Not all attorneys are the same

There was a discussion in LinkedIn a few days back when an environmental consultant was lamenting openly why the federal government was immune from federal environmental laws!! When asked who told him that nonsense, he proudly announced that his authoritative source is an attorney (so it must be true). The attorney also told him that the federal government could pollute its own land due to sovereign immunity and anyone can do what he wants to his own property. Just imagine that! So we have a clueless attorney advising an even more clueless environmental consultant who ought to know better. We figure the attorney must be an old real estate fellow who had never heard of CERCLA and was in a coma when sovereign immunity was done away with many years ago.

I have been to conferences where I posed a difficult question (about disclosure) and someone would say: “I will check with my attorney”. It was as if the attorney has all the answers – and correct answers at that. If that were the case, there would not be a robust judicial system in this country where two attorneys enter a courtroom and out comes one winner.

When I worked for a multinational, our law department (30 plus corporate attorneys) rarely handled any specific EPA or OSHA cases. They went straight to outside counsel. And righty so.

It is important  to understand that not all attorneys are the same. It is a simple enough principle (attorneys and engineers all have their own specialties within their own professions) and yet it is often overlooked. You should no more hire a civil engineer to design a refinery than to hire a chemical engineer to build a dam.

Always do your own due diligence before accepting an attorney’s words or anyone else’s. Or else you are going to look like that consultant in LinkedIn who was misled into thinking sovereign immunity still exists for federal agencies.

Prosecutorial discretion – a tale of 2 companies

In my last blog, I discussed the factors an agency such as EPA would use to determine if it wants to proceed with criminal investigation. That’s step one of a two-step process. Once an agency completes its investigation, it may then refer the case to the prosecutors for prosecution.

Will the prosecutor exercise its prosecutorial discretion? That’s the second step.

The best way to demonstrate how a prosecutor decides whether to prosecute a case or not is by the following example of a tale of two companies.  The US Department of Justice issued a memo some time ago outlining the factors a US Attorney should consider in targeting a company for criminal prosecution of environmental crimes.

The memo gives the examples of two companies – Company A and Company Z. A tale of two companies.

Here is what Company A does:

1. It regularly conducts a comprehensive audit of its compliance with environmental requirements.

2. The audit uncovered as information about employees disposing of hazardous wastes by dumping them in an unpermitted location.

3. An internal company investigation confirms the audit information. (Depending upon the nature of the audit, this follow-up investigation may be unnecessary.)

4. Prior to the violations the company had a sound compliance program, which included clear policies, employee training, and a hotline for suspected violations.

5. As soon as the company confirms the violations, it discloses all pertinent information to the appropriate government agency; it undertakes compliance planning with that agency; and it carries out satisfactory mediation measures.

6. The company also undertakes to correct any false information previously submitted to the government in relation to the violations.

7. Internally the company disciplines the employees actually involved in the violations, including any supervisor who was lax in preventing or detecting the activity. Also, the company reviews its compliance program to determine how the violations slipped by and corrects the weakness found by that review.

8. The company discloses to the government the names of the employees actually responsible for the violations, and it cooperates with the government by providing documentation necessary to the investigation of those persons.

According to DOJ, Company A would stand a good chance of being favorably considered for prosecutorial leniency, to the extent of not being criminally prosecuted at all.

At the opposite end of the scale is Company Z, which does the following:

1. Because an employee has threatened to report a violation to federal authorities, the company is afraid that investigators may begin looking at it. An audit is undertaken, but it focuses only upon the particular violation, ignoring the possibility that the violation may be indicative of widespread activities in the organization.

2. After completing the audit, Company Z reports the violations discovered to the government.

3. The company had a compliance program, but it was effectively no more than a collection of paper. No effort is made to disseminate its content, impress upon employees its significance, train employees in its application, or oversee its implementation.

4. Even after “discovery” of the violation the company makes no effort to strengthen its compliance procedures.  For example, If the company had a long history of noncompliance, the compliance audit was done only under pressure from regulators, and a timely audit would have ended the violations much sooner, those circumstances would be considered.

5. The company makes no effort to come to terms with regulators regarding its violations. It resists any remedial work and refuses to pay any monetary sanctions.

