U.S. GOVERNMENT PRINTING OFFICE

45–438 CC WASHINGTON : 1998

S. HRG. 105–305

ENVIRONMENTAL AUDITS

HEARING

BEFORE THE

COMMITTEE ON

ENVIRONMENT AND PUBLIC WORKS

UNITED STATES SENATE

ONE HUNDRED FIFTH CONGRESS

FIRST SESSION

ON

THE REVIEW OF ACTIVITIES BY THE FEDERAL GOVERNMENT CONCERNING INDIVIDUALS OR ORGANIZATIONS VOLUNTARILY SUBMITTING TO ENVIRONMENTAL AUDITS

OCTOBER 30, 1997

Printed for the use of the Committee on Environment and Public Works

(

For sale by the Superintendent of Documents, Congressional Office

U.S. Government Printing Office, Washington, DC 20402
(II)

COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

ONE HUNDRED FIFTH CONGRESS

JOHN H. CHAFEE, Rhode Island, Chairman

JOHN W. WARNER, Virginia

ROBERT SMITH, New Hampshire

DIRK KEMPTHORNE, Idaho

JAMES M. INHOFE, Oklahoma

CRAIG THOMAS, Wyoming

CHRISTOPHER S. BOND, Missouri

TIM HUTCHINSON, Arkansas

WAYNE ALLARD, Colorado

JEFF SESSIONS, Alabama

MAX BAUCUS, Montana

DANIEL PATRICK MOYNIHAN, New York

FRANK R. LAUTENBERG, New Jersey

HARRY REID, Nevada

BOB GRAHAM, Florida

JOSEPH I. LIEBERMAN, Connecticut

BARBARA BOXER, California

RON WYDEN, Oregon

JIMMIE POWELL, Staff Director

J. THOMAS SLITER, Minority Staff Director

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CONTENTS

Page

OCTOBER 30, 1997

OPENING STATEMENTS

Allard, Hon. Wayne, U.S. Senator from the State of Colorado ............................ 16

Baucus, Hon. Max, U.S. Senator from the State of Montana .............................. 5

Bond, Hon. Christopher S., U.S. Senator from the State of Missouri ................. 3

Chafee, Hon. John H., U.S. Senator from the State of Rhode Island ................. 1

Hutchinson, Hon. Tim, U.S. Senator from the State of Arkansas ....................... 20

Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma .................... 2

Lautenberg, Hon. Frank R., U.S. Senator from the State of New Jersey ........... 5

Sessions, Hon. Jeff, U.S. Senator from the State of Alabama ............................. 4

Smith, Hon. Robert, U.S. Senator from the State of New Hampshire ................ 19

Thomas, Hon. Craig, U.S. Senator from the State of Wyoming .......................... 20

WITNESSES

Bangert, Patricia S., director, legal policy, Attorney General’s Office, State

of Colorado ............................................................................................................ 30

Prepared statement .......................................................................................... 87

Enzi, Hon. Michael B., U.S. Senator from the State of Wyoming ....................... 7

Prepared statement .......................................................................................... 47

Herman, Steven A., Assistant Administrator, Office of Enforcement and Compliance Assurance, Environmental Protection Agency ...................................... 21

Prepared statement .......................................................................................... 49

Hutchison, Hon. Kay Bailey, U.S. Senator from the State of Texas ................... 24

Lott, Hon. Trent, U.S. Senator from the State of Mississippi ............................. 26

McBee, Barry R., chairman, Texas Natural Resource Conservation Commission ........................................................................................................................ 27

Prepared statement .......................................................................................... 82

Wallach, Paul, senior partner, Hale and Dorr ...................................................... 31

Letters, environmental audits, New England Council .................................. 104

List, examples of reporting obligations to government agencies .................. 98

Platform, Corporate Environmental Enforcement Council ........................... 99

Prepared statement .......................................................................................... 91

Woodall, Mark, Sierra Club, Georgia Chapter ...................................................... 34

Grassroot letters to U.S. Senators .................................................................. 114

Prepared statement .......................................................................................... 106

Statement of Linda Briscoe and Solomon Lundy ........................................... 111

ADDITIONAL MATERIAL

Articles:

Environmental Democracy, Journal of Corporation Law .............................. 141

Small Businesses Respond to Minnesota’s Audit Program ........................... 204

Charts supplied by EPA:

Exhibit 1, State Support for EPA Audit Policy .............................................. 56

Exhibit 2, Rough Breakdown of Industry Disclosures Under Federal Audit

Policy .............................................................................................................. 57

Exhibit 3, Opposition to Audit Privilege and Immunity Legislation ............ 58

Letters:

Attorney General Janet Reno .......................................................................... 133

California District Attorneys Association ....................................................... 76

Intertanko ......................................................................................................... 219
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Letters—Continued

Louisiana Environmental Action Network ..................................................... 72

Maine’s Attorney General ................................................................................ 80

Missouri Department of Natural Resources ................................................... 74

National Academy of Public Administration .................................................. 190

National District Attorneys Association ......................................................... 184

New England Council ....................................................................................... 104

New York State District Attorneys Association ............................................. 186

Sierra Club ........................................................................................................ 114

U.S. Attorney for Alaska Robert C. Bundy .................................................... 68

List, State environmental audit privilege legislation ........................................... 156

Press release, Cahill announces environmental enforcement plan, Office of

Gov. Pataki of New York ..................................................................................... 61

Report, Resolving the Paradox of Environmental Protection, National Academy of Public Administration ............................................................................. 191

Statements:

Airports Council International-North America and American Association

of Airport Executives .................................................................................... 135

American Farm Bureau Federation ................................................................ 135

Briscoe, Linda and Lundy, Rev. Solomon ....................................................... 111

Bundy, Robert C., U.S. Attorney for Alaska, and Lois J. Schiffer, Assistant Attorney General, U.S. Department of Justice .................................... 129

Geltman, Elizabeth Glass ................................................................................ 137

Representative statements supplied by EPA opposing audit privilege and/

or penalty immunity legislation ................................................................... 60

Wisconsin’s Attorney General James E. Doyle .............................................. 63
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ENVIRONMENTAL AUDITS

THURSDAY, OCTOBER 30, 1997

U.S. SENATE, COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS, Washington, DC.

The committee met, pursuant to notice, at 9:32 a.m. in room 106,

Senate Dirksen Building, Hon. John H. Chafee [chairman of the

committee] presiding.

Present: Senators Chafee, Inhofe, Bond, Baucus, Sessions, Lautenberg, and Allard.

OPENING STATEMENT OF HON. JOHN H. CHAFEE,

U.S. SENATOR FROM THE STATE OF RHODE ISLAND

Senator CHAFEE. OK, we’ll get started.

I want to welcome everyone here this morning. Everybody please

take a seat.

The purpose of today’s hearing of the Committee on Environment

and Public Works is to receive testimony on the topic of environmental audit legislation. This is a topic that we touched on during

the hearing the committee held in June on enforcement issues.

At the outset, it might be useful to briefly describe what environmental audit laws do. Audit laws typically include one or both of

the following features: An evidentiary privilege against disclosure

of information discovered in the course of an audit, that’s one part

of it; and some form of an immunity from criminal or civil fines or

penalties from any violations discovered, disclosed or corrected incident to an audit.

It’s timely to hear about developments on environmental audits.

While there is no legislation currently pending before this committee on this topic, two bills have been introduced in the Senate, and

we’ll hear from the sponsors of each bill. Senator Kay Bailey

Hutchison of Texas sponsored S. 866, the Environmental Protection

Partnership Act. It’s my understanding she will be joining us shortly to discuss her bill. The approach in Senator Hutchison’s bill is

to create a privilege and immunity under Federal law.

We will also hear from Senator Mike Enzi of Wyoming, whom we

welcome here today. Yesterday he introduced the State Environmental Audit Protection Act. Senator Enzi, during his service in

the Wyoming State Senate, was the principal sponsor of Wyoming’s

environmental audit law. The approach in Senator Enzi’s draft bill

is to create a safe harbor for qualifying State audit laws that would

prevent Federal interference.
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We look forward to the testimony from both Senators, and we

welcome them as they come before us.

State legislatures have been very active on environmental audit

legislation. Since 1994, which is after all, only 3 years ago, approximately 24 State have enacted legislation that either establishes a

privilege for information discovered during an environmental audit

or provides some form of an immunity from violations of laws discovered during an audit.

Some States provide both a privilege and an immunity. I note

the two States that have enacted legislation most recently on environmental audits are Rhode Island and Montana. Today, we will

hear from representatives from Texas and Colorado on the topic.

It’s apparent from the testimony this is a controversial topic.

EPA and the Department of Justice strongly oppose the creation of

any Federal audit privileges or immunities. Further, they oppose

Federal or State action to enact such privileges. EPA believes its

administrative policies, which feature discretionary penalty reductions in immunities, are a success and provide sufficient incentives

for regulated entities to conduct audits.

EPA recognizes that despite its policy position, 24 States have

acted. EPA has therefore adopted a legal position on the minimum

requirements of a State audit law, where a State also enforces a

delegated Federal statute, such as the Clean Water Act. This is a

position that’s caused tension between EPA and many States. Mr.

Herman, head of EPA’s enforcement office, will present EPA’s

views today.

We will also hear from a representative of the business community to describe why Federal legislation is needed on the topic. Why

the States that have acted to create audit laws and what they advise Congress to do to make State audit laws work better.

We will also hear from a representative of a group of over 120

organizations and individuals who oppose the creation of statutory

audit privileges or immunity.

So I look forward to hearing from our witnesses.

I just saw Senator Baucus. He’ll be here shortly. We’re going to

start. Senator Inhofe, do you have anything you wish to say?

OPENING STATEMENT OF HON. JAMES M. INHOFE,

U.S. SENATOR FROM THE STATE OF OKLAHOMA

Senator INHOFE. I do, Mr. Chairman. I’m glad you’re having this

hearing. I’m glad that Senator Enzi is introducing this bill.

Voluntary environmental audits are fast becoming one of the best

tools to identify and eliminate the violation of our environmental

laws. All too often, the EPA has adopted an attitude that is adversarial to industry, and it’s been a great concern to me in all of our

subcommittees, and particularly my Clean Air subcommittee.

I understand that EPA does have a policy regarding environmental audits. However, I do not think it adequately addresses the

current concerns of most business. For a voluntary environmental

law to be truly effective, participants must have assurances that

full and honest disclosure will not result in massive fines and years

of litigation due to lawsuits from the Federal Government and outside organizations.
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My first concern revolves around the core mission of the EPA. I

believe that the EPA should, above all else, work to ensure that environmental laws are being complied with. Instead, the EPA would

rather focus their money and efforts on enforcement and issuance

of penalties.

I have told the story many times, and I feel moved to tell it one

more time, Mr. Chairman, about our Brandon Mill Creek Lumber

Company, the phone call I got the last year I was in the House of

Representatives. Here was a lumber company that was a third generation lumber company, very competitive. He called up and said,

you know, they’ve put us out of business. I said, who has? He said,

the EPA.

I said, what did you do that was illegal? They said, well, I don’t

think we did anything. We’ve been selling our used crankcase oil

to the same contractor for the last 10 years. That contractor is licensed by the Federal Government, by the County of Tulsa, by the

city of Tulsa, and yet they’ve traced some of that oil to the Double

Eagle Superfund site.

He said they had a letter, that he read to me over the phone,

that any normal person would say they’re going to invoke fines of

$5,000 a day to this individual. Well, when you read it real carefully, you can see they say, that’s our intention, we are authorized

to do that, we intend to do that. But they don’t commit.

So I wonder, so often, we’re able to stop it. But how many people

think to call their Congressman, how many people that don’t do it

out there. Right now, we have a company in Oklahoma that has

a way of recycling CFCs. They’re saying, no, we have to incinerate

them. Yet, when you incinerate them, more of the CFCs get into

the air than they do when you recycle them.

So it just seems to me that we have an agency that is constantly

harassing the private sector, those who are employing people and

paying taxes. I applaud you in introducing this Act. I think this is

a way that might instill some kind of confidence and working relationship between the EPA and industry.

While I can’t stay for the whole hearing, we’re having an Indian

Affairs hearing, where we have the new director designated for the

BIA, and I have to be there, Mr. Chairman. But I will be very

much interested in following this legislation.

Senator CHAFEE. Thank you, Senator.

Senator Bond.

OPENING STATEMENT OF HON. CHRISTOPHER S. BOND,

U.S. SENATOR FROM THE STATE OF MISSOURI

Senator BOND. Thank you very much, Mr. Chairman.

I, too, we have a couple of conference committees going on, so I’m

going to have to leave fairly shortly. I would advise you that one

of our witnesses, Mr. Paul Wallach, is a fellow car pool dad, and

friend of mine. So I have not had a great opportunity to speak

about environmental matters with him, but we do follow sporting

events and other educational activities, much more significant

things.

But this is a very significant hearing, Mr. Chairman. When we

approach this issue as we approach other issues, the objective of

this committee ought to be, how can we do the best job of cleaning
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up the environment. Senator Inhofe has just pointed out a problem

that he’s encountered in Oklahoma. I can tell you a horror story

in Missouri.

One of our major manufacturing companies in Jackson County,

MO, just east of Kansas City, voluntarily audited its operations,

found an environmental problem, worked it out with the State of

Missouri so that they could cleanup and take appropriate measures

and pay the appropriate sums. They thought they had an agreement, and then the EPA comes in and over-files and wants to fine

them more.

I am hard-pressed to explain, and maybe some of the witnesses

later on can explain to us, how that is not only going to assure

cleaning up the environment in this particular instance, but what

impact is that going to have on future activities. Aren’t we all

about cleaning up the environment? If we are, is there a reasonable

grounds, is there a reasonable basis for proceeding in this area to

assure that somebody who is willing to take the initiative, a company that finds out it has caused pollution, how they can deal with

that problem and not be subjected to stiff penalties.

So I think the testimony today is going to be very important. My

staff will be following it closely and I will be following the record.

I know the Missouri General Assembly has been unable to pass a

decent legislation. I would hope that we could hear out all sides

and figure out how we achieve the objective of assuring a cleaner

environment.

Thank you.

Senator CHAFEE. Thank you, Senator.

Senator Sessions.

OPENING STATEMENT OF HON. JEFF SESSIONS,

U.S. SENATOR FROM THE STATE OF ALABAMA

Senator SESSIONS. Mr. Chairman, thank you very much.

I applaud Senator Enzi for his insight and effort to improve the

environment. I certainly believe that is the intent of this bill. It

ought to be the situation in this country that if someone finds an

inadvertent error in their activities that they could report those errors without serious consequences raining down upon their heads.

In so allowing them to do, we ought to thereby improve the environment by encouraging companies and individuals who may have

violated pollution laws to come forth and correct that problem.

As a prosecutor for quite a number of years, I have been troubled

by the proliferation of criminal law in America. For hundreds of

years, the law on robbery was, whoever takes property by force and

violence from the person of another is guilty of robbery. That’s all

it said. That sufficed for hundreds of years.

Now we draw crime bills that are hundreds of pages, involving

one minor area of law. I think what we’re seeing in this bill is an

attempt to deal, to mitigate some of the unintended consequences

of strong environmental law.

But I say, at least what concerns me, Mr. Chairman, is the possibility that we will so muddle the law and add so many confusions

with it that it becomes even less clear than it is today.

I think the goal is good. I look forward to working with this legislation to see if we can do it. But I also believe that when we pass
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a criminal law in this body, it ought to meet the classic goal or requirements of a good criminal law. It ought to be clear, it ought to

be enforceable. Nobody ought to have doubts about when they’re

violating the law and when they’re within the law.

I think this Congress over the years has gotten away from that

principle. It’s something that I’m concerned about. I just want to

review this legislation with that in mind.

Senator CHAFEE. Thank you, Senator.

Senator Baucus.

OPENING STATEMENT OF HON. MAX BAUCUS, U.S. SENATOR

FROM THE STATE OF MONTANA

Senator BAUCUS. Thank you, Mr. Chairman.

First of all, let me say that I think environmental audits are a

good idea. It’s pretty hard to be against environmental audits. They

increase compliance with the law, and as a result, they improve the

quality of our air and water.

At the same time, I’m skeptical about the need for Federal legislation that would prevent information gathered in an environmental audit from being disclosed to the public. Our legal system

is based on the principle that when a law enforcement investigation is underway, as the Supreme Court has said, ‘‘The public is

entitled to every person’s evidence.’’ It’s an important element of

the public’s right to know.

I don’t see why we should create a special exception for environmental laws, compared to employment discrimination laws, antitrust laws, immigration or work place safety laws. To my mind, the

toughest issue involves the Federal-State relationship. As a general

matter, our Federal environmental laws do not and should not require States to always march in lockstep to the beat of the Federal

drum. Within limits, they can reach different conclusions. States

can experiment.

However, at some point, a State environmental audit law may

undermine State law enforcement efforts to such an extent that the

States enforcement system is inadequate. If we allow that to happen, we won’t have a level playing field. That would threaten to

undermine the progress we have made in protecting the environment over the last 25 years.

I look forward to addressing these issues during our hearing.

Senator CHAFEE. Senator Lautenberg.

OPENING STATEMENT OF HON. FRANK R. LAUTENBERG,

U.S. SENATOR FROM THE STATE OF NEW JERSEY

Senator LAUTENBERG. Thanks, Mr. Chairman.

I listened with great interest, I have respect and a good relationship with the Senator from Wyoming. Therefore, I listen when he

says something or proposes something.

But frankly, as a former CEO of a very good-sized company, a

company involved in financial recordkeeping, a company I left, had

16,000 employees when I left there, and I was one of those who

started the company. So I know something about audits, etc.

They’re necessary to keep things in proper perspective.

So I will challenge the notion that those who make mistakes,

those who commit an error have innocently done so, that we should
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rely on the good will of people to fix problems when it affects their

neighbor, that we are, I remind everybody here, a Nation of laws,

as initially constructed. Laws. That’s what we’re about. It’s not to

curb behavior. It’s to make sure that no one steps on other people’s

rights.

That’s the purpose. Everybody should be treated the same.

So as I look at this, Senator Enzi, I have some questions and I

hope we’ll be able to resolve them. Some in favor of audit privilege

law, they talk about helping the environment, they talk about requests from the States for non-regulatory approaches to environmental protection. Many State governments likewise talk of building partnerships with their business community to address their

environmental concerns, trying carrots instead of sticks.

But I’m concerned that the legislation we’re considering will help

encourage a race to the environmental bottom when it comes to

such issues as State enforcement of environmental protection laws,

allowing a privilege status to environmental audit reports and material related to such reports. I think it sends us in that direction.

There have long been calls for new approaches to environmental

regulation other than enforcement, and command and control legislation. Voluntary incentives sometimes do work. I would hope we

wouldn’t put our income tax system in voluntary compliance.

I am particularly proud of my contribution, alternative approaches to environmental protection law, embodied in a piece of

legislation I offered called the Community Right to Know Law.

Under that law, polluters are only required to disclose to the community what they’re releasing into the air, sent out as trash or

dump into the waterways.

Because companies would rather not have to publicly explain the

content of their toxic emissions, many companies have proactively

changed their environmental behavior. They have changed environmental protection from an end of the pipe cleanup process to a pollution prevention process.

As a result, industries have reduced toxic emissions in some

cases, on average more than 40 percent since 1988, voluntarily. But

the key to the success of the law is that the people in the community, those most immediately affected by the pollution, have a genuine right to know. They have a right to know what pollution is

being discharged in their community. It’s their right.

However, audit privileges go in the other direction. They will

turn what is now a right to know into a right to keep secrets, potentially toxic secrets. This proposal, I believe, could frustrate investigations of environmental wrongdoings with illegal maneuvering that have no place in protecting our environment.

Companies could keep secret needed information about how their

actions may contaminate a local drinking water well. They could

keep secret potential crimes from the public and employees.

I don’t know, I haven’t heard any examples of companies that

have stepped forward and said, you know what, we poisoned the

town’s well. I haven’t ever heard that kind of good will coming. I’ve

heard at a later date that some companies have tried to clean it

up. But why shouldn’t the public have the right to know?

Contractors and others working at a factory would not be free to

talk about what’s going on. While the Supreme Court has said that
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we cannot limit spending on political campaigns, because money is

equal to speech, in the environmental area, we’re saying corporate

polluters will now have the right of concealment.

In Idaho, a surprise State inspection of a Federal lab run by

Lockheed Martin found illegal handling of toxic wastes. As the

State inspectors left the plant, they were given files and told they

were privileged under State audit law. Is it not surprising that the

State of Idaho let their audit law sunset?

EPA has an audit policy that encourages audits without limiting

risks to environmental protection. It waives certain penalties but

does not allow companies to have an unfair advantage over their

competitors.

I believe in States having flexibility in implementing the Federal

environmental laws. But those States that put the polluter ahead

of the public should lose their authority over those environmental

statutes authorized to them.

Thank you, Mr. Chairman.

Senator CHAFEE. Thank you, Senator.

Senator Enzi, we welcome you, and I know you’ve had a long interest in this. This hearing came about because, as I recall, you

were moved to add this as an amendment, and I indicated to you

that we would have a hearing. Therefore, you are gracious in cooperating with us and we now have this hearing. We welcome you.

Senator Kay Bailey Hutchison might be along. If she is, we’ll put

her on at that time. But you go right ahead, Senator, and again,

we’re pleased to have you here.

STATEMENT OF HON. MICHAEL B. ENZI, U.S. SENATOR

FROM THE STATE OF WYOMING

Senator ENZI. Thank you, Mr. Chairman and members of the

committee. I really appreciate your holding this hearing.

The opening statements were very interesting to me. I’m glad to

know that you’re open to the possibilities that there are for the environmental audits.

For years, many of us have been concerned about making the environment cleaner, safer and healthier. For two and a half decades,

the EPA has been cleaning things up. But there is still lots to do.

We’ve got to get more people involved. We’re not going to get all

of the problems until everyone is involved.

I come from a small business background. I’ve worked in a variety of business sizes. I serve on the Small Business Committee. I

need to tell you that my opinion of a small business is one where

the owner of the business sweeps the sidewalks, cleans the toilets

and waits on customers. I’m talking about really small.

If we design things so that the small business can handle them,

other businesses don’t have any problem. Unfortunately, there are

a lot of small businesses out there that view the EPA more like the

IRS. They have questions they’d like to ask, but they’re afraid to.

Yes, I’m talking about small business. Big business has staff and

specialization that allows them to get answers. In fact, big business

can act through their attorneys and even have some lawyer-client

privilege.

Several years ago, I watched Oregon craft a solution. Shortly

afterwards, I saw Colorado do something similar, but different. I
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was in the Wyoming legislature at the time, and I watched these

two pieces of legislation for a couple of years to see what results

they would get, and to see if there were any court challenges.

The legislation worked and there were no court challenges. A

couple of other States copied one or the other of the laws. I combined the two laws for a bill for Wyoming.

I took that bill through the legislature. The bill was unanimous

out of committee. It passed both houses by more than a two-thirds

majority, and was signed into law.

As you know, that’s a lot of steps and a lot of public input. There

was a consensus, not only did people have a chance to get involved

in the process, but the debate itself raised important, raised the

importance of a cleaner environment. It forced people to focus on

the fact that our objective is to have a cleaner, safer environment.

That’s not an emphasis on levying big fines.

This winter, when I got to Washington, several States with audit

laws were meeting with the EPA. Since I had been involved in the

drafting and passage of one of these laws, they met with me. The

EPA was using threats of over-filing and delaying approval of State

enforcement programs.

Of course, over-filing means the EPA could come in and use the

audit information as a road map for prosecution and levying fines.

They can do this even after a person has conducted an audit according to State law. After a business has gone through the expense and exposure to be sure that they are not harming the environment. The EPA was sounding like the IRS.

So how do we encourage especially a small business to spend

extra money looking for environmental problems and then also expect them to pay for the cleanup of the problems if they find them?

Twenty-four States have found that all you have to do is take the

fear out of the effort. A small business doesn’t want to go to all the

expense of checking for problems, and then all the expense of

cleaning up problems if the reward is simply fines and penalties,

and especially the rumored fines and penalties of the EPA.

Have you ever heard of a small fine from them? Small business

people never have, particularly in relation to the size of their business. To a small business person, a small EPA fine would seem

huge. They have just as much fear of the embarrassment. What if

their neighbors think they have been polluting? They have to worry

about what others in the community think of them. Their reputation is what holds their businesses together.

I want to thank you, Mr. Chairman, and the Environment and

Public Works Committee, for holding this hearing. Because it deserves congressional attention. To date, 24 States have chosen to

enact some form of environmental audit law. Legislation is pending

in 16 other States.

I would point out that 11 members who sit on this committee

come from States that have audit laws. Another five members come

from States that are considering audit laws. I don’t want to spend

a lot of time explaining the intricacies of the laws, because you

have an expert panel of witnesses here today that can do a good

job of that.

How do you ease people’s fear of the EPA and get them to clean

up the environment at their own cost? You simply assure them
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that they won’t be fined in addition to their personal effort. You assure them that they don’t have to turn over any more of a road

map of their problem than the law already required. Protection of

voluntary gathered information. Material that wouldn’t have been

available if it weren’t for the audit.

If they don’t do the audit, these materials are not available. We

don’t protect bad actors. We don’t protect repeat offenders. We

don’t protect people that have had an environmental accident. A

carefully crafted audit law, and that’s what you get the excitement

of working on, assures that the audit protections apply only to good

faith efforts, efforts that are voluntary, that are above and beyond

what is otherwise required by law.

People conduct audits to find things they do not already know

about. There are examples from the existing audit laws of multiple

audits by the Environmental Protection Agency themselves that

missed things that were found in their own audit.

Entities that conduct audits can include businesses, but they also

include schools, hospitals, towns and counties. Any disclosures are

a net gain above the traditional enforcement. They are a net gain

for a safer, cleaner and healthier environment.

Now, audits do cost money. If a violation is found, it costs to

clean it up as well. Because if you’re under an audit process, and

you don’t clean it up and you know about it, it’s a criminal activity.

That’s more pressure on the businesses. Once they report it, without audit protections, they can be fined and even taken to court.

So in deciding to conduct an audit, a person takes on a big risk.

It’s big enough so that most small businesses won’t voluntarily undertake it. These folks choose instead to take their chances and

wait for the inspectors. After all, only 2 percent, only 2 percent of

regulated entities are on inspection schedules anyway. Just 2 percent, Mr. Chairman.

How do we encourage the other 98 percent to really think about

their environmental performance, when we reward them with

fines?

I’d like to take a minute to explain my approach to the issue. The

State laws have been working. They can work better. They need

some Federal assurances. The legislation I’ve introduced would provide a safe harbor for State laws that fit within certain limits. It’s

the limits that are important. It would not give any authority to

any State unless they go through the full legislative process, including all of the local discussion and debate that it entails.

This doesn’t give a blanket authorization nationwide for an audit

law. It requires that local debate, that local concern, the local detail

and the local differences. That’s a critical part of this process, and

something of value that we should recognize. State legislators live

in the places that the laws affect. It’s their home.

This bill would allow Congress to set the boundaries of the safe

harbor and determine what State laws may provide, such as limited protection from discovery for audit information. But only information that is not required to be gathered. All legal reporting requirements and permitting disclosures remain in effect and could

not be covered by audit privilege.

The State audit law may provide limited protection from penalties if violations are promptly disclosed and cleaned up. Note the
10

protection will not cover criminal actions and the law must preserve the ability of regulators to halt activities that pose imminent

danger to public health.

Third, a State law falls within the safe harbor, the EPA would

be prohibited from withholding State enforcement authority or

over-filing against individuals simply because of the State’s audit

law. Lastly, the bill would require an annual State performance report that would help measure the success of the different laws, so

we can see what works and what doesn’t.

I want to point out that this legislation will not dilute enforcement. There are safeguards to ensure that the State audit laws always act to supplement, not to supplant, the existing enforcement.

It’s important to note that. Audits are an affirmative tool. Used

properly, they can only be used to achieve an environment that’s

safer and healthier than the status quo. They do not protect any

entity from regular inspection or monitoring.

Some form of Federal legislation is necessary to provide the certainty our State laws need in order to be effective. I think it’s a

tragedy that the EPA has been so obstructive in giving States a

chance to test reasonable and innovative solutions to a cleaner environment. Instead of promoting reinvention that the EPA talks

about, the EPA is perpetuating an environmental race of mediocrity.

I’d like to close by telling you how Wyoming’s law has weathered

the process. I’m pleased to report that in the last couple of months,

after many delays, the EPA has been into the State and taken a

look at our law. I’ve been pleased with the comments that they’ve

made on it and the ability that we have to continue to use it.

At least that’s what they tell us today. They just might change

their minds tomorrow and decide to over-file against Wyoming people who use it. So it’s no wonder that people are afraid to use the

law. It’s time we put this issue to rest by defining some level of

a safe harbor, some level, in giving State laws the certainty they

need to be effective.

I’d encourage the members of the committee to take a look at

this bill and see if they can find a reasonable solution that will assure a cleaner and healthier environment.

Thank you, Mr. Chairman and members of the committee.

Senator CHAFEE. Thank you, Senator.

This is a little bit complex, I must say. See if I understand it.

Currently, let’s take the Wyoming situation. Currently in Wyoming, which I presume is somewhat typical, you have an audit law.

Does that apply in those areas where the Federal Government has

given the enforcement procedures to the State, as in the Clean

Water Act, for example, in many instances?

Senator ENZI. Yes, it does.

Senator CHAFEE. But the reason you’re coming before us now,

after all, if Wyoming’s situation is working well, and Colorado or

whatever it is might be working well, you’re saying that you want

Federal legislation in order to prevent over-filing, is that it? Is that

why you’re here?

Senator ENZI. They’re not working well only from the aspect that

people are afraid to utilize the law, because they’re not sure what

the status will be of EPA intervention in their law.
11

Senator CHAFEE. I see.

