UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
WSG89
Date Signed: June 3, 1996
Federal Register/Vol. 61, No. 107/Monday, June 3, 1996/Notices pp. 27983-27987
Part IV: Environmental Protection Agency, Interim Policy on Compliance Incentives for Small
Businesses; Notice.
ENVIRONMENTAL PROTECTION
AGENCY
[FRL-5512-7]
Interim Policy on Compliance Incentives for
Small Businesses
AGENCY: Office of Enforcement and
Compliance Assurance, EPA.
ACTION: Notice of final policy.
SUMMARY: The Office of Enforcement and
Compliance Assurance (EPA) is issuing this
Final Policy on Compliance Incentives for
Small Businesses. This Final Policy is
intended to promote environmental
compliance among small businesses by
providing them with incentives to participate
in compliance assistance programs or to
conduct environmental audits and to then
promptly correct violations. The Policy
accomplishes this in two ways: by setting
forth guidelines for the Agency to reduce or
waive penalties for small businesses that
make good faith efforts to correct violations,
and by providing guidance for States and
local governments to offer these incentives.
EFFECTIVE DATE: This Policy is effective
June 10,1996.
FURTHER INFORMATION CONTACT:
David Hindin, 202-564-2235, Office of
Regulatory Enforcement, Mail Code 2248-A,
or Karin Leff, 202-564-7068, Office of
Compliance, Mail Code 2224-A, United
States Environmental Protection Agency, 401
M Street, S.W., Washington, D.C . 20460.
SUPPLEMENTARY INFORMATION:
Pursuant to this Policy, EPA will refrain from
initiating an enforcement action seeking civil
penalties, or will mitigate civil penalties,
whenever a small business makes a good
faith effort to comply with environmental
requirements by receiving on-site compliance
assistance or promptly disclosing the findings
of a voluntarily conducted environmental
audit, subject to certain conditions. These
conditions require that the violation: is the
small business's first violation of the
particular requirement; does not involve
criminal conduct; has not and is not causing a
significant health, safety or environmental
threat or harm; and is remedied within the
corrections period. Moreover, EPA will defer
to State actions that are consistent with the
criteria set forth in this Policy.
This Final Policy supersedes the Interim
version of the Policy issued in June 1995.
See 60 FR 32675, June 23, 1995. The
Agency revised the Interim version based on
the comments we received from the public in
response to the Federal Register notice, as
well as the comments we received from EPA
Regional offices and States. The major
change in this final version of the Policy is to
allow small businesses to obtain the penalty
relief provided by this Policy not only by
using on-site compliance assistance, but also
by conducting an environmental audit, and
promptly disclosing and correcting the
violations. There are two reasons for this
change. First, this addresses the major
criticism of the Interim Policy that there are
few on-site compliance assistance programs
sponsored or run by government agencies.
Thus, this change enables more small
businesses to use the Policy. Second, fairness
suggests that if small businesses who seek
tax-payer funded compliance assistance from
the government can get penalty relief, then
businesses who spend their own money to do
an audit, should be able to get similar relief.
We also have slightly modified the penalty
relief guidelines in section F of the Policy.
Guidelines 1 and 2 remain the same as they
were in the June 1995 Interim version. We
have added a new third guideline which
states:
3. If a small business meets all of the criteria,
except it has obtained a significant economic benefit
from the violation(s) such that it may have obtained
an economic advantage over its competitors, EPA
will waive up to 100% of the gravity component of
the penalty, but may seek the full amount of any
economic benefit associated with the violations.
EPA retains this discretion to ensure that small
businesses that comply with public health
protections are not put at serious marketplace
disadvantage by those who have not complied. EPA
anticipates that this will occur very infrequently.
This new guideline is necessary to ensure
that we continue to provide a national level
playing field. Small businesses that make
significant expenditures to comply with the
law should not be put at an economic
disadvantage by those who did not comply.
Most of the other changes in the final Policy
are clarifications or editorial in nature. The
entire text of the Policy appears below.
Dated: May 10, 1996.
Steven A. Herman,
Assistant Administrator, Office of
Enforcement and Compliance Assurance,
United States Environmental Protection
Agency.
A. Introduction
This document sets forth the U.S.