6. Because of the noncompliance, information submitted to regulators over the years has been materially inaccurate, painting a substantially false picture of the company’s true compliance situation. The company fails to take any steps to correct that inaccuracy.

7. The company does not cooperate with prosecutors in identifying those employees (including managers) who actually were involved in the violation, but it resists disclosure of any documents relating either to the violations or to the responsible employees.

Under these circumstances, leniency by the DOJ is unlikely.

The only positive action by Company Z is the so-called audit, but that was so narrowly focused as to be of questionable value, and it was undertaken only to head off a possible criminal investigation. Otherwise, the company demonstrated no good faith either in terms of compliance efforts or in assisting the government in obtaining a full understanding of the violation and discovering its sources.

Which company are you? Company A or Company Z?

Avoiding investigation and prosecution ……

One of the most frequently asked questions at my 2- day seminars is this: “How do we make sure we are not targeted by the agencies for prosecution?” Another question is:”Are there specific steps we can take to keep EPA off our backs?”

To answer these two questions, one has to understand the steps an agency (such as EPA) must take before it prosecute  company or person for environmental crimes. The agency must first decide to investigate and then the prosecutor has to decide to prosecute. Both steps involve discretion  - investigative discretion and prosecutorial.

How does an agency like EPA exercise investigative discretion? There is an internal EPA memo written by the Director of Criminal Enforcement in 1994 that outlines what the agency looks for when deciding weather or not to investigate a company or person for environmental crime.

They look for “the most significant and egregious violators“. The memo also states that – as an example – the criminal provisions in the hazardous wastes laws are “not aimed at punishing minor or technical variations from permit regulations or conditions if the facility operator is acting responsibly.”

The agency generally focuses on the “presence of actual harm as well as the threat of significant harm to the environment or human health.” Examples cited in the memo include

• illegal discharge, release or emission
• failure to report
• falsification of required records
• deliberate misconduct
• history of repeat violations
• illegal conducts appear to present a trend
• tempering with monitoring or control equipment
• operating without a permit

The memo cites corporate culpability as a factor in deciding whether or not to investigate. The example EPA gives is “a company that performs an environmental compliance or management audit and then knowingly fails to remedy the noncompliance and correct any harm done“. Conversely, EPA states that “a violation that is voluntarily revealed and fully and promptly remedied as part of a  corporation’s systematic and comprehensive self-evaluation program generally will not be a candidate for the expenditure of scare criminal investigative resources.”

This post gives you a summary of what will get you on EPA’s radar for criminal investigation and what will get you off. It gives you an idea of how EPA exercises its investigative discretion.

Our next post will discuss how the Department of Justice exercise its prosecutorial discretion.

We have a one-hour webinar on how to avoid compliance nightmare.

A Blueprint for Environmental Compliance

Have you ever wondered why some companies never seem to get into trouble with the EPA or OSHA? You never see any bad press about them on TV or read about them in the newspaper. And then you see some other companies that seem to be constantly in trouble with the agencies for environmental violations. What sets these companies apart? Simple. The good companies do things that that bad companies don’t.

 

Here are some practical tips on how to avoid compliance nightmare.