Senator ENZI. They’re not going to hang themselves out by going

to all this work and all of this cost and then have the EPA say that

it wasn’t worth anything, that they have to go ahead and levy the

fines on them.

Senator CHAFEE. Because under the current situation, even

though you have a Wyoming law, for example, and the business

owner conducts and audit and discovers that he’s made some mistakes, and addresses those mistakes, you’re saying that despite the

Wyoming law, the EPA can still come in on top of that business

man and subject him to fines.

Senator ENZI. Yes, Mr. Chairman, that’s the threat that was

brought to us in January that got me involved in this issue again.

Several of the States were here for a meeting, and that’s exactly

why they were here.

Senator CHAFEE. We’re going to hear from Mr. Herman from the

EPA. It’s my understanding, obviously, that EPA opposes the State

protection laws. But as I understand, they’ve issued some guidance

that details minimum standards that a State audit law must protect to gain the approval of EPA. So it seems to me they’re working

both sides of the street, as I understand it. We’ll hear from Mr.

Herman on that.

One of the questions that’s going to be raised here is, why do you

restrict it to environmental laws? I guess Senator Baucus or maybe

Senator Lautenberg said, what about the Internal Revenue laws?

Senator ENZI. I haven’t taken a look at it from that aspect yet,

but it might be a good idea.

Senator CHAFEE. Well, I suppose you’ve bitten off enough.

Senator ENZI. In Wyoming, we’re limited to one topic per bill.

[Laughter.]

Senator CHAFEE. Well, I think they were talking, I think Senator

Baucus listed several items, several areas where this might apply

but yet has not been addressed.

Senator Baucus.

Senator BAUCUS. Thank you, Mr. Chairman.

This is an interesting subject. I think it was in 1975 when Congress codified the Federal Rules of Civil Procedure. A question

arose as to whether we should codify privileges to a general rule

and all evidence that’s relevant or could lead to relevant evidence

is admissible, and the public has a right to know of it.

Congress decided not to codify those privileges, as, say, the attorney-client privilege. Because Congress felt that since evidentiary

rules, including exceptions to the rule and its various privileges,

was developed really through the common law, that it should be

left that way and left to the courts to interpret and decide what

evidence is properly admissible and what is not.

In fact, interestingly, on the subject that the chairman raised,

IRS audits, for example, it’s not directly on point, but I think the

Supreme Court has ruled that there is no work product privilege

between a taxpayer and an auditor and an accountant. That is not

privileged information.

The question also does come up, as the chairman said, what

about all these other areas? Why should environmental audit information be privileged when virtually all other information is not
12

privileged, civil rights or employment discrimination laws, OSHA

for example, that’s not privileged.

I’m not so sure, frankly, that companies that are going to audit

much more than they currently do if this law were passed. I think

companies are going to audit because it’s in their own self interest

to conduct these audits, to find out whether they’re doing it right

anyway.

Obviously, too, our environment’s been cleaned up quite a bit in

the last 25, 30 years since we passed major environmental laws. As

you know, one of the premises, underlying assumptions of our Federal environmental laws is that they are Federal laws, they are national laws, Clean Water Act, Clean Air Act, etc. But a lot of States

do have some flexibility, because each State is a little bit different.

That assures the country that a person traveling around the

country is going to have virtually the same environmental protection in whatever State he or she might be in. It also prevents

States from gaming the Federal statute by enacting certain weaknesses to attract industry or what-not. It’s worked pretty well.

Nothing’s perfect, and we struggle with trying to find the right balance.

But the question I have is, what happens under your statute and

bill, for example, when an attorney general certifies that a State

is properly enforcing the laws but the Justice Department or the

EPA have a different point of view? For example, because the State

audit law prevents a State from recovering economic benefits derived from the violation, what do we do there?

Senator ENZI. In that particular case, there would be court action

that would result in the opportunity for the State as well to

present its case, not just the Federal.

Senator BAUCUS. But wouldn’t the information be protected

under your bill?

Senator ENZI. The only information that’s protected under my

bill is additional information beyond the Federal Government requirements. If it’s required to provided at the present time, it

doesn’t come under privilege at all. This doesn’t change Federal

law. The same laws will apply nationwide that apply at the present

time. So we’ll still have the same uniformity of law. We’ll just have

an opportunity varying by State on how they can do an audit and

what kinds of protection they get for the audit.

Senator BAUCUS. I understand. But does the State audit law, it

prevents a State from recovering economic benefit derived from violation, that would be a significant change from general Federal enforcement of environmental laws.

Senator ENZI. The bill itself allows Congress to provide the parameters of that safe harbor, whatever that might be. The States

would have to operate within those parameters then.

Senator BAUCUS. Which leads me to my final question. Isn’t it

really working out pretty well now? I say that because EPA looked

at Wyoming’s environmental audit law, and said, you know, it’s

OK. EPA looked at the Texas environmental audit and said woops,

you’ve got to make a change here. Texas did make a change.

Now, maybe that’s the reason for the bill, is that Senator

Hutchison did not want the change. But that was an economic benefit situation.
13

So in certain circumstances, it seems to me it’s just not necessary. It’s a solution in search of a problem. Because the current

system, although not perfect, certainly has lots of flexibility, which

is in many ways good. Whereas on the other hand, if we lock into

a statute, a provision that reduces the flexibility, but also, the real

question is then what about all the parameters and guidelines that

Congress would enact, and exceptions? We may be just back where

we started from again.

Senator ENZI. We’d be back where we started from with one

large exception, and that’s that the businesses out there could rely

on it. That’s what happens when we codify the law. The businesses

can then rely on the action that’s taken. That’s the missing part

in the environmental audit right now, what can you rely on, will

you be over-filed.

Senator BAUCUS. The logical question is, why do businesses need

protection here but not in other areas?

Senator CHAFEE. That’s getting back to the question of the IRS

and OSHA and so forth.

Senator BAUCUS. That’s right, and why not the discrimination

laws?

Senator ENZI. If we want people to take an active part in discovering errors that may have been made, the more incentive you give

them to do it, the more errors they’ll find.

Senator BAUCUS. Thank you.

Senator CHAFEE. Senator Sessions.

Senator SESSIONS. Thank you, Mr. Chairman.

I think it may not be fair to say it’s not necessary. I think Senator Enzi is suggesting that there may be a lot of even minor violations that if business officials knew that if they promptly discovered it and reported it and fixed it, they would be constantly monitoring. They may be afraid to do a lot of monitoring, because they

may find some minor error that would cost them thousands of dollars. Or if they proceed in a way that would satisfy State law, they

could still be penalized by EPA.

Is that the fundamental concern, that if you go in and report a

problem, you pay to clean it up and stop doing it in the future, or

you could still be subjected to very large fines from Environmental

Protection Agency? Is that the basic problem you have?

Senator ENZI. Yes, that’s correct. The businesses are afraid that

if they, and when you make this step, it’s a huge commitment, because you can’t just do an audit and then ignore what you found.

You have to pay for the audit. That costs money. Then you also

have to pay to clean up anything you find.

When you start an audit, you’re agreeing to do that, or you have

absolutely no protection and possible criminal action. So they’re

taking a huge risk. They are willing to do that, if they have some

assurances on the fines and penalties and in some States, they

have the assurance that the additional information that they’re

generating themselves, to find their own problem, won’t have to be

shared.

Senator SESSIONS. It’s really a policy decision, it seems to me,

whether you think the benefits of utilizing the results of that confidential audit, I don’t know if using a confidential audit against

the company, the threat over them to prosecute them or otherwise
14

penalize them, so that they don’t produce that information. It’s a

policy decision.

I recall, Mr. Chairman, it being discussed within the Department

of Justice on the issue of defense fraud, what about large companies who discover a lower level employee of that company who’s

committed fraud and how we could encourage them to come forward and report that? So I don’t know if laws were ever passed in

that regard or not, but I know it was seriously considered a number of years ago.

I would, as I just repeated earlier, though, this is contrary to

classical criminal law, though we’re not dealing with classical

criminal law and environmental laws. That’s it.

Agencies are given authority to change the percentage of emissions that can be done. There’s great dispute over whether some of

these things can safely be put in a landfill or not safely be put in

a landfill. So there’s so much uncertainty about it. I think that

gives value to your proposal.

Let me ask this. With regard to the privilege, I share that concern. Do you think there’s any way that part of your bill and most

of the environmental audit bills could be modified in some way, so

that evidence of serious wrongdoing would not be, they wouldn’t be

able to withhold that from the Government?

Senator ENZI. Mr. Chairman, there is provision in there that

there’s no criminal activity that’s protected. Withholding that

would be criminal activity.

So there would probably be greater prosecution, not less. I don’t

know if that answers the question or not.

Senator SESSIONS. I’m not sure I read it that way. But there is

language to that effect in there, and I have not studied it carefully.

The other point that would concern me, I think we’ve got to deal

with, would be the language that says with regard to immunity,

which is a serious act, to give someone an immunity from an offense, that you couldn’t get immunity if the violation were intentional and willful. I think having both of those requirements is

probably too strong, and I would be concerned about that.

That’s something I have not studied, and would like to look at

it more. Because there are some offenses, as presently written,

don’t even require willfulness, for example. So it may go broader

than you intend, I think, in that statute.

Senator ENZI. It should probably be or, in that instance.

Senator SESSIONS. Or may solve that problem.

Senator ENZI. The immunity is from fines, not from criminal

prosecution.

Senator SESSIONS. Is that right?

Senator ENZI. Yes.

Senator SESSIONS. Well, that helps me a lot. I didn’t realize that.

I misread that. So if that is just from civil fines or penalties, then

I’m less concerned about that than if I thought it were the actual

criminal offense.

Senator ENZI. There’s no protection at all from criminal. That’s

strictly from civil. I think that every State that’s passed one of

these laws also has in camera reviews allowed by the judges to see

if there’s anything there that could have any criminal activity in

it as well.
15

Senator SESSIONS. Well, I think that is a positive step. Because

as I said, there may be instances in which it would not be appropriate to maintain a privilege on evidence involving serious criminal violation.

Senator ENZI. Absolutely.

Senator SESSIONS. Mr. Chairman, thank you.

Senator CHAFEE. Thank you, Senators.

Senator SESSIONS. Thank you, Senator Enzi, for your work. I

think it’s raising an important issue. I know it will take a lot of

effort, and I applaud you for that.

Senator ENZI. Thank you.

Senator CHAFEE. Thank you. Senator Lautenberg.

Senator LAUTENBERG. Thanks, Mr. Chairman.

As I understand EPA’s policy on audits, penalties are waived.

There’s really no such thing as a small fine. Penalties are waived

except for economic advantages for non-compliance. So I think the

specter of these egregious acts by EPA and fines and so forth is

probably a little less real than as I heard the discussion going on,

Senator. I don’t know whether that in any way mitigates somehow

or other your mistrust or your wariness about an EPA action.

What I find here is that we’ve said that in camera, the information can be revealed. Once again, establishing privilege for another

group that must respect confidentiality.

The ones who are left out are the people who are affected by it

directly. If a judge hears the case, it’s in the closed environment

of a private session of the court. But the people whose water supply

may be affected or whose children might be endangered by an environmental condition, they’re not allowed to know what’s going on.

Frankly, I must tell you, and I respect what you’re trying to do,

if we can reduce regulation without losing the mission that we

want to accomplish, that’s OK with me. But I find it hard to imagine that making internal discoveries of violations of environmental

rules ought to be guarded such that you can’t discuss, that it can’t

be forced to be brought to the attention of those who are in charge.

So I again, I think we’re applying an honor system differently in

this case than we are in almost any other. I would ask you that,

if someone violates the rules, a law, as an employee of a company,

and the company manager discovers it. Are they then forced to

make it known to authorities, or are they allowed to keep that

quiet as a privilege? At the same time say, OK, from now on this

employee is terminated or else he or she’s got to change the way

they do things?

Senator ENZI. I’m not sure I understand the question.

Senator LAUTENBERG. Is the manager of the company required

to, are they permitted to keep this as privileged even though it was

by no intent of the company’s to have it done this way, illegal discharge, let’s say? Are they entitled to keep that as privileged information by simply taking the corrective action in there to change

what’s going on within the work system without getting on with

the cleanup or advice to someone that there’s a danger out there?

Senator ENZI. No, that wouldn’t happen. In fact, under the Wyoming law, they’re required to report that they’re going to do an

audit. Anything discovered before that point is criminal if they

don’t take care of it.
16

So the employee reporting it to management is making management aware of an activity that’s out there that they’re required to

clean up anyway. None of that is privileged. Of course, we’re usually talking about small businesses with this. Big businesses already have their own forms of protection on it.

Senator LAUTENBERG. All right, well, small businesses can create

havoc with the environment just like the big businesses if they’re

handling mercury or some other highly toxic material. The size of

the business shouldn’t determine what the outcome is. If someone

uses a small gauge pistol, it causes as much danger, aimed properly, as a big shotgun. So we don’t say, well, if it’s small, it’s excusable, the person’s dead on the other end. I don’t understand why

a small business isn’t compelled to obey sensible environmental

laws. Or environmental law, let’s strike that. The sensible, we can

discuss that.

Senator ENZI. The small businesses do have to observe the same

rules, to the same extent, with the same reporting, but with less

people and less capability. They don’t have the specialization, they

don’t have the experts, they can’t afford the experts.

But they come under the same fine structure as the bigger ones.

They also know that their possibilities of being inspected are probably once in 50 years. So there’s not much incentive for them to

do anything there. They might as well just wait and see if there’s

a problem, rather than take an aggressive look and see if there’s

a problem.

We’re not talking about the environmental accidents here. What

usually turns up in these laws as a result of the use of the laws

is not environmental violations. What usually turns up is environmental eyesores. Not things that are illegal, just things that look

bad. But there are businesses out there that are afraid to even ask

about those for fear of the fines they might sustain. They know

that if they wait, they may have sold the business before anybody

fines it.

So what usually turns up as eyesore is not violations.

Senator LAUTENBERG. Beauty is in the eyes of the beholder, I

guess, or the reverse of that.

Thanks.

Senator CHAFEE. Senator Allard.

Senator ALLARD. Thank you, Mr. Chairman. I apologize for being

late.

I have an opening statement I would like to make part of the

record, if I may.

Senator CHAFEE. Certainly.

[The prepared statement of Senator Allard follows:]

PREPARED STATEMENT OF HON. WAYNE ALLARD, U.S. SENATOR FROM THE STATE OF

COLORADO

Thank you Mr. Chairman. This is an appropriate and timely topic for a committee

hearing. The issue of environmental audits has been at issue in the State of Colorado for some time now, with the Environmental Protection Agency attempting to

force State agencies to act as mirror image of themselves instead of allowing states

to try innovative compliance methods. It’s always disappointing when the Federal

bureaucracies fall back on a command and control approach to problems when they

feel intimidated by innovation.

What is more disappointing is that EPA’s rhetoric fails to match their efforts in

the area of Federal facilities. If the EPA were to pursue Federal agencies who are
17

responsible for some contamination at a research institute at the Colorado School

of Mines as vigorously as they pursue States who are trying to increase compliance

with environmental laws, we would all be better off. Unfortunately, EPA appears

to be more interested in controlling states than helping to clean up the environment.

To address EPA’s policy toward innovative compliance policies we have an excellent group of witnesses, but I’m particularly pleased that we have Trish Bangert

who is the director of Legal Policy in the Colorado Attorney General’s office. She

has been in the forefront of the debate on environmental audits nationwide and unlike other States, she has been key in assuring that what Colorado’s elected legislature has determined is best for the State, isn’t overturned by unelected Washington

bureaucrats. It was Trish who in hearing before this committee last June identified

the hypocrisy of the EPA with respect to its treatment of States versus the Federal

Government when she said, ‘‘I cannot help but mention that EPA’s fine sentiments

about protecting the environment extend only to private parties, and, seemingly not

to the Federal Government.’’ It is ironic that the states EPA doesn’t trust are begging the EPA to do their job against the Federal Government.

I commend the chairman for calling this hearing, and look forward to all the witnesses, but would like to particularly welcome the witness from my State.

Senator ALLARD. Mr. Chairman, I think the fundamental question here is do you want to make the small business man out there

a part of the team in cleaning up the environment, or do you want

to create him as an adversary and discourage him from working

and trying to clean up the environment in a responsible manner.

I have some examples I can point to in the State of Colorado,

where we’ve had self-audits. The Environmental Protection Agency,

after sometimes, many times it’s not always the business man.

When we’re talking about a small business man, sometimes it’s

local government. Many times it’s local government. It’s small communities.

We can point to one situation in Colorado. We had a small, local

entity of government, local government, made a violation. They discovered it. It was an employee, a problem with an employee, as

Senator Lautenberg alluded to in his question. They took the question, but then the Environmental Protection Agency comes in behind them and subjects this local entity of government to a lot of

harassment and threat of serious fine after they did the responsible

thing of reporting it and trying to immediately remediate it.

It’s impossible for us to put an EPA employee in every small

business in America. One way that you can get this is to pass some

common sense legislation, like Senator Enzi and Senator

Hutchison, that says, OK, let’s make the small business administrator, local government administrator part of the team. Let’s give

them some incentives to work with the Environmental Protection

Agency to recognize these problems and clean them up. They’ll get

cleaned up faster and better.

I think Senator Lautenberg made a good point there. If you can

make that part of the employee record, then the employee becomes

subject to discipline through the administration. If for some reason

you can’t make that, then it makes that much more difficult to dismiss that employee, perhaps at a later time, if he persists in that

type of behavior.

Trish Bangert is going to testify before your committee here in

the next panel. She works with the Attorney General’s office from

the State of Colorado. They are working on this issue, and she’ll

be able to go into more detail on some of these problems that we’ve

had in the State of Colorado.
18

But basically, Senator Enzi, that’s what you’re trying to do, is

just make the business man or perhaps the local government, I

don’t think we have enough EPA employees to be involved in each

local government to monitor them, as a matter of fact. You’re trying to make them a part of the team in cleaning up the environment, isn’t that basically what you’re trying to do?

Senator ENZI. Yes, I’m trying to increase the amount of people

that are interested in getting something done. I know we can’t afford to hire 50 times as many EPA auditors.

Senator ALLARD. Well, you know, I happen to agree with that. I

can point, you know, the Federal Government is one of the largest

polluters in the country. In the State of Colorado, they treat themselves differently than they do everybody else. I have a real problem with this adversarial relationship that the Environmental Protection Agency is trying to set up with the local governments or the

local communities when they have a problem in their own back

yard.

It seems to me if we can pull things together and make everybody, if we really want to clean up the environment, the success

to that is having everybody work together. So Mr. Chairman, those

are just some brief comments I wanted to make. I wanted to give

Senator Enzi an opportunity to elaborate a little more.

I suspect that probably a lot of his Wyoming constituents have

seen what’s happened in Colorado and backed off on self-audits, because they saw what happened in our State and other States.

Would you like to respond to that, Senator Enzi?

Senator ENZI. Yes. I can respond more than just for Wyoming,

in fact, on it. That’s that in most of the States where it passed,

there’s been a sudden decrease in the number of people that are

out there looking for their environmental problems, because there

is that uncertainty. They’re not sure what the EPA and the Federal

Government are going to do.

So it’s stopping a process that was solving a lot of problems. As

I mentioned, it was solving problems even in instances where the

EPA came in and did the inspections, when they did their own

thorough inspection, they found problems that the EPA had missed

on as many as three or four previous inspections.

So it can solve problems, it is a solution, it’s a way to encourage

people. Of course, the value of it is in the way that you draw the

parameters. That’s the opportunity that you have. You have a

chance to get people involved in environmental cleanup and still

protect against some of the things that have been brought up here

today. I think the legislation that I’ve drafted takes care of most

of the concerns you have.

Senator CHAFEE. I’m not sure I understood this latest exchange.

What your point is that, and what Senator——I’m not sure what

Senator Allard meant when he said people in Wyoming saw what

happened in Colorado.

Senator ENZI. Yes.

Senator CHAFEE. Is the point you’re making here that under the

State laws you passed, there’s an encouragement to come forward

and reveal, to conduct an audit to start with and then try to do

something about it. But the point you’re making is that the Federal

Government then comes in, the EPA does, and over-files, as it
19

were, and comes down on you like a ton of bricks? If you’d remained quiet, you wouldn’t have gotten into all that trouble? Is

that the point?

Senator ENZI. That’s the point.

Senator CHAFEE. So that’s the need for the Federal legislation.

Senator ENZI. Yes.

Senator CHAFEE. That’s why you’re here.

Senator ALLARD. Mr. Chairman, the State of Colorado, this incident that happened in the State was reviewed by the Colorado Department of Health. There are no shrinking violets in that department when it comes to environmental concerns. They worked it

out.

The problem that I think probably Trish Bangert will talk to you

about was handled in a very responsible manner, and then quickly

remediated. Then the EPA ignores all that, they say, well, there’s

that initial violation, so you’re subject to a $10,000 fine.

The fact is, if that self-audit wasn’t there, that employee, that

local unit of government would not have reported it, and nobody

would even have known that there was that violation.

Senator CHAFEE. That’s the need for the Federal law.

Senator ALLARD. That’s the need, and that’s the way I see it,

that’s the need for the Federal legislation.

Senator CHAFEE. All right, fine. Thank you very much, Senator.

Senator Enzi, if you’d like to come up and join us here on the rostrum, you can do so. I know you’re very interested in this subject.

I have several statements by Senators who cannot be here today,

but wish to have their statements placed in the record.

[The prepared statements of Senators Smith, Thomas, and

Hutchinson follow:]

PREPARED STATEMENT OF HON. BOB SMITH, U.S. SENATOR FROM THE STATE OF NEW

HAMPSHIRE

I am pleased to attend this hearing regarding the legal privilege issues associated

with environmental audits. This issue provides a useful opportunity to see whether

common sense can be part of our environmental laws. I look forward to hearing

what the witnesses will have to say on this matter.

I believe the Senate should seriously consider environmental audit legislation for

a variety of reasons. In general, I believe it has the potential to encourage companies to act proactively to do the right thing with regard to the environment. Environmental audits will encourage companies to search out and correct problems and

not be afraid of doing so. Many States have come to the conclusion that industry

needs to be provided with more incentives to encourage environmental innovation,

not merely more penalties for noncompliance. Increasingly, I think some in Congress

are coming to the same conclusion.

My home State of New Hampshire has an audit law that was strongly supported

in the State legislature. In just the last few years, 24 States have enacted environmental audit laws, and recent experience with these statutes has demonstrated that

positive results are already being accomplished in meeting our common goal of protecting human health and the environment.

I believe that the congressionally-enacted protection of State environmental laws

may be necessary to stop the chilling effect caused by needless and destructive meddling from inside-the-beltway bureaucrats. Unfortunately, some people still think

they know more just because they work in Washington. Hopefully, today’s hearing

will shed some light on this important matter. Thank you.
20

PREPARED OF STATEMENT OF HON. CRAIG THOMAS, U.S. SENATOR FROM THE STATE

OF WYOMING

Mr. Chairman, thank you for holding this hearing today. I welcome my colleague

from Wyoming, Senator Enzi, and look forward to his testimony. It is important that

we examine the concept of environmental self-audits. Well over half of the States

have some kind of audit law or policy. The question is then, are we going to allow

States to pursue this innovative concept to protect the environment, or is the Environmental Protection Agency (EPA) going to insist on its traditional command and

control, outdated way of doing business?

In 1995, the Wyoming Legislature, under the leadership of now U.S. Senator

Enzi, passed an environmental self-audit law. It was good legislation that would create incentives for businesses to identify and correct their pollution problems. It is

important to emphasize that point; the intent of the Wyoming law and all audit

laws is to protect the environment. They don’t roll back other environmental standards. They take a different approach than the traditional environmental enforcement methods of the past, that is focusing on environmental protection and cleanup

rather than penalties and sanctions. These laws will allow enforcement officials to

focus their limited enforcement resources on ‘‘bad actors.’’

Unfortunately, earlier this year, EPA delayed the transfer of final authority over

several pollution programs, including the Resource Conservation and Recovery Act

(RCRA) and the Clean Air Act, to the Wyoming Department of Environmental Quality (DEQ) because of concerns over the State’s environmental self-audit law. EPA

also threatened to remove State primacy for other environmental laws. Aside from

the very serious issue of trampling on the State of Wyoming’s 10th Amendment

rights, EPA’s adversarial approach won’t help us get any closer to achieving our mutual goal of protecting the environment. It is my understanding that EPA has

backed off a bit and is now negotiating in good faith with the State of Wyoming.

I strongly encourage EPA to continue that dialog and reach a constructive agreement.

I am sure that we will hear today from EPA that Federal legislation is not necessary because they have an administrative policy to encourage self-disclosure. Indeed, it is a good, first step forward. However, the EPA policy doesn’t provide

enough incentives to businesses for it to be an effective environmental protection

tool. In a nutshell, the EPA’s policy is that it will not prosecute businesses as aggressively as it could otherwise if a company comes forward and discloses a violation. The business is not protected from lawsuits or penalties. In fact, EPA strongly

opposes providing privilege or immunity for these businesses, alleging that it will

‘‘let polluters off the hook’’ Nothing could be further from the truth. Under these

laws, there is no protection for: Willful and intentional violations; companies that

do not promptly cure violations; companies asserting the law fraudulently. Further,

companies can’t hide information through audits that they would ordinarily have to

disclose under other laws and regulations.

Our environment is cleaner than it was 25 years ago. In order to protect our natural resources for the next century, we need to follow the States’ lead and utilize innovative concepts like self-audit laws. I commend Senators Enzi and Hutchison for

coming forward with this legislation and look forward to working with them on this

important issue in the future.

PREPARED STATEMENT OF HON. TIM HUTCHINSON, U.S. SENATOR FROM THE STATE

OF ARKANSAS

Thank you, Mr. Chairman. Mr. Chairman, I am pleased that you have seen fit

to call this hearing today on environmental self-audits. In my opinion, this is one

of the more important environmental issues that this committee will consider this

Congress.

Environmental self-audits can be a first step toward creating a system whereby

industry becomes an actor in improving our environment, instead of being labeled

as a participant in destroying it. Instead of constantly fighting against the Environmental Protection Agency, industry can become a partner by working out environmental problems before they become too severe.

There certainly is precedent in passing this type of legislation, in that it has been

approved in 24 States, with several others considering similar legislation. These

States have recognized the necessity of protecting those industries who are attempting to be responsible environmental stewards.

Self-audits, however will not be a legitimate reality unless Federal legislation like

we are considering today is passed. This legislation will encourage industry to actively
21

pursue an aggressive strategy of self-audits, without the fear of reciprocation

from the EPA, the Department of Justice or other law enforcement agencies.

Environmental self-audits are the epitome of environmental responsibility on the

part of industry. In this day when environmental rules and regulations have become

so complex that it takes hundreds of experts to determine whether a company is

in compliance with environmental laws, it only makes sense that a company have

a system whereby they test their compliance. This type of testing will not only allow

a company to avoid unnecessary red tape and potential fines, but it could dramatically increase environmental protection, and in the long term, eliminate costly

cleanup.

These responsible companies must have the protection from potential litigation

that may result from their internal audits. If the results of their audits are used

against them in litigation, not only is there no incentive to perform internal audits,

there is significant incentive to avoid them.

While there is criticism that companies would take advantage of this law to get

around environmental protection, I believe there are significant safeguards that will

prevent this from happening. Among other willful violations, companies who intentionally violate the law, don’t promptly mend violations, or have patterns of violations are exempted from any kind of protection.

I strongly support this legislation and look forward to working with Senators

Hutchison and Enzi toward passing a bill that is both environmentally responsible

and fair to those companies who perform the audits.

Senator CHAFEE. Now let’s have the next panel please come forward. If Senator Hutchison comes in, we’ll insert her in and let her

proceed.

But we now have the Honorable Steven Herman, assistant administrator for the Office of Enforcement and Compliance; Mr.

Barry McBee, chairman, Texas Natural Resource Conservation

Commission; Ms. Patricia Bangert, director, Legal Policy, Colorado

Office of the Attorney General; Mr. Paul Wallach, on behalf of the

National Association of Manufacturers and the Corporate Environmental Enforcement Council; and Mr. Mark Woodall, from the Sierra Club.

So we’ll go in that order. We’ll start with Mr. Herman. We welcome you here, Mr. Herman. Go to it.

STATEMENT OF STEVEN H. HERMAN, ASSISTANT ADMINISTRATOR, OFFICE OF ENFORCEMENT AND COMPLIANCE ASSURANCE, ENVIRONMENTAL PROTECTION AGENCY

Mr. HERMAN. Thank you very much, Mr. Chairman. It’s a pleasure to be here before you today.

One of the first actions——

Senator CHAFEE. I would say, I failed to mention, if you can have

your statements roughly in the area of five minutes, and you can

see the clocks here. We’ll give you a little latitude, but don’t press

me too hard.

Mr. HERMAN. I’m going to try and come in within that limit, Mr.

Chairman.

One of the first actions we took when Administrator Browner reorganized the enforcement program at EPA was to develop a policy

to encourage the performance of voluntary self-audits by the regulated community. We believe that self-policing incentives, along

with a strong environmental enforcement program, are essential to

protecting the environment through achieving better environmental

compliance with our environmental laws.

The EPA environmental self-auditing policy was issued two years

ago. Under that policy, companies that voluntarily discover,

promptly disclose and correct violations, prevent their recurrence
22

and remedy any environmental damage, do not face gravity-based

penalties. In addition, our policy does not recommend, and I think

this goes to what Senator Sessions was talking about a little before, our policy does not recommend corporate criminal prosecution

for companies that meet the terms of the policy.

To protect public health and safety, the policy does not apply to

disclosures involving individual criminal conduct, repeat violations,

and violations involving serious harm to the environment or people,

or imminent and substantial endangerment. Our policy has won

praise from some in industry, environmental groups and from local,

State and Federal law enforcement officials. Even more important,

the policy has been a success.

Just this month, EPA and the GTE corporation used the policy

to resolve more than 600 violations at 314 facilities in 21 States.