Environmental Protection Agency's Policy on
Compliance Incentives for Small Businesses.
This Policy is one of the 25 regulatory reform
initiatives announced by President Clinton on
March 16, 1995, and implements, in part, the
Executive Memorandum on Regulatory
Reform, 60 FR 20621, April 26, 1995. The
Executive Memorandum provides in
pertinent part:
This Policy also implements section 223 of
the Small Business Regulatory Enforcement
Fairness Act of 1996, signed into law by the
President on March 29, 1996.
As set forth in this Policy, EPA will refrain
from initiating an enforcement action seeking
civil penalties, or will mitigate civil penalties,
whenever a small business makes a good
faith effort to comply with environmental
requirements by receiving compliance
assistance or promptly disclosing the findings
of a voluntarily conducted environmental
audit, subject to certain conditions. These
conditions require that the violation: is the
small business's first violation of the
particular requirement; does not involve
criminal conduct; has not and is not causing a
significant health, safety or environmental
threat or harm; and is remedied within the
corrections period. Moreover, EPA will defer
to State actions that are consistent with the
criteria set forth in this Policy.
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B. Background
The Clean Air Act (CAA) Amendments of
1990 require that States establish Small
Business Assistance Programs (SBAPs) to
provide technical and environmental
compliance assistance to stationary sources.
On August 12, 1994, EPA issued an
enforcement response policy for stationary
sources which provided that an authorized or
delegated state program may, consistent with
federal requirements, either:
(1) Assess no penalties against small businesses
that voluntarily seek compliance assistance and
correct violations revealed as a result of compliance
assistance within a limited period of time; or
(2) Keep confidential information that identifies
the names and locations of specific small businesses
with violations revealed through compliance
assistance, where the SBAP is independent of the
state enforcement program.
In a further effort to assist small businesses
to comply with environmental regulations,
and to achieve health, safety, and
environmental benefits, the Agency is
adopting a broader policy for all media
programs, including water, air, toxics, and
hazardous waste.
C. Purpose
This Policy is intended to promote
environmental compliance among small
businesses by providing incentives for them
to participate in on- site compliance
assistance programs and to conduct
environmental audits. Further, the Policy
encourages small businesses to expeditiously
remedy all violations discovered through
compliance assistance and environmental
audits. The Policy accomplishes this in two
ways: by setting forth a settlement penalty
Policy that rewards such behavior, and by
providing guidance for States and local
governments to offer these incentives.
D. Applicability
This Policy applies to facilities owned by
small businesses as defined here. A small
business is a person, corporation, partnership,
or other entity who employs 100 or fewer
individuals (across all facilities and
operations owned by the entity).1 This
definition is a simplified version ofthe CAA
Sec. 507 definition of small business. On
balance, EPA determined that a single
definition would make implementation of
this Policy straightforward and would allow
for consistent application ofthe Policy in a
multimedia context.
This Policy is effective June 10, 1996 and
on that date supersedes the Interim version of
this Policy issued on June 13, 1995 and the
September 19, 1995 Qs and As guidance on
the Interim version. This Policy applies to all
civil judicial and administrative enforcement
actions taken under the authority ofthe
environmental statutes and regulations that
EPA administers, except for the Public Water
System Supervision Program under the Safe
Drinking Water Act.2 This Policy applies to
all such actions filed after the effective date
of this Policy, and to all pending cases in
which the government has not reached
agreement in principle with the alleged
violator on the amount ofthe civil penalty.
This Policy sets forth how the Agency
expects to exercise its enforcement discretion
in deciding on an appropriate enforcement
response and determining an appropriate civil
settlement penalty for violations by small
businesses. It states the Agency's views as to
the proper allocation of enforcement
resources. This 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. This Policy is to be used for
settlement purposes and is not intended for
use in pleading, or at hearing or trial. To the
extent that this Policy may differ from the
terms of applicable enforcement response
policies (including penalty policies) under
media-specific programs, this document
supersedes those policies. This Policy
supplements, but does not supplant the
August 12, 1994 Enforcement Response
Policy for Treatment of Information
Obtained Through Clean Air Act Section 507
Small Business Assistance Programs.