1. Make sure you have an environmental policy that is signed by the CEO and communicated to all your employees. You should post it on your company website. An environmental policy is a simple declaration by senior management on how it plans to conduct its business in the context of the environment. The latest buzz word is “sustainability”. It means do no harm to the environment and save it for the next generation.
2. You should have a designated senior company officer whose job it is to oversee environmental and safety compliance. This person should have the confidence of senior management and can muster the necessary financial resources and institutional commitment to implement the company’s environmental policy and plans.
3. Make sure that you have a simple and straightforward emergency response plan. The main purpose of such a plan is to tell your employees what they need to do when something goes wrong. It must be concise, realistic and easy to understand. Do not make the same mistake that a major oil company did with its Oil Spill Response Plan in the Gulf of Mexico that failed to identify the worse case scenario and was lacking in realistic responses. None of the efforts made by the company following a massive oil spill was contained in the original plan even though it was over 580 pages long.
4. Make sure that your employees have ownership of your company’s environmental plans. In other words – the employees who have been charged with the responsibility of implementing an environmental plan should have been involved in some manner in the development of the plan. That is the only way they will have ownership of the plan and without ownership, nothing will be done.
5. Be sure to perform environmental due diligence prior to shipping your hazardous wastes to your Treatment Storage and Disposal Facility (TSDF). Check up on their compliance history by going to EPA’s Environmental Compliance History Online (ECHO) webpage. Never cede this responsibility to your transporter. If you ship wastes to a site that turns into a Superfund site, your company could be responsible for the entire cleanup cost of that site.
6. If you are planning on leasing a piece of property, make sure you perform a baseline environmental study on the site to identify any pre-existing conditions. In this way, when you return the leased property back to your landlord at the end of the lease, you only need to return it in the same condition that it was in when you started the lease.
7. Always maintain a good, cordial and professional relationship with the regulatory agencies. Do not waste your limited financial and human resources in constant battles with the agencies. Always negotiate with them in good faith.
8. Train and retrain your employees. The companies that stay in compliance are the ones that make sure their environmental professionals receive the necessary training to do their job. The companies that are constantly having environmental violations are in that situation because their employees are not trained and equipped to do the job.
9. Never automatically go with the lowest bidders when hiring vendors or consultants. Always go with the most qualified contractors to ensure compliance with environmental laws and safety standards.
10. Designate an employee whose job is to review Material Safety Data Sheets prior to storing any new chemicals. Many chemical accidents are caused by mis-placement of new chemicals that are not compatible with existing ones.
11. Stay on top of emerging new environmental regulations by subscribing to agencies’ free e-mail services. You can also subscribe to commercial services to keep abreast of the latest regulatory developments.
12. Always know your chemical spill reporting requirements before the actual spill occurs. Many states have additional spill reporting requirements that are more stringent than the federal requirments. Do your homework. You should match your inventory of chemicals against EPA’s List of Lists and determine the reportable quantities of each of these chemicals. So when you actually do have a chemical spill in the middle of the night, you will know exactly if the reportable quantity has been exceeded thereby triggering a reporting obligation.
13. Instruct your employees to never lie to an agency inspector. Tell them they should always be forthright with an inspector. Answer all questions truthfully when asked but never volunteer any information or speculate.
14. Be very careful with your e-mails. Always assume that your e-mails will appear on the front page of your local newspaper the next morning. If you do not want people to know about something, don’t put it in your email. For example, if you have just conducted a mock inspection of your facility in anticipation of an actual inspection and you have found a number of violations, it is absolutely not necessary for you to send out a broadcast e-mail to everyone stating that you have uncovered contained violations. What you want to do is to focus on fixing the problems you have uncovered rather than broadcasting your problems to the world in writing. The same strategy should apply after you have had a bad inspection. Instead of sending out an e-mail to everybody stating that the inspector has found numerous violations during the inspection, you should send out an e-mail to everybody reminding them of all the things that they should be tending to without making any reference to the inspection. In that way you achieve the same goal-getting people to improve their performance-without admitting to those violations.
15. Always follow up on your internal audits. Never perform an internal audit unless you have the financial resources and management commitment to fix any problems that might come up during the audit.
16. Voice objection as soon as you are made aware of potentially illegal activities within your organization. If anyone within your organization – especially at the senior management level -should suggest any kind of illegal activities, you must speak up against it forcefully. Remember: silence means acquiescence.

If you follow the above suggestions, you should be able to avoid environmental compliance nightmare.

A new beginning for BP?

BP has a new CEO today.

A few days ago, BP signed a Consent Decree with the Department of Justice and agreed to pay $13 million for various Risk Management Plan violations under the Clean Air Act at its Texas City refinery. If you recall, there was a major incident at that refinery back in March of 2005 where 15 people were killed.

Thus far, BP has paid $137 million in fines which includes $50.61 million to OSHA for Failure to Abate violations under OSHA’s Process Safety Management standards. It has also spent $1.4 billion in corrective action. The OSHA fine is the largest fine in OSHA’s history.

BP conducted many internal environmental and safety audits before the March 2005 incident. Many safety and environmental issues were raised but little or no action was taken – according to the Chemical Safety Board investigators.

An expensive lesson learned?