Under the agreement, GTE pays a $52,000 penalty. That’s what its

economic benefit was. EPA waived $2.38 million in penalties. GTE

corrected the violations and has taken steps to prevent future ones.

Overall, and I want to emphasize, overall, 225 companies have

disclosed and corrected violations under the policy at more than

700 facilities around the country. These include Fortune 500 companies and small businesses. EPA has made the use of the audit

policy a priority for next year, and during the next 18 months we

will also be evaluating the results of our self-policing policy.

Many States have adopted auditing incentives, some administratively, and others by legislation. A number of State approaches are

consistent with EPA’s. Other State approaches we feel are less protective, because they impose secrecy and they provide for arbitrary

immunities.

Where there should be openness, State audit privilege laws strip

the State of statutory authority to obtain information.

EPA has both legal and policy concerns where States create such

audit privileges and immunities. As a legal matter, for example,

Federal environmental laws mandate that EPA ensure that delegated States maintain minimum enforcement authority, including

the authority to get injunctive relief and penalties, and also have

minimum authorities to secure information necessary to monitor

and ensure compliance.

Our goal is to ensure that States have the minimum authorities

required to run delegated State programs. We are dependent on

these programs to achieve a high level of compliance and protection.

In light of these requirements, we have worked with States to

modify their audit laws so that they will meet minimum FederalState standards. We are not against experimentation. We are not

against different approaches. What we are saying is that the experiments have to be done within the bounds of existing Federal

law.

Our discussions with Utah and Texas have resulted in changes

to their laws that meet the needs of both the State and the Federal

Government. We have continued to have discussions with other

States, and many of them have gone favorably.

As a policy matter, which is different than the constraints imposed by the law, but as a policy matter, as I have stated in this

committee and on numerous other occasions, EPA opposes privilege
23

and immunity legislation, including what we have been able to see

of S. 866. We have not studied Senator Enzi’s bill to date.

Audit privilege laws promote secrecy. That is their purpose. They

are anti-law enforcement. They impede the public’s right to know.

Some even penalize employees who report illegal activity to law enforcement authorities.

These statutes interfere with the Government’s ability to obtain

the information it needs to protect the public health and safety.

They may also shield environmental criminals from prosecution. In

short, why should we make it easier for violators and harder for

our State and local law enforcement officials?

While we support penalty mitigation as an incentive to self-policing, we believe that to immunize serious violations, including those

where there may be criminal conduct, imminent and substantial

endangerment and actual harm, is wrong. Such immunity laws discourage needed investments in pollution control, lower the standard of care, and undermine the rule of law.

It is unfortunate, Mr. Chairman, that representatives from numerous States that support a balanced approach to environmental

auditing are not able to appear here today. In Exhibit 3 to my written statement, I have included opinions from some of the many

local, State, and Federal law enforcement and environmental officials and citizens who support environmental auditing, but who oppose privileges and immunities.

In conclusion, I would like to quote from an October 24, 1997 letter sent to you, Mr. Chairman, by William Murphy, the president

of the National District Attorneys Association. The NDAA emphasizes its opposition to environmental self-audit privilege as contained in legislation before the States. ‘‘We continue to believe that

this is an extreme measure far beyond any remedy necessary, and

that if you enact self-audit privilege you will be doing a vast disservice to law enforcement efforts, not only in the realm of environmental law, but across the spectrum of white collar crime.’’

Finally, and I will be glad to go into more detail——

Senator CHAFEE. That letter was addressed to me, apparently?

Mr. HERMAN. That’s correct.

Senator CHAFEE. I’ll make sure that the other members get a

copy of that.

Mr. HERMAN. Thank you, Mr. Chairman.

One last thing that both Senator Enzi and Senator Allard mentioned, the importance of bringing in small business. I would mention that our small business policy was referenced in the Small

Business Regulatory Enforcement Fairness Act (SBREFA) legislation passed last session, and was referenced as a positive approach

to working with small business in terms of mitigating penalties.

Thank you again very much for the opportunity to testify before

your committee. I agree, this is a very important issue, and I look

forward to answering any questions you may have.

Senator CHAFEE. Thank you, Mr. Herman.

This is what we’re going to do. We’d like the panel to stay here,

and we’ll ask that you wait until everybody testifies, then we’ll

have questions for the panel.

Now we’re going to have a slight change. Mr. Herman, if you

could just step back into a chair back there.
24

Senator Hutchison is here and we want to give her an opportunity. We welcome you, Senator, and you forward.

STATEMENT OF HON. KAY BAILEY HUTCHISON,

U.S. SENATOR FROM THE STATE OF TEXAS

Senator HUTCHISON. Thank you, Mr. Chairman.

I do not want to disrupt the panel, and I apologize for being late.

I’m chairman of the Surface Transportation Subcommittee, and a

member of the Surface Transportation Board was before our committee. That’s why I was late.

Senator CHAFEE. Well, that’s very important in our lives. We

give you wide privileges.

Senator HUTCHISON. I don’t want to hold up this panel. But I

would like to just have a statement submitted for the record regarding my bill, which is similar in some ways to Senator Enzi’s

bill. I do support Senator Enzi’s bill. I think his bill is very important, because the States that have taken this approach are showing

that it does increase environmental quality. What his bill does on

the State level my bill does on the Federal level. Texas is one of

those States being challenged by EPA. I’m pleased that Barry

McBee, the chairman of our Natural Resources Conservation Commission in Texas, is here. He will talk about the difficult situation

in Texas.

My bill, the Environmental Protection Partnership Act, speaks

also to the Federal level. It allows many of the same activities to

go forward by encouraging the companies to voluntarily do audits

and take corrective action and report the violations without being

penalized unfairly by the EPA. It does it at the Federal level, what

I think Senator Enzi’s bill allows States to do under their own laws

that have the same type of protection.

Basically, I think audit regulation is so important because if we

can encourage companies to voluntarily audit themselves so that

they can root out any environmental problems they have, I think

we will be able to go beyond just what the EPA and regulators are

able to do under the present structure. Although the EPA has a

policy on this, I think it’s important that there be a law because

the policy can be changed without any notice to parties. This discourages companies from relying on the policy.

So my goal is to put into law a policy that will encourage companies to do self-audits and take corrective action and be able to report that they have done so. My bill would allow companies to do

this without penalty if they take corrective action. However, if their

audit is done and they do not take corrective action, or they refuse

to take corrective action, then they could still be penalized.

I think this is a good approach. I would like to work with the

committee to try to form a policy that is positive.

I know that you have many other witnesses. But I would like for

you to look at both my bill and Senator Enzi’s bill and perhaps

even work on both of them at the same time.

[The prepared statements of Senators Hutchison and Lott follow:]

PREPARED STATEMENT OF HON. KAY BAILEY HUTCHISON, U.S. SENATOR FROM THE

STATE OF ARKANSAS

Thank you, Mr. Chairman for the opportunity to present testimony on the important issue of voluntary environmental audit.
25

Environmental protection as we have known it in this country for the last quarter

century is based on the command-and-control model and we have greatly improved

our environment as a result. Our rivers are cleaner, we breathe cleaner air.

But it is precisely this progress that makes it necessary for us to reconsider our

present regime. Experience shows that we can increase environmental protections

even more if, in addition to existing enforcement tools, we partner with businesses

by encouraging them to voluntarily assist oar State and Federal agencies in protecting the environment. We must institute policies that accommodate this broader effort so we can target enforcement resources where they will be most effective.

Many companies have developed sophisticated environmental compliance systems

to determine not only whether their operations are complying with existing standards, but how they can avoid future problems. These companies have invested in

cutting-edge technology and expert personnel to search for ways to improve their environmental performance. They are way ahead of the regulators in finding potential

problems and avoiding environmental harm. Clearly, it is to everyone’s advantage

to encourage these efforts.

Nevertheless, under present Federal law, we almost always treat companies that

voluntarily audit their compliance worse than companies that violate the law and

hide the violations. The law punishes a company that ‘‘comes clean’’ and reports violations that it finds and fixes. Meanwhile, a company that fails to investigate or otherwise hides violations could likely go scot free. In addition, the law discourages

companies from producing detailed reports beyond those required by law, since they

thereby increase their potential liability to third parties in an era of billion-dollar

lawsuit awards.

This situation is worse in States with audit protection laws. Right now in Texas,

if a company in good faith finds, fixes and reports a violation to the State, it is not

punished by the State. Unfortunately, the Federal Government has the authority to

use this same information the company willingly turned over to the State to fine

the company for Federal violations of the very same law. This hardly creates an atmosphere of cooperation.

The notion that voluntary audits should be encouraged is not ground breaking.

Even back in 1990, Congress strongly encouraged voluntary audits in the conference

report on the Clean Air Act amendments, noting that substantial benefits could be

achieved.

Yet here we are at the close of 1997, and Congress still has not acted to give companies the go-ahead to conduct voluntary environmental audits.

States have, however. States have boldly—and bipartisanly—adopted laws that

ensure companies that they will not be punished for cultivating thoroughness and

vigilance in environmental compliance. 23 States have these laws so far.

What I propose is that Congress take its cue from the States and adjust Federal

law to encourage companies to search for possible violations of environmental regulations. Together with Majority Leader Trent Lott, I introduced the ‘‘Environmental

Protections Partnership Act of 1997’’, S. 866.

Under this bill, if a regulated entity voluntarily audits its compliance with environmental laws, the government may not turn around and use the audit report

against the company in an enforcement action.

In addition, if a company does an audit, promptly corrects any violations, and reports the violations to EPA, no punitive action will be taken against the company

for the violations. By ensuring companies that they will not be dragged into court

for being honest, the bill encourages companies to find and fix violations and report

them to EPA.

In order to ensure that these laws do not protect bad actors, I have included several protections: (1) No one gets the benefits of this bill who does not promptly correct and disclose violations uncovered in an audit. (2) Repeat violators do not get

any benefits of the bill. (3) Willful and intentional violators are in no way protected

by the bill. (4) The Federal Government is not prohibited from getting an injunction

against a violator if it is necessary to protect public health or the environment, nor

is the government prohibited from inspecting or monitoring compliance with existing law.

Our old-world model of environmental protection will not serve us in the next century. An the new model—a public/private joint venture to find and fix violations—

is already in place in 23 States. Congress should resign its role as the ball and chain

of environmental enforcement and start looking for ways to encourage positive action and compliance beyond the scope of present capability.
26

PREPARED STATEMENT OF HON. TRENT LOTT, U.S. SENATOR FROM THE

STATE OF MISSISSIPPI

I would like to thank Chairman Chafee and the Committee for this opportunity

to comment on S. 866, Senator Kay Bailey Hutchison’s environmental voluntary

self-audit legislation. I commend the committee for addressing this very important

issue, and hope that my testimony is helpful in highlighting the need for a Federal

initiative in this area.

S. 866 provides a necessary Federal standard regarding voluntary environmental

self-auditing for States. There are nearly two dozen States that have passed or are

experimenting with laws to encourage self-audits. These laws are aimed at increasing environmental protection and directing scarce enforcement resources toward the

real bad actors. We need Federal legislation to make these State laws work as they

were intended. I believe that Senator Hutchison has found a balanced and fair approach.

As the number and scope of Federal regulations increase, there is an even greater

need for self-audit programs. Generally, an environmental audit is a means of reviewing a business’ activities in order to get a ‘‘snapshot’’ of its overall compliance

with the law and to avoid potential future problems. Although no State or Federal

law requires companies to undertake comprehensive self-audits, it is a good business practice initiated by those taking extra steps to stay in full compliance.

Self-audits are more extensive than an inspection by a State or Federal regulator

because they are done more often and because companies simply know much more

about their operations and permit obligations than regulators do. A company conducting its own audit can identify and correct a much wider range of potential environmental violations.

Unfortunately, many companies do not perform self-audits because the information contained in the audit documents can be obtained by government regulators,

prosecutors, citizens’ groups and private citizens and used to sue the company.

These documents, if made public, are a roadmap for third parties to sue even if the

problem has been corrected and no environmental harm has occurred. Due to the

complexity of environmental law, it is possible and logical that companies which

take on the task of self-evaluation will find problems—and that is what we want

them to do. The threat of a lawsuit is a tremendous disadvantage to self-auditing.

Almost half of the nation’s States, including Mississippi, have recognized this disincentive and have acted to correct this problem. These State laws typically do three

things: (1) provide qualified evidentiary protection for internal audit documents, (2)

grant penalty immunity to companies that conduct audits and voluntarily disclose

all violations they discover in their audit, and (3) require prompt cleanup of the violation.

Under these State laws, the incentive to self-audit is reinstated. Responsible companies that find, report and fix problems are rewarded. These companies do not

have to pay fines and are protected from any court action on an internal audit. But

these companies must correct the deficiencies. This is key because without the

audit, this particular deficiency would not have been corrected.

Americans get more environmental protection by allowing honest companies freedom from sanctions and penalties. Taxpayers get a better return on their tax dollars

because enforcement resources can be directed toward those not complying with the

law.

Critics of self-audit legislation claim that these State laws are about secrecy and

letting polluters off the hook. This is just not true. These laws do not protect any

information required by law to be collected, developed, maintained, reported or otherwise made available to a government agency. Any action that causes an imminent

threat is not protected and must be immediately reported to authorities. Companies

gain nothing from these laws if they are using an audit for a fraudulent purpose

or if they find a violation and don’t fix it.

These laws present a new way of doing business. Twenty-three States think this

is a better way to get things done. Twenty-five others are considering voluntary selfaudit legislation. Legislation on the Federal level will assist these States with a full

and effective implementation of this concept if they desire to enact it.

Mr. Chairman, 95 million Americans live in States which have learned that selfaudit legislation is a successful way to get there. I thank you for the opportunity

to address the Committee and hope that this hearing will convince you of the need

for Federal legislation.

Senator CHAFEE. Well, thank you, Senator. We’ll certainly carefully examine your bill.
27

I think the point you make, and I’m going to obviously ask Mr.

Herman about this when we get to the questions. There’s a difference between a policy and a statute. As you point out, EPA has

a policy but that can be changed. What worries me a little bit is

the indefiniteness of it. It’s not clear and certainly not written

down what the law is in this subject as far as EPA dealing with

these situations, where disclosure is made.

I’ll ask Mr. Herman about that when the questioning period

comes.

Now, we want to give the Senators a chance to ask you any questions.

Senator Baucus.

Senator BAUCUS. Thanks, Mr. Chairman. I have no questions,

just want to thank Senator Hutchison.

This is not an easy area. It’s not an easy subject. On the one

hand, we want to encourage States to be flexible in their law enforcement approaches. On the other hand, we want our environmental statutes enforced. Therein lies the rub.

Your bill is certainly a contribution to the subject, and we appreciate your introducing it.

Senator HUTCHISON. Thank you, Senator Baucus.

Senator CHAFEE. Senator Sessions, do you have any questions of

Senator Hutchison?

Senator SESSIONS. No, I just thank you very much for your work

in raising this important issue. I do think we need to encourage

our reporting and self-evaluation, and thank you for raising it.

Senator CHAFEE. Senator Lautenberg.

Senator LAUTENBERG. Thanks to Senator Hutchison.

But I also, Mr. Chairman, will forgo any questioning at this

point.

Senator CHAFEE. All right. Again, thank you very much, Senator.

Senator HUTCHISON. Thanks for your forbearance.

Senator CHAFEE. You’ve made a fine contribution here, and we

appreciate it.

Senator HUTCHISON. Thank you very much.

Senator CHAFEE. Now, Mr. McBee, Chairman, Texas Natural Resource Conservation Commission. Mr. McBee, why don’t you proceed.

STATEMENT OF BARRY R. MCBEE, CHAIRMAN, TEXAS

NATURAL RESOURCE CONSERVATION COMMISSION

Mr. MCBEE. Thank you, Mr. Chairman, and members. I am the

chairman of Texas——

Senator CHAFEE. Senator, if you wish to sit up here, you may do

so. I know you have a heavy schedule, so you do as you wish.

Senator HUTCHISON. I thank you very much. I do want to welcome my colleague here, and he is very, very knowledgeable. So I

hope he can explain our Texas law. But I will not be able to stay.

Thank you very much.

Senator CHAFEE. A George Bush appointee?

Senator HUTCHISON. Yes, he is.

Mr. MCBEE. Yes, Senator.

Senator CHAFEE. OK, thank you.

Go to it, Mr. McBee.
28

Mr. MCBEE. Thank you again, Mr. Chairman and members of

the committee.

As noted, I am Barry McBee. I am chairman of the Texas Natural Resource Conservation Commission, Texas’ multimedia, comprehensive environmental agency. One of our guiding principles is

to promote and foster voluntary compliance with environmental

laws. To further this goal, we pursue an effective and efficient compliance and enforcement program that maximizes voluntary compliance, ensures that potential polluters are informed of their environmental responsibilities, and compels compliance through legal action when necessary to protect public health and the environment.

This opportunity to provide testimony regarding privilege and

immunity provisions of environmental self-audit laws comes at a

critical time for the future course of the State-Federal relationship.

EPA Administrator Carol Browner has said that she views the relationship between the Federal and State environmental agencies

much like a marriage.

Based on my experience, EPA often sees States as children and

itself as the parent in a paternalistic relationship that is not appropriate, given the capabilities of State environmental agencies

today. It is not healthy. It is one that we must both work to

change.

In May 1995, Texas enacted an environmental audit privilege

act, an initiative that our legislature thought was sound and beneficial public policy, for many of the reasons already articulated this

morning. As we have heard, 24 State legislatures today have

agreed and have adopted laws encouraging this type of partnership

between we, the regulator, and those we regulate.

Rather than embracing these innovative State approaches and

providing Federal support, however, EPA has been a persistent antagonist. Delegation to Texas of Federal environmental programs

has been threatened, and ultimately, Texas was forced to compromise by amending its audit law to address some of EPA’s concerns in order to get delegation back on track.

In passing the Texas audit act, the legislature believed that it

was enacting a creative solution to achieving and monitoring compliance in a collaborative system, just the kind of approach espoused by President Clinton and by this Administration. EPA has

not sought, in our view, to foster, but to stifle that sort of creativity.

In March of this year, a coalition of States, including Texas, met

with EPA Administrator Browner and presented what was thought

to be a reasonable compromise: A 2-year evaluation period of State

environmental self-audit laws in States whose attorney general had

certified that the State had the necessary regulatory authority to

carry out any new or existing program. Administrator Browner rejected that proposal outright, telling States that there would be no

moratorium, and that each State must negotiate with EPA officials

to resolve their differences.

Texas came to the table with proposed revisions addressing the

specific concerns EPA had raised, including changes to our statute

to remove immunity and privilege with respect to criminal violations. In March 1997, high level negotiations between EPA and

Texas resulted in a compromise being reached and specific legislative
29

changes were adopted by our legislature this year, and became

effective on September 1, 1997.

However, I would take an opportunity to point out that in those

negotiations, in our view, EPA stretched the common and clear

meaning of the words of its regulations to incorporate instead its

philosophies and policies. For example, out of the words appropriate penalty EPA concluded, contrary to our reading of regulatory

and judicial precedent that Texas must recoup the economic benefit

of non-compliance.

This language is not taken from any law passed by Congress that

we can find, but only from EPA policy. We believe statutes should

be strictly adhered to, and that EPA’s arbitrarily selecting language that must be included in State laws from among its policies

is inappropriate.

It should also be noted that EPA has actively pursued its opposition to the audit act in Texas outside the delegation context. In December 1996 and January 1997, five Texas companies that had

taken advantage of the audit act and voluntarily disclosed violations were confronted with threatening EPA letters of inquiry regarding those same violations. These companies today remain

under EPA investigation.

Texas now has almost 21⁄2 years of very positive experience implementing our audit act. The audit privilege has shifted part of

the burden to the regulated community to fund their own compliance, rather than keeping it on the State to fund more inspections.

As noted in my written testimony provided to the committee, the

audit act has provided very significant benefits to Texas and to our

State’s environment. At the same time, we have maintained a

strong inspection and enforcement presence to provide a disincentive to fraudulent misuse of the audit legislation.

The lack of Federal cooperation in the implementation of State

self-audit laws has created needless tension and uncertainty that

hampers State efforts to experiment with innovative enforcement

tools, and deters regulated entities from utilizing them. Federal

legislation expressly allowing States authority to pursue such innovations would be a welcome development, to restore the States’

ability to pursue approaches that differ from EPA’s preferred policies. That is, I think, the gist of Senator Enzi’s and Senator

Hutchison’s bills.

I hope, in closing, that my statement has provided you with some

opportunity to understand the benefits Texas has derived from its

use of self-audits as a compliance tool. We hope that next week,

when EPA’s inspector general visits the TNRCC to begin an investigation of the implementation of the Texas audit act that they will

also recognize the merits of the Texas law, and that EPA will prepare for its implementation of the Federal environmental audit

privilege and immunity legislation that we hope will be enacted by

this session of the Congress.

Thank you all very much.

Senator CHAFEE. Thank you very much, Mr. McBee.

Now, Ms. Bangert, we welcome you, Director of Legal Policy, Colorado Office of the Attorney General.
30

STATEMENT OF PATRICIA S. BANGERT, DIRECTOR, LEGAL

POLICY, ATTORNEY GENERAL’S OFFICE, STATE OF COLORADO

Ms. BANGERT. Thank you, Mr. Chairman, members of the committee.

I’m here today to testify on behalf of Gale Norton, the attorney

general of Colorado. We appreciate this opportunity to address the

important subject of State voluntary audit laws. I’m going to concur

in Mr. McBee’s remarks and add some insight, hopefully, from the

Colorado experience.

Specifically, I want to make two points. Audit laws are good for

the environment. The audit experiment may well fail. Sounds contradictory? Let me try to explain.

State audit programs may well fail, not because they’re bad

ideas, but because a Federal agency wants them to fail, and is

working very hard to make them fail. Before I get to EPA, let me

explain why I think the audit laws are good for the environment.

The Colorado audit law is not intended to allow anyone to hid

information. Its purpose is to encourage companies and other regulated entities to create new information, specifically to encourage

them to look voluntary at their environmental compliance, and to

correct any deficiencies found there. All of this without Government participation or expense.

Twenty-five entities in Colorado have disclosed violations found

in voluntary self-evaluations. Most of the disclosures solved problems that never would have been found absent the audit. Some resulted in long term benefits for the environment.

An example of this is the Denver Water Board, a situation mentioned by Senator Allard. The Denver Water Board is a municipal

entity responsible for supplying water to Denver residents. In 1995,

the board hired CH2MHill to perform an audit of its environmental

compliance. The audit found discharges into old storm sewers and

minor violations of the hazardous waste laws.

Upon finding the violations, the Water Board immediately notified the Department of Health and set about correcting the problems. What I’d like you to do is notice several things about the situation. First, the violations would never have been found absent the

audit. The discharges into the old storm sewers had been occurring

since before the Clean Water Act was passed in 1972, and had

never been discovered. Second, the hazardous waste violations were

so minor that a routine inspection would never have found them.

Also note that most of the violations were corrected immediately,

within the same week that the discoveries were made, much, much

sooner than a normal enforcement action would have required.

Most important, notice that CH2MHill recommended changes going

way beyond anything the regulators could have ordered. Changes

the Denver Water Board, most of the changes, the Denver Water

Board accepted and put into effect.

The Denver Water Board is a success story for self-audit laws.

We could have more of these if it were not for EPA interference.

In short, EPA has launched a campaign to ensure the failure of the

audit experiment. In this campaign, the agency has used two tactics. I’ll call them the delegation ploy and the over-file ploy.

The delegation ploy works as follows. EPA sets out a minimum

for State delegated program that’s a combination of law and EPA
31

policy. EPA then negotiates separately with each State. EPA rejected Ecosys’ suggestion for a 2-year moratorium while the States

experimented with audit laws and worked with EPA as a block.

In the individual negotiations, EPA pressures the States to eliminate or change their audit laws. Not surprisingly, the results of the

negotiations are either no audit laws or an audit law that looks an

awful lot like EPA’s audit policy. As you know, Idaho sunsetted its

law, Texas changed its law, Utah changed its law, Michigan has

agreed to change its law.

At the same time that the EPA is intimidating States into changing their laws, the agency is discouraging companies from utilizing

the audit laws. I call this the over-file ploy. Let’s take Colorado.

We’ve seen a dramatic increase in over-filings in Colorado in the

past year.

Mr. Herman stated in earlier testimony to this committee that

EPA over-filed in only four cases nationwide from October 1995

through October 1996. In the first several months of 1997, EPA

over-filed in 3 cases in Colorado alone, and has threatened to overfile in 10 more. In addition, EPA has threatened to over-file against

three entities that used the disclosure immunity provisions of the

audit law in Colorado.

Remember the Denver Water Board? When the board disclosed

violations to our Department of Health, it asked for immunity from

fines under the audit law. The disclosures made the violations public. Upon learning of the disclosures, EPA rewarded the Water

Board for its sensitivity to environmental compliance by requesting

hundreds of pages of documents concerning the disclosed violations.

Further, the agency has made no secret of the fact that it’s considering over-filing against the board.

In conclusion, State representatives have tried to meet with EPA

and come to some compromise regarding audit programs. The results have been disappointing. Unfortunately, EPA continues to

wage its aggressive war against self-audits. We have no recourse

then but to ask for legislative assistance.

Thank you, and again, we appreciate being here. We’d be happy

to answer any questions that you might have when the time comes.

Senator CHAFEE. Thank you very much, Ms. Bangert.

Now Mr. Paul Wallach on behalf of the National Association of

Manufacturers and the Corporate and Environmental Enforcement

Council. Mr. Wallach.

STATEMENT OF PAUL WALLACH, SENIOR PARTNER,

HALE AND DORR, LLP

Mr. WALLACH. Thank you, Mr. Chairman and members of the

committee.

In addition to being a part-time car pool driver, as Senator Bond

mentioned, and by the way, that was a bipartisan car pool, I have

practiced environmental law with the law firm of Hale and Dorr for

many more years than I want to remember.

I prepared, Mr. Chairman, a written statement that I ask be submitted into the record. The staff has copies.

Senator CHAFEE. That’s fine.

Mr. WALLACH. As you mentioned, I am here today on behalf of

the National Association of Manufacturers and the Corporate Environmental
32

Enforcement Council. As I believe you know, NAM is one

of the oldest and largest broad-based industrial trade associations.

It is the oldest and largest in the country. It has more than 14,000

members. It includes approximately 10,000 small manufacturers in

every State.

CEEC is an organization of 22 major companies that are all regarded as having very progressive and strong commitments to the

environment and environmental programs. It was formed several

years ago to look at environmental enforcement policy issues exclusively, and the question of whether environmental enforcement is

always furthering the goal of environmental protection, and where

it is not, to address those issues.

I brought with me a copy of CEEC’s Platform, which is also attached to my statement, and would ask that it also be introduced

into the record.

I should add, Mr. Chairman, as you know, I chair the New England Council’s Environment Committee, although I am not here in

that capacity. I do want to say that we have had extensive meetings at the New England Council and have spoken with the New

England congressional delegation. As New Englanders who are

very concerned about the environment, the council has adopted a

very strong resolution in support of Federal audit legislation.

Both NAM and CEEC have carefully considered, and their members have carefully considered, the issues relating to voluntary auditing and voluntary disclosure. Without question, the failure to

have in place adequate and certain protection for voluntary audits

has created strong disincentives and obstacles to auditing. A lot of

companies do audits, even in the face of these obstacles.

It is the right thing to do. But I can tell you that the lack of protection for these audits has a very real, chilling effect, which in

practical terms limits their scope, their aggressiveness, and really,

I think if you look at the people who have to provide the information to the auditors, quite frankly, their concerns limit the ability

to get information during these audits, because of the chilling effects.

Let me pose another policy issue, or pose the issue in another

way. A manufacturer, university, governmental entity, hospital,

that aggressively audits, as well as their management and personnel, should not be placing themselves in the position of greater potential liability than a company or entity that does not audit. Yet

this is exactly what is happening. Documents and information developed through voluntary self-evaluations can and are being used

against regulated entities and individuals in a variety of contexts.

The concerns of individuals and of companies is really heightened

by the massive potential civil penalties and very real possibility of

criminal convictions under the environmental laws for inadvertent

conduct. If time allows and the question is appropriate, I would

like to address the issue later of why the environmental area is different, Senator Baucus, than other areas.

I should also mention that seven years ago, in a bipartisan fashion, in a statement of managers and the conference report for the

Clean Air Act amendments of 1990, when both you and Senator

Chafee, Senator Baucus, were very much involved, there was very

strong support given for environmental auditing, and mention of
33

the fact that the hope would be that these criminal provisions

would not interfere with that, and audits would not be misused.

Well, they have been. We support, NAM and CEEC support Federal legislation because we see a very important opportunity for the

environment. We hope this opportunity is not lost in rhetoric and

skepticism. We hope you will see through that.

The regulated community has no ulterior motive. It simply wants

to feel comfortable and wants its people to feel comfortable—aggressively auditing facilities, correcting non-compliance, spotting

problem areas and improving operations. It’s not fair to expose

those who do all that to enhanced potential liability.

I have to say that I am somewhat puzzled by EPA’s position. The

agency has repeatedly emphasized that it is not going to go after

audit reports, it is not going to seek audit reports, and it has not

done that in the past. If that’s the case, I don’t understand how it

can impede its ability to enforce environmental laws not to get

these audit reports. EPA cannot have it both ways.

I’d also like to say that the parade of horribles and the concerns

that have been identified, when you really analyze them, which I

think is important, we don’t have specific examples from the opponents, and I’d like to hear specific examples, because in my 20 odd

years of practice, I can’t come up with them.

In fact, I think very clearly this is going to provide a greater

right to know than we would have now, because of the disclosure

requirements under the environmental laws. One of the attachments in my written statement contains a full page listing of all

of the disclosure requirements where you are required to disclose

when you find out, for example, that there’s been a release of reportable quantity that you may not have known about before.

That will get that information out to the public, to the neighbors.