E. Criteria for Civil Penalty Mitigation
EPA will eliminate or mitigate its
settlement penalty demands against small
businesses based on the following criteria:
1. The small business has made a good
faith effort to comply with applicable
environmental requirements as demonstrated
by satisfying either a. or b. below.
a. Receiving on-site compliance assistance
from a government or government supported
program that offers services to small
businesses (such as a SBAP or state
university), and the violations are detected
during the compliance assistance. If a small
:The number of employees should be considered as full-
time equivalents on an annual basis, including contract
employees. Full-time equivalents means 2,000 hours per
year of employment. For example, see 40 CFR §372.3.
2This Policy does not apply to the Public Water System
Supervision (PWSS) Program because it already has an
active compliance assistance program and EPA has a policy
to address the special needs of small communities. See
November 1995 Policy on Flexible State Enforcement
Response to Small Community Violations.
business wishes to obtain a corrections
period after receiving compliance assistance
from a confidential program, the business
must promptly disclose the violations to the
appropriate regulatory agency.
b. conducting an environmental audit
(either by itself or by using an independent
contractor) and promptly disclosing in
writing to EPA or the appropriate state
regulatory agency all violations discovered as
part ofthe environmental audit pursuant to
section H of this Policy.
For both a. and b. above, the disclosure of
the violation must occur before the violation
was otherwise discovered by, or reported to
the regulatory agency. See section I.I ofthe
Policy below. Good faith also requires that a
small business cooperate with EPA and
provide such information as is necessary and
requested to determine applicability of this
Policy.
2. This is the small business's first
violation of this requirement. This Policy
does not apply to businesses that have
previously been subject to an information
request, a warning letter, notice of violation,
field citation, citizen suit, or other
enforcement action by a government agency
for a violation of that requirement within the
past three years. This Policy does not apply if
the small business received penalty
mitigation pursuant to this Policy for a
violation ofthe same or a similar requirement
within the past three years. If a business has
been subject to two or more enforcement
actions for violations of environmental
requirements in the past five years, this
Policy does not apply even if this is the first
violation of this particular requirement.
3. The business corrects the violation
within the corrections period set forth below.
Small businesses are expected to remedy
the violations within the shortest practicable
period of time, not to exceed 180 days
following detection ofthe violation.
However, a small business may take an
additional period of 180 days, i.e., up to a
period of one year from the date the violation
is detected, only if necessary to allow a small
business to correct the violation by
implementing pollution prevention measures.
For any violation that cannot be corrected
within 90 days of detection, the small
business should submit a written schedule, or
the agency should issue a compliance order
with a schedule, as appropriate. Correcting
the violation includes remediating any
environmental harm associated with the
violation,3 as well as implementing steps to
prevent a recurrence ofthe violation.
4. The Policy applies if:
3If significant efforts will be required to remediate the
harm, the Policy will not apply since criterion 4 is likely not
to have been satisfied.
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a. The violation has not caused actual
serious harm to public health, safety, or the
environment; and
b. The violation is not one that may
present an imminent and substantial
endangermentto public health or the
environment; and
c. The violation does not present a
significant health, safety or environmental
threat (e.g., violations involving hazardous or
toxic substances may present such threats);
and
d. The violation does not involve criminal
conduct.
F. Penalty Mitigation Guidelines
EPA will exercise its enforcement
discretion to eliminate or mitigate civil
settlement penalties as follows.
1. EPA will eliminate the civil settlement
penalty in any enforcement action if a small
business satisfies all of the criteria in section
E.
