustments appropriate on the basis
of either compelling public policy concerns or the strengths and
equities of the case.
II. Alternative Payments
In the past, the Agency has accepted various environmentally
beneficial expenditures in settlement of a case and chosen not to
3/ If a firm fails to pay the agreed-to penalty in an adminis-
trative or judicial final order, then the Agency must follow
the Federal Claims Collection Act procedures for obtaining the
penalty amount.
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pursue more severe penalties. In general, the regulated community
has been very receptive to this practice. In many cases,
violators have found "alternative payments" to be more attrac-
tive than a traditional penalty. Many useful projects have been
accomplished with such funds. But in some instances, EPA has
accepted for credit certain expenditures whose actual environ-
mental benefit has been somewhat speculative.
The Agency believes that these alternative payment projects
should be reserved as an incentive to settlement before litigation.
For this reason, such arrangements will be allowed only in preliti-
gation agreements except in extraordinary circumstances.
In addition, the acceptance of alternative payments for
environmentally beneficial expenditures is subject to certain
conditions. The Agency has designed these conditions to prevent
the abuse of this procedure. Most of the conditions below applied
in the past, but some are new. All of these conditions must be
met before alternative payments may be accepted :V
° No credits can be given for activities
that currently are or will be required
under current law or are likely to be re-
quired under existing statutory authority
in the forseeable future (e.g., through
upcoming rulemaking).
° The majority of the project's environmental
benefit should accrue to the general public
rather than to the source or any particular
governmental unit.
° The project cannot be something which the
violator could reasonably be expected to do
as part of sound business practices.
4/ in extraordinary circumstances, the Agency may choose not to
pursue higher penalties for "alternative" work done prior to
commencement of negotiations. For example, a firm may recall a
product found to be in violation despite the fact that such
recall is not required. In order for EPA to forgo seeking
higher penalties, the violator must prove that it has met the
other conditions herein stated. If the violator fails to prove
this in a satisfactory manner, the case development team has the
discretion to completely disallow the credit project. As with
all alternative projects, the case development team has the dis-
cretion to still pursue some penalties in settlement.
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° EPA must not lower the amount it decides
to accept in penalties by more than the
after-tax amount the violator spends on
the project.£/
In all cases where alternative payments are allowed, the
case file should contain documentation showing that each of
the conditions listed above have been met in that particular
case. In addition when considering penalty credits, Agency
negotiators should take into account the following points:
° The project should not require a large
amount of EPA oversight for its comple-
tion. In general the less oversight
the proposed credit project would
require from EPA to ensure proper
completion, the more receptive EPA
can be toward accepting the project
in settlement.
° The project should receive stronger
consideration if it will result in the
abatement of existing pollution,
ameliorate the pollution problem that
is the basis of the government's claim
and involve an activity that could be
ordered by a judge as equitable relief.
° The project should receive stronger
consideration if undertaken at the
facility where the violation took place.
° The company should agree that any publicity
it disseminates regarding its funding of
the project must include a statement that
such funding is in settlement of a lawsuit
brought by EPA or the State.
5/ This limitation does not apply to public awareness activities
such as those employed for fuel switching and tampering violations
under the Clean Air Act. The purpose of the limitation is to
preserve the deterrent value of the settlement. But these viola-
tions are often the result of public misconceptions about the
economic value of these violations. Consequently, the public
awareness activities can be effective in preventing others from
violating the law. Thus, the high general deterrent value of
public awareness activities in these circumstances obviates the
need for the one-to-one requirement on penalty credits.
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Each alternative payment plan must entail an identified
project to be completely performed by the defendant. Under the
plan, EPA must not hold any funds which are to be spent at EPA's
discretion unless the relevant statute specifically provides
that authority. The final order, decree or judgment should
state what financial penalty the violator is actually paying and
describe as precisely as possible the credit project the violator
is expected to perform.
III. Promoting Consistency
Treating similar situations in a similar fashion is central
to the credibility of EPA's enforcement effort and to the success
of achieving the goal of equitable treatment. This document has
established several mechanisms to promote such consistency. Yet
it still leaves enough flexibility for settlement and for tailor-
ing the penalty to particular circumstances. Perhaps the most
important mechanisms for achieving consistency are the systematic
methods for calculating the benefit component and gravity compo-
nent of the penalty. Together, they add up to the preliminary
deterrence amount. The document also sets out guidance on uniform
approaches for applying adjustment factors to arrive at an initial
penalty target prior to beginning settlement negotiations or an
adjusted penalty target after negotiations have begun.
Nevertheless, if the Agency is to promote consistency, it
is essential that each case file contain a complete description
of how each penalty was developed. This description should cover
how the preliminary deterrence amount was calculated and any
adjustments made to the preliminary deterrence amount. It should
also describe the facts and reasons which support such adjustments.
Only through such complete documentation can enforcement attorneys,
program staff and their managers learn from each others' experience
and promote the fairness required by the Policy on Civil Penalties.
To facilitate the use of this information, Office of Legal
and Enforcement Policy will pursue integration of penalty infor-
mation from judicial enforcement actions into a computer system.
Both Headquarters and all Regional offices will have access to
the system through terminals. This would make it possible for
the Regions to compare the handling of their cases with those of
other Regions. It could potentially allow the Regions, as well
as Headquarters, to learn from each others' experience and to
identify problem areas where policy change or further guidance
is needed.
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Use of Penalty Figure in Settlement Discussions
The Pol icy and Framework do not seek to constrain negotiations.
Their goal is to set settlement target figures for the internal
use of Agency negotiators. Consequently, the penalty figures
under negotiation do not necessarily have to be as low as the
internal target figures. Nevertheless, the final settlement
figures should go no lower than the internal target figures unless
either: 1) the medium-specific penalty policy so provides or
2) the reasons for the deviation are properly documented.
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