It might not have been discovered before, inadvertently. There’s not

going to be blanket immunity, there’s going to be no protections at

all for intentional bad actors. I think, as I said, there’s not going

to be any secrecy.

I think it’s important, and I can give specific examples during

the questions as to how more additional information will get out.

I think the States have recognized the benefits, you’ve heard the

EPA’s reaction. I’m especially troubled because I see from a very

practical standpoint representing individual companies, and I see

it from NAM members and CEEC members, the concern that this

conduct is having on the regulated community. They’re sort of a

pawn in the battle, in some respects, between the States and EPA.

EPA is sending letters, demanding a huge amount of production

of documents from those companies that do utilize the audit laws

in the different States. That has a very, very real chilling effect.

I frankly don’t understand EPA’s position with respect to the

State laws and I’d just like to mention one point. EPA says that

they don’t have access to audit reports, the State does not have an

adequate enforcement structure or an adequate enforcement authority.

My question would be, what happens if no one in the State audited? Does that mean that the State doesn’t have adequate enforcement authority? Or if the companies in a State assert the attorney-
34

client privilege for their audits, which a lot do. Does that

mean the State doesn’t have adequate enforcement authority?

The argument, upon analysis, really does not make sense.

Finally, with respect to the policy that EPA issued in December

1995, I do want to compliment the agency. Steve Herman in particular, I think he’s worked very hard in terms of issuing that policy and implementing it. It is an important step forward. I think

industry recognizes that.

We respectfully disagree on the significance, however. It does not

eliminate the disincentives and obstacles to auditing and disclosure. It does not create the certainty that we need to have the people who provide the information. There are nine criteria in there

that you have to satisfy to meet the policy, for the policy to apply,

Senators. Those are very discretionary. You cannot be certain the

policy is going to apply.

It does not apply to individuals. The policy offers no protection

whatsoever to individuals. I could go through a number of other deficiencies in the policy. But even if the policy were a perfect policy,

it would not supplant the need for Federal legislation. Because it

cannot, the agency does not have the authority to remove the obstacles.

With that, I’d like to say that both NAM and CEEC look forward

to working with the Congress in a bipartisan fashion to see if we

can fully explain the values of audit legislation and have them recognized, and hopefully get a bill through that’s good for the environment.

Thank you.

Senator CHAFEE. Thank you very much for that testimony, Mr.

Wallach.

I would call Mr. Herman’s attention to Mr. Wallach’s testimony,

on page 18.

Senator BAUCUS. We have another witness here.

Senator CHAFEE. Yes, I know. I’m going to get right to him.

Mr. Herman, if you would have your folks take a look at page

18 where Mr. Wallach lists elements of this legislation. He says

they’re neither novel nor without precedent, and lists some other

outfits where these are taking place. I just thought I’d forewarn

you that I will be asking you a question about that.

Now we have Mr. Mark Woodall from the Sierra Club. We look

forward to your testimony, Mr. Woodall.

STATEMENT OF MARK WOODALL, CHAIR, LEGISLATIVE

COMMITTEE, SIERRA CLUB, GEORGIA CHAPTER

Mr. WOODALL. Thank you, Mr. Chairman and members of the

committee. I want to thank you for allowing me to make a statement on behalf of over 500,000 members of the Sierra Club.

I’m the chair of our legislative committee in the State of Georgia

and also the volunteer chair of our National Audit Privilege Task

Force. I’m a commercial tree farmer by occupation.

I’m co-submitting this testimony on behalf of U.S. Public Interest

Research Group. The Sierra Club and U.S. PIRG are organizations

that have brought numerous citizen enforcement actions under our

national environmental laws, are committed to preserving the legal

tools that ordinary citizens have fought for and need to protect
35

themselves from harmful pollution in their communities. This is

one of the many reasons that Sierra Club and PIRG and over 100

other public interest groups, both national, local and State, are bitterly opposed to the creation of any secrecy privilege or broad immunity rights for institutes who undertake environmental self-audits at either the State or Federal level.

In particular, we strongly oppose S. 866, as well as any other bill

that would restrict our Federal EPA from its ability to administer

delegated programs in States with these audit privilege immunity

laws. As you heard earlier, the District Attorneys Association has

written to you and in the past that the adoption of such a privilege

is an extreme measure, far beyond any remedy necessary. We

would say it is a radical measure that would create a vast dumping

ground for corporate dirty secrets.

I think we need to take a look, as we observe the 25th anniversary of the Clean Water Act, and think about why it is that we

have made progress. What are the current incentives under our

present legal system. We believe that the reason that people just

don’t dump it in the river, whether it’s a Federal facility or corporation or whatever, is because they fear liability, they fear enforcement, both of Federal, citizen or State enforcement. Certainly,

they’re concerned about the public right to know, as Senator Lautenberg pointed out. We have the public right to know, which is

often followed by the public pressure to clean up these neighborhoods.

Those are the current incentives that really drive what’s going on

in the United States. What we’re talking about here is directly opposite, it’s a direct attack on the incentives that we had in place.

What we’re talking about here is turning the right to know into the

right to know nothing, or the right to keep dirty secrets. What

we’re talking about here is hurting real people. The experience

we’ve had out there, we’ve already found, I think, the kind of mischief that’s going to come up with these laws, which will be even

worse with a Federal law.

I would call your attention to the testimony written by the folks

in Cincinnati, Ms. Briscoe and Reverend Lundy in Cincinnati. They

submitted this testimony so you could see the experience they’ve

had with a giant corporation, and their use and abuse of audit

privilege.

The lessons they want to share here were learned in attempting

to find out about toxic landfill gas next to a waste management

landfill in Cincinnati. They say they were forced to organize to protect themselves because time and again, local and State authorities

did not protect them. They were willingly or carelessly misled by

Waste Management, Inc.

Now, this landfill has operated since 1973 in the midst of a

densely populated area of Cincinnati, thousands of people living

within a short distance of the landfill. What they had is landfill gas

migration. They say it’s robbed those of us who live near the landfill of the use of our yards, the ability to have our windows open

in summer, and has eroded their quality of life. They believe they

had a right to know about this gas exposure years ago.

But if you follow what has gone on, first there was an administrative proceeding when Waste Management wanted to expand this
36

landfill. At that time, Waste Management said its internal audits

were confidential and privileged and hid the information, therefore,

from the community. After numerous motions to compel disclosure,

some of this information came across. But then, Waste Management said they had a pending Ohio audit privilege bill and started

holding documents back.

So the folks blocked the expansion in this administrative procedure. Then the Ohio legislature actually passed the audit privilege

bill. Waste Management had the brass, I guess you would call it,

to call up the EPA in Ohio, Ohio EPA, and say, give us our audits

back, we passed a State law making that privileged.

Then the citizens went to Federal court, Federal citizens suit, to

try and get them to do what they should have done, and they knew

they should have done, to mitigate this landfill gas. Now, that’s ongoing, and Waste Management has tried to block discovery, block

the truth about this, from Federal court, based on the State’s audit

privilege law.

I would say to you that this is a fine example and I think there

are more coming of the kind of mischief we’re going to get into.

They asked some questions here which I think are very relevant.

If one of the national architects of this audit privilege movement

around the States is capable of making this use of just a pending

bill, since a company will apply pending legislation to audits prior

to the passage of a bill, what basis is there to believe that other

polluters will act any differently?

They also ask, how will anyone know if when a polluter has secretly slipped the truth about its pollution into a file which the polluter has labeled audit. I think that’s one thing, as we study what’s

going on in State laws, I noticed in Colorado the headline was, polluters get off scott free, in the Denver paper.

The thing you need to understand is, these folks can set up a file

cabinet and just start stuffing documents in there that they don’t

want to see the light of day. To make all this information privileged, secret from judges and juries, is just a terrible threat to the

health and human environment here in the United States. We urge

you to strongly oppose this reckless proposal.

Senator CHAFEE. All right, thank you, Mr. Woodall.

Now, Mr. Herman, you’ve heard the presentations here of the

others. It seems to me it boils down to, I don’t want to get back

and forth on the privilege business, but it seems to me the problems that the others raise is the indefiniteness that comes up

under EPA, that if a company goes ahead and has an audit, does

the right thing, and reports it in advance, has the audit, discovers

certain things, takes actions to correct those, everything that we’d

want a company to do, they’re not sure that EPA will not be able

to come in with considerable force later on and slap them with a

great big fine.

Now, I must say, Mr. McBee, I think it was he that said he

wasn’t, Texas didn’t really want the fine to include monetary advantage that the company had achieved over its competitors as

being part of the fine. I may be misquoting you there, but we can

get to that in a minute.

But I must say, I think that any advantage that a company had

gotten because it was a bad actor should be included in the damages
37

allowed. But what do you say? You say you’ve got a policy, but

they, the opponents, Mr. Enzi, and so forth say, well, that isn’t

enough. You folks can change a policy. I think Ms. Bangert said

that. Then leave the company that made all this effort high and

dry.

What do you say to that?

Mr. HERMAN. Well, Senator, I think there’s two parts. One is, I

think certainty and consistency are both important and should be

expected. I think what we have publicly stated, we’re abiding by

our policy. I set up a group, made up of regional and headquarters

personnel, to review every single audit submission.

We have had, and I mention this again, over 600, or it’s over 700,

I think, facilities come in to us and we have processed these matters. Over 95 percent, I think, have resulted in no penalty.

Let me make one thing clear, I think there has been consistency

and there is certainty. Why no Federal legislation? I think for a

couple of reasons. One is, we’re dealing with a very new area. We

have not had evaluations in this area and to go in and legislate

now, and I think potentially tie the hands and limit the discretion

of law enforcement personnel, regulatory personnel, is not the most

constructive thing. You have not been faced with abuses, certainly,

in the Federal implementation of the policy.

With regard to the policy, let me make one thing very clear. We

are 100 percent in favor of audits, of self-audits. We are 100 percent in favor of self-policing. We are 100 percent in favor of giving

incentives to businesses that take it upon themselves to self-audit.

What we are not for, and what we don’t think should be overlaid

on our public policy is secrecy and immunity. Those have no place

in good public policy. We have established privileges. They did develop in the common law. They are very special. I don’t think that

there is a reason to establish privileges in this area.

The fact is, thousands of companies are auditing. The fact is, according to a survey that was taken, the fact that there isn’t a privilege doesn’t dissuade them. You’ve heard conflicting things here

about some States are being chilled while others aren’t.

But the fact is, we think audits are good. We think companies

are doing them, and we know that they’re coming in and disclosing

problems. I think we’re dealing with them fairly.

Senator CHAFEE. Some are suggesting that if you don’t have a

statute, at least have a rule under the Administrative Procedures

Act. But you haven’t even done that. You have this policy. If I get

the complaint, it’s that you say it’s definite, the others say no, it’s

not definite. That’s the hitch.

Mr. HERMAN. I don’t know that, I think even if you have a rule

or you have a statute, there is going to be some amount of flexibility for, and I assume you want flexibility for your assistant attorney general, your assistant U.S. attorney, your EPA attorney, to

implement these regulations and laws. Each case has some different factors.

One thing I would say is, certainly we are evaluating our policy.

There are others evaluating the State laws. At this point, to lock

something in, in stone, just seems very, very premature to me.

Senator CHAFEE. My time’s up. Senator Baucus.
38

Senator BAUCUS. I wonder whether Mr. McBee, Mr. Wallach or

Ms. Bangert have examples of where the EPA has left a self-auditor out to hang and dry because EPA has changed its policy.

Mr. WALLACH. Senator, do you mean are there examples where

EPA has requested audit reports?

Senator BAUCUS. No, it’s where a company has relied on EPA

policy and then conducted the self-audit and then EPA has changed

its mind and is much more strict with respect to that audit than

the company was led to believe when it conducted the audit. I was

looking for examples. The nature of the charge is, it’s discretionary,

it can change. I’m looking for examples where there has been

change.

Mr. WALLACH. I would like to answer your question, and go back

one step, though. Because with all due respect, I think it’s a mistake to just focus on the EPA policy and the question of the indefiniteness or lack of indefiniteness.

Senator BAUCUS. Oh, I’m not going to just focus on that. I have

many focuses. That’s my one focus right now.

Mr. WALLACH. All right. The answer is yes, but it’s very difficult

to provide them, because they’re essentially pending, they’re either

pending cases, the EPA has, I think, resolved for the audit policy

a number of cases. I personally would categorize them as some of

the easier cases. Others might disagree with me.

I think some of the more complicated cases are still pending. I

can’t tell you whether the company is going to be left high and dry

or not. Clearly, some of the individuals involved in that, that provided the information, received no protections whatsoever.

Senator BAUCUS. What about Mr. Herman’s point that this is

really an evolving area? Isn’t it premature for Congress to pass a

statute?

Mr. WALLACH. I think Oregon passed its law in 1993.

Senator BAUCUS. Sorry?

Mr. WALLACH. Oregon passed its law in 1993.

Senator BAUCUS. That’s true, but each State has different approaches. There are all kinds of different self-auditing laws that

States pass.

District courts have, I don’t know if this is the case, but I would

assume have different views on all this, too. We’re really in a new,

evolving area here.

Mr. WALLACH. But Congress, as you know, has acted, in the

Equal Credit Opportunity Act there was a privilege.

Senator BAUCUS. That’s true, in a few cases. But the general rule

is, Congress does not create privileges, evidentiary privileges.

That’s the general rule.

Mr. WALLACH. That’s correct. We feel that the public policy reasons in this area are important enough that as the environmental

protection goals are important enough that that’s an issue Congress should consider.

Senator BAUCUS. Mr. McBee, I’m just curious, hasn’t it worked

out pretty well, in the final analysis, the Texas self-audit provisions, after working on it, the negotiations with EPA? I say that

because I was astounded when you said that the earlier Texas version gave immunity to criminal——

Mr. MCBEE. Not complete immunity to criminal violations.
39

Senator BAUCUS. But still partial.

Mr. MCBEE. For criminal negligence.

Senator BAUCUS. For criminal. That’s a bit much. You’re getting

to intent there, which is an area that I don’t know should be protected. I’m glad that Texas has changed its statutes.

Mr. MCBEE. Senator, there are certain changes we made in

Texas.

Senator BAUCUS. Didn’t it work out OK?

Mr. MCBEE. We made some changes to the Texas law that I

think, from a personal standpoint, improved the law. I have said

that previously. What I think, well, two comments.

We have not yet seen if it has worked out these issues of delegation that I raised as what propelled us to come to the negotiating

table are not yet resolved. There are petitions still pending against

the State’s delegated programs that have not been yet withdrawn

by EPA. There are proposed programs for delegation that we have

not received decisions on.

So I don’t know yet if it’s been adequately resolved in my view.

That statute has been passed and we reached some accommodations. My view is, I would have preferred not to have been compelled to the negotiating table to take what EPA handed me, essentially, and to instead let State legislatures across the country experiment, if you will, to do what Mr. Herman said.

Senator BAUCUS. But what if the result of those State legislatures is significant reduction of environmental law enforcement?

Doesn’t the Federal Government have a responsibility to see that

the Federal environmental laws are adequately enforced?

Mr. MCBEE. But it’s my respectful view that what we have seen

in Texas from 1995 onward was not a dilution of the enforcement

capabilities of our State.

Senator BAUCUS. Immunity from criminal prosecution?

Mr. MCBEE. But again, Senator, the law in Texas was drafted to

allow for any reckless conduct, any intentional conduct, to still be

pursued in a criminal fashion. We were looking at a narrow range

of criminal negligence. Again, that is, from a personal perspective,

one of the changes in the Texas law that I believe improved our

law.

Senator BAUCUS. But which EPA insisted upon.

Mr. MCBEE. They did. But there are other provisions, for example, the requirement to disgorge economic benefit that we don’t find

anywhere in statute or regulation at EPA that was also thrust

upon the State of Texas. That is one, for example, where I have a

different view as to whether that’s absolutely the appropriate policy.

Senator BAUCUS. But do all three States, Mr. Wallach, would

agree that the States should restore, the company should restore

all economic gains derived from pollution? That is, I guess EPA’s

policy has non-gravity penalties, as I understand it. A fancy term,

as I understand it, that is, penalties not above but the lost economic benefit.

Ms. BANGERT. Economic benefit, though, can be a policy decision

as much as a legal decision. Whether a company has gotten any

competitive advantage can very much be a policy determination,

and a factual determination where the——
40

Senator BAUCUS. Well, I’m just talking about the general principle. I’m not going to get into each case, but just as a general principle.

Ms. BANGERT. What we found in a couple of the over-filings is

that EPA has over-filed on the stated ground that the penalty was

not high enough to deter future violations. That’s a policy decision.

It’s also a decision that the State should determine, and not the

people from Washington.

Senator BAUCUS. Mr. Herman, I thought EPA policy and its penalty policy was not deterrent but rather compensation, to make

whole again. Did EPA level a fine above the economic loss in order

to deter?

Mr. HERMAN. Not under the audit policy, Senator. No. What Ms.

Bangert may be referring to is differences we had in other cases

where, in Colorado, where we have over-filed and it’s because we

determined that the penalty was not appropriate.

Let me give you one example. One involved the Public Service

case. There you had your opacity violations not corrected by the

State, and the State allowed the company to gain an economic advantage worth several hundred thousand dollars. The State assessed a fine of $4,000, and did not get any injunctive relief to ensure that the violations do not recur. The Sierra

Club had filed a citizens suit alleging 19,000 violations over a 5-

year period. We joined the lawsuit, we obtained a $2 million cash

penalty and $2 million in supplemental environmental projects,

which meant that the money went to make environmental improvements that actually went beyond compliance. That was not an

audit case, but that’s an over-filing case.

Senator BAUCUS. I see my time has expired. Thank you.

Senator CHAFEE. Senator Sessions.

Senator SESSIONS. Mr. Wallach, is it fair to say that the average

business man or woman in America today does have fear about reporting, fear that the EPA will not be kind and gentle, but will utilize that information to disrupt their business and be very aggressive in punishment?

Mr. WALLACH. Senator, I think there are a lot of people that

have that fear. I’m not sure I can say that the average person does.

I think, for instance, EPA has not been entirely unreasonable in

every enforcement situation we’ve seen. I think Steve Herman and

the people he’s brought in have tried to moderate it to some extent.

But you also have citizen suits, you have mass toxic tort actions,

you have a whole spectrum of other things. So I think, yes, people

do have that fear, and perhaps it’s second only to the IRS in some

respects. I think the more informed people have that fear even

greater than the people who have been involved with it before, and

the average businessman.

Senator SESSIONS. I’m not suggesting, I have a sense that if a

government entity, city or whatever, reports, they’re likely to get

a fair hearing when it’s all said and done. But I’m not sure they

believe that. I think this legislation would help allay fears and give

some certainty and confidence that would result in more audits and

self-reporting. Is that your position?

Mr. WALLACH. I absolutely agree with that. I think the perception out there, in terms of Senator Baucus’ question before, is that
41

unlike most Federal laws, and I was a prosecutor, a number of environmental laws, especially as interpreted by prosecutors, do not

require specific intent or willful action. I think there is a tremendous concern out there by the regulated entities and the individuals in the front lines, even if it hasn’t always happened, that

that’s going to happen to them.

So you’re absolutely right.

Senator SESSIONS. Mr. McBee, let me raise this issue. I think

fundamentally that the best argument we have against this bill is,

maybe we ought to wait a bit and see how these laws work out.

Second argument could be that there could be some technical improvements in it. Setting aside the first argument, let me ask you,

Mr. Herman, would you be willing to review the bill for technical

improvements and help make it a viable bill that you could support?

Mr. HERMAN. Senator, let me say this, because I have not seen

Senator Enzi’s bill yet. But let me say, I think there are other problems that are very fundamental. One of them is privilege and putting an overlay of secrecy.

Senator SESSIONS. Let’s talk about that. What is being kept secret? Other than the internal work product that goes into the audit

that wouldn’t have been available if they hadn’t reported the violation anyway, presumably. It’s not a major secrecy benefit. The employees would still be subject to deposition. They would still be subject to being interviewed by EPA and FBI and other investigators.

So the only thing is that just that work product within the audit,

is there anything else?

Mr. HERMAN. It is the material that’s there, and it can go to intent. You can have a situation where a farmer’s groundwater, for

instance, is damaged, is polluted. You find out that the next door

neighbor, who was some regulated entity, knew that there was a

problem because they had an audit 2 years before, but for economic

reasons or some other reasons, they decided not to fix it. They delayed their trying to fix the problem.

You also have a situation in some of the statutes where, if somebody does an audit, they come in and then they go home. They’re

free. They don’t have a penalty. They are immunized. I think that’s

very dangerous. It takes away accountability and responsibility.

The other thing I would urge you to do, because I know that you

are a very, very experienced prosecutor, is look at these bills and

see the machinations that you have to go through. I know that

when I put together a case, I don’t know exactly where the trail

will lead.

Senator SESSIONS. I agree with that. One thing you said, you

have to prove beyond a reasonable doubt that it was voluntarily

disclosed. I think that’s too high a burden on a prosecutor. It turns

into a trial of a trial of a trial.

I have some technical concerns about it. I would just make this

point. You’ve made——my time’s up——you made four points in

opposing this legislation. Almost all of them deal with secrecy. I

think that’s overblown. I think you can still interview every employee of that company, can’t you, Mr. McBee? Still take their

depositions?
42

Mr. MCBEE. Under the Texas law, Senator, materials required to

be kept are not going to be privileged, nor is in-person observation

of the violation privileged.

Senator SESSIONS. I don’t think it’s that big a deal. I think you

could work something out we could live with that would perhaps

further the improvement of the environment if we put our mind to

it.

Senator CHAFEE. Thank you, Senator.

Senator Lautenberg.

Senator LAUTENBERG. Thanks very much, Mr. Chairman.

I want to ask you, Mr. Herman, does the right to know law that

we’ve made frequent reference to and everybody’s familiar with, is

the information that the companies produce for the public record,

is that material available for prosecution?

Mr. HERMAN. Yes, it is.

Senator LAUTENBERG. It is. So that we get very good response

rates from companies, I know that we’ve seen it in New Jersey and

I know that’s also true across the country.

Mr. HERMAN. Yes.

Senator LAUTENBERG. Do you think, have there been cases

brought, to your knowledge, under the right to know law against

companies, citizen suits or otherwise, as a result of the revelation

of information that they’ve put out?

Mr. HERMAN. I am aware we’ve had cases against companies

that have not reported. We could certainly look into it. None come

to mind.

Senator LAUTENBERG. I’d be interested in that. Because I wonder, especially Mr. Wallach here, an attorney with a distinguished

background, you made the statement about the fact that under environmental law, there is less of a standard for willfulness conduct

than there is under other laws. Did I understand you correctly?

Mr. WALLACH. That willful and intentional are not required for

criminal convictions under the environmental laws, Senator.

Senator LAUTENBERG. Right. Is that true, Mr. Herman?

Mr. HERMAN. There are not always specific provisions. But I

think if you look at how the law has been applied by Federal prosecutors around the country, only the most egregious cases have

been brought as criminal actions. I don’t know that the standard

the prosecutors use is any different.

Senator LAUTENBERG. Mr. Wallach, do citizen suits represent a

danger to business in our country?

Mr. WALLACH. I don’t think the concept of the citizen suit, Senator, represents a danger to the business. But I think the purpose

for which they were originally created and the nature of the environmental arena has changed. I think there are a lot of abuses

right now in the citizen process. In fact, there’s a case before the

Supreme Court that’s dealing with the question of citizen suits and

whether they can sue for wholly past violations under statutes

other than the Water Act, such as the TRI issue that they tried to

take up there.

I’d like to get back to the one question you raised, though, which

I think is critically important. The right to know law that you were

so much involved in is a very, very important law. I think it has

the benefits that you identified.
43

I think the concern that, as an example I wanted to give, if you

do an aggressive audit and you miss something on a form that you

submitted, but you do an aggressive audit, you go back and you

find out it was entirely inadvertent. We had a malfunction in

equipment, we didn’t pick up that there was this release of compound of a quantity. It did go out into the neighborhood.

As soon as you find that out during your audit, you have a statutory obligation to report it. You cannot keep it privileged. The right

to know law is not impacted whatsoever unless a company wants

to willfully and intentionally go out and violate the law. You’re not

going to stop those people no matter what you do.

So I think this is going to get a lot more information out to the

public. Because you’re going to have companies aggressively pursuing every nook and cranny, and the individuals, more importantly,

pursuing every nook and cranny. Inadvertent things will get out to

the community.

Senator LAUTENBERG. There is that possibility. On the other

hand, there’s a distinct possibility that the privilege opportunity

could be easily misused. I don’t want to try to teach a law course

here, I’m not a lawyer and I wouldn’t have very good students out

there. Considering the source of the information, I wouldn’t expect

them to be.

But we’ve seen cases now where attorney-client privilege has

been extended far more than that. It appears in the discussions

about tobacco that there was a refuge for data that wasn’t to be

released to the public that was cloaked under the attorney-client

privilege statutes. So it’s an easy place to conceal information, I

think. I could be persuaded more if I thought that that information,

maybe, and here I’m stepping into dangerous territory, maybe not

available for prosecution, although as I understood it, the trail

that’s offered is often a very valuable asset in prosecution, if that

condition could be developed where the information couldn’t be

used for further prosecution if the company voluntarily released it.

Would that then take away the need to cloak it under a privileged position?

Mr. WALLACH. That is one approach if it cannot be used at all

for that. I think on the other hand, you could have other uses for

it. If you are talking about all uses, citizen suits, mass tort actions

and things like that, but that’s something else I think that could

be explored. Our position is for the very limited privilege, the qualified privilege, which is not very different in some respects from the

deliberative process privilege that the Congress gave the Government under FOIA. So you have free flow of communications from

within the Government and within regulated entities.

On the other hand, it would have significant benefits. It would

really increase environmental protection.

Senator LAUTENBERG. Thanks, Mr. Chairman.

Senator CHAFEE. Thank you, Senator.

Senator Enzi.

Senator ENZI. Thank you, Mr. Chairman.

I appreciate that you’re allowing me to have access to the testimony and to be able to ask a few questions. It’s very kind of you.

Senator CHAFEE. Go to it.
44

Senator ENZI. Mr. Herman, you mentioned that there were some

762 audits so far that have been agreed to. Can you give me any

kind of an indication of how many of those were small business?

We’ll use maybe 100 employees as small business. That’s very

rough, so you can be very rough on the answer.

Mr. HERMAN. It is very rough. What I do know is——I will get

you that information with preciseness for the record following the

hearing. But my understanding and my review is that there is a

good mix of both Fortune 500 companies and small companies.

I would also just point out that a couple of years ago, one of the

first things I did after meeting with representatives of small business associations in Washington, they were brought in by our small

business ombudsman at EPA, was to promulgate a policy for small

business, which basically waives penalties when a small shop or

whatever comes in and seeks assistance from us.

We have also set up compliance assistance centers in the printing sector, metal finishing, auto repair and agriculture, where

small businesses can call in, get information. We’ve done this in cooperation with the trade associations. So the point I’m trying to

make is that we are reaching out and we are trying to accommodate just the kinds of fears or injustices that I know you’re concerned about.

Senator ENZI. I think I was rather complimentary to the agency

when I started my statement and mentioned that you are doing a

good job and that there’s two and a half decades of good work. Your

Web page is, incidentally, to be congratulated too. It has a lot of

excellent help for small businesses again.

How many enforcement people do you have, roughly?

Mr. HERMAN. Roughly, across the country, including lawyers,

criminal investigators, inspectors, scientists, it’s probably 3,000 or

so.

Senator CHAFEE. What did you say?

Mr. HERMAN. Three thousand. That includes Superfund.

Senator ENZI. How many of those would be inspectors?

Mr. HERMAN. A relatively small percentage. An unfortunately

small percentage.

Senator ENZI. Earlier, in response to one of Senator Sessions’

questions, you mentioned the person who had damaged a water

well and then didn’t disclose it. Wouldn’t that be a criminal action?

I note that under the bill as I have proposed it, that would be

criminal action. So there would be nothing privileged in that case.

Mr. HERMAN. I don’t know whether or not it would be criminal.

There certainly would be, if you had a suit by the farmer, forgetting about regulatory, but a result of some of these privilege laws

is that if you had a suit of the individual farmer against the person

who polluted his groundwater, certainly many lawyers would claim

privilege as to the audit, which might show when the polluter knew

that he was polluting. That could cause a problem.

Excuse me, if I could make just one other point, it’s opening up

a whole other area to litigation. In other words, everybody’s concerned about the amount of litigation we have. This opens a whole

new element to it, whether it’s in camera proceedings or otherwise.

That’s one of the things I think we should try and guard against.
45

Senator ENZI. In the proposal that I have, of course, any information that’s required to be given anyway has no privilege. Could you

go into a little bit more explanation of what you mean by in camera

doesn’t help?

Mr. HERMAN. What I meant by, my concern about in camera is

a couple of fold. No. 1, it’s another proceeding that a prosecutor or

a lawyer will have to go through to break through to get to see

whether or not information is one, validly privileged once the privilege is claimed, No. 2, anybody that’s been involved, I’ve been involved in some huge lawsuits. When you get into the discovery

process, it can take, well, it can take months and months if not

years.

This is something else. I think it was Senator Lautenberg who

said about the use of the attorney-client privilege in the tobacco

context. It is not that unusual. Now, we do, as Mr. Wallach said,

you could use attorney-client privilege and it has been used in the

environmental context. I don’t think that’s particularly good.

But attorney-client is at least a well established privilege, established over centuries. This, we’re going into uncharted territory. I

don’t think, I guess——

Senator ENZI. Attorney-client is primarily available to those big

companies. As Senator Sessions mentioned, what we’re talking

about is if the companies don’t do an audit at all, there’s no information available. We don’t even know if there’s a problem.

I see my time has expired, and I thank you, Senator Chafee.

Ms. BANGERT. Could I just add one thing?

Senator CHAFEE. Sure.

