UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WSG82
Date Signed: December 22, 1995
ENVIRONMENTAL PROTECTION
AGENCY
[FRL-5400-1]
Incentives for Self-Policing: Discovery,
Disclosure, Correction and Prevention of
Violations
AGENCY: Environment Protection Agency
(EPA)
ACTION: Final Policy Statement.
Summary: The Environmental
Protection Agency (EPA) today issues
its final policy to enhance protection
of human health and the environment
by encouraging regulated entities to
voluntarily discover, and disclose and
correct violations of environmental
requirements. Incentives include
eliminating or substantially reducing
the gravity component of civil
penalties and not recommending cases
for criminal prosecution where
specified conditions are met, to those
who voluntarily self-disclose and
promptly correct violations. The
policy also restates EPA's long-
standing practice of not requesting
voluntary audit reports to trigger
enforcement investigations. This
policy was developed in close
consultation with the U.S. Department
of Justice, states, public interest
groups and the regulated community,
and will be applied uniformly by the
Agency's enforcement programs.
DATES: This policy is effective
January 22, 1996.
FOR FURTHER INFORMATION
CONTACT: Additional
documentation relating to the
development of this policy is
contained in the environmental
auditing public docket. Documents
from the docket may be obtained by
calling (202) 260-7548, requesting an
index to docket #C-94-01, and faxing
document requests to (202) 260-4400.
Hours of operation are 8 a.m. to 5:30
p.m., Monday through Friday, except
legal holidays. Additional contacts are
Robert Fentress or Brian Riedel, at
(202) 5644187.
SUPPLEMENTARY
INFORMATION:
I. Explanation of Policy
A. Introduction
The Environmental Protection
Agency today issues its final policy to
enhance protection of human health
and the environment by encouraging
regulated entities to discover
voluntarily, disclose, correct and
prevent violations of federal
environmental law. Effective 30 days
from today, where violations are
found through voluntary
environmental audits or efforts that
reflect a regulated entity's due
diligence, and are promptly disclosed
and expeditiously corrected, EPA will
not seek gravity-based (i.e., non-
economic benefit) penalties and will
generally not recommend criminal
prosecution against the regulated
entity. EPA will reduce gravity-based
penalties by 75% for violations that
are voluntarily discovered, and are
promptly disclosed and corrected,
even if not found through a formal
audit or due diligence. Finally, the
policy restates EPA's long-held policy
and practice to refrain from routine
requests for environmental audit
reports. The policy includes important
safeguards to deter irresponsible
behavior and protect the public and
environment. For example, in addition
to prompt disclosure and expeditious
correction, the policy requires
companies to act to prevent recurrence
of the violation and to remedy any
environmental harm which may have
occurred. Repeated violations or those
which result in actual harm or may
present imminent and substantial
endangerment are not eligible for
relief under this policy, and companies
will not be allowed to gain an
economic advantage over their
W
s
G
competitors by delaying their
investment in compliance.
Corporations remain criminally liable
for violations that result from
conscious disregard of their
obligations under the law, and
individuals are liable for criminal
misconduct.
The issuance of this policy
concludes EPA's eighteen-month
public evaluation of the optimum way
to encourage voluntary self-policing
while preserving fair and effective
enforcement. The incentives,
conditions and exceptions announced
today reflect thoughtful suggestions
from the Department of Justice, state
attorneys general and local
prosecutors, state environmental
agencies, the regulated community,
and public interest organizations. EPA
believes that it has found a balanced
and responsible approach, and will
conduct a study within three years to
determine the effectiveness
of this policy.
B. Public Process
One of the Environmental
Protection Agency's most important
responsibilities is ensuring
compliance with federal laws that
protect public health and safeguard
the environment. Effective deterrence
requires inspecting, bringing penalty
actions and securing compliance and
remediation of harm. But EPA
realizes that achieving compliance
also requires the cooperation of
thousands of businesses and other
regulated entities subject to these
requirements. Accordingly, in May
of 1994, the Administrator asked the
Office of Enforcement and
Compliance Assurance (OECA) to
determine whether additional
incentives were needed to encourage
voluntary disclosure and correction
of violations uncovered during
environmental audits.