Tips on writing audit reports

There are rules on how to write an audit report that is readable and can convey the message to the readers. Here are just a few of them:

1. Use simple language. Do not use fancy words to impress the readers. Most readers are generally not impressed by big words. Always use familiar words. That does not mean you should not use long words. The word “instantaneously” is long but it is also familiar to most people. The word “alb” is short but it is not too familiar to many people.
2. Get rid of deadwood. Here are some examples. Instead of saying “in the month of August”, just say “in August”. Instead of “a fine in the amount of $2000″, say “a $2000 fine”. Use “daily” instead of “on a daily basis”. Write as if you are being charged for every word – and not as if you are being paid for every word.
3. Avoid accusatory words. Do not use these words: alarming, dishonest, perjured, intentional, negligent, willful misconduct, reckless, incompetent, fraudulent, dangerous, deplorable, criminal, etc.
4. Write short sentences. Break up those long sentences into shorter ones. This makes it a lot easier for the readers.
5. Stick to the facts. If you could not find a weekly inspection checklist, say so in your report. Don’t ay that the weekly inspection was never done. Just because you could not locate the checklist does not mean that the inspection was never done. The unavailability of the checklist may well be a separate finding.
6. Be concise and precise. If you inspected 24 drums of hazardous wastes and 17 of them did not have “hazardous waste” labels on them, say so. Don’t say “many drum have no labels on them”. Say “17 out of 24 have no labels.”
7. Avoid excessive use of acronyms. Don’t try to bedazzle your readers with your knowledge of technical terms and jargons. Keep in mind that many readers of your audit report are not engineers or scientists. Many senior managers are attorneys, accountants and MBAs. Acronyms such as PSD, RCRA, TRI, CERCLA, TSCA, RMP, PSM, etc will put them in a coma.
8. Be specific in your conclusions. If you are doing a compliance audit and everything appears to be in order, the only thing you could possibly say is that “based on your review and visit on the day of the audit, the facility appears to be in compliance (on that day).”

Root Cause Analysis in an Audit – a simple example

When you perform an environmental audit and uncover anomalies, you should also do a simple root cause analysis. How do you do it? Here is a simple example:

Let’s say you are inspecting a hazardous waste storage area and you discover that one of the drums has no “hazardous waste” label on it. You do a root cause analysis. There are basically three possible reasons why the label is missing. One reason is that no one cares about the containers in the storage area. Another reason is that the label has simply fallen off. The third reason may well be that the plant personnel is not aware of the requirement to have a label on every container. You talk to the employees at the plant and you determined that the people there are pretty conscientious about the requirement and that they have received the necessary annual refresher training is required under RCRA. So the only plausible explanation is that the label had fallen off the container.

Then you ask the next question: Why did the label fall off the container? Once again there are several possible reasons. One — the container has been sitting around for so long that the adhesive power of the label has worn off. That does not seem to be a possible explanation since the plant personnel are quite conscientious about moving the drums off the premise before the 90-day time limit is up.

The other reason may well be that the label is of such low quality that it has very limited adhesive power thereby causing it to fall off the container after a short period of time. That seems to be the more plausible explanation.

Then you asked the next question: How did the plant end up with such low quality adhesive labels. In talking to the purchasing department, you discover that in an effort to save money, the purchasing agent decided to purchase the least expensive labels with the least amount of adhesive power.

Now you have the root cause of the problem-the lack of a hazardous waste label on a container. The remedy to this situation is for the purchasing agent to purchase a higher quality label.

By asking mostly open-ended questions, you should be able to find the root cause of most environmental problems.

Key Elements of an Effective Environmental Management System

In its “Compliance-focused Environmental Management System-enforcement Agreement Guidance” document dated December 2001, EPA outlines the 12 elements of an effective environmental management system.

The US EPA model includes 12 elements which are summarized below:

1. Environmental policy.
2. Organization, personnel and oversight of EMS
3. Accountability and responsibility
4. Environmental requirements
5. Assessment, prevention and control
6. Environmental incident and noncompliance investigations
7. Environmental training, awareness and competence
8. Environmental planning and organizational decision-making
9. Maintenance of records and documentation
10. Pollution prevention
11. Continuing program evaluation and improvement
12. Public involvement and community outreach.