Ms. BANGERT. I want to add one thing about the poisoned well

situation. That’s ridiculous. Under Colorado law, if somebody

poisoned a well and they did not correct that right away, the privilege wouldn’t be available in the first instance. Disclosure immunity would not be available. I think that’s carried through in Senator Enzi’s bill.

Also just for the honor of Colorado, Mr. Herman mentioned the

Public Service Corporation case. I think it’s much more complicated

than what he mentioned. I think the State had brought a case

against Public Service under certain, for certain violations. I think

EPA brought a case for other violations completely. So we’re really

comparing apples and oranges here when we do the 4,000 and the

1 million.

The State participated in the negotiations that got the $1 million

fine. But I can give you more information.

Senator CHAFEE. Well, let’s not debate the Colorado case here.

Senator, if you’ve got a couple more questions, you go to it.

Senator ENZI. I appreciate the time. Thank you.

Senator CHAFEE. I’ve got a question here that I’m asking the

panel. I’m going to read it.

One of the more serious charges leveled is that EPA is using information provided in State audits to target reporting companies.

On page 6 of Mr. Herman’s testimony it says, ‘‘The reality is that

neither EPA nor the Department of Justice seeks audit reports as

a means of identifying targets for civil or criminal prosecution. Further, I’m not aware of any case which a voluntary audit has been

used to enforce, I presume to enforce means to bring an enforcement
46

action, against the company that discovered a violation on its

own, disclosed and promptly corrected it.’’

Now, that’s pretty definite. Both Mr. McBee, on page 6 of his testimony, and Ms. Bangert, on pages 10 and 11 of her testimony,

seem to refute EPA’s claim. I would assume they have used the information that’s been brought forward.

Could you please try to explain the apparent discrepancy of the

legitimate, non-audit reasons for Federal enforcement of these

sites? I’ll let you go first, Mr. Herman.

Mr. HERMAN. OK, I’ll start with the definite statement that I

made, which came as a result of basically the 19-month review that

we did when we were formulating our own policy.

Mr. Wallach and Ms. Bangert participated actively in our deliberations as we got views from many different interests. We asked

for examples, because we did a search of our files and we asked the

Justice Department to do a search of their files to see whether or

not we used audits, basically whether we went after the low-hanging fruit to see whether or not we should prosecute. There were no

examples of that.

This is what we have said, and that’s the basis of that statement.

With regard to targeting companies that perform audits under the

State audit laws, our policy is the same. It is not to target companies that do audits. However, it is not not to target them. In other

words, they are not immune from review.

We do have a legitimate interest in seeing how States are administering their laws. Are they getting an appropriate penalty? Are

they getting a correction of the environmental problem? Are they

recovering in some cases the economic benefit? Was there a criminal violation?

We’ve done this in States that have and don’t have audit statutes.

Senator CHAFEE. Mr. McBee.

Mr. MCBEE. Senator, it may be a question of semantics, to some

extent, how we define target. The experience in Texas was while

we were in the midst of these delicate negotiations between EPA

and the State, as I noted in my testimony, letters were sent to five

companies with respect to six facilities.

Those letters were, if you will, mirror images of what had been

disclosed as a result of those companies’ audits in the State of

Texas. I interpreted that as a targeting of companies that had done

audits and it was very easy to follow along. What was sought by

EPA mirrored again exactly what was being conducted by the companies.

They did not, if I recall, did not ask for the audit reports themselves. But it was very clear what they were about, for whatever

reasons they might have wished to explore that particular area. In

Texas, those cases have not been brought to closure yet, although

it is my understanding that penalties are being considered against

one of the companies, which in my mind is the classic situation of

why we need audit legislation in Texas and nationally.

This was a company that acquired this particular facility. Being

I think a very good corporate citizen, came in and conducted a very

aggressive audit to find the problems, and to fix those problems as

they commenced operations at a new facility. I think that is good.
47

That is what we at the Federal and State level should induce and

commend. Yet that company now, in my view, has faced targeting

by EPA, and they face the possibility of penalties from EPA.

Senator CHAFEE. Ms. Bangert?

Ms. BANGERT. I return again to the Denver Water Board case.

We had minor hazardous waste violations in the Denver Water

Board case. We had discharges that were stopped immediately. We

had structural changes made to the facility. We had long-term

changes that went way, way, way beyond what EPA or the State

could ever have ordered.

I can’t imagine that EPA doesn’t have better things to do with

its time than to target a company in that situation.

Senator CHAFEE. All right, final word, Mr. Herman.

Mr. HERMAN. Thank you, Mr. Chairman. I would just say that

there are two sides to every story, while the Denver Water Board

case is an open matter, I would just say that I would not necessarily accept all of Ms. Bangert’s characterizations of the facts in

that case, and that they’re being reviewed for the reasons that I’ve

stated.

Senator CHAFEE. All right. Fine.

I want to thank all the witnesses very much. You’ve come some

distance, several of you, and we appreciate the advantage of your

testimony.

That concludes the hearing.

[Whereupon, at 12 noon, the committee was adjourned, to reconvene at the call of the chair.]

[Additional statements submitted for the record follow:]

PREPARED STATEMENT OF HON. MICHAEL B. ENZI, U.S. SENATOR FROM WYOMING

Mr. Chairman, I want to first thank you for giving me the opportunity to testify

today on the issue of environmental audits. I have worked closely with this issue

for many years. I was the prime sponsor of the Wyoming audit law that passed our

State Legislature in 1995 by over a two-thirds majority, and it was a bipartisan

vote. I am sure my friend and colleague from Wyoming who sits on this committee,

Senator Thomas, recalls the vigorous debate that occurred in our State at that time.

When I got to Washington, several States that had audit laws were meeting with

the EPA. The EPA was using threats of overfiling and delaying approval of State

enforcement programs because of the State laws. Overfiling means the EPA could

come in and use audit information as a road map for prosecution and levying fines.

They can do this after a person has conducted an audit according to a State law

after a business has taken on the expense and exposure in order to be sure they

are not harming the environment. The EPA wanted us to change the Wyoming

law—in spite of repeated assertions from our own State Attorney General that the

law did not compromise our enforcement authority.

I want to point out that the Wyoming law is not extreme. In crafting it, I studied

examples and results from other States that had gone through the process. I worked

closely with our State Department of Environmental Quality and with members of

the regulated community. I worked with various resource and conservation groups

in Wyoming and we crafted a bill that provides very reasonable incentives for people

to review their operations and cleanup the problems they find. We provided no

criminal immunity or criminal privilege. We deferred to Federal laws wherever conflicts existed. And there was a consensus.

Not only did people have a chance to be involved in the process, but the debate

itself raised the importance of a cleaner environment. It forced people to focus on

the fact that our objective is to have a cleaner, safer environment—not to levy big

fines.

Wyoming’s scenario is not unique. It has happened in many other States and that

has led me to offer this piece of legislation.

I do want to thank you, Mr. Chairman, and the Environment and Public Works

Committee for holding this hearing today because the issue deserves congressional
48

attention. To date, twenty-four States have chosen to enact some form of environmental audit law and legislation is pending in sixteen other State legislatures. I

would point out that eleven members who sit on this Committee come from States

that have enacted audit laws. Another five members come from States where some

form of legislation is pending.

Mr. Chairman, I did not want to spend a lot of time explaining the intricacy of

audit laws because you have an expert panel of witnesses here today who can do

a good job of that. But I do need to outline the process so I can discuss concepts

for resolving the problems.

The purpose of audit laws are to provide incentives for regulated entities to search

for and disclose environmental violations and to clean them up. The EPA argues

that these entities are already required to be in compliance so we should not offer

them incentives to clean up their violations. The point is that people conducts audits

to find things they do not already know about. Many of them will never look for

problems if they are threatened with fines for their good will.

Entities that can conduct audits range from businesses to schools, to hospitals,

towns, and counties. The incentives can range from relief from penalties to protection of voluntarily gathered information. It is important to keep in mind a carefully

crafted audit law ensures that audit protections apply only to good faith efforts—

efforts that are voluntary, or ‘‘above and beyond’’ what is otherwise required by law.

If we ensure that, then any disclosures are a net gain above traditional enforcement.

They are a net gain for a safer, cleaner and healthier environment.

Consider for a moment the decisions a small business faces with regard to its environmental performance. Many small businesses are already required to monitor

and report certain emissions. Audit protections do not cover those reports because

they don’t apply to any monitoring that is required by law. But consider a business

that is not on an inspection schedule and has no required emissions reporting. If

that entity wants to review its environmental performance, it would have to conduct

a study. It would have to pay an auditor to come in and review its operations—that

would be voluntary and it costs money. If it finds a violation, it must pay to clean

it up. (Because if they find it and don’t clean it up, they risk criminal activity). Once

they report it, without audit protections, they could be fined and even taken to

court.

So in deciding to conduct an audit, a person takes on a big risk. It is big enough

so that most small businesses won’t voluntarily undertake it. These folks choose instead to ‘‘take their chances’’ and wait for the inspectors. After all, only 2 percent

of all regulated entities are on inspection schedules anyway. Just 2 percent, Mr.

President.

How do we encourage the other 98 percent to really think about their environmental performance when we reward good will with fines?

That is the principle of audit laws. They recognize good faith efforts to make a

cleaner, healthier environment. They encourage people to look for problems and

know with certainty that they won’t be penalized for their efforts.

The EPA has formulated an environmental audit policy that is working for some

very large companies. It works well for companies with big legal departments that

are used to negotiating with the EPA. It is often far easier for big business to use

EPA’s audit policy than to negotiate consent agreements, besides many of these

companies use audits anyway. In fact, the EPA often cites the widespread use of

audits as one of the reasons why we don’t need State audit incentives. But they are

missing the point. The objective of State audit laws is to increase the use of audits—

to make them worthwhile for small entities as well as large ones.

The fact is, that small businesses and towns won’t use the EPA’s audit policy because it provides no certainty. Small businesses cannot afford costly environmental

litigation from the EPA. (And I define small businesses as those with less than 100

employees). These people don’t trust the EPA. They see the EPA Office of Compliance Assistance trying to help them out, while Criminal Enforcement across the hall

is concocting ways to put them in jail—and they think those offices work together!

The principle of audit incentives is simple and reasonable. It is no surprise to me

that so many State legislatures have chosen to enact some form of audit legislation.

It is a positive tool that helps people understand and comply with environmental

laws. It gives people a chance to ask questions without being penalized. It gives

them the chance to figure out what they are doing wrong and fix it—without adding

steep penalties to the cost of compliance.

Mr. Chairman, small business owners don’t take time to read the thousands of

pages of Byzantine regulations constructed here in Washington. They don’t have

time to read every law. They try to do what is right and avoid doing what is wrong.

I know because my wife and I were small-business owners for twenty-six years. In
49

a small business, the owner is the same one who counts the change, helps the customers and vacuums the floor.

He or she has to stay in business, make payroll, and keep up with constantly

evolving mandates from a never-ending supply of Federal attorneys. And while the

small business owner has many jobs, these attorneys have only one job, to create

and modify mandates and to investigate citizens. There are over 17,000 employees

at the EPA and now, in spite of the rhetoric about reinventing regulations, the EPA

wants funds for another 200 enforcement police.

We don’t need more police to improve compliance—we need translators to interpret the regulations.

I would like to take a minute to explain my approach to the issue. The legislation

I have introduced would provide a ‘‘safe-harbor’’ for State laws that fit within certain limits. It would not give authority to any State unless they go through the full

legislative process, including all of the local discussion and debate that entails. That

is a critical part of this process and something of value we should recognize. Keep

in mind that State legislators and their families live in the places these laws will

affect.

This bill would allow Congress to set the boundaries of the ‘‘safe-harbor’’ and determine what State laws may provide, such as:

• Limited protection from discovery for audit information—but only information

that is not required to be gathered. All legal reporting requirements and permitting

disclosures remain in effect and could not be covered by an audit privilege.

• A State audit law may provide limited protection from penalties if violations are

promptly disclosed and cleaned up. Note, the protection will not cover criminal actions, and the law must preserve the ability of regulators to halt activities that pose

imminent danger to public health.

• Third, if a State law falls within the ‘‘safe-harbor,’’ the EPA would be prohibited

from withholding State enforcement authority or overfiling against individuals simply because of the State’s audit law.

• Lastly, the bill would require an annual State performance report that will help

measure the success of different laws, so we can see what works and what does not.

I want to point out that this legislation will not dilute enforcement. There are

safeguards to ensure that State audit laws always act to supplement—not to supplant existing enforcement. It is important to note that. Audits are an affirmative

tool. Used properly, they can only be used to achieve an environment that is safer

and healthier than the status quo. They do not protect any entity from regular inspection, sampling requirements or monitoring.

Some form of Federal legislation is necessary to provide the certainty our State

laws need to be effective. I think it is a tragedy that the EPA has been so obstructive in giving States a chance to test reasonable and innovative solutions to a cleaner environment. Instead of promoting reinvention, the EPA is perpetuating an environmental race to mediocrity.

PREPARED STATEMENT OF STEVEN A. HERMAN, ASSISTANT ADMINISTRATOR, OFFICE

OF ENFORCEMENT AND COMPLIANCE ASSURANCE, ENVIRONMENTAL PROTECTION

AGENCY

I. INTRODUCTION

Thank you, Mr. Chairman, for the opportunity to testify on the topic of environmental auditing. Last summer, I testified before this committee on the Environmental Protection Agency’s (EPA’s) overall enforcement and compliance assurance

program and EPA’s enforcement relationship with the States. I am pleased that today’s hearing provides an opportunity for me to testify in greater detail about EPA’s

self-disclosure policy, EPA’s relationship with the States regarding State audit laws,

and proposed Federal audit legislation. I firmly believe that EPA is pursuing the

right course in this area.

I want to make three points today:

(1) EPA supports environmental auditing and other forms of self-policing and has

an effective policy in place to encourage such conduct.

(2) Audit privilege and immunity legislation is not only unnecessary, but it is unwise because it undermines law enforcement, impairs protection of human health

and the environment, and interferes with the public’s right to know of potential and

existing environmental hazards.

(3) EPA has been and is working with States to ensure that at least the statutory

minimum enforcement and information gathering authorities are maintained by all

States implementing a Federal environmental law.
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II. EPA SUPPORT FOR ENVIRONMENTAL AUDITING AND OPPOSITION TO AUDIT PRIVILEGE

AND IMMUNITY LAWS

EPA strongly supports environmental auditing and use of compliance management systems by regulated entities to improve compliance and prevent and reduce

pollution. Self-auditing can result in the prompt detection and correction of violations as well as the identification of potential future violations that can be averted

through preventative measures. Companies that conduct audits or use compliance

management systems thus safeguard and improve public health and the environment. In addition, because government compliance and enforcement resources are

limited, maximum compliance cannot be achieved without active efforts by the regulated community to police itself. Where more companies find and correct their own

violations, scarce government resources may be focused on higher risk violators.

Accordingly, it is important for government to encourage environmental auditing,

but it must do so without compromising the integrity and enforceability of our environmental laws. Approaches—including legislation—that guarantee amnesty for environmental violators and promote the secrecy of environmental compliance information damage the credibility and effectiveness of the Nation’s environmental enforcement program, are unnecessary and, in the final analysis, undermine the integrity of incentives for responsible business.

EPA’s approach to environmental auditing is designed to further some key principles of this Administration’s environmental enforcement program.

First, industry and government both bear certain responsibilities in achieving

compliance. Industry has a responsibility to stay in compliance with the law. Government must maintain an enforcement program that punishes wrongdoers, deters

potential violators, brings violators into compliance, and ensures that damage to the

environment is rectified. Government should give credit to industry’s good faith efforts to comply, but it must do so without compromising its ability to enforce environmental obligations firmly and fairly. The public and law-abiding regulated entities rightly expect EPA to take strong enforcement action against polluters.

Second, business earns the public trust by being open with government and the

public at large. Openness is an essential component of corporate accountability.

Third, EPA fully recognizes that it shares with all levels of government a common

interest in environmental protection and compliance with environmental requirements. The Federal and State relationship must be guided by recognition of the delegated State’s primary responsibility for running a strong enforcement program and

the benefits of a well-defined Federal role as national environmental steward. In its

Federal role, EPA safeguards the national standards for environmental protection

for all citizens and also maintains a level playing field for law abiding companies—

regardless of their location.

Fourth, environmental compliance incentives must reflect the legitimate interests

of the public, the regulated community, and local, State, and Federal officials who

enforce the law. Incentives in the form of legislative privilege and immunity have

proved divisive and are opposed by many local, State, and Federal prosecutors, environmental agencies, and citizens concerned about environmental pollution.

A. EPA’s Self-Disclosure Policy

In 1995, EPA issued its policy, ‘‘Incentives for Self-Policing: Discovery, Disclosure,

and Correction and Prevention of Violations’’ (60 Fed. Reg. 66706 (Dec. 22, 1995)).

The policy was the result of an intensive eighteen-month public process designed to

identify the best way to encourage companies to police themselves while preserving

fair and effective enforcement and the public’s access to information. EPA’s policy

reflects input from State attorneys general and local prosecutors, State environmental agencies, the regulated community, public interest organizations, and the

Department of Justice. It has won praise from industry and environmental groups,

and from local, State, and Federal law enforcement officials. Eighteen State attorneys general and environmental commissioners declared their support because

EPA’s policy effectively encourages self-policing while maintaining safeguards to

protect the public and the environment. See Exhibit 1.

How does EPA’s self-disclosure policy work? It carefully balances auditing incentives with protections for law enforcement, human health and the environment, and

community right-to-know. Where violations are discovered through an environmental audit or compliance management system and the full conditions of the policy

are met, EPA will: (1) eliminate gravity-based civil penalties (i.e., the penalty

amount over and above the company’s economic gain from non-compliance); and (2)

not recommend criminal prosecution so long as there is no high-level corporate involvement or a prevalent management practice to conceal or condone violations. In
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addition, EPA commits not to make requests for audit reports to initiate civil or

criminal investigations.

EPA’s conditions for granting these benefits are based on common sense and

sound public policy. For example, companies must promptly disclose and correct the

violation, prevent recurrence of the violation, remedy any environmental damage,

and provide such information as is necessary and requested by EPA to determine

the applicability of the policy. Exceptions for individual criminal conduct, repeat violations, violations of consent orders or agreements, and violations that present an

imminent or substantial endangerment or result in serious harm protect human

health and the environment. EPA retains its discretion to recover economic benefit

gained as a result of noncompliance so that companies will not obtain an economic

advantage over their competitors by delaying their investment in compliance.

Business has been receptive to the EPA self-disclosure policy and has come forward, rectified problems, and avoided prolonged and expensive litigation. To date,

more than 225 companies have disclosed and corrected violations under the policy

at more than 700 facilities. Disclosing companies run the gamut, ranging from large

Fortune 500 companies to small businesses, from a wide variety of industrial sectors. See Exhibit 2.

Earlier this month, the agency and GTE Corporation reached an agreement under

the policy, resolving 600 Emergency Planning and Community Right to Know Act

(EPCRA) and Clean Water Act Spill Prevention Countermeasure and Control

(SPCC) violations at 314 GTE facilities in 21 States. Correction of these violations

will protect communities and firefighters, police, and others in the event of a chemical spill or release, and will help to lessen the likelihood that hazardous chemicals

will pollute our waterways. The company will pay a $52,264 penalty, equal to the

amount of money saved during its period of non-compliance. Because the company

voluntarily disclosed and corrected the violations, EPA waived another $2.38 million

in assessable penalties. After discovering non-compliance at several facilities, GTE

promptly notified EPA of the violations pursuant to EPA’s self-disclosure policy and

undertook a company-wide audit at 10,000 sites nationwide. This settlement demonstrates the self-disclosure policy’s broad scope in promoting compliance at facilities nationwide.

In addition, States including California, Connecticut, Delaware, Florida, Maryland, North Carolina, Oklahoma, Pennsylvania, Tennessee, Vermont, and Washington, have designed their own self-disclosure policies, thereby providing incentives

while maintaining enforcement authority.

B. EPA’s Opposition to Audit Legislation

Let me now turn to the topic of audit legislation. As I have stated on many occasions, EPA strongly opposes audit privilege and immunity legislation. Audit privilege and immunity laws restrict governments’ ability to obtain injunctive relief and

penalties to address violations affecting human health and the environment, and to

obtain evidence necessary for enforcement. Audit privileges invite secrecy, complicate criminal and civil discovery and trials, and impede public access to information. Let me explain.

While EPA supports penalty mitigation as an incentive for voluntary disclosure

and correction of violations, EPA believes that immunizing violations—including serious violations—discourages companies from making the investments in pollution

control necessary to prevent such violations. We also oppose immunity because it

undermines deterrence and the rule of law. Strong environmental enforcement provides an incentive for responsible behavior, not immunizing violations.

EPA opposes audit privileges for a number of reasons. First, such privileges invite

secrecy, instead of the openness needed to build public and government trust in industry’s ability to self-police to protect human health and the environment. Second,

audit privileges weaken law enforcement necessary to protect human health and the

environment by making relevant information unavailable to government prosecutors

and civil enforcers, and by erecting procedural barriers to access this information.

Audit privileges, particularly when law enforcers may be legally constrained from

using any evidence derived from the audit report, interfere with the investigation

of environmental crimes. Why should we make it easier for violators and harder for

our local, State, and Federal law enforcement officials?

Third, audit privilege laws impede public access to information concerning environmental hazards. Such laws undermine one of this Administration’s priorities—

public right-to-know. When informed, the public can actively and intelligently participate in its own environmental protection.

Fourth, some audit privilege laws penalize employees who report known or potential environmental concerns to law enforcement authorities. Such sanctions conflict

with Federal laws preserving employees’ rights, have a chilling effect on employee
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disclosures of illegal conduct, and hamper enforcement. Why would we want to discourage the disclosure of illegal activity?

Yet another reason why EPA opposes audit privilege is that it is simply unnecessary. Environmental auditing has increased to the point where it is already standard practice for 75 percent of corporations responding to a 1995 survey by Price

Waterhouse, and is growing among the remaining 25 percent as well. Most companies do not view privilege as a precondition to conducting auditing—they see good

business reasons for auditing. A privilege is unnecessary.

Businesses also view the types of incentives in EPA’s self-disclosure policy as effective in motivating auditing. Of respondents to the 1995 Price Waterhouse survey,

over 40 percent said that penalty mitigation for self-identified, reported, and corrected violations would encourage the company to conduct more auditing. About the

same number viewed a presumption against corporate criminal prosecution as encouraging auditing. In the same survey, 96 percent of the corporate respondents

who conduct audits said that one of the reasons that they did so was to find and

correct violations before they were found by government inspectors. Thus, legislation

that impairs enforcement, like audit privilege legislation, may actually decrease the

amount of auditing, as well as decrease the incentives for prompt correction of violations.

Finally, proponents of audit privilege legislation sometimes contend that companies need an audit privilege to protect them against overzealous environmental law

enforcement. The reality is that neither EPA nor the Department of Justice seeks

audit reports as a means of identifying targets for civil or criminal prosecution. Furthermore, I am not aware of any case in which a voluntary audit has been used

to enforce against a company that discovered a violation on its own, disclosed, and

promptly corrected it.

These are among the many reasons why audit privilege is so adamantly opposed

by a bipartisan coalition of State attorneys general that includes Republicans like

Grant Woods of Arizona and Dennis C. Vacco of New York, as well as Democrats

like Scott Harshbarger of Massachusetts and Christine O. Gregoire of Washington.

No wonder the Governor of New York has announced his opposition this year to environmental audit privileges, and the Governor of Idaho has announced that he will

allow that State’s privilege and immunity law to expire at the end of this year. The

National District Attorneys Association, the California District Attorneys Association, and the New York State District Attorneys Association have long expressed opposition to audit privilege and immunity legislation. I strongly encourage you to solicit the views of the broad range of local, State, and Federal law enforcement and

environmental officials who oppose enactment of audit privilege and immunity legislation. See Exhibit 3.

III. EPA-STATE DIALOGUE

The Federal environmental statutes recognize the necessity and importance of the

Federal Government’s role in ensuring that baseline national standards established

by the environmental laws to protect human health and the environment are implemented and enforced fairly and consistently in all States. To reinforce that goal,

Federal law also authorizes citizens to petition EPA to review or withdraw State

programs on the grounds that the States lack the enforcement authority necessary

to meet federally established standards.

EPA’s opposition to the enactment of State audit privilege and immunity laws is

based on policy considerations as well as law. On the policy level, EPA strongly opposes enactment of audit privileges because they shield evidence of wrongdoing and

run counter to the State and Federal partnership in encouraging the kind of openness that builds trust between regulators, the regulated community, and the public.

EPA opposes immunizing violations disclosed in audits because they discourage investment in pollution control and undermine deterrence.

As to the legal issue, EPA must ensure that the enactment of State audit laws

does not impair the State’s ability to adequately enforce its environmental laws and

to gather information necessary to monitor and ensure compliance, and that such

laws do not interfere with the public’s access to information. EPA may not approve,

delegate, or authorize any new Federal program unless it determines that such authorities are adequate.

These requirements are not new, and were not developed just to oppose audit

laws. They have been part of the program approval process for many years.

Federal statutes and regulations require States and the public to have access to

environmental compliance information. A State must have the ability to obtain information needed to identify and assess noncompliance and criminal conduct, and

ensure correction of violations.
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Public access to information must be preserved and remain consistent with the

provisions of Federal statutes granting citizens the ability to participate in permitting and enforcement proceedings to ensure adequate environmental protection. The

State also may not sanction ‘‘whistle blowers’’—employees who divulge information

about a company’s noncompliance.

Federal statutes and regulations require that States maintain authority to obtain

injunctive relief and civil and criminal penalties for any violation of Federal program requirements. As reflected in the ‘‘Statement of Principles,’’ which was issued

by EPA on February 14, 1997, EPA is particularly concerned with whether a State

has the authority to obtain immediate and complete injunctive relief; to recover civil

penalties for significant economic benefit, repeat violations and violations of judicial

or administrative orders, serious harm, and activities that may present an imminent

and substantial endangerment; and to obtain fines and sanctions for criminal

conduct.

Although EPA strongly believes that environmental audit privilege and immunity

laws can only impair the government’s and citizens’ ability to monitor and enforce

the laws and to protect communities from environmental threats, the agency has

worked with States to modify their State audit privilege and immunity statutes to

meet the minima necessary to comply with Federal laws designed to ensure a floor

of enforcement and public access to information. For example, EPA’s discussions

with the States of Utah and Texas have resulted in changes to their laws that were

acceptable to those States and that also met the minimum Federal requirements for

enforceability and public access. We are ready to do the same with other States as

well. However, EPA will continue to oppose enactment of State audit privilege and

immunity laws because of their adverse impacts on State environmental enforcement and community right-to-know.

IV. NEW PROJECTS EVALUATING THE EPA SELF-DISCLOSURE POLICY

AND STATE AUDIT LAWS

I am pleased to announce that EPA has initiated two new projects to evaluate

the effectiveness of various State audit laws and policies, and the EPA self-disclosure policy. The time line for completion of both projects is one year to eighteen

months. These projects should form a valuable information base from which to

evaluate EPA’s experience to date under its self-disclosure program and whether

any Federal legislation is needed.

EPA recently awarded a grant to the National Conference of State Legislatures

(NCSL) to conduct surveys of State officials and facility owners and operators to obtain objective data on the amount and type of audit activity being performed in

States with audit laws, audit policies, or neither a law nor a policy.

In addition, EPA will soon begin compiling information to prepare a report on the

effectiveness of the EPA self-disclosure policy. The report will evaluate the effectiveness of the policy in encouraging regulated entities to voluntarily discover, disclose,

correct, and prevent violations of Federal environmental requirements.

V. FEDERAL AUDIT LEGISLATION

I strongly believe that Federal audit legislation will not strengthen America’s environmental programs at this time. As described above, audit privilege and immunity laws encourage secrecy, impede environmental law enforcement, and limit public access to environmental hazard information.

There is no real need for Federal audit legislation of any kind. Environmental auditing is already widespread and is growing without Federal audit legislation. Abusive use of audits in enforcement just does not exist. Finally, as I have suggested

throughout my testimony, EPA’s self-disclosure policy reflects the proper balance of

incentives for auditing and protections for human health and the environment. It

is clearly appropriate to analyze each case individually to determine what type of

enforcement action, if any, is appropriate for a given violation. It is impossible to

categorize all the possible factors in advance through legislation. Attempting to do

so will only create litigation burdens in those enforcement actions brought to protect

human health and the environment.

S. 866, an audit privilege and immunity bill introduced in this Congress, reflects

many of the serious problems with audit privilege and immunity legislation which

I’ve outlined today and in previous testimony. If enacted, the bill would weaken law

enforcement, promote secrecy at the expense of the public’s right to protect itself,

endanger human health and safety, and erode environmental protection. Let me explain.

How does S. 866 weaken law enforcement? The bill generally conceals from law

enforcers information placed in an audit report and testimony about an audit. This
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privilege would hamstring effective law enforcement, especially criminal investigations and prosecutions. The privilege and immunity provisions would apply even to

criminal conduct, and violations causing an imminent and substantial endangerment or serious actual harm. The bill would also make it harder to prosecute criminals by requiring the government to prove that the defendant had the specific intent

to violate or disregard the law. Congress has not required a specific intent standard

throughout our existing environmental laws.

S. 866’s repeat violation exception to immunity gives multiple bites at the compliance apple. A company must violate the same requirement repeatedly over a threeyear period and each time incur an enforcement action to be excepted from blanket

immunity. Given the speed with which courts operate and the fact that most violations are resolved without resort to formal enforcement, this is no exception at all.

In addition, under S. 866, regulated entities receive amnesty for violations that are

required to be monitored and reported. This effectively writes prompt compliance

with these provisions out of the environmental laws, and deprives the State and the

public of the information they need to ensure compliance.

