Let’s say you have just conducted an internal environmental audit of your facilities and you discover that your company has not filed the annual Toxic Release Inventory report for the past 5 years.
What are your options? Do you fess up to EPA or do you hide this fact and hope no one will ever find out about your transgression?
In 1996, EPA put in place its audit policy – formally known as “Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations.” It went into effect on January 22 of that year. According to EPA, over 4000 companies at 11300 locations have discovered and disclosed violations voluntarily under this program.
Here is how this program works: Once you discover a violation through your own internal audit, your company has 21 days from the time of that discovery to disclose in writing the violation to EPA. The initial disclosure should identify the means of discovery, type of violation, and facility location.
There are nine conditions under the Audit Policy. If you meet all nine of them, EPA will waive all civil penalties. If you meet all but the first condition – systematic discovery – you can still be eligible for 75% penalty mitigation, and a recommendation for no criminal prosecution of the violations against your company. The nine conditions are as follows:
1. Systematic discovery. The violation must have been discovered through an environmental audit or the implementation of a compliance management system.
2. Voluntary discovery. Your violation was not detected as a result of a legally required monitoring, sampling or auditing procedure. For example, any violations discovered as part of your Title V air permit’s compliance certification will not be eligible since the discovery is required by your permit and therefore not voluntary.
3. Prompt disclosure. You must disclose your violations in writing to EPA within 21 days of discovery or such shorter time as may be required by law. Discovery occurs when any officer, director, employee or agent of the facility has an objectively reasonable basis for believing that a violation has or may have occurred.
4. Independent discovery and disclosure. The violation is discovered by you independent of any action by EPA or another regulator.
5. Correction and remediation. You must correct the violations within 60 calendar days, in most cases, from the date of discovery. If the corrective action will take more than 60 days, you can apply to EPA for an extension. This is often the case if your corrective action involves the design, construction and installation of air emission control equipment.
6. Prevent recurrence. You must implement procedures that will ensure that the same violation does not happen again.
7. Repeat violations are ineligible. The specific (or closely related) violations cannot have occurred at the same facility within the past 3 years or those that have occurred as part of a pattern at multiple facilities owned or operated by the same entity within the past 5 years; if the facility has been newly acquired, the existence of a violation prior to acquisition does not trigger the repeat violations exclusion. EPA has stated that it will evaluate the issue of repeat violations by looking at “corporate pattern” of behavior. For example, if a corporation has taken all the necessary steps to correct a past violation and yet the same violation still occurs later, EPA will take that into consideration in determining the corporation’s eligibility. There are no hard and fast rules on this one.
8. Certain types of violations are ineligible. These are violations that result in serious actual harm, those that may have presented an imminent and substantial endangerment, and those that violate the specific terms of an administrative or judicial order or consent agreement.
9. Cooperation. You must cooperate with EPA. The agency expects the company to provide information related to the violation in a timely fashion. Excessive delays or non-responsiveness would be an indication of lack of cooperation.
This self-disclosure policy also has a very interesting bearing on companies that are acquiring existing facilities. According to an April 30, 2007 memo by the EPA Assistant Administrator for Enforcement and Compliance Assurance, new owners of facilities can qualify for penalty reduction if they disclose violations they uncover as part of the acquisition due diligence and follow the nine conditions.
The question of self-disclosure is a management and legal decision. Even before EPA’s self-disclosure rule came into effect in 1999, companies were faced with the decision on whether to self disclose violations to agencies. A classic example is the case of a major solvent and oil recycling company. In 1992, the corporate office conducted an internal audit of its facility in Puerto Rico. It discovered that the facility had excess on-site storage of hazardous waste fluids, off-site storage in non-permitted tanks; and waste water discharges in violation of the site’s RCRA permit. It made a management decision to voluntarily disclose its violations to the Puerto Rico Environmental Quality Board (EQB) and subsequently negotiated a settlement of $1.45 million fines with EQB. It was reported in the local press that the original fine was as high as $3.3 million. The reduction was due to the self-disclosure and fast action taken by the parent company to remedy the situation. In this case, the company was also able to forestall the possibility of criminal prosecution as a result of its decision to self disclose.
Every case is different and should be judged accordingly.