EPA began its evaluation with a
two-day public meeting in July of
1994, in Washington, D.C., followed
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by a two-day meeting in San
Francisco on January 19, 1995 with
stakeholders from industry, trade
groups, state environmental
commissioners and attorneys general,
district attorneys, public interest
organizations and professional
environmental auditors. The Agency
also established and maintained a
public docket of testimony presented
at these meetings and all comment and
correspondence submitted to EPA by
outside parties on this issue. In
addition to considering opinion and
information from stakeholders, the
Agency examined other federal and
state policies related to self-policing,
serf-disclosure and correction. The
Agency also considered relevant
surveys on auditing practices in the
private sector. EPA completed the first
stage of this effort with the
announcement of an interim policy on
April 3 of this year, which defined
conditions under which EPA would
reduce civil penalties and not
recommend criminal prosecution for
companies that audited, disclosed, and
corrected violations.
Interested parties were asked to
submit comment on the interim policy
by June 30 of this year (60 FR 16875),
and EPA received over 300 responses
from a wide variety of private and
public organizations. (Comments on
the interim audit policy are contained
in the Auditing Policy Docket,
hereinafter, '"Docket"'.) Further, the
American Bar Association SONREEL
Subcommittee hosted five days of
dialogue with representatives from the
regulated industry, states and public
interest organizations in June and
September of this year, which
identified options for strengthening
the interim policy. The changes to the
interim policy announced today reflect
insight gained through comments
submitted to EPA, the ABA dialogue,
and the Agency's practical experience
implementing the interim policy.
C. Purpose
This policy is designed to encourage
greater compliance with laws and
regulations that protect human health
and the environment. It promotes a
higher standard of self-policing by
waiving gravity-based penalties for
violations that are promptly disclosed
and corrected, and which 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-Waterhouse survey is contained
in the Docket as document VIII-A-
76.)
At the same time, 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-
Waterhouse 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 the frequency 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,
serf-disclosure, and prompt serf-
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
refraining from routine 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 are promptly disclosed
and corrected. Gravity-based penalties
will also be waived for violations
found through any documented
procedure for self- policing, 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, it 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 (see, e.g., Docket, II-F-
39, II-F-28, andII-F-18).
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2. 75% Reduction of Gravity
The policy
appropriately limits 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 discovered 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-based
penalties will be reduced
75% only where the company
meets all conditions in
Section 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 the Agency
believes that all of the
conditions in D(2) through
D(9) are reasonable and
essential to achieve
compliance. This change
also responds to request for
greater clarity and
predictability.
3. No Recommendations for
Criminal Prosecution
EPA has never
recommended criminal
prosecution of a regulated
entity based on voluntary
disclosure of violations
discovered through audits
and disclosed to the
government before an
investigation was already
under way. Thus, EPA will
not recommend criminal
prosecution for a regulated
entity that uncovers
violations through
environmental audits or due
diligence, promptly
disclosures and expeditiously
correct 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, where corporate
officials are consciously
involved in or willfully blind
to violations, or conceal or
condone noncompliance.
Since the regulated 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
the criminal conduct of any
culpable individual.
Even where all of
the conditions of this policy
are not met, however, it is
important to remember that
EPA may decline to
recommend prosecution of a
company or individual for
many other reasons under
other Agency enforcement
policies. For example, the
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, and correction
apply in both cases. This
represents a clarification of
the interim policy, not a
substantive change, objective,
and periodic as defined in the
1986 audit policy, or (b) a
documented, systematic
procedure or practice which
reflects 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 required by
statue, 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, disclosure 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 violations 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
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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
of NPDES discharge limits
found through prescribed
monitoring, and violations
discovered through a
4. 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 serf-
disclosed to the government.
E. Conditions
Section D describes
the nine conditions that a
regulated entity must meet in
order for the Agency 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 meets all
of the conditions except the
first (D(l)), EPA will reduce
gravity-based penalties by
75%.
1. Discovery of the Violation
Through an Environmental
Audit or Due Diligence
Under Section D(l),
the violation msut have been
discovered through either (a)
an environmental audit that is
systematic, 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, andII-G-18inthe
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.
2. 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 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
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-48 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
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environmental risk and gauge
progress in reducing pollutant
loadings. EPA expects the
policy to encourage the kind
of vigorous serf-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 reports from the
regulated community. Under
Section D(4), disclosure of
the violation should be made
within 10 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 the law.
Where reporting within 10
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
to achieve or return to
compliance as soon as
possible.
In the final policy,
the Agency has added the
works, "or may have
occurred", to the sentence,
"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. EPA
will, independently of FOIA,
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. 1 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. Discover 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 stated 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 carrying out any
removal or remedial action
required by law), and
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
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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 violation 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
achieve or 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 to secure
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 recurrence of the
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 commenters (see, e.g.,
II-F-39andII-G-18inthe
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 D(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 years. This
provides companies with a
continuing incentive to
prevent violations, without
being unfair to regulated
entities responsible for
managing hundreds of
facilities. It would be
unreasonable to provide
unlimited amnesty for
repeated violations of the
same requirement.