2. If a small business meets all of the
criteria, except it needs a longer corrections
period than provided by criterion 3 (i.e., more
than 180 days for non-pollution prevention
remedies, or 360 days for pollution
prevention remedies), EPA will waive up to
100% of the gravity component of the
penalty, but may seek the full amount of any
economic benefit associated with the
violations.4
3. If a small business meets all of the
criteria, except it has obtained a significant
economic benefit from the violation(s) such
that it may have obtained an economic
advantage over its competitors, EPA will
waive up to 100% of the gravity component
of the penalty, but may seek the full amount
of the significant economic benefit associated
with the violations. EPA retains this
discretion to ensure that small businesses that
comply with public health protections are not
put at a serious marketplace disadvantage by
those who have not complied. EPA
anticipates that this situation will occur very
infrequently. If a small business does not
fit within guidelines 1, 2 or 3 immediately
above, this Policy does not provide any
special penalty mitigation. However, if a
small business has otherwise made a good
faith effort to comply, EPA has discretion,
pursuant to its applicable enforcement
response or penalty policies, to refrain from
filing an enforcement action seeking civil
penalties or to mitigate its demand for
penalties.5 Further, these policies allow for
mitigation of the penalty where there is a
documented inability to pay all or a portion
of the penalty, thereby placing emphasis on
enabling the small business to finance
compliance. See Guidance on Determining a
Violator's Ability to Pay a Civil Penalty of
December 1986. Penalties also may be
mitigated pursuant to the Interim Revised
Supplemental Environmental Projects Policy
of May 1995 (60 F.R. 24856, 5/10/95) and
Incentives for Self-Policing: Discovery,
Disclosure, Correction and Prevention of
Violations Policy of December 1995 (60 FR
66706, December 22, 1996).
G. Compliance Assistance
1. Definitions and Limitations
Compliance assistance6 is information or
assistance provided by EPA, a State or
another government agency or government
supported entity to help the regulated
community comply with legally mandated
environmental requirements. Compliance
assistance does not include enforcement
inspections or enforcement actions.7
In its broadest sense, the content of
compliance assistance can vary greatly,
ranging from basic information on the legal
requirements to specialized advice on what
technology may be best suited to achieve
compliance at a particular facility.
Compliance assistance also may be delivered
in a variety of ways, ranging from general
outreach through the Federal Register or
other publications, to conferences and
computer bulletin boards, to on-site
assistance provided in response to a specific
request for help.
The special penalty mitigation
considerations provided by this Policy only
apply to civil violations which were
identified as part of an on-site compliance
assistance visit to the facility. If a small
business wishes to obtain a corrections
period after receiving compliance assistance
from a confidential program, the business
must promptly disclose the violations to the
appropriate regulatory agency and comply
with the other provisions of this Policy. This
Policy is restricted to on-site compliance
"The "gravity component" of the penalty includes
everything except the economic benefit amount. In
determining the appropriate amount of the gravity
component of the penalty to mitigate, EPA should consider
the nature of the violations, the duration of the violations,
the environmental or public health impacts of the violations,
good faith efforts by the small business to promptly remedy
the violation, and the facility's overall record of compliance
with environmental requirements.
5For example, in some media specific penalty policies, if
good faith efforts are undertaken, the penalty calculation
automatically factors in such efforts through a potentially
smaller economic benefit or gravity amount.
^Compliance assistance is sometimes called compliance
assessments or technical assistance.
7Of course, during an inspection or enforcement action, a
facility may receive suggestions and information from the
regulatory authority about how to correct and prevent
violations.
assistance because the other forms of
assistance (such as hotlines) do not expose a
small business to an increased risk of
enforcement and do not provide the
regulatory agency with a simple way to
determine when the violations were detected
and thus when the violations must be
corrected. In short, small businesses do not
need protection from penalties as an
incentive to use the other types of
compliance assistance.
2. Delivery of On-Site Compliance
Assistance by Government Agency or
Government Supported Program
Before on-site compliance assistance is
provided under this Policy or a similar State
policy, businesses should be informed of how
the program works and their obligations to
promptly remedy any violations discovered.
Ideally, before on-site compliance assistance
is provided pursuant to this Policy or similar
State policy, the agency should provide the
facility with a document (such as this Policy)
explaining how the program works and the
responsibilities of each party. The document
should emphasize the responsibility of the
facility to remedy all violations discovered
within the corrections period and the types of
violations that are excluded from penalty
mitigation (e.g., violations that caused
serious harm). The facility should sign a
simple form acknowledging that it
understands the Policy. Documentation
explaining the nature of the compliance
assistance visit and the penalty mitigation
guidelines is essential to ensure that the
facility understands the Policy.