Of all these 12 key elements, three of them are paramount. The first one is accountability. For an EMS to be effective it must have accountability. There must be a system within which bad behaviors by employees are penalized and environmentally proactive actions are rewarded. Without accountability on both end of the spectrum, employees may falsify reports due to fear of management retribution. There would be no incentive for employees to identify environmental problems and suggest solutions.

The second key element of an EMS is program evaluation and improvement. An effective EMS must provide for periodic independent auditing of environmental functions with well defined procedures to correct any deficiencies that are uncovered in the audit. It is pointless to go through an elaborate auditing process if there’s not going to be a well -defined set of procedures to follow through with remedial actions. Without follow through, the audit would just be a meaningless paper exercise. Read my earlier post on what happens when you fail to implement your own audit findings. By the way – do not use audits to establish an attorney-client privileged condition in order to hide environmental noncompliance. This will not work since only the actual audit report itself is protected under attorney-client privilege and not the underlying facts.

The third major key element is thorough investigation of any environmental incident in a timely manner. An effective EMS should immediately trigger a thorough investigation when an environmental incident occurs. Such investigation should be designed to find the root causes of the incident and to demonstrate promptness and completeness in your responses to the incident.

One last point:  Whatever environmental management system you may use, it needs to be enforced by management at all levels. Like all environmental plans, your EMS must be performance-based. Having a well written EMS document is just a start. It is meaningless if it is not communicated to all your employees and enforced throughout the organization.

What is BP’s potential liability?

Under Section 1002 of the Oil Pollution Act – which was passed as result of the Exxon Valdez oil spill – any responsible party is “liable for the removal costs and damages”. The removal costs are just that. However, the damages include the following:

1. Damages for injury to, destruction of, loss of, or loss of use of, natural resources;
2. Damages for injury to, or economic losses resulting from destruction of, real or personal property;
3. Damages for loss of subsistence use of natural resources;
4. Damages equal to the net loss of taxes, royalties, rents, fees, or net profit shares due to the injury, destruction, or loss of real property,personal property or natural resources;
5. Damages equal to the loss of profit or impairment of earning capacity due to the injury, destruction, or loss of real property, personal property, on natural resources.

There is a cap of  $75 million over and above the total removal costs. But this cap will not apply if there is gross negligence or willful misconduct involved.

The real big liability comes under the Clean Water act. Under Section 311 of the Act, BP would incur much higher civil penalties. The Clean Water Act calls for a civil penalty of $1100 per barrel of spilled oil. The amount of oil spilled has been estimated to be as high as 40,000 barrels a day. As of June 11, BP will have spilled 2.08 million barrels of oil into the Gulf of Mexico. This translates to a civil liability of $2.28 billion as of June 11. If the government can demonstrate gross negligence on the part of the discharger, the Clean Water Act calls for a penalty of $4300 per barrel. This would increase the civil penalty to $8.9 billion as of June 11.

Now you understand why the estimated amount of oil spill has varied over a large range depending on who’s doing the estimating. We are talking big bucks here.

BP Oil’s share price has been cut in half since the spill began 7 weeks ago. The company is now valued at $105 billion on Wall Street. Perhaps that’s the real penalty.

EPA’s New Greenhouse Gas Reporting Rule

The final rule was signed by the Administrator on September 22, 2009. On October 30, 2009, the  final rule was published in the Federal Register (www.regulations.gov) under Docket ID No. EPA-HQ-OAR-2008-0508-2278.  The rule went into effect December 29, 2009.

Under this new rule,  suppliers of fossil fuels or industrial greenhouse gases, manufacturers of vehicles and engines, and facilities that emit 25,000 metric tons or more per year of GHG emissions are required to submit annual reports to EPA. The gases covered by the proposed rule are carbon dioxide (CO₂), methane (CH₄), nitrous oxide (N₂O), hydrofluorocarbons (HFC), perfluorocarbons (PFC), sulfur hexafluoride (SF₆), and other fluorinated gases including nitrogen trifluoride (NF₃) and hydrofluorinated ethers (HFE).

Facilities need to start collect data on January 1, 2010 and the first emission report is due March 31, 2011. There are special provisions in 40 CFR 98 for some companies in 2010.

The complete regulation (all 261 pages of it) can be downloaded here. A much shorter version (press release) is here.