Category Archives: EPA enforcement

BP’s Criminal Fines

The US Department of Justice announced yesterday that it had reached a landmark settlement with BP Oil for its massive oil spill 2 years ago.

BP has agreed to pay $4.9 billion in criminal fines and plead guilty to criminal charges of manslaughter resulting from the deaths of 11 employees on the drill rig. A vice president of BP has been indicted for lying to Congress when he allegedly provided false information about the amount of oil spilled to the government. He told Congress the amount spilled was about 5000 barrels a day when he had knowledge that it was almost 10 times that amount, according to the indictment.

Two drill rig supervisors (the most senior persons on the platform when the incident occurred) were also indicted for manslaughter. The government alleged in the indictment that they ignored repeated danger signs that the rig was about to blow up and failed to consult with company experts prior to the incident.

The maximum amount of criminal fine under the Clean Water Act could be as high as $20 billions based on findings of criminal negligence.

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The concept of Point-of-Generation

RCRA defines a solid waste as something that has been abandoned. For a material to be abandoned, someone (a person) has to make a decision to discard it. Once the material is abandoned and if it exhibits one of more of the 4 characteristics (ignitability, corrosively, reactivity and toxicity), it is classified as a  RCRA hazardous waste. If it has been listed as a listed waste (F,K,P or U), it is also classified as a hazardous waste.

The Point of Generation refers to the time when a material becomes a waste. If you have a brew of corrosive material inside a manufacturing vat, RCRA has NO jurisdiction over it because the material is in a manufacturing process and no one has decided to discard it. Once someone takes it out from the vat (remove it from the manufacturing process) and decides to discard (then abandon) the corrosive material, it becomes a solid waste and hazardous waste – in that order.

What if the manufacturing process stops, can the corrosive material sits inside the vat indefinitely? The answer is NO. The reason is that 40 CFR 261.4(c) states that the material will be considered abandoned by the operator after 90 days. This is to prevent people from storing their wastes inside an idle manufacturing unit indefinitely.

If you apply this principal to a clandestine drug bust, you get an interesting story. The illegal drug (a hazardous material) is brewing inside a vat when law enforcement (DEA) kicks down the door and arrests the operator. Has the operator abandoned the hazardous material inside the vat?  No. Why would he? He would love to sell that drug on the street. So why would he discard that material? In this scenario, it is the DEA agents that make the decision to discard everything in the drug lab as a matter of policy because it ASSUMES everything in the lab is contaminated. The policy decision to discard ALL material is made to protect the agents and the community at large.

Technically speaking, all that material sitting inside the vat is hazardous material (not hazardous waste) for 90 days before it becomes abandoned per 40 CFR 261.4 (c) or when someone decides to discard it – whichever comes first. But in reality, they are hauled off and disposed of as hazardous wastes (per DEA policy) by DEA – who will be the generator of those wastes.

A generator is a person that FIRST causes a material to be abandoned.

Another example of why bad things happen to bad people

A refinery in Louisiana was fined $12 million by EPA last year.  It was the largest criminal fine under the Clean Air Act.  The refinery had a Title V air permit  and was found to have illegal released hydrogen sulfide from its flare gas. The pilot light in the flare stack was not operational. Management ignored repeated warning and directive from the state agency to repair the pilot light and instructed staff to buy a flare gun from a Wal-Mart store and fire at the flare gas to ignite it. The refinery also improperly repaired pollution monitoring and control equipment and stored oil  in damaged tanks whose floating roofs had collapsed.

The top prize was the use of children’s plastic swimming pools from Wal-Mart to contain oil leaks.

The president and general manager of the refinery has pleaded guilty to two felony counts of “placing persons in imminent danger of death or serious bodily injury”. He could face a year in prison.

The company had no environmental budget and no environmental staff.

EPA reached largest Clean Water Act settlement in the Gulf Oil Spill case

EPA just announced the first major settlement with a company connected with the BP oil spill in the Gulf.

MOEX Offshore 2007 LLC has agreed to settle its liability in the Deepwater Horizon oil spill in a settlement with the United States valued at $90 million, announced the Department of Justice, the U.S. Coast Guard and the U.S. Environmental Protection Agency (EPA) today.  Approximately $45 million of the $90 million settlement is going directly to the Gulf in the form of penalties or expedited environmental projects.

According to the terms of the settlement, MOEX will pay $70 million in civil penalties to resolve alleged violations of the Clean Water Act resulting from the spill and agreed to spend $20 million to facilitate land acquisition projects in several Gulf states that will preserve and protect in perpetuity habitat and resources important to water quality and other environmental features of the Gulf of Mexico region.  At the time of the spill, MOEX was a minority investor in the lease for the Macondo well. It no longer owns any share of the lease.

This is the largest Clean Water Act penalty to-date. MOEX owned 10% interest in the Macondo well and settled for $90 million. Just imagine how much BP will pay in final settlement.

An auditor’s conundrum – an update

Since I posted my article on auditor’s conundrum a week ago on LinkedIn, I received many comments – from consultants, auditors and attorneys. Here is a summary of their comments:

Many consultants are concerned with breaching the confidentiality agreement with the client – even in the face of a continuing criminal act.  They seem to think that very bad things will happen to them and the criminal client will sue them. Some are concerned that word will get out and no one will hire them again. Here is my take: First of all, the client is not likely to sue the auditor for breach of confidentiality. Why? Because the client will have to show damages in court as a result of the breach. And there is NO damage. Now, if the auditor had disclosed proprietary information about the the client’s manufacturing process to his competitors, there would be damages. But in the case of notifying authorities of an on-going criminal act, where is the damage to the client? A thief cannot sue his friend for turning him in even if he swears him to secrecy.

As to the concern about the auditor’s reputation for breaching the confidentiality agreement, my take is that the auditor will have a better reputation as a result of stopping an on-going criminal act and protecting the general public. If a company is hesitant about hiring such an auditor who would stop a criminal act, you would not want such company as a client anyway.

The downside of NOT reporting an on-going criminal act (dumping of toxic wastes) for the auditor is great. What do you think the injured parties (people who end up drinking the contaminated water) will do to the auditor? Here is an environmental professional under contract with a client who is dumping toxic wastes and he fails to take action to stop the client. They are going to think the criminal act was done with a wink and a nod from the auditor.

Here is what the auditor should do: As soon as he discovers the illegal activity, he must tell the client to stop immediately. And if the client refuses, he should notify the authority to protect the general public regardless of the confidentiality agreement. At the same time, he should sever his relationship with the client immediately in order to protect himself from possible future action by the injured parties. The underlying reason for the auditor’s action is IMMINENT HARM to the general public.

Some have suggested that the confidentiality clause should include language that reads “except as required by law”. I would expand it to read “except as required by law or in the event of imminent harm to the general public.”

For those who are Professional Engineers, the incident as described in my article would require them to report to the authorities immediately. The overriding duty of a PE is to protect the general public. That duty overrides the confidentiality clause in the face of imminent danger to the public.

A classic example: A PE is hired by a building owner to inspect a building for structural integrity. The owner swears the PE to secrecy. PE discovers that the building is structurally unsound and may collapse any time. The owner proceeds to sell the building even with that knowledge. The PE now has the ethical duty to stop the sale by notifying authorities. Failure to do so may cost him his license and subject him to countless lawsuits by people injured by the collapsed building.

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.