How does S. 866 promote secrecy at the expense of the public’s right to protect

itself? The bill fails to protect public access to information. Citizen plaintiffs seeking

to enforce environmental laws or obtain a remedy for a toxic release will not have

access to needed information. In fact, information will not be available to the public

even if it is the only evidence of the cause of an environmental problem or the extent of environmental harm (like fish kills, groundwater contamination, or contaminated soil).

How would S. 866 endanger human health and erode environmental protection?

The bill allows privilege and immunity regardless of the seriousness of the environmental or human health harm caused by failure to comply. It grants a privilege and

provides immunity from prosecution even if the violations are not actually corrected.

Under the bill, compliance with applicable environmental requirements is not required, only initiation and pursuit of efforts to comply. There is not even an explicit

obligation imposed on regulated entities to remedy any environmental or human

harm caused by the underlying violations.

Most significantly, this bill encourages States to lower environmental standards

to compete for business at the expense of human health and the environment. S.

866 endorses State privilege laws, with the sole specified exception of making the

privilege inapplicable to violations required to be disclosed. This could mean that

many violations, regardless of whether they’ve been corrected, caused environmental

harm, were intentional, or went uncorrected for months or even years, could be kept

secret from law enforcers and the public. S. 866 also endorses State immunity laws

without specified exception. States could immunize criminal conduct, ongoing violations, even environmental catastrophes, and still receive Federal program approval

and Federal dollars. Under S. 866, a company also retains any amount of economic

benefit gained from noncompliance. Adherence to the law is directly undermined by

provisions like these.

Human health is also jeopardized under the bill because the default provision in

S. 866 not only gives immunity for violations causing serious actual harm, but also

gives immunity to all violations—no matter how egregious—if the government fails

to challenge a disclosure within 60 days.

The bill offers plenty of work for lawyers at the potential expense of taxpayers.

Law enforcement personnel will be forced to litigate ambiguous definitions and

standards for application of privilege and immunity, delaying or preventing important decisions that impact human health and the environment.

Let me suggest just a few concrete examples of how S. 866 would seriously erode

our environmental enforcement efforts.

Scenario One: An audit reveals that the plant manager submitted falsified

monitoring reports to an environmental agency. The company submits a corrected report. Result: Evidence of past criminal conduct in the audit would be

inadmissible in an action against the plant manager as would testimony concerning the findings in the audit.

Scenario Two: An audit recommends replacement of aging equipment. The

company fails to act on the recommendation. The equipment breaks down and

releases hazardous waste into the environment. A neighboring farmer’s well is

contaminated. Result: The company’s failure to act would not be available as

evidence in an enforcement action to determine the cause of the problem or the

extent of the harm nor would it be available to the farmer whose groundwater

was contaminated by the release. Citizens would not be allowed to use this evidence to recover damages, regardless of the harm to them and their families.

The government also could not use the information in an enforcement action,
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despite the fact that the company had sufficient knowledge to prevent the harm,

but simply ignored it.

Scenario Three: A criminal investigator receives a tip that waste is being disposed of illegally. Result: If the investigator follows up and finds out that the

informant received the information from an environmental audit, the midnight

dumpers may be able to escape prosecution altogether because of the ‘‘tainted’’

evidence or some of the most damaging evidence could be excluded from the

trial. Even if a company finds a longstanding violation that it could have and

should have avoided using available pollution control equipment, it can disclose

that violation and receive amnesty.

Tragically, some of the concerns about how audit laws would endanger human

health and the environment expressed in the three scenarios may be found in actual

cases. In Arkansas, in a suit brought by citizens, the El Dorado Chemical Company

attempted to use the State audit privilege law to shield environmental impacts information from local citizens—including children—who allegedly suffered numerous

respiratory ailments when subjected to repeated contamination from ammonia, sulfuric acid, and other air pollutants. Similarly, at a landfill near Amarillo, Texas,

Browning-Ferris, Inc. (BFI) succeeded in persuading a State administrative law

judge to prevent disclosure of two environmental audits that local citizens were

seeking in order to document an alleged imminent and substantial endangerment

as a result of contaminated groundwater.

Such cases must not occur in Federal proceedings due to enactment of Federal

audit legislation.

VI. CONCLUSION

In conclusion, I urge that the current Federal approach to environmental auditing

be allowed to continue. Under the EPA self-disclosure policy, EPA gives credit to

good faith efforts to comply, without compromising fair and effective enforcement or

jeopardizing government and public access to crucial compliance information. Recent

GTE disclosures illustrate how the policy makes good environmental and business

sense. We support the States’ efforts to promote compliance and innovation, but we

also must work to ensure that States maintain effective enforcement programs

which accommodate the interests of all—businesses; local, State, and Federal regulators; and citizens—and which ensure a level playing field for law-abiding companies nationwide.

Thank you again for the opportunity to testify before your committee. I would be

happy to answer any questions.
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PREPARED STATEMENT OF BARRY R. MCBEE, CHAIRMAN, TEXAS NATURAL RESOURCE

CONSERVATION COMMISSION

I. INTRODUCTION

My name is Barry R. McBee and I am the Chairman of the Texas Natural Resource Conservation Commission (‘‘TNRCC’’). The TNRCC is a multi-media environmental agency covering all air, water, and waste-related activities. One of the

TNRCC’s guiding principles is ‘‘To promote and foster voluntary compliance with environmental laws.’’ To further this goal, we pursue an effective and efficient compliance and enforcement program that maximizes voluntary compliance, ensures that

potential polluters are informed of their environmental responsibilities and compels

compliance through legal action when necessary. The TNRCC believes that strong

traditional enforcement of environmental laws is necessary to guarantee that public

health and the environment are protected. To improve the condition of our environment while our populace and economy thrive, we must have compliance with governmental requirements enacted by State and Federal legislatures.

This opportunity to provide testimony to the United States Senate Committee on

Environment and Public Works regarding privilege and immunity provisions of environmental self-audit legislation and the differences between Federal and State approaches to these issues comes at a critical time for the future course of the StateFederal relationship. EPA Administrator Carol Browner has said that she views the

relationship between the Federal and State environmental agencies much like a

marriage. Based on my experience, EPA sees us in the light of a paternalistic parent-child relationship, a relationship that is not healthy and that we must both

work to change.

In the 1970’s State environmental agencies may have been immature, inexperienced and, dare I say it, ‘‘problem’’ children. But we are in the 1990’s now, 30 years

into the era of active governmental environmental protection. The States have matured and proven that they can and are willing to meet the shared goal of the Federal and State governments to protect the environment and public health.

It is time for Washington and the EPA to ‘‘cut the cord’’ and give States the independence and flexibility they need to meet each State’s needs. States want, and deserve, as you heard a witness from the Department of Justice state in her testimony

before your committee in June of this year, to be ‘‘partners’’ with the Federal Government, independent and responsible partners, with a greater role in the decisions

that affect our States, our people, our environments and our livelihoods.

On May 23, 1995, Texas enacted the Environmental, Health, and Safety Audit

Privilege Act (the ‘‘Audit Act’’). This legislation provides limited immunity and privilege for the results of environmental self-audits. A law that promotes a spirit of cooperation between the regulator and those we regulate in achieving what we all

want—clean air, clean water and safe land—is beneficial to all citizens of Texas.

Providing entities an incentive to do their own self-analyses, to prevent pollution before it happens, and to promptly correct any problems they discover is a sound and

reasonable approach. However, not everyone agrees with the fundamental basis of

this law—even though 23 States to date have adopted laws encouraging this type

of partnership. The practical reality is that the field of environmental regulation has

evolved significantly over the past twenty years, moving consistently away, and

rightfully and properly so, from the ‘‘gotcha’’ mentality toward the type of cooperation embodied in environmental self-audit laws.

Rather than embracing these innovative State approaches and providing Federal

support, however, EPA has been a persistent antagonist. Delegation to Texas of

Federal environmental programs has been threatened, and ultimately Texas was

forced to compromise by amending its audit law to address some of EPA’s concerns

in order to get delegation back on track.

The Audit Act provides a limited privilege for certain information that is generated through a voluntary environmental audit and that is properly included in the

audit report. It also provides immunity from administrative and civil penalties. Before its recent amendments, the Audit Act provided a limited immunity from penalties for a small subset of criminal violations, while specifically not extending the

immunity to intentional and reckless conduct. It is important to highlight that the

Audit Act never provided immunity from enforcement of environmental laws, but

merely from the end product of that enforcement—the imposition of penalties. Problems or threats would be corrected through injunctive relief and similar tools.

Among the conditions for penalty immunity is the requirement that the auditing entity must cooperate in the agency’s investigation of the disclosed violations, and

must initiate and complete corrective actions within a reasonable amount of time.

Thus the Audit Act provides streamlined enforcement approach that fully addresses
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violations that might never otherwise come to light. Normal agency enforcement efforts proceed at full force, unaffected by these additional disclosures.

There are essentially two underlying facts that make it eminently sensible for us

to promote self-policing by regulated entities. First, the complexity of modern environmental regulation makes it extremely difficult for a regulated entity to be in

compliance and to know whether it is fully in compliance. Second, the limitation on

State enforcement resources found throughout the country, coupled with the immensity of the regulated community, makes it quite possible that, left to a traditional

enforcement schedule, violations will go undetected and thus uncorrected. By providing a limited privilege and immunity for voluntary environmental audits, Texas is

able to encourage self-evaluation and compliance while maintaining its diligent traditional enforcement efforts. Thus, the voluntary disclosures by entities that conduct

audits and promptly correct violations to receive immunity from penalties enhances

the results of our enforcement activities.

II. THE STATE-FEDERAL RELATIONSHIP UNDER STRAIN

State environmental agencies, not the EPA, conduct the vast majority of inspections to check for compliance with both Federal and State environmental laws and

are primarily responsible for enforcement in most instances. Nine out of ten enforcement actions in this country are brought by State environmental agencies.

States have an adequate and talented pool of environmentally educated and

trained engineers, technicians, lawyers and public policy experts. In fact, according

to former EPA Administrator William Ruckelshaus, State environmental protection

programs have grown to employ 54,000 men and women, versus 18,000 for the EPA.

Where in the past States may have had to rely on EPA for human resources that

were in short supply, States now have good, sophisticated and knowledgeable personnel.

As the Texas Legislature was analyzing its pending self-audit bill in 1995, the

Clinton Administration declared that ‘‘the adversarial approach that has often characterized our environmental system precludes opportunities for creative solutions

that a more collaborative system might encourage.’’ President Clinton and Vice

President Gore, Reinventing Environmental Regulation, Inside EPA Weekly Report:

Special Report, March 16, 1995. The Texas Legislature approved the Audit Act in

May 1995, believing that it had, in line with and supportive of the President’s declaration, provided the regulated community with a tool to achieve and monitor compliance in cooperation with the TNRCC, so that they might be enabled to start

thinking beyond compliance in just such a ‘‘collaborative system’’.

The EPA did not provide Texas with guidance regarding the potential impact of

the Audit Act on the delegation of Federal environmental programs until well after

the law was passed by the Texas Legislature. Oregon had passed the first environmental self-audit law in July 1993. However, EPA did not issue its guidance, ‘‘Statement of Principles: Effect of State Audit Immunity/Privilege Laws On Enforcement

Authority for Federal Programs,’’ until February 1997. Memorandum from Steven

A. Herman, Asst. Administrator, EPA, et al. to EPA Regional Administrators (Feb.

18, 1997).

The first indication of the potential for Federal objection to the Audit Act came

after the EPA raised issues related to the Idaho environmental self-audit statute in

the context of Idaho’s application for approval of Clean Air Act Title V delegation.

A simple memorandum from EPA Headquarters to the EPA Region X Regional

Counsel in April 1996 announced the beginning of the debate. Memorandum from

Steven A. Herman and Mary Nichols, Asst. Administrators, EPA to Jackson Fox,

EPA Regional Counsel, Region X (April 5, 1996) (‘‘Effect of Audit Immunity/Privilege

Laws on States’ Ability to Enforce Title V Requirements’’). This occurred almost one

full year after the Texas law was enacted. Shortly after the April 1996 memorandum, EPA raised similar issues in the context of Texas’ application for approval of

its Title V program.

The debate escalated shortly thereafter as the Environmental Defense Fund of

Texas (EDF) petitioned EPA to withdraw delegation to the State of Texas of the Underground Injection Control program, based in part on the opposition to environmental self-audit laws that EPA had expressed in the April 1996 Title V memorandum. The EDF petition is still pending.

The Texas Senate Natural Resources Committee held hearings in September 1996

on the implementation of the Act. It found that the majority of concerns about the

Audit Act focused on the potential for withholding of delegation, not about lack of

protection for our citizens. Texas Senate Natural Resources Committee, Interim Report to the 75th Legislature, Effectiveness of the Environmental Audit Legislation

(Sept. 1996).
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As Texas struggled for clear guidance from EPA regarding which specific provisions of the Audit Act EPA considered in conflict with regulations controlling delegation, some States, such as Utah, received specific recommendations from EPA on

statutory changes that would pass EPA muster.

In November 1996, 15 State environmental commissioners officially requested a

meeting with EPA Administrator Carol Browner to seek a way to cooperatively address this issue. The request went unanswered until Administrator Browner finally

agreed to a meeting in early March of this year, shortly before the National Governors’ Association was to meet in Washington. At that time, a coalition of more

than ten States met with Administrator Browner and her staff and presented what

was thought to be a reasonable compromise that the EPA would grant a 2-year evaluation period of State environmental self-audit laws to States whose attorney general had certified that the State had the necessary regulatory authority to carry out

any new or existing program. Administrator Browner rejected the proposal outright,

telling States ‘‘there would be no moratorium’’ and the only way to resolve differences would be for each State individually to enter into a ‘‘negotiation’’ with EPA

officials in which they would be told what changes would be necessary for their

State’s law to be deemed acceptable by EPA for purposes of retaining or achieving

delegated programs.

Shortly after that meeting, EPA Assistant Administrator for Enforcement and

Compliance Assistance, Steve Herman and former EPA Region VI Regional Administrator Jane Saginaw, in a meeting with Governor George W. Bush, assured Texas

that there were only a few changes needed to the Audit Act, that the negotiations

would be quick, and that if successful, the Audit Act would no longer be a barrier

to delegation. In that meeting the Governor made it abundantly clear, having been

involved in similar negotiations with another Federal agency over welfare reform

and State flexibility, an initiative that was derailed by the Clinton Administration,

that he had grown tired of the State negotiating against itself. He made it clear that

if we took steps in Texas to address this issue to EPA’s satisfaction, he expected

no more issues to be raised, for petitions challenging our existing program delegation to be dismissed, and for programs that we desire to have delegated to us to

be delegated.

Texas came to the table with proposed revisions addressing the specific concerns

EPA had voiced, such as removing the privilege from criminal proceedings, and

which we agreed would improve our law. On the eve of the legislative filing deadline

for the Texas Legislature in March 1997, high level negotiations between EPA and

Texas officials resulted in a compromise being reached, and specific legislative

changes were drafted. These changes were passed into law and became effective on

September 1, 1997. Tex. Rev. Civ. Stat. Ann. art. 4447cc (Vernon’s) (as amended by

House Bill 3459, 75th Legislature).

Although these high level negotiations ultimately proved fruitful, a closer look at

the delegation debate shows how the EPA has stretched the common and clear

meaning of the words of its regulations to impose its philosophies and policies on

the States. EPA’s opposition to the Audit Act focused on the requirement in Federal

delegation regulations that State civil penalties must be ‘‘appropriate’’ to the violation. See, e.g., 40 C.F.R. § 145.13. EPA took the position that the State must consider certain criteria, the same criteria contained in EPA’s Audit Policy, before arriving at ‘‘appropriate’’ penalties. For example, EPA maintains that a State must

recoup the economic benefit of non-compliance as specified in EPA’s environmental

audit policy. This is a new interpretation of the Federal regulations and one that

conflicts with EPA’s expressed interpretation at the time it promulgated those regulations. EPA is in essence applying its own recently developed audit policy as a new

minimum requirement for ‘‘appropriate’’ penalties under 40 C.F.R. § 145.13(c).

This approach has been described as blackmailing the States into adopting EPA’s

Federal policy on environmental auditing. Timothy A. Wilkins and Cynthia A.M.

Stroman, Washington Legal Foundation, Working Paper Series No. 69, Delegation

Blackmail: EPA’s Misguided War on State Audit Privilege Laws (August 1996). At

the very least, this approach is an improper form of informal rulemaking not intended by Congress.

EPA has also actively pursued its opposition to the Audit Act outside the delegation context. In December 1996 and January 1997, five Texas companies that had

taken advantage of the Audit Act and voluntarily disclosed violations to the TNRCC

were confronted with threatening EPA letters of inquiry regarding those same violations. These companies today remain under EPA investigation, although they have

cooperated with TNRCC in addressing the disclosed violations. This interference by

EPA in the Texas self-audit program was intentional and without warning to the

State. Companies that had relied in good faith on the provisions of State law are
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experiencing first hand the problems associated with a conflicting philosophy at the

State and Federal level.

III. THE TEXAS AUDIT ACT

A. The Texas Audit Privilege

The Texas audit privilege attaches automatically to a report generated pursuant

to a voluntary environmental audit. The scope of the privilege is broad and extends

to all materials created in the course of an environmental self-evaluation and properly included in the audit report. However, there are three major caveats to this

protection from discovery: (1) the privilege does not extend to any information required to be collected, developed, maintained, or reported under State or Federal

law; (2) the privilege does not extend to any observation of the actual physical

events of violations; and (3) the privilege may be overcome in an administrative,

civil or criminal context where a tribunal determines that the privilege has been asserted for a fraudulent purpose or that appropriate efforts to achieve compliance

were not promptly initiated and pursued with reasonable diligence after discovery

of the violation. Therefore, the Texas privilege is appropriately qualified and limited. A regulatory agency or a third party has potential access to the broad range

of information that would normally be available without this legislation.

Whereas the privilege under the original Audit Act extended to criminal proceedings, the amended Audit Act provides for a privilege only in civil and administrative

contexts. The original Audit Act included the safeguard that where there was evidence of criminal conduct, an audit report could be reviewed in camera.

EPA’s fundamental objection to the audit privilege is difficult to reconcile with the

privilege’s potential to stretch Federal and State resources and to enlist the regulated community in a cooperative enforcement effort, a ‘‘creative solution’’ in a more

‘‘collaborative system’’, to again use President Clinton’s words. It is interesting to

note that the concept of a self-audit privilege is not foreign to the Federal Government. The Economic Growth and Regulatory Paperwork Reduction Act of 1996

amended the Equal Credit Opportunity Act and the Fair Housing Act to provide a

limited privilege for information generated in a self-test conducted to determine

compliance. This legislation recognizes the wisdom of enlisting the regulated community in the effort to achieve greater compliance. Where compliance is a matter

that affects the public health and environment, the need to optimize cooperation is

even greater.

B. The Texas Self-Disclosure Immunity

‘‘Immunity’’ under the Texas Audit Act provides for relief from any punitive sanction, but not from all enforcement action—essentially it is a limited penalty mitigation. As a precondition to immunity, the disclosing entity must cooperate in the

agency’s investigation of the violation and must demonstrate correction of the violations within a reasonable time. When injunctive corrective provisions are deemed

appropriate by the agency, a self-disclosed violation may be pursued through an enforcement order or civil proceeding.

As a further condition to immunity, a disclosing entity must provide to the agency

a written disclosure as well as pre-audit notification, both of which are publicly

available. Thus the immunity provision of Texas law competes in some measure

with the privilege gained, and the public’s right to information is protected. Furthermore, voluntarily disclosed violations must be recorded in an entity’s compliance

history maintained by the agency.

Despite EPA’s opposition to the Texas Audit Act, the scope of the immunity provision has always been appropriately limited, particularly in the criminal context.

Only a narrow range of criminal violations were eligible for immunity under the

original law. Violations that resulted from reckless, intentional, or knowing conduct

were never eligible for immunity. As a result of the compromise with the EPA,

criminal violations are no longer eligible for immunity, without regard to their

significance.

The Audit Act contains several additional limitations on the availability of immunity from penalties. For example, violations that result in substantial harm to persons, property, or the environment have always been ineligible for penalty immunity. As a result of the compromise with the EPA, immunity has been further restricted such that violations that result in risk of injury and violations that result

in a significant economic benefit that results in an economic advantage are no

longer eligible.

C. Texas’ Experience

Texas now has almost 21⁄2 years of very positive experience implementing the

Audit Act. TNRCC enforcement (data demonstrate that despite the existence of
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audit privilege legislation, TNRCC has maintained its rigorous enforcement standards. The audit privilege has shifted part of the burden to the regulated community

to fund their own compliance rather than keeping it on the State to fund more inspections. As the following figures demonstrate, the TNRCC has maintained a

strong inspection/enforcement presence to police the regulated community and to

provide a disincentive to fraudulent misuse of the audit legislation.

Fiscal year 1994 Fiscal year 1995 1 Fiscal year 1996 Fiscal year 1997

Total Inspections 2 ................................. 42,611 34,305 39,031 41,803

Notices of Violation Issued 3 ................. 5,297 13,412 13,433 12,129

Formal Enforcement Actions Initiated ... 711 618 621 907

Orders Issued ......................................... 346 795 666 664

Monetary Penalties Due ......................... $5.03 million $5.03 million $6.87 million $4.05 million

Audit Disclosures ................................... NA 1 44 53

1 The TNRCC Fiscal Year runs through August. The Audit Act was enacted May 23, 1995.

2 Includes regularly scheduled facility inspections as well as complaint investigations.

3 Fiscal year 1994 figure includes only notices of violation issued by the central office. The other figures include notices issued by TNRCC field offices.

Although the number of disclosures is not large relative to the number of traditional enforcement actions, it is a positive number, reflecting improved environmental conditions, improved compliance status, and heightened managerial environmental responsibility. And this number has been achieved despite the unnecessary

cloud of uncertainty created by EPA’s position regarding self-audit legislation.

As of this date, the TNRCC has received approximately 650 notifications of intent

to conduct a voluntary environmental audit. Participants include: municipalities;

universities; navigational districts; the United States Air Force; newspapers; filling

stations; food and food products companies; barge and ship cleaning operations; the

United States Department of Energy; paper and paper products manufacturers;

automobile manufacturers; computer and computer parts manufacturers; electric

utility services; cement manufacturers; metal manufacturers; waste disposal companies; petroleum refineries; petrochemical plants; and chemical manufacturers. These

entities range from small businesses to billion dollar corporations.

A majority of the notices indicate that the audits will be multi-media covering all

environmental regulations and permits. Therefore, through use of the environmental

audit tool, multi-media evaluations, which are encouraged by EPA and the TNRCC;

but which we have limited resources to conduct through inspections, are significantly enhanced.

Approximately 100 of these audits have resulted in voluntary disclosures of discovered violations. A total of 430 individual violations have been disclosed, and

these either have been or are in the process of being diligently corrected. The majority of violations are air violations, ranging from record-keeping problems to

exceedences that necessitate permit amendments or reevaluation of grandfathered

exemptions. Several companies have reported inadequacies with air emissions inventories and toxic release inventories. Others have reported inadequacies with spill

prevention and countermeasure containment plans, contingency plans, and personnel training programs. In one case a company reacted quickly to the discovery of

falsified operating log entries by firing the responsible employee and retraining the

other employees involved in data entry.

Simply put, many of these violations would not have been detected in a routine

compliance inspection. Voluntary stack tests and other expensive sampling protocols

which go above and beyond the regulatory requirements are the foundation for

many of these disclosures. Erroneous log or other data entry problems are difficult

to detect through any means other than a self-audit. In addition, a number of the

audits investigated historical compliance for periods extending more than a decade.

Although not hindered by a statute of limitations, the TNRCC and other Texas

agencies would not normally review records of this vintage when conducting inspections.

All of these disclosures have occurred without disruption of the normal enforcement process. We have conducted our inspections as scheduled; brought enforcement

actions where appropriate using required reports and our own information; and diligently scrutinized the regulated community as our statutes and delegation authority

require. Yet, without regard for our real-life results and Texas’ general enforcement

record, EPA threatened withholding of delegation of Federal regulatory authority,

claiming that the Texas Audit Act results in inadequate enforcement authority.
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IV. CONCLUSION: THE NEED FOR FEDERAL LEGISLATION

The lack of Federal cooperation in the implementation of State self-audit laws has

created needless tension and uncertainty that hampers State efforts to experiment

with innovative enforcement tools and deters regulated entities from utilizing them.

Federal legislation expressly allowing States authority to pursue such innovations

would be a welcome development.

EPA’s policy on environmental auditing states, ‘‘As always states are encouraged

to experiment with different approaches that do not jeopardize the fundamental national interest in assuring that violations of Federal law do not threaten the public

health or the environment, or make it profitable not to comply.’’ 60 Fed. Reg. 66706,

66710 (Dec. 22, 1995). The Audit Act has always satisfied these conditions.

It appears that Federal legislation is necessary to restore the States’ ability to

pursue innovative enforcement that differs from EPA’s preferred policies. United

States Senate Bill 866 explicitly preserves the rights of the States to enact audit

privilege and immunity laws and does not preempt State law in State actions

brought under Federal laws for which the State has been delegated primary enforcement authority. Furthermore, S. 866 contains several admonitions to Federal agencies to preserve the intent of State audit laws.

Next week, EPA’s Office of the Inspector General will be visiting the TNRCC to

begin an investigation of our implementation of the Texas Audit Act. We hope the

visit is used as an opportunity to understand the benefits Texas has derived from

the use of this enforcement tool, to finally recognize its merits, and to prepare for

implementation of the Federal environmental audit privilege and immunity legislation that we hope will be enacted during this congressional session.

PREPARED STATEMENT OF PATRICIA S. BANGERT, DIRECTOR OF LEGAL POLICY,

ATTORNEY GENERAL’S OFFICE, STATE OF COLORADO

My name is Patricia Bangert. I am the Director of Legal Policy for the Attorney

General’s Office in Colorado. I am submitting this testimony on behalf of Gale Norton, the Attorney General of the State of Colorado. We appreciate the opportunity

to address the important subject of State voluntary audit laws.

INTRODUCTION

We want to accomplish three things in this testimony. First, we want to clear up

some misconceptions about our State voluntary audit law. Second, we want to tell

you about some problems we’ve been having in fully implementing the law. Third,

we want to urge you to take legislative action.

Colorado had one of the first voluntary audit laws in the country. Under the audit

law, businesses, individuals, and other regulated entities may claim a privilege from

disclosure in civil, administrative and criminal matters for voluntary self-evaluations if violations found in the evaluation are corrected. A ‘‘voluntary self-evaluation’’ is a self-initiated assessment, audit or review, not otherwise expressly required

by law, performed for a company or person to determine whether the entity or individual is in compliance with environmental laws.

The Colorado law was also the first to grant a limited immunity from fines for

disclosures of violations discovered in audits. Specifically, the law grants businesses,

individuals, and other regulated entities immunity from fines for civil, administrative and negligent criminal violations when a violation is discovered in a self-audit

and corrected. Colorado legislators were careful to craft exceptions to both privilege

and immunity provisions so that the provisions could not be misused. I will explain

some of those exceptions below.

MYTHS AND REALITIES

We think that our law is a positive step forward in protecting the environment

of Colorado. Others, however, oppose our statute and the voluntary audit laws of

other States. We think that much of this opposition is based upon some basic misunderstandings of the language and effects of the statutes. We want to mention here

three basic misunderstandings and attempt to correct them. These myths and the

realities are as follows:

1. Myth: The audit law allows companies to hide information from regulators. Reality: Audit laws do not in any way affect the ability of regulators to get information

necessary to determine compliance with the laws. In fact, audit law encourages the

creation of information and the undertaking of analyses that would not otherwise

be available to a company or regulator.
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The Colorado voluntary audit law applies to voluntary self-examinations. The

statute does not allow companies to hide information that is required to be reported

to regulatory agencies. The law does not allow companies to shield factual information necessary to determine compliance with the environmental regulations. Federal

and State environmental regulators have no less authority to inspect and monitor

facilities under the audit law than they did before its passage.

What the audit law does, in reality, is to encourage companies and other regulated entities to develop information that neither they nor the regulators had before

the law was passed, specifically, to encourage companies to voluntarily examine

their own environmental compliance and to correct any deficiencies. This is especially important for small businesses. Large companies can protect audits through

the privilege accorded attorney-client communications. Small companies often cannot afford to hire attorneys, and, thus, need the ability to voluntarily evaluate their

compliance with environmental laws without providing regulators a blueprint for

enforcement action. This is accomplished in the audit law through the privilege provisions. The immunity provisions of the audit law encourage both large and small

businesses to report violations discovered and work with the State Department of

Public Health and Environment to correct them.

2. Myth: The audit law would result in greater environmental degradation by allowing companies to commit violations of the environmental laws and then hide the

violations. Reality: The audit law represents a positive environmental gain because

it results in violations being discovered and corrected, violations that probably

would not have been found absent an audit.

The Colorado audit law applies only if violations discovered in a voluntary selfaudit are corrected. The privilege does not apply if a company finds a violation and

that violation is not corrected. In addition, immunity will not be granted if the violation reported is not corrected. In short, there is a positive environmental gain from

the voluntary audit law. Self-examinations that would not otherwise be done are

being done; violations that would not have been discovered are being discovered and

corrected.

3. Myth: The audit laws away the authority of regulators to prevent harm to the

public and the environment. Reality: Regulators have ample authority under the

audit law to prevent abuses or harm to the public and to the environment.

A court or administrative law judge can order the disclosure of an audit if any

person can show: (1) that the person or entity seeking the privilege is not acting

to correct violations found in the audit; (2) that compelling circumstances require

the audit to be disclosed; (3) that the privilege is being asserted for a fraudulent

purpose or that the audit was done to prevent disclosure in an ongoing or imminent

investigation; or (4) that information in the audit shows a clear, present and impending danger to the public health or environment outside of the facility. Further,

the privilege from disclosure granted in the audit law does not apply to any information or documents required to be maintained, reported or available to regulators

under any law or regulation; information acquired independently by regulators; or

documents prepared before or after the audit.

