Monthly Archives: July 2011

More on the duties and ethics of an auditor

There have been two totally opposite court decisions on the subject matter.

The Supreme Court of New Jersey ruled in May 1996 in the case of Carvalho v Toll Brothers that “an engineer has a legal duty to exercise reasonable care for the safety of workers on a construction site when the engineer has a contractual responsibility for the progress of the work, but not for safety conditions, yet is aware of working conditions on the construction site that create a risk of serious injury to workers.” So even the engineer was not hired to monitor safety conditions, the court ruled that he had a duty to report known unsafe condition.

One can easily extrapolate this State Supreme Court ruling to include imminent environmental harm.

On the flip side, we have a very recent case in 2011 where the Superior Court of PA ruled that “an engineering firm retained by its client to monitor toxic emissions from a beryllium plant, had no duty to report findings that beryllium particulate emissions belching from the plant “significantly exceeded” EPA limits to either the EPA or to members of the public.” This ruling flies in the face of the New Jersey Supreme Court ruling. The Superior Court in PA is often the last arbiter of legal dispute since the Supreme Court in PA rarely rules on the lower court’s rulings.

The question to ask in the PA case is: Was it imminent harm that the EPA limits were significantly exceeded? Beryllium is a pretty toxic chemical. And who were the receptors?

The Duties and Ethics of an Environmental Auditor

As an environmental auditor, what are your responsibilities if you find violations that pose imminent danger to public health or the environment? Do you tell your client right away about your findings and tell your client to cease the practice and report to the agencies? What if your client refuses to report to the agencies? What if your clietn refuses to stop the illegal practice that is causing imminent danger to the public?

What are your responsibilities? Can you hide behind the confidentiality clause in your retainer agreement with your client? What about the joint and several liabilities in most environmental laws? Are you in legal jeopardy if you ignore the imminent dangers?

These are all very interesting questions that are being raised in a discussion group in Linkedin.

My take is that faced with an imminent danger to pubic health, you have a duty to tell your client to cease its practice immediately and report to the appropriate agencies. And if the client refuses to heed your advice, you have a duty to “turn him in” given the imminent harm nature.

EPA’s new Cross State Air Pollution Rule

Section 110(a)(2)(D)(i) of the Clean Air Act requires that the State Implementation Plan of each state must contain “four distinct requirements related to the impacts of interstate transport. The SIP must contain adequate provisions prohibiting sources in the state from emitting air pollutants in amounts which will: (1) contribute significantly to nonattainment of the NAAQS in any other state; (2) interfere with maintenance of the NAAQS in any other state; (3) interfere with provisions to prevent significant deterioration of air quality in any other state; or, (4) interfere with efforts to protect visibility in any other state.”

This is commonly referred to as the “Good Neighbor” provision. What that mean is that the upwind state must not pollute downwind states.

The Bush Administration came up with its Clean Air Interstate Rule (CAIR) that was subsequently vacated by a federal judge in 2008. The Obama EPA has just finalized its own version called Cross State Air Pollution Rule (CSAPR). This new rule will impact power plants in 28 eastern and midwest states. It will require them to reduce the inter-state pollution caused by their emissions.

Click here for a PowerPoint presentation of CSAPR.

Click here for an interactive map to show which state’s air pollution impacts what states based on wind and weather patterns.  For example, power plants from Florida impact Texas. Texas power plants in turn impact Michigan, Illinois, Missouri, Oklahoma, Arkansas and Louisiana.

New Proposed Rules on Solid Waste Definition

EPA has just issued its new proposed rule on the Definition of Solid Wastes. This was a result of an out-of-court settlement with the Sierra Club concerning the final rule that was passed during the waning days of the Bush Administration in 2008 that excluded reclaimed wastes from the definition of solid waste – and hence from RCRA regulations.

Remember: Only solid waste can become hazardous waste.

Under the Bush rule, you can manage your spent solvents as non-hazardous wastes if you reclaim them on site or if you ship them out for reclamation. The state where you are located must have received approval from EPA to adopt this rule.

The Sierra Club objected to the Bush rule and the Obama EPA agreed to take another look at that this year. The new proposed rule will place more restrictions on the exemption status. There will be a 60-day comment period. The pre-publication proposed rule can be downloaded here.

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.