At the end of the compliance assistance
visit, the government agent should provide
the facility with a list of all violations
observed and report within 10 days any
additional violations identified resulting from
the visit, but not directly observed, e.g.,
results from review and analysis of data or
information gathered during the visit. Any
violations that do not fit within the penalty
mitigation guidelines in the Policy--e.g.,
those that caused serious harm—should be
identified. If the violations cannot all be
corrected within 90 days, the facility should
be requested to submit a schedule for
remedying the violations or a compliance
order setting forth a schedule should be
issued by the agency.
3. Requests for On-Site Compliance
Assistance
EPA, States and other government
agencies do not have the resources to provide
on-site compliance assistance to all small
businesses that request such assistance. This
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Policy does not create any right or
entitlement to compliance assistance. A small
business that requests on-site compliance
assistance will not necessarily receive such
assistance. If a small business requests
on-site compliance assistance (or any other
type of assistance) and the assistance is not
available, the government agency should
provide a prompt response indicating that
such assistance is not available. The small
business should be referred to other public
and private sources of assistance that may be
available, such as clearinghouses, hotlines,
and extension services provide by some
universities. In addition, the small business
should be informed that it may obtain the
benefits offered by this Policy by conducting
an environmental audit pursuant to the
provisions of this Policy.
H. Environmental Audits
For purposes of this Policy, an
environmental audit is defined as "a
systematic, documented, periodic and
objective review by regulated entities of
facility operations and practices related to
meeting environmental requirements." See
EPA's new auditing policy, entitled
Incentives for Self-Policing, 60 FR 66706,
66711,December22, 1995.
The violation must have been discovered
as a result of a voluntary environmental
audit, 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:
(1) emissions violations detected through a
continuous emissions monitor (or alternative
monitor established in a permit) where any
such monitoring is required;
(2) violations of National Pollutant
Discharge Elimination System (NPDES)
discharge limits detected through required
sampling or monitoring; or
(3) violations discovered through an audit
required to be performed by the terms of a
consent order or settlement agreement.
The small business must fully disclose a
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 or the
appropriate state or local government agency.
I. Enforcement
To ensure that this Policy enhances and
does not compromise public health and the
environment, the following conditions apply:
1. Violations detected through
inspections, field citations, reported to an
agency by a member of the public or a
"whistleblower" employee, identified in
notices of citizen suits, or previously reported
to an agency as required by applicable
regulations or permits, remain fully
enforceable.
2. A business is subject to all applicable
enforcement response policies (which may
include discretion whether or not to take
formal enforcement action) for all violations
that had been detected through compliance
assistance and were not remedied within the
corrections period. The penalty in such action
may include the time period before and
during the correction period.
3. A State's or EPA's actions in providing
compliance assistance is not a legal defense
in any enforcement action. This Policy does
not limit EPA or a state's discretion to use
information on violations revealed through
compliance assistance as evidence in
subsequent enforcement actions.
4. If a field citation is issued to a small
business (e.g., under the Underground
Storage Tank program8 ), the small business
may provide information to the Agency to
show that specific violations cited in the field
citation are being remedied under a
corrections schedule established pursuant to
this Policy or similar State policy. In such a
situation, EPA would exercise its
enforcement discretion not to seek civil
penalties for those violations.
J. Applicability to States9
EPA recognizes that states are partners in
enforcement and compliance assurance.
Therefore, EPA will defer to state actions in
delegated or approved programs that are
generally consistent with the criteria set forth
in this Policy. Whenever a State agency
provides a correction period to a small
business pursuant to this Policy or a similar
policy, the agency should notify the
appropriate EPA Region.
This notification will assure that federal
and state enforcement responses are properly
coordinated.
K. Public Accountability
Within three years of the effective date of
this Policy, EPA will conduct a study of the
effectiveness ofthis Policy in promoting
compliance among small businesses. EPA
will make the study available to the public.
EPA will make publicly available the terms
of any EPA agreements reached under this
Policy, including the nature of the
violation(s), the remedy, and the schedule for
returning to compliance.
[FRDoc. 96-13713 Filed 5-31-96; 8:45 am]
BILLING CODE 6560-50-P
'The Underground Storage Tank (UST) field citation
program provides for substantially reduced penalties in
exchange for the rapid correction of certain UST violations
for first time violators. See Guidance for Federal Field
Citation Enforcement, OSWER Directive 9610.6, October
1993.
^States includes tribes.
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