In addition, disclosure immunity may not be granted for violations not corrected,

or for disclosures required to be made under an entity’s permit; or to entities with

a history of violations. Finally and most important, disclosure immunity goes only

to fines for civil, administrative and negligent criminal penalties. The regulators retain full authority to issue compliance orders, to get injunctive relief, to secure any

remedy other than fines, and to prosecute criminally those who blatantly violate the

environmental laws.

THE COLORADO EXPERIENCE

From the passage of the Colorado audit law to this date, 25 entities have made

28 disclosures and requests for immunity under the law. (Some companies made

more than one disclosure and request for immunity.) The Department of Public

Health and Environment granted 17 of these requests in whole, 1 request in part,

and denied 5 requests. Five requests are still pending. The violations involved the

following programs: water (5 disclosures), air (15 disclosures), and waste (8 disclosures).

Of the disclosures made, many have led to actions that will provide long-term environmental benefits and will enhance compliance. These benefits include: conducting staff training in environmental procedures; modifying company practices that result in violations; and discontinuing certain emissions entirely. In addition, disclosures were received from at least nine companies or emission sources that were not

known to the State’s regulators because they were operating without certain permits, and were not likely to have been discovered independently by State inspectors.
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These self-identified companies are now ‘‘in the system’’ and their compliance can

be tracked by regulators. In fact, many of the violations reported would not have

been found by regulators under the State’s present regulatory scheme, or by company officials, absent a self-evaluation.

Colorado’s voluntary audit law, then, has resulted in positive environmental

gains. More could be done, however. There are thousands of permitted facilities in

Colorado. Twenty-eight voluntary disclosures constitute a very low percentage of

regulated entities. We believe that more persons and entities would utilize the provisions of the audit law if not for independent action and threats of action by the

Environmental Protection Agency against companies utilizing the audit laws.

EPA INTERFERENCE AND THE POTENTIALLY FAILED EXPERIMENT

Another aspect many people fail to understand about the Colorado voluntary

audit law is that it is an experiment. Many years ago, Justice Holmes described the

States as the ‘‘laboratories for democracy.’’ The audit laws are perfect examples of

States experimenting with a concept that may potentially result in significant environmental gains. The ‘‘command and control’’ method of environmental regulation

has proven to be less than totally effective in promoting compliance with environmental laws. For one thing, we simply do not have the resources to do all the inspections and monitoring that would be needed to get 100-percent compliance. Everyone now agrees that something more is needed to encourage companies to voluntarily look at their own compliance and correct deficiencies. Many States are experimenting with audit laws to determine whether those laws may be part of that

‘‘something more.’’

Colorado’s voluntary audit law applies only to audits, and, thus, to disclosures

arising from those audits performed before June 30, 1999. Our lawmakers gave the

audit experiment five years to prove itself or fail. Because of interference by a Federal agency, that experiment may never be fully completed. Specifically, the Environmental Protection Agency appears to be doing its best to ensure the failure of

the audit experiment.

We would point to two principal ways in which EPA is thwarting State initiatives

in the voluntary audit area:

1. Requiring States to change their audit laws by utilizing the power to revoke

State delegations under the environmental statutes; and

2. Threatening or taking actions against companies who utilize audit laws under

the Agency authority to overfile and request information.

The Environmental Protection Agency has made no secret of its dislike for State

audit laws. We have no doubt that the Agency truly believes that its position on

those laws is the correct one. The problem this presents for the States, however, is

that the Agency is utilizing its various authorities under the environmental laws to

compel States to change their audit statutes and to discourage companies from utilizing those laws.

First, EPA has successfully intimidated several States into amending their audit

laws. As you know, EPA has the authority to delegate, and the authority to revoke

delegations of authority to carry out many of the environmental laws to the States.

For several years, EPA has threatened to revoke delegations under the Clean Water

Act, the Clean Air Act and RCRA in States with audit laws.

Of late, the Agency has embarked upon a course of negotiating individually with

States to address issues with delegated programs. The results of the negotiations,

not surprisingly, have been that the States are required to change their laws so that

their provisions are satisfactory to the Federal agency. Also not surprisingly, the

new State statutes look very much like EPA’s own audit policy. For example, in

Texas, the EPA required the State, among other changes, to eliminate the application of immunity and privilege provisions to criminal actions and to eliminate immunity where a violation results in a serious threat to health or the environment

or where the violator has obtained a substantial economic benefit from the violation.

What is left in the Texas statute—a privilege in civil actions and immunity from

the gravity component of civil and administrative fines—looks very much like the

EPA Final Policy on Environmental Audits. In short, EPA has embarked upon a

campaign to make State audit policy’s mirror images of its own. It is truly a sad

state of affairs when a Federal agency can dictate the contents of legislation to a

sovereign state.

Several months ago, EPA began negotiations with Colorado State officials regarding our audit law. The Agency required negotiations after receiving a petition from

a citizen group requesting the Agency to revoke the State’s delegation under the

Clean Water Act. Those negotiations are ongoing and we would be happy to keep

you informed about their progress.
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The second way in which EPA is thwarting State initiatives in the audit area is

by discouraging companies from utilizing audit laws. The Agency has successfully

done this by taking actions, or threatening action, which appears to retaliate

against companies that do not use the provisions of the audit law. These actions include overfilings and burdensome requests for information. Our experience in Colorado has been that EPA has dramatically increased actual and threatened overfilings. From October 1995 through September 1996, EPA overfiled in only two cases

in the entire United States. In the first 4 months of this year, EPA overfiled in

three cases in Colorado alone and has threatened to overfile in at least 10 more.

In each instance in which EPA has overfiled, violations were corrected and there

was no continuing harm to the public or the environment. The EPA brought its case

solely because it disagreed as a policy matter with the amount assessed in fines by

the State against the violator. Following are the companies against which EPA

overfiled and the fines sought by the State and by EPA:

Company State Fine EPA Fine

Denver Radiation ............................................................................................................................. $160,000 $466,000

Conoco ............................................................................................................................................. 33,000 666,771

Platte Chemical ............................................................................................................................... 400,000 1,200,000

In addition, EPA has specifically threatened to overfile against three entities regarding disclosures made under Colorado’s audit law: the Denver Water Board,

Total Petroleum, and Western Mobile. Perhaps as a prelude to an overfile, the Agency has burdensome requests for information to at least one of these entities.

The Denver Water Board, a quasi-governmental entity supplying water to Denver

residents, voluntarily audited its environmental compliance in 1995. During the

course of that audit, it found several violations of the Colorado Water Quality Control Act and hazardous waste requirements for small quantity generators. Immediately following its discovery of the violations, the Water Board began to take corrective action. All violations were corrected to the satisfaction of the State Department of Public Health and Environment and the Board requested immunity from

fines. That request is presently under consideration by the Health Department. In

all probability, none of the violations discovered in the Board’s audit would have

been found by regulators or the Board absent the voluntary self-evaluation.

The EPA rewarded the Water Board for its initiative by requesting hundreds of

pages of documents from the Board regarding the violations. Nothing can be more

intimidating to companies wanting to use the audit law than the EPA actions.

Under the State’s audit law, information disclosed by a business or person seeking

immunity from fines becomes public upon disclosure. This information may then become a blueprint for enforcement actions by EPA if it wishes to overfile or seek further information. Potential Federal action, then, discourages the use of the audit

law. In fact, I have personally spoken to several attorneys representing Colorado

companies and they have indicated that they would not advise their clients to utilize

the audit law because of the threat of Federal action. These companies—specifically

those large enough to hire experienced environmental counsel—will simply protect

audits under attorney-client privilege.

What is lost under the present state of the laws is the means and incentive for

small companies to do audits and for all companies to voluntarily disclose and correct violations. This brings us to the subject of Federal legislation.

THE NEED FOR FEDERAL LEGISLATION

We believe that some type of Federal legislation is required in order to fully carry

out the audit experiment. As you know, there have been numerous bills introduced

in the past several sessions of Congress, ranging from a Federal audit privilege and

disclosure immunity bill to legislation simply prohibiting Federal action against an

entity utilizing a State disclosure immunity provision. We do not comment here on

which type of bill might be preferable. Because of the real and perceived threat of

Federal action against companies and persons utilizing audit laws, we would urge

you to consider at least some legislation protecting entities who disclose violations

to State regulators.

The Department of Justice and EPA have argued that EPA’s Final Policy Statement on Environmental Audits is sufficient to provide businesses and individuals

with the protection they need under Federal law. But EPA’s policy is just that—

a policy that can be changed at will, and on a case-by-case basis, by the Agency.

The Final Statement says:
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The 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

parties.

In light of that disclaimer, the promises contained in the Policy do not carry a

lot of weight. The EPA Policy, then, is insufficient to provide the type of protection

that is needed to make the State audit experiment successful. Unfortunately, the

EPA will not voluntarily stop its aggressive war on State audit programs. Federal

legislative action, then, is needed to bring about a cease-fire.

IN CONCLUSION

On behalf of Gale Norton and myself, we again thank you for this opportunity to

testify regarding State audit laws. We would be happy to offer any help that we

can provide in securing legislative solutions to the problems outlined here.

PREPARED STATEMENT OF PAUL G. WALLACH, ESQ., SENIOR PARTNER, HALE AND

DORR, LLP; ON BEHALF OF THE NATIONAL ASSOCIATION OF MANUFACTURERS

(NAM) AND THE CORPORATE ENVIRONMENTAL ENFORCEMENT COUNSEL (CEEC)

Mr. Chairman and members of the Committee, my name is Paul Wallach. I have

practiced environmental law for some 20 years and am a senior partner in the

Washington, DC, office of the law firm of Hale and Dorr, LLP. I have prepared a

longer written statement and respectfully request that it be entered into the record.

I am here today on behalf of the National Association of Manufacturers (NAM)

and the Corporate Environmental Enforcement Council, Inc. (CEEC). NAM is the

Nation’s oldest and largest broad-based industrial trade association. Its more than

14,000 member companies and subsidiaries, including approximately 10,000 small

manufacturers, are in every State and produce about 85 percent of U.S. manufactured goods. Through its member companies and affiliated associations, the NAM

represents every industrial sector and more than 18 million employees.

CEEC is an organization of 22 diverse major companies with a strong commitment to the environment and environmental compliance programs. CEEC is comprised of senior environmental managers and corporate counsel from a wide range

of industrial sectors. It focuses exclusively on civil and criminal environmental enforcement public policy issues, and the overall need to ensure that environmental

enforcement serves the goal of environmental protection. I have also brought with

me a copy of CEEC’s recently issued Platform for Effective Environmental Compliance and Enforcement which includes a review of the importance of and the need

to eliminate obstacles to auditing, and respectfully request that it also be entered

into the record on behalf of CEEC.

NAM and CEEC appreciate the opportunity to testify today. Both organizations

have carefully considered the issues relating to auditing and voluntary disclosure.

Without question, the failure to have in place adequate and certain protections for

voluntary audits has created strong disincentives and obstacles to auditing. In the

face of these obstacles many regulated entities have chosen to audit, but the current

lack of protection for these audits has a very real chilling effect, which often limits

the utility, intensity and scope of audits that are undertaken. These obstacles impede our ability to achieve the overriding goals set by Congress in enacting our environmental laws—the protection of human health and the environment.

Those environmental goals will not be realized, however, unless the environmental regulatory system is structured to promote voluntary compliance. Members

of the regulated community must be able to fully implement voluntary programs to

candidly assess, prevent, detect, and correct violations of a regulatory requirement,

as well as situations which have the potential to threaten the environment or public

health and safety. Yet, the system in place creates obstacles and disincentives for

such programs, and for auditing in particular. Thus, we believe that properly-crafted

Federal legislation is long overdue and urgently needed. It is about moving into the

future, or as some may say the bridge into the 21st century of environmental protection.

Mr. Chairman, let me pose the policy issue another way. A manufacturer, university, governmental entity, hospital, or any other responsible regulated entity that

aggressively audits—as well as their management and environmental personnel—

should not be placing themselves in a position of greater potential liability than

those who do not. Yet, that is exactly what is happening today under our current

system. Documents and information developed through voluntary self-evaluations

can be and are used against regulated entities in a variety of contexts, including

enforcement actions, citizen suits or third-party tort actions. The concerns are
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heightened by the massive potential civil penalties and the very real possibility of

criminal convictions of regulated entities and individuals for inadvertent conduct.

Indeed, overcriminalization of our environmental laws in a fashion not intended by

Congress presents substantial policy issues which we believe Congress should separately consider.

Over the past decade we have witnessed tremendously proactive and environmentally positive actions by the regulated community, including the development

and use of sophisticated voluntary environmental auditing programs and compliance

management systems. This has resulted in substantially higher rates of compliance

and improved environmental performance. In a bipartisan fashion Congress itself

recognized the ‘‘substantial benefits’’ of voluntary auditing, for example, when it

strongly encouraged the practice in the Conference Report for the Clean Air Act

Amendments in 1990. Yet, because of the extraordinary potential liabilities, many

regulated entities remain reluctant to proceed with aggressive auditing programs,

and those who do take steps to protect themselves—ranging from not putting specific findings in writing, to utilizing the attorney-client privilege—which greatly reduce the utility and benefits of audits that are undertaken.

NAM and CEEC support Federal legislation because they see a very important

opportunity for the environment. We are here today with the hope that this opportunity is not lost in a cloud of rhetoric and skepticism. The regulated community

wants to voluntarily audit their facilities, correct noncompliance and improve their

operations. However, it is not fair, much less good policy, to expose those who do

so to enhanced potential liability. Thus, it is important to consider carefully and

parse the rhetoric of those who oppose even thoughtfully crafted legislation. Perhaps

most puzzling is the position of EPA. Although the Agency has repeatedly emphasized that it ‘‘never’’ seeks to obtain audit reports, it claims that the failure to allow

it to obtain these reports will create secrecy and impede its ability to enforce the

environmental laws. EPA cannot have it both ways.

And upon analysis, it can be seen that the ‘‘parade of horribles’’ that opponents

of Federal legislation have identified cannot be substantiated, unless one exaggerates both the nature and scope of responsible Federal audit legislation. There would

not be ‘‘blanket immunity.’’ Nor would intentionally ‘‘bad actors’’ receive any protections for criminal violations. Nor will environmental protection suffer. To the contrary, aggressive auditing will uncover previously unknown deficiencies which must

then be quickly corrected. Nor would an audit law result in secrecy. Much of the

underlying information contained in an audit is available elsewhere in the broad

range of information that is required to be collected and disclosed under environmental laws. Information that would otherwise not have been known would be made

routinely available as a result of the disclosure requirements.

Looked at from another perspective, EPA should be asked how legitimate a case

is if the Agency can only pursue it because a regulated entity voluntarily reported

a violation and promptly corrected it. What purpose does enforcement serve in that

situation? Isn’t the public policy issue of compliance better served by encouraging

self-assessment and timely correction than by gratuitous enforcement? And, more

importantly, isn’t the environment better served by encouraging early detection of

problems and immediate correction?

In a resounding recognition of the many benefits, 23 States have enacted legislation offering qualified protections for audit reports and/or voluntary disclosures, or

both. Oregon enacted the first such statute in 1993. Rhode Island enacted its law

in 1997.

While EPA has also repeatedly recognized the benefits of and need to remove obstacles to auditing and voluntary disclosure, it has to date not been willing to support the legislative actions at the Federal or State level necessary to do so. In fact,

the Agency has vigorously opposed Federal legislation and brought extreme pressure

to bear on those States that have adopted or considered it—by threatening withdrawal of delegated programs, as well as by extraordinary scrutiny of regulated entities that have utilized State laws. This EPA conduct is especially troubling because it so directly impedes the ability of these State laws to achieve their goals

and because EPA has not pointed to an actual case where the legislation inhibited

State enforcement in any fashion.

EPA did issue a Policy in December 1995, entitled ‘‘Incentives for Self-Policing;

Discovery, Disclosure, Correction and Prevention of Violation’’ (‘‘Policy’’). EPA should

be commended for this very positive step. The Policy, however, is only a long overdue penalty mitigation policy for voluntary disclosures. It does not eliminate the

various disincentives and obstacles to auditing and voluntary disclosure that we previously discussed. Indeed, even if the Policy were perfect, EPA simply does not have

the authority to eliminate the key obstacles and disincentives to auditing. Rather,

only Congress has that power, and, thus, there is a need for Federal legislation.
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1 Although Congress has not yet protected environmental audits in legislation, it considered

such protection in the context of the Clean Air Amendments of 1990. The Statement of Managers contained the following language:

Voluntarily initiated environmental audits should be encouraged and, in the course of exercising prosecutorial discretion under the criminal provisions of subsection 113(c), the Administrator

and the Attorney General of the United States should, as a general matter, refrain from using

information obtained by a person in the course of a voluntarily initiated environmental audit

against such person to prove the knowledge element of a violation of this Act if—(1) such person

immediately transmitted or caused the transmission of such information to the Administrator

or the State air pollution control authorities, as appropriate; (2) such person corrected or caused

to be corrected such violation as quickly as possible; and (3) in the case of a violation that presented an imminent and substantial endangerment to public health or welfare or the environment, such person immediately eliminated or caused the elimination of such endangerment to

assure prompt protection of public health or welfare or the environment. 136 Cong. Rec. S16951

(Oct. 27, 1990).

I. AUDITING IS CRITICAL TO THE ACHIEVEMENT OF THE NEXT LEVEL

OF ENVIRONMENTAL PROTECTION

In recent years the use of environmental audits has grown both in terms of comprehensiveness and sophistication. Although there are many different types of ‘‘environmental audits,’’ EPA has defined environmental auditing as the systematic, documented, periodic and objective reviews by regulated entities of facility operations

and practices related to meeting environmental requirements.

Both EPA and the regulated community have long recognized that environmental

auditing leads to significantly higher levels of overall compliance, improved environmental performance and reduced risk to human health and the environment.1 Auditing can also be used to review a company’s environmental management structure

and resources. By way of example, audits often are used to: • Assess and reduce environmental health and safety risks, both as required by

regulation and on a voluntary basis that goes beyond compliance. • Anticipate upcoming regulatory requirements (which enables facilities to manage pollution control in a proactive manner). • Prioritize pollution prevention activities. • Help management understand new regulatory requirements and establish corporate policies. • Assess internal management and control systems. • Measure progress toward compliance. • Improve expeditious communication regarding environmental developments to

facility personnel and, where appropriate, ensure effective communication with government agencies and the public. • Assure that capable and properly trained personnel are available at all times

to perform emergency and other environmental functions. • Evaluate causes for environmental incidents and determine procedures to avoid recurrence. • Assure sufficient budgeting for environmental concerns. • Provide a means for employee training and performance evaluation. • Maximize resources through recycling, waste minimization, and other pollution

prevention measures, including process changes, that may benefit the environment. • Fulfill various other obligations, such as providing appropriate disclosure to

other agencies (e.g., the SEC), and evaluating the environmental aspects of corporate or real property transactions.

Industry and other members of the regulated community have been extremely

progressive with respect to auditing and the establishment of environmental programs. Many commentators have predicted that the next generation of environmental compliance will rely on regulatory self-evaluation systems—day-to-day management systems that include audits—which will lead to enhanced compliance and

improved environmental performance. We believe that voluntary Environmental

Management Systems (EMS) are important for all entities because they establish

a systematic mechanism to analyze environmental impacts of operations, set goals

for improvement, monitor activities and make adjustments for continued improvement. EMS also provide for integration of environmental concerns into the daily

business operations.

Environmental audits themselves are becoming more sophisticated. Audits have

also been increasingly affected by the needs of multinational corporations and the

desire for consistency among the environmental standards of different countries. Auditing techniques are constantly improving as well and are increasingly being included as part of value-added business programs. Companies are also utilizing ‘‘environmental life-cycle audits’’ to determine the totality of impact that products and

services may have on the environment.
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II. THE TENSION BETWEEN AUDITING AND FEDERAL ENFORCEMENT IS GROWING

In recent years, we have witnessed an unfortunate and unintended, but very real,

tension between enhanced auditing and other innovative environmental management programs and the significantly enhanced potential liability for regulated entities and individuals under our environmental laws. Today, the vast majority of regulated entities are managing themselves in an environmentally responsible manner,

with only a handful operating ‘‘outside the system.’’ Yet, given the unparalleled complexity and lack of clarity of the unique multi-statute environmental scheme and the

myriad applicable regulations, 100-percent compliance is extremely difficult, if not

impossible. The complexity, lack of clarity and vastness of the regulatory scheme

cries out for aggressive auditing and the resulting candid discussions and self-critical analysis within a regulated entity by the very individuals responsible for environmental compliance. However, the very real potential that such auditing can lead

to enhanced liability in specific situations has limited its use.

The primary concern with conducting an audit is the enhanced liability threat.

Federal and State enforcement officials, citizens’ groups, and third-party litigants

(including plaintiffs in toxic tort actions) may seek, in the course of litigation, to discover environmental audits as a means of finding a road map for every environmental concern the company may have had and may then misuse the information

to create claims against the company. Even this threat has a substantial chilling

effect. It has led to a reluctance to aggressively audit by many members of the regulated community—particularly small businesses. For others, we have seen extreme

caution in the scope of audits that are undertaken, frequent use of attorney-client

privilege to protect audits, the writing of non-specific reports and a variety of other

practices that greatly reduce the value of audits to a company and, more importantly, the benefit to the environment.

I have seen companies using caution repeatedly in my practice, and it has been

consistently underscored by the many representatives of the regulated community

who spoke to EPA during the Audit Policy dialogue. It was also confirmed by PriceWaterhouse in a survey—‘‘The Voluntary Environmental Audit Survey of U.S. Business,’’ 28 (March 1995). According to Price Waterhouse, 75 percent of the corporate

respondents had some sort of environmental auditing program. Yet, the survey also

indicated that ‘‘there is still a perceived reluctance to expand audit programs, in the

face of possible enforcement.’’ Price Waterhouse noted that ‘‘when these companies

were asked what factors detract from their willingness to expand their environmental auditing program, more than 45 percent of the respondents stated that

information could be used against them in citizen’s suits, toxic tort litigation, civil

enforcement actions or as a road map to establish knowledge in a criminal enforcement action.’’ In addition, nearly two-thirds of the companies that perform environmental audits stated that they would expand their programs if penalties were eliminated for problems that the companies themselves identified, reported, and

corrected.

The Price Waterhouse survey also indicated that 81 percent of the companies that

audit try to protect their audits from disclosure pursuant to some sort of privilege,

usually the attorney-client privilege. This necessarily increases the cost and complexity of audits, making them less useful, and often undermining what could have

been a truly constructive effort. It also means that the specific information obtained

by auditing, as well as the attendant learning, is not making their way through the

company, especially to the facility personnel who have the greatest need for the information, because widespread dissemination is not consistent with the attorneyclient privilege.

III. THE STATES SHOULD BE COMMENDED, NOT CRITICIZED, FOR TAKING THE INITIATIVE

Following careful review of the significant environmental benefits to be gained

from auditing and voluntary disclosure, and with an understanding of the disincentives and obstacles, various States moved to enact legislation protective of audit reports or disclosures, or both. Oregon enacted the first audit protection statute in

1993. Since then, 22 other States have enacted legislation, including Alaska, Arkansas, Colorado, Idaho, Illinois, Indiana, Kansas, Kentucky, Michigan, Minnesota, Mississippi, Montana, Nevada, New Hampshire, Ohio, Rhode Island, South Carolina,

South Dakota, Texas, Utah, Virginia, and Wyoming. Even in the face of EPA pressure, other State legislatures are or are expected soon to be considering similar legislation. As you have heard from other witnesses today, to the extent EPA has allowed them to function, these laws have had a strong and positive impact. But these

State laws obviously do not reduce the need for action at the Federal level, as only

Federal legislation can:

• provide a qualified privilege under Federal law;
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2We note that other Federal agencies and departments have voluntary disclosure and amnesty programs. For instance, the FAA’s voluntary disclosure policy was instituted in 1990 after

the agency realized that ‘‘air carriers and [others] could do more to monitor their own regulatory

compliance.’’ In implementing the policy, FAA officials emphasized that ‘‘because the air carriers

have far greater resources than the FAA and because the issue of air safety is of paramount

importance * * * they should have in place a procedure whereby internal compliance audits are

performed.’’ The policy was designed to provide incentives for deficiencies to be identified and

corrected by the companies themselves, rather than risk air safety by awaiting the results of

an FAA inspection. FAA officials also emphasized that:

the enforcement program is not an end, but is rather a means to achieve compliance with the

Federal Aviation Regulations * * * the FAA believes that aviation safety is best served by incentives * * * to identify and correct their own instances of noncompliance and invest more resources in efforts to preclude recurrence, rather than paying penalties.

Federal Aviation Administration, Compliance and Enforcement Bulletin No. 90–6, March 29,

1990. In addition, the U.S. Occupational Safety and Health Administration (‘‘OSHA’’) first announced its Voluntary Protection Programs (‘‘VPP’’) in 1982. This program allowed businesses

with exemplary worker protection programs to enjoy a special regulatory relationship with the

agency. The most advanced of the VPPs, the Star Program is available to companies that meet

certain criteria, which establish management systems for preventing or controlling hazards, and

which have a demonstrated history of compliance. In exchange for the company assuming primary responsibility for compliance monitoring at its facility, OSHA agrees to remove it from

OSHA enforcement inspection lists and offer priority in variance requests and technical compliance assistance.

• provide limited protections under Federal law for environmental violations disclosed to EPA and expeditiously corrected; and

• prevent voluntarily disclosed information from being used as a road map for litigation against the disclosing entity in governmental enforcement actions, citizen

suits, or toxic tort litigation.

NAM and CEEC have been and remain extremely concerned about EPA’s continued critical and threatening position with respect to Federal enforcement and the

delegation of Federal programs in those States whose legislatures have made the

decision to foster environmental protection and improve compliance by enacting legislation that provides qualified protection for audits and/or voluntary disclosures.

NAM and CEEC do not believe that EPA should be overriding State laws in this

fashion, nor should EPA be compelling States into revoking or severely changing

their audit laws (or intimidating regulated entities that chose to utilize these laws).

Congress intended that the States take the lead and be responsible for implementing most of our environmental laws, and in doing so simply wanted to ensure that

the States had adequate authority to take enforcement actions which they believed

were appropriate. Congress did not—as EPA suggests—restrict the States by requiring them to impose a penalty every time a violation occurs. Nor did Congress intend

for EPA to use its program approval authority to coerce State legislatures if they

deviated at all from EPA’s preferred approach.

Stated another way, the States are capable of enforcing environmental laws and

applying legal accountability and compliance assurance in their policies and actions.

The States have demonstrated their commitment to environmental compliance and

enforcement and their innovative legislative programs must be allowed to go

forward.

IV. EPA’S POLICY IS A STEP IN THE RIGHT DIRECTION, BUT IS NOT SUFFICIENT

‘‘The Policy is not final agency action, but is intended solely as guidance. It is not

intended, nor can it be relied upon, to create any rights enforceable by any party.’’

Office of Enforcement and Compliance Assurance.

Over the past several years, CEEC has worked closely with senior personnel from

the Office of Enforcement and Compliance Assurance (OECA) on a number of key

enforcement policy issues. We have appreciated the openness of senior officials in

OECA, and especially Assistant Administrator Steve Herman, and the dialogue that

we have developed on enforcement policies and issues. CEEC and NAM also recognize and appreciate the willingness of EPA to consider new and creative approaches

to environmental compliance and enforcement, through its Policy,2 as well by other

activities such as OECA’s ongoing evaluation of its performance measures.

At the same time, NAM and CEEC have believed for several years that Federal

audit protection and voluntary disclosure legislation is necessary because EPA’s Policy cannot, by definition and as a result of limitations on the Agency’s authority,

eliminate all of the obstacles to self-policing. For example, EPA’s policy cannot impact prosecutions by the Department of Justice or other Federal agencies, citizen
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suits, toxic tort actions or State prosecutions. Stated another way, the EPA Policy

is not a substitute for Federal legislation.

During the dialogue on the Policy, many in the regulated community discussed

with EPA why the failure to have in place adequate and certain protections for audit

reports and voluntary disclosures created obstacles to environmental auditing and

had a strong chilling effect which severely reduced the utility of audits that are undertaken. They emphasized that a responsible regulated entity that audits should

not be in a position of greater liability than an entity that does not audit. Nor

should its management or environmental personnel be put at greater risk.

In issuing the Policy (60 Fed. Reg. 66706, December 22, 1995), EPA reiterated

that voluntary auditing and disclosure (i.e., self-policing) by the regulated community were—especially with EPA’s limited resources—critical to achieving environmental protection goals. Although it is still in need of revision, we commend EPA

for improving and clarifying the availability of penalty mitigation for responsible entities. Yet, the penalty mitigation of the Policy falls short of the environmental protections EPA could have achieved through the adoption of a broader policy. For

example: • A regulated entity that uncovers through auditing and promptly discloses and

corrects a violation and satisfies all of the criteria set forth in the policy still faces

potentially severe penalties. • The Policy does not apply to individuals, who are left entirely unprotected and

as a result will not be encouraged to aggressively identify environmental issues.

• The Policy provides EPA with substantial discretion as to whether the various

applicable prerequisites are satisfied, thereby failing to provide the certainty necessary to promote candid, self-critical analyses.

• The Policy does not protect information provided to EPA from disclosure to

other government agencies or third-parties, nor does it adopt an alternative approach that would allow such a disclosure but provide limited protection to those

who disclose.

The limited nature of the Policy, coupled with its exclusive focus on penalty mitigation, only underscores the need for comprehensive Federal and State legislation

if we are to achieve the environmental benefits that EPA seeks.

V. WHY FEDERAL LEGISLATION IS IMPORTANT

As discussed above, an EPA policy is not an adequate substitute for Federal legislation. Similarly, the protections offered by the States that have adopted audit laws

are not enough. Moreover, in light of EPA’s ongoing campaign against these laws,

there is an increasing need for Federal legislation to clarify the rights and roles of

States in developing audit laws without EPA’s undue interference, in addition to establishing a Federal law that goes beyond the necessarily limited protections State

laws offer.