The term
"violation" includes any
violation subject to a federal
or state civil judicial or
administrative order, consent
agreement, conviction or plea
agreement. Recognizing that
minor violations are
sometimes settled without a
formal action in court, the
term also covers any act or
omission for which the
regulated entity has received
a penalty 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
are 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 other 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, II-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
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in this section applies to
violations of the terms of
any response, removal or
remedial action covered by 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 assistance in
determining the facts of any
related violations suggested
by the disclosure, as well as
of the disclosed violation
itself. This was added to
allow the agency to obtain
information about any
violations indicated by the
disclosure, even where the
violation is not initially
identified by the regulated
entity.
F. Opposition to Privilege
The Agency
remains firmly opposed to
the establishment of a
statutory evidentiary
privilege for environmental
audits for the following
reasons:
1. Privilege, by
definition, invites secrecy,
instead of the openness
needed to build public trust
in industry's ability to self-
police. American law
reflects the high value that
the public places on fair
access to the facts. The
Supreme Court, for
example, has said of
privileges that, " [w]hatever
their origins, these
exceptions to the demand
for every man's evidence
are not lightly created nor
expansively construed, for
they are in derogation of the
search for truth." United
States v. Nixon, 418 U.S.
683 (1974). Federal courts
have unanimously refused
to recognize a privilege for
environmental audits in the
context of government
investigations. See, e.g.,
United States v. Dexter, 132
F.R.D. 8, 9-10 (D.Conn.
1990) (application of a
privilege "would
effectively impede [EPA's]
ability to enforce the Clean
Water Act, and would be
contrary to stated public
policy.")
2. Eighteen months
have failed to produce any
evidence that a privilege is
needed. Public testimony on
the interim policy confirmed
that EPA rarely uses audit
reports as evidence.
Furthermore, surveys
demonstrate that
environmental auditing has
expanded rapidly over the
past decade without the
stimulus of a privilege. Most
recently, the 1995 Price
Waterhouse survey found
that those few large or mid-
sized companies that do not
audit generally do not
perceive any need to; concern
about confidentiality ranked
as one of the least important
factors in their decisions.
3. A privilege would
invite defendants to claim as
"audit" material almost any
evidence the government
needed to establish a
violation or determine who
was responsible. For
example, most audit privilege
bills under consideration in
federal and state legislatures
would arguably protect
factual information-such as
health studies or
contaminated sediment data--
and not just the conclusions
of the auditors. While the
government might have
access to required monitoring
data under the law, as some
industry commenters have
suggested, a privilege of that
nature would cloak
underlying facts needed to
determine whether such data
were accurate.
4. An audit privilege
would breed litigation, as
both parties struggled to
determine what material fell
within its scope. The problem
is compounded by the lack of
any clear national standard
for audits. The "in camera"
(i.e., non-public) proceedings
used to resolve these disputes
under some statutory
schemes would result in a
series of time- consuming,
expensive mini-trials.
5. The Agency's policy
eliminates the need for any
privilege as against the
government, by reducing
civil penalties and criminal
liability for those companies
that audit, disclose and
correct violations. The 1995
Price Waterhouse survey
indicated that companies
would expand their auditing
programs in exchange for the
kind of incentives that EPA
provides in its policy.
6. Finally, audit privileges
are strongly opposed by the
law enforcement community,
including the National
District Attorneys
Association, as well as by
public interest groups. (See,
e.g., Docket, II-C-21, II-C-
28, II-C-52, IV-G-10, II-C-
25, II-C-33, II-C-52, II-C-48,
andII-G-13 through II-G-24.)
G. Effect on States
The final policy reflects
EPA's desire to develop fair
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and effective incentives for
self-policing that will have
practical value to states that
share responsibility for
enforcing federal
environmental laws. To that
end, the Agency has
consulted closely with state
officials in developing this
policy, through a series of
special meetings and
conference calls in addition
to the extensive opportunity
for public comment. As a
result, EPA believes its final
policy is grounded in
common-sense principles that
should prove useful in the
development of state
programs and policies.
As always, states are
encouraged to experiment
with different approaches that
do not jeopardize the
fundamental national interest
in assuring that violations of
federal law do not threaten
the public health or the
environment, or make it
profitable not to comply. The
Agency remains opposed to
state legislation that does not
include these basic
protections, and reserves its
right to bring independent
action against regulated
entities for violations of
federal law that threaten
human health or the
environment, reflect criminal
conduct or repeated
noncompliance, or allow one
company to make a
substantial profit at the
expense of its law-abiding
competitors. Where a state
has obtained appropriate
sanctions needed to deter
such misconduct, there is no
need for EPA action.
H. Scope of Policy
EPA has developed
this document as a policy to
guide settlement actions.
EPA employees will be
expected to follow this
policy, and the Agency will
take steps to assure national
consistency in application.
For example, the Agency will
make public any compliance
agreements reached under
this policy, in order to
provide the regulated
community with fair notice of
decisions and greater
accountability to affected
communities. Many in the
regulated community
recommended that the
Agency convert the policy
into a regulation because they
felt it might ensure greater
consistency and
predictability. While EPA is
taking steps to ensure
consistency and predictability
and believes that it will be
successful, the Agency will
consider this issue and will
provide notice if it
determines that a rulemaking
is appropriate.
II. Statement of Policy:
Incentives for Self-Policing
Discovery, Disclosure,
Correction and
Prevention
A. Purpose
This policy is designed
to enhance protection of
human health and the
environment by
encouraging regulated
entities to voluntarily
discover, disclose, correct
and prevent violations of
federal environmental
requirements.
B. Definitions
For purposes of this policy,
the following definitions
apply: "Environmental
Audit" has the definition
given to it in EPA's 1986
audit policy on
environmental auditing, i.e.,
"a systematic, documented,
periodic and objective review
by regulated entities of
facility operations and
practices related to meeting
environmental requirements."
"Due Diligence"
encompasses the regulated
entity's systematic efforts,
appropriate to the size and
nature of its business, to
prevent, detect and correct
violations through all of
the following:
(a) Compliance policies,
standards and procedures that
identify how employees and
agents are to meet the
requirements of laws,
regulations, permits and other
sources of authority for
environmental requirements;
(b) Assignment of overall
responsibility for overseeing
compliance with policies,
standards, and procedures,
and assignment of specific
responsibility for assuring
compliance at each facility or
operation;
(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;
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(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, conclusion, 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
than 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 long as the regulated entity
satisfies all of the conditions of
Section D(2) through D(9) below.
3. No Criminal Recommendation
(a) 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.
4. No Routine Request for Audits
EPA will not 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 correct
violations according to the criteria for
due diligence outlined in Section B.
EPA may require as a condition of
penalty mitigation that a description of
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;
(b) violations of National Pollutant
Discharge Elimination System
(NPDES) discharge limits detected
through required sampling or
monitoring;
(c) violations discovered through
acompliance 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 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 regulated
entity;
(b) notice of a citizen suit;
(c) the filing of a complaint
by a third party;
(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
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violation within 60 days, certifies in
writing that violations have been
corrected, and takes appropriate
measures as determined by 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
decree, particularly where compliance
or remedial 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 to prevent a
recurrence of the violation, which may
include improvements to its
environmental auditing or due
diligence efforts;
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 part 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, state
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 the
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 its full discretion to
recover any economic benefit gained
as a result of noncompliance to
preserve a "level playing field" in
which 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, as well as to blanket
immunities for violations that reflect
criminal conduct, present serious
threats or actual harm to health and the
environment, allow non complying
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 to take necessary
actions to protect public health or the
environment by enforcing against any
violations of federal law.
G. Applicability
(1) 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 andEPA's 1986
Environmental Auditing Policy
Statement.
(2) To the extent that existing
EPA enforcement policies are not
inconsistent, 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 to 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 states 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 does not create any rights,
duties, obligations, or defenses,
implied or otherwise, in any third
parties.
(4) This policy should be used
whenever applicable in settlement
negotiations for both administrative
and civil judicial enforcement
actions. It is not intended for use in
pleading, at hearing or at trial. The
policy may be 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 policy in encouraging:
(a) changes in compliance
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behavior within the regulated
community, including improved
compliance rates;
(b) prompt disclosure and
correction of violations, including
timely and accurate compliance with
reporting requirements;
(c) corporate compliance
programs that are successful in
preventing violations, improving
environmental performance, and
promoting public disclosure;
(d) consistency among state
programs that provide incentives for
voluntary compliance.
EPA will make the study
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 the
schedule for returning to compliance.
I. Effective Date
This policy is effective January
22, 1996.
Dated: December 18, 1995.
Steven A. Herman, Assistant
Administrator for Enforcement and
Compliance Assurance. [FR Doc. 95-
31146 Filed 12-21-95; 8:45 am]
BILLING CODE 6560-50-P
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