We are not suggesting that Federal legislation should take away the States’ rights

to develop their own programs. However, Congress needs to build on the States’ programs—as it has in so many other areas where the States are the initial proving

grounds—to further Federal policy. Thus, Federal legislation should ensure that

State programs are allowed to develop.

It should also be noted that the elements of the legislation we support are neither

novel nor without precedent. For example, as part of the budget package passed last

year, Congress amended the Equal Credit Opportunity Act (ECOA) and the Fair

Housing Act (FHA) to provide for a privilege for information developed in audits

conducted to determine compliance with the ECOA and FHA. See 15 U.S.C. § 1691c

and 42 U.S.C. 3614 note. The Federal law governing skilled nursing facilities clearly

prohibits a State or the Federal Government from requiring disclosure of the records

of a quality assessment, which every nursing home receiving Medicare or Medicare

funds is required to establish. See 42 U.S.C. § 1396r(b)(1)(B). In addition, protections

have long been provided for certain disclosures pursuant to the Comprehensive

Emergency Response, Compensation and Liability Act (42 U.S.C. § 104(e)(7)(E)) and

the Clean Water Act (33 U.S.C. § 1318(b)).

VI. RESPONDING TO CRITICS OF FEDERAL LEGISLATION

NAM and CEEC recognize that Federal legislation needs to be carefully crafted,

and that it should include safeguards to preclude abuse of its limited protections.

Critics of Federal legislation have consistently made a series of generalized charges

to support their concerns about the legislation. These charges—while perhaps creating attractive sound bites—are unsupported, and take aim at hypothesized dangers

and imaginary legislation that does not provide the safeguards that responsible

members of the regulated community so strongly support. These charges include:
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1. Federal legislation would amount to ‘‘blanket immunity.’’

Proposed Federal legislation has not provided for ‘‘blanket’’ immunity. But it has

proposed to provide environmentally responsible entities with a qualified protection

if the entity establishes that the violation was promptly corrected and disclosed to

the appropriate governmental agency, and the entity provided all further relevant

information requested by the agency. In addition there is no qualified immunity for

repeated violations.

2. The legislation would protect ‘‘bad actors’’ and promotes ‘‘secrecy.’’

‘‘Bad actors’’ who intentionally violate environmental laws do not typically take

the time to conduct voluntary self-audits, much less undertake the costly steps required to comply with environmental requirements in a timely fashion. In any

event, it was never the intention of any Federal legislation to protect willful and

intentional violators, and the pending bills do not do that. Nor will that legislation

in any way restrict EPA’ s (or the public’s) ability to obtain the broad array of documents, data and other information that is currently available. To the contrary, following enactment of self-disclosure legislation, EPA and the public will have more

information, as much of the information identified by an environmental audit may

be disclosed pursuant to one or more of the many disclosure requirements that are

at the heart of our environmental regulatory system. A list of many of those reporting requirements is attached to this statement.

3. Environmental protection will suffer as a result of the legislation.

No basis for this assertion has been seriously suggested, and once again the opposite is true. The limited protections offered by the legislation do not affect the government’s ability to issue an order or obtain any injunctive relief necessary to protect public health or the environment. Moreover, effective environmental auditing

typically is more probing and thorough than a regulatory compliance inspection, and

therefore is more likely to uncover deficiencies or instances of environmental noncompliance than a government inspection. In order to benefit from the voluntary

disclosure component of proposed Federal legislation, an entity must act quickly to

correct any non-compliance. For this reason too, increased environmental auditing

will result in increased compliance with environmental requirements, and ultimately improved environmental protection.

In addition, we believe that environmental protection will be enhanced as the regulators will be provided with more extensive information about regulatory compliance. As regulators are presented with this increased information about how the

regulations do and do not work in the real world, they will be able to improve upon

existing regulations.

4. The legislation will not impact the behavior of regulated entities.

We do not believe that this is correct. Audit protection/voluntary disclosure legislation will remove obstacles to the voluntary self-auditing process in several ways.

First, entities and individuals that already perform voluntary environmental audits

will be able to do so more candidly and thoroughly and thereby auditing will be

more useful. Second, more entities and individuals will be encouraged to perform

voluntary environmental audits, and to do so aggressively. Third, more companies

and individuals will go beyond compliance, undertaking evaluations that are not

required.

5. The legislation protects factual information about environmental violations from

regulators.

This argument ignores the very narrow scope and qualified nature of the protections. Protection is not extended to any of the information that is required to be collected under environmental laws. Stated another way, the qualified privilege does

not cover routine sampling or monitoring data or information obtained from an independent source. Nor does it restrict the government’s ability to use its broad authority to investigate and obtain information related to the underlying facts.

Moreover, as noted previously, such qualified protection will encourage and increase the free flow of information, enhancing the information available to the government and the public. Absent protection for audit reports and related disclosures,

information will not be internally communicated as openly, nor will it all be available for release. Indeed, neither regulated entities nor individuals will not have the

incentive to aggressively seek to uncover additional information in the first place,

much less disclose it.
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6. Federal legislation would impede the government’s ability to bring environmental

enforcement actions.

Because enforcement officials will continue to have access to all of the information

that regulated entities are required to maintain and disclose and because EPA retains its full inspection and information gathering authorities, qualified audit protection will not have any effect on the ability of EPA or any regulatory agency to

establish nonconformance with a regulatory requirement. Enforcement officials will

continue to be able to inspect, sample and monitor an entity’s compliance under existing environmental laws, and entities will still be required to comply with all existing recordkeeping and reporting requirements.

CONCLUSION

Removing the obstacles and providing the proper types of incentives and protections for voluntarily conducted environmental audits and related disclosures will

only serve environmental goals. Administrator Browner to her credit often cites the

need to use a ‘‘Common Sense’’ approach to development of effective environmental

policy. Providing incentives and qualified protections for those in the regulated community that are good citizens and are doing the ‘‘right thing’’ by trying to find, report and fix any actual or potential environmental problem is ‘‘Common Sense.’’ Mr.

Chairman, NAM and CEEC look forward to working with Congress in a bipartisan

fashion so Federal audit legislation that is good for the environment can be enacted.

EXAMPLES OF REPORTING OBLIGATIONS TO FEDERAL AND STATE REGULATORY AGENCIES

Clean Water Act

Permit Applications

Spill Plans

Discharge Monitoring Reports

Excursion and Release Reports

Resource Conservation and Recovery Act (and State Analogs)

Permits (Part A & B)

Manifests

Quarterly, Annual and Biennial Reports

Exception Reports

Closure Plans

Emergency & Spill Plans

Underground Storage Tank Registration Release Reports

Clean Air Act

Permits

Release Reports

Monitoring Reports

Excursion Reports

Annual Compliance Certification

SIP-Specific Reporting

NSPS Reports

Emergency Planning and Community Right To Know

LEPC/SERC

Material Safety Data Sheet

Emergency and Hazardous Chemical Inventory Forms

Annual Toxic Chemical Release Forms

Release Reports

Superfund Site Plans

Facility Reports

Toxic Substances Control Act

Registration and Notices for Manufacturing, Processing and Importation of Chemical Substances

Submission of Test Data and Health and Safety Studies

Chemical Information Reporting Requirements

Reporting of Information Relating to Chemicals Posing Substantial Risks

Safe Drinking Water Act

Certification Reports

Under Ground Injection Permits

Under Ground Injection Reports
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Federal Insecticide, Fungicide, & Rodenticide Act

Registration Reports

Compliance Reports

Occupational Health and Safety Act

OSHA 200 Logs

MSDS

Incident Reports

Securities Requirements

10K Environmental Disclosures

10Q Environmental Disclosures

State-Specific Reporting Requirements (Examples)

Massachusetts Toxic Use Reduction Act Reporting

New Jersey Industrial Site Recovery Act Reporting

California Proposition 65 Reporting

CORPORATE ENVIRONMENTAL ENFORCEMENT COUNCIL, INC.

CORPORATE ENVIRONMENTAL ENFORCEMENT COUNCIL PLATFORM FOR EFFECTIVE

ENVIRONMENTAL COMPLIANCE AND ENFORCEMENT

The Corporate Environmental Enforcement Council (‘‘CEEC’’) is an organization

of diverse major companies with facilities throughout the United States and across

the globe. Member companies share a strong commitment to the environment. They

are supportive of aggressively set environmental goals consonant with a modern

economy. Our members also support proactive, contemporary environmental stewardship dedicated to effective environmental protection and prudent use of resources. We believe such stewardship encompasses a number of elements beyond the

traditional compliance/enforcement approach, including compliance education, promotion of voluntary actions beyond compliance, and a recognition of the importance

of the competitive market place for driving environmental stewardship.

At the same time, CEEC recognizes the need for a strong environmental compliance program and a strong enforcement program that identifies and penalizes significant violators who have not availed themselves of compliance options, as well as

those who willfully and intentionally violate our environmental laws. Unfortunately,

in many respects, the current compliance and enforcement programs are neither

properly balanced nor focused.

When the environmental laws were first being implemented in the 1970’s, not everyone moved quickly to adopt their operations and practices to the new environmental requirements, even those for which compliance was not difficult. At that

juncture, well-publicized enforcement was often beneficial, sending the message to

the regulated community that compliance with the new environmental legal structure was mandatory.

Now, however, the vast majority of the regulated community has demonstrated

its strong commitment to operating within the regulatory structure. Compliance is

the rule, not the exception. The tremendous improvement in the attitude of the regulated community with respect to environmental protection and compliance practices has been widely recognized.

EPA’s and DOJ’s approach to environmental compliance and enforcement needs

to more fully evolve to keep up with these changes. As we have found better ways

to achieve our environmental goals, CEEC believes that a new construct for environmental compliance and enforcement is long overdue—one that reflects the current

compliance realities; that ensures that sufficient and proper resources are devoted

to environmental compliance; and, that, while a strong enforcement presence is

maintained, enforcement actions are properly directed. We also believe that innovative solutions should be recognized and rewarded and that science, technology and

collective goal-setting should be the tools used to improve environmental performance. To that end, CEEC has adopted the following set of principles for an effective

environmental compliance and enforcement program:

CEEC PRINCIPLES

• The States should be the primary focus for implementation and enforcement of

environmental programs.

• While maintaining a strong and focused enforcement program, Agency efforts

and resources should primarily be devoted to compliance.
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• Environmental compliance and enforcement efforts must be directed at achieving desired environmental goals. • Environmental enforcement should be prioritized at all levels based on the seriousness and the nature of the violation. • Prosecution of environmental criminal violations should be based on intentional

violations of clearly enunciated standards that are interpreted and applied in a consistent manner. • Self-assessment, as well as a qualified immunity where appropriate for voluntary disclosures, should be encouraged as the most effective way of achieving our

environmental goals. • The States should be the primary focus for implementation and enforcement of

environmental programs.

As an initial matter, CEEC believes it is time for an immediate and substantive

change in the roles of the various government regulatory agencies.

EPA’s Role: EPA should focus on the implementation of environmental statutes,

in particular on the achievement of environmental goals, and not on the specific

method to achieve the goals. With regard to compliance, EPA’s policies should focus

on the actual performance result that is wanted and the environmental performance

metrics that will be used to judge the success of compliance with those goals. EPA

should then coordinate and ensure that its policies are uniformly understood by the

States, thereby providing a national baseline as to what environmental result is desired. Enforcement should become principally a State function, with EPA maintaining a strong presence and the ability to step in if a particular State has demonstrably failed to enforce the environmental laws. EPA should not reflexively consider

a drop in enforcement cases as a sign of failure or a signal that there is something

wrong with a State program. Rather, EPA needs to acknowledge that an increase

in compliance rates is compatible and should necessarily result in a downward turn

in enforcement.

The Role of the Regions: As EPA’s relationship with the States changes, the role

of the EPA regional offices would also need to be reexamined. In particular, we believe that the regional offices are best suited to providing compliance and technical

assistance. In essence, the offices should act as technical consultants to States on

how to best achieve environmental performance results. Any regional policymaking

role should be returned to EPA Headquarters. All unused resources in the Regions

should be transferred to the States to bolster the manpower of the agencies who are

actually implementing and operating the environmental programs. Finally, the Regions should assist EPA Headquarters in policing overall State efforts.

The States’ Role: The States would then have the primary responsibility for the

implementation of the operating programs and the resulting enforcement programs.

The States would have to commit not only to implementing the programs, but also

to actual environmental results, which results would be consistent across the country. In this way, CEEC believes that States would be the better arbiters and implementers of how to achieve the national environmental goals.

DOJ’s Role: Finally, DOJ’s role, too, needs to be reevaluated. The application and

implementation of all of CEEC’s Principles for Effective Environmental Compliance

and Enforcement apply to both EPA and DOJ, in their respective roles. However,

with regard to DOJ’s role in particular, CEEC believes that DOJ’s resources need

to be redirected to working with EPA to pursue those regulated entities clearly operating outside the system. In addition, DOJ’s focus with respect to environmental

crimes should be on those criminal cases that reflect intentional and willful conduct.

While maintaining a strong and focused enforcement program, Agency efforts and resources should primarily be devoted to compliance

Environmental laws and regulations continue to expand in number and complexity at a rate which exceeds most other regulatory areas. Agency interpretations of

these rules are often difficult to ascertain and may vary over the years and throughout EPA’s regions. Moreover, implementation of environmental laws through thousands of pages of regulations and variable ‘‘guidance,’’ interpretations, and ‘‘policy

statements’’ makes 100-percent compliance impossible all of the time. EPA needs to

recognize this and work with the regulated community to help achieve the highest

possible level of compliance and better protection of the environment.

In a mature regulatory program, continually increasing enforcement suggests that

there is something wrong with the system. Enforcement should be a tool that is employed only when a regulated entity is not working to come into compliance. EPA

and the regulated community should be proud of the increased compliance rates and

take credit for their respective roles in achieving them. However, EPA needs to

work on increasing compliance and technical assistance to all regulated entities, not

just small businesses. By way of example, CEEC believes that an expansion of the
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Small Business Assistance Policy that was put into place in 1996 would maximize

environmental benefits for all.

Environmental compliance and enforcement efforts must be directed at achieving the

desired environmental goals

As an initial matter, CEEC believes that environmental protection must be the

overriding goal of all environmental regulation and environmental programs. Likewise, the compliance expectations of agencies should be tailored to the achievement

of that goal and to allow the necessary flexibility to achieve it. Thus, CEEC believes

that ultimately environmental regulations should be recast to focus on the goal of

environmental protection, instead of the current focus on the process or method to

achieve that goal. However, until that time, we must work incrementally to change

the enforcement policies and procedures that have evolved as a result of an overemphasis on enforcement.

One method of refocusing EPA’s current compliance and enforcement program

would be to adjust the goals and measures of the program to assure that EPA does

not reward the pursuit of enforcement for enforcement’s sake, but instead encourages systematic and creative compliance with environmental laws in ways that

achieve the greatest environmental benefit. Individual noncompliance problems are

less important to society than achieving the goals of lessened pollution, lessened exposures and lessened ecological impacts. Thus, the success of a compliance program

should be measured incrementally by the number of noncompliance problems that

an organization detects, corrects and reports to a government agency. Alternatively,

a measurement of the success of a compliance program could focus on the numbers

of training and outreach person-hours, the extent of private self-auditing, and the

measurable ambient environmental improvements, such as stream water oxygen

levels.

Companies also routinely provide incentives and measure employee activity for

the completion of the more difficult environmental compliance tasks. Likewise,

CEEC believes EPA should measure its success by the ways in which it encourages

its employees to properly value and take credit for compliance-oriented activities, to

pursue the truly difficult or serious enforcement cases, and not simply to go after

the easy inadvertent violations.

Environmental enforcement should be prioritized at all levels based on the seriousness and nature of the violation

CEEC members support an effective environmental enforcement program aimed

at identifying and punishing those who lack the commitment to comply, as well as

those who willfully and intentionally violate environmental laws. At the same time,

CEEC believes an enforcement-first mind-set is counterproductive. EPA and DOJ

enforcement must recognize a distinction between the truly serious and non-serious

violation in terms of whether an enforcement action should be pursued at all.

Enforcement, whether civil or criminal, should be seen as a last resort to be used

when regulated entities do not make good faith efforts and fail to manage and control environmental issues. EPA’s enforcement goal should be to take no enforcement

actions for minor ‘‘outages’’ or ‘‘mistakes,’’ in light of outstanding corporate performance. Playing ‘‘gotcha’’ by finding technical violations at a facility is not productive;

enforcement should focus on violations that actually harm the environment.

EPA and DOJ need to make clear distinctions in terms of the seriousness of the

compliance lapse and its impact on ambient environmental conditions. This is especially true in the multimedia enforcement context, where a handful of minor violations can be packaged into a major enforcement action. EPA should explain the

process by which decisions are made to take enforcement actions, and ensure that

the criteria are consistent with overall environmental goals. While a company’s responsible actions may be taken into account in the penalty phase (or in the sentencing context in a criminal case), the drive for enforcement for enforcement’s sake

often effectively precludes consideration of those factors as part of the decision to

pursue a case.

At a minimum, EPA’s screening methodology should ensure that enforcement is

not the first resort in gray areas: such as where a regulation is ambiguous, or a

member of the regulated community did not have fair notice of the interpretation

that EPA is seeking to enforce. Unfortunately, punitive enforcement measures have

been taken where the regulations are unclear or where an unpublished agency interpretation is inconsistent with the meaning of the regulation. These kinds of enforcement actions have diverted significant compliance and production resources and

negatively impacted our ability to achieve statutory environmental goals.
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Prosecution of environmental criminal violations should be based on clearly enunciated standards that are interpreted and applied in a consistent manner

Despite the ever-improving performance of the regulated community, there has

been an increasing overcriminalization of environmental statutes, as civil cases have

been elevated to criminal ones and misdemeanor cases to felonies. Discovery and

prosecution of criminal activities is in general a laudable goal; however, CEEC believes the severity of the actions being punished should be commensurate with the

punishment itself. Thus, there should be a clear distinction between a civil and a

criminal environmental violation. Criminal enforcement should only be used in egregious cases where there is a knowing or willful intent to violate, such as midnight

dumping, intentional or long-term noncompliance with a permit or standard, or falsification of records.

CEEC believes that there must be a bright-line standard concerning the actions

or mental state that transforms a civil regulatory violation into an object of criminal

investigation and prosecution—that is, the use of a specific intent standard. If specific intent is not a required element of a crime, well-intentioned but misguided or

uninformed persons can be subject to felony sanctions. Application of the specific intent standard for the initiation of a criminal environmental case would not diminish

the effectiveness of the government’s enforcement efforts. Criminal penalties would

be reserved for those recalcitrant individuals and organizations who flout their environmental obligations, while EPA’s broad civil enforcement powers would be applied

to those individuals and organizations who made other than acceptable good-faith

efforts to comply.

Additionally, the severity of the penalty for an environmental crime should be

closely related to the culpability of the violator, and mitigating factors (especially

compliance programs) should result in meaningful penalty reduction. CEEC believes

that the penalty setting mechanism of the Federal Sentencing Guidelines, Chapter

8—‘‘Sentencing of Organizations’’ should be expanded to include environmental

crimes, should recognize and accommodate the wide variability of environmental

crimes, and should take into account that small businesses have fewer compliance

resources. Finally, the sentencing guidelines should reflect the strong societal interest in encouraging regulated entities to protect the environment—and encourage,

not punish, self-policing and self-correction of environmental deficiencies.

Self-assessment, as well as a qualified immunity where appropriate for voluntary

disclosures, should be encouraged as the most effective way of achieving our environmental goals

CEEC believes that most of the regulated community is committed to environmental compliance. One way the regulated community has already demonstrated its

commitment is through self-auditing and detection and correction of mistakes early

on. CEEC believes that self-auditing must be encouraged and obstacles removed, so

that entities are able to ensure that they are complying to the fullest extent without

enhancing their potential liability.

Moreover, CEEC believes that corporate environmental programs could be even

more successful absent the unintended chilling effects of the current enforcement

program. Instead of being commended for voluntarily collecting more data and attempting to put it to good use, many regulated entities have watched their own

data—which they voluntarily collected and analyzed to identify problems and improve performance—put to use against them in enforcement proceedings. Any enforcement program must be structured so that those entities who move forward with

these innovative activities—and the individuals who implement them—do not expose themselves to more liability than those that take no action.

Thus, CEEC supports a three-pronged approach. First, there is a need for legislative action to encourage self-auditing and self-correcting by providing a qualified immunity that protects the self-auditing volunteer from unfair prosecution or civil

suits based on the results, so long as there are good faith efforts to correct the problems found and the corrected problems are reported promptly. Second, as EPA does

not have the resources to inspect every facility, or pursue endless enforcement actions, CEEC believes EPA should encourage the self-policing efforts by the regulated

community, and count with pride the guidance and technical assistance it provides

that allows members of the regulated community to correct and/or avoid compliance

issues. Third, CEEC believes that the States should be encouraged to experiment

with legislation and/or other flexible methods to provide incentives for self-auditing

and self-correction programs that produce positive compliance efforts among the regulated community.
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PREPARED STATEMENT OF MARK WOODALL, CHAIR, SIERRA CLUB, GEORGIA CHAPTER

I. INTRODUCTION

Mr. Chairman and members of the committee, thank you for allowing me to make

a statement on behalf of the 550,000 members of the Sierra Club. My name is Mark

Woodall and I serve as the volunteer chair of the Georgia Chapter’s Legislative

Committee and as chair of the Sierra Club’s Audit Privilege Task Force. I’m a commercial tree farmer by occupation. I am also co-submitting this testimony on behalf

of the U.S. Public Interest Research Group (U.S. PIRG).

The Sierra Club and U.S. PIRG, as organizations that have brought numerous citizen enforcement actions under our national environmental laws, are committed to

preserving the legal tools ordinary citizens have fought for and need to protect

themselves from harmful pollution practices in their communities. That is why Sierra Club and U.S. PIRG bitterly oppose the creation of any secrecy privileges or

immunity rights for entities undertaking environmental self-audits, at either the

State or Federal level. In particular, we strongly oppose S. 866, as well as any bill

that would restrict the U.S. Environmental Protection Agency’s (U.S. EPA’s) ability

to administer its delegated programs in States with audit privilege and immunity

laws.

II. S. 866 HURTS OUR RIGHT TO KNOW AND UNDERCUTS ENFORCEMENT

The creation of a Federal audit privilege is a radical measure that would create

a vast dumping ground for corporate polluter’s dirty secrets. Allowing polluters to

withhold vitally important information on pollution practices that effect the health

and property rights of their neighbors, and letting environmental law breakers escape accountability for serious, chronic, and even criminal violations is bad policy:

it would undermine the public’s right to know, tie the hands of law enforcement officials, eviscerate the right of citizens to protect themselves, and silence whistle blowers. What is more, Sierra Club and U.S. PIRG are not alone in our opposition to

S. 866; last month 120 environmental, public interest, labor, and business groups,

representing millions of Americans, sent a letter to every U.S. Senator denouncing

S. 866. That letter is attached to my statement as Appendix II.

III. STATE SECRECY AND IMMUNITY LAWS ARE HAVING A NEGATIVE IMPACT, AND A

STRONG EPA OVERSIGHT ROLE MUST BE MAINTAINED

Many of the arguments we offer against Federal pollution secrecy and immunity

proposals apply also to similar proposals enacted at the State level: they hurt our

right to know, undercut enforcement, infringe on citizen enforcement rights, silence

whistle blowers, allow lawbreakers to escape accountability and keep the profits

they have gained from avoiding compliance, and disadvantage regulated entities

that take their environmental responsibilities seriously. For these reasons, citizen

groups in Idaho, Ohio, Colorado, Michigan, and Texas have petitioned the U.S. EPA

to withdraw these States’ authority to enforce Federal environmental laws in light

of the obstacles these audit laws pose to enforcement, right to know, and victim

compensation.

Nonetheless, U.S. EPA has entered into agreements with the States of Texas and

Michigan, and is pursuing similar agreements in Ohio and other States, that have

led to improvements in the respective States’ self-audit laws, but, in the end, have

given EPA’s blessing to the existence of corporate secrecy rights in a State civil proceeding. In our view, the Texas and Michigan deals have the alarming result of allowing those States to continue implementing Federal programs despite serious constraints on the ability of the State and citizens to enforce those programs. Grassroots letters to EPA Administrator Carol Browner and President Bill Clinton outlining concerns with EPA’s policy and recommending additional steps the administration should take are attached as Appendix III.

Although we are not satisfied with EPA’s position regarding these States’ audit

laws, we strongly assert that there, is, nevertheless a critical need to preserve a

Federal oversight role for EPA. The ‘‘safe harbor’’ concept that Senator Enzi is proposing would unduly limit EPA’s authority to oversee its programs and would substantially undo many of the improvements EPA succeeded in obtaining from Michigan and Texas. Most notably, pursuant to agreements with EPA, Texas and Michigan have amended or agreed to amend their laws to ensure that secrecy privileges

or immunity are not available with respect to criminal violations. Under Senator

Enzi’s approach, the standard for environmental criminal liability would be compromised, and reckless environmental violations currently considered criminal

would be potentially subject to audit privilege and immunity protection.
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In addition, the Enzi approach is misguided because it ties EPA’s hands. As these

new laws are played out in the courts, their impact on citizen suit rights and law

enforcement will become more clear. EPA needs the flexibility to revisit its agreements regarding State audit laws into order to ensure the integrity of the programs

it administers.

IV. INDUSTRY WANTS POLLUTION SECRECY AND IMMUNITY RIGHTS IN ORDER TO AVOID

LIABILITY, NOT AS AN INCENTIVE FOR VOLUNTARY COMPLIANCE

As we observe the 25th anniversary of the Clean Water Act, we should consider

the motivation for its passage and the passage of the other landmark environmental

and health laws. These laws were not established because industry was doing a

great job of voluntarily finding and eliminating pollution. These laws passed because the Cuyahoga River burned. The air in Chattanooga was not safe to breathe,

the drinking water of New Orleans was filled with carcinogens and the people of

Love Canal were sickened by toxic waste.

So why is it today that pollution is rarely just dumped untreated into rivers or

unlined pits? After all, it is cheaper in the near term for a corporation or Federal

facility to just dump its effluent and thereby externalize its disposal costs. We maintain, therefore, that it is fear of liability, fear of enforcement (Federal, State or citizen) and fear of adverse publicity that drives corporate behavior in the area of public health and the environment.

Our understanding of the current incentives which tend to keep corporations from

just dumping it in the river is confirmed by the words of industry lawyers. An Arthur Anderson survey of corporate counsel published in the National Law Journal

in 1992 states ‘‘the relatively new threat of jail for corporate executives for environmental violations is an overwhelming concern for general counsel.’’

Likewise, the advent of environmental pollution secrecy and immunity rights represents a sophisticated and superficially appealing new way to evade the threat of

enforcement and avoid liability. Proponents of these new rights claim they provide

necessary incentives to encourage companies to conduct internal audits of their environmental performance. However, as industry lawyer Roger Marzulla stated at a

recent seminar on environmental crime hosted by the publication Corporate Crimes

Reporter, the (real) purpose of self-audit laws is to provide ‘‘an obstruction to prosecution.’’

A. The Waste Management, Inc. Cincinnati Case

Industry’s arguments in favor of corporate pollution secrecy and immunity rights

are all based upon an assumption of corporate good faith. They ignore the vast potential for abuse inherent under rules that encourage concealment of information.

The story of a small, Cincinnati, Ohio community group’s fight to protect themselves

from toxic gas emissions emanating from a nearby landfill operated by the corporate

giant Waste Management, Inc. presents a compelling example of the various ways

a corporation can and will attempt to use and abuse the right to withhold self-audit

information under an audit privilege law. That story, as told by two community

members who have led the fight against Waste Management, is attached as Appendix I.

B. Corporations Have Historically Used Attorney-Client and Work Product Doctrines

To Hide Information and Escape Liability

The concept of the environmental audit privilege, then, emerges from industry

think tanks and corporate law firms, not as an innovative compliance tool, but as

a means of hiding the ball—a tactic that industrial polluters, especially large corporations that can afford extensive litigation, have pursued for years. Corporations

have long attempted, with little success, to use the doctrines of attorney-client privilege and attorney client work product as a means of shielding themselves from accountability for activities harmful to the environment and public health. However,

the courts have placed limitations on concealment via these doctrines, in order to

safeguard the public’s recourse. Now, the trend toward environmental privilege

seems to be designed to open the door to many more environmentally important documents becoming concealable.

The attorney-client privilege relates to communication made by the client (or the

client’s agent) to an attorney, in confidence, for the purpose of obtaining legal advice. The privilege allows the client (either individually, or through his attorney) to

decline a forced disclosure. The work-product doctrine protects against forced disclosure materials prepared specifically in anticipation of litigation. However, in such

a case, the party seeking discovery may gain access if it can demonstrate a substantial need for them and inability to obtain the substantial equivalent elsewhere without undue hardship.
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Corporations have often attempted, especially in recent cases, to stretch these doctrines so as to conceal factual information from those seeking accountability in enforcement cases and other contexts. The environmental audit laws represent an opportunity for corporations to conceal much more information, by characterizing a

great many of the studies they wish to conceal, not as legal advice, but as ‘‘environmental audits.’’ There are numerous examples of corporations attempting to stretch

attorney client doctrines to avoid environmental accountability. A look at just a few

examples demonstrates how much is at stake with environmental audit privilege:

Phelps Dodge Corporation. Phelps Dodge Inc. sold property to the U.S. Postal

Service in Maspeth (Queens), New York, in the mid–1980’s for construction of a

postal distribution building. Phelps Dodge agreed to clean up the former copper refining site, but as the cleanup process continued it became apparent to Phelps

Dodge and its contractors that heavy metal contaminants onsite—(e.g. arsenic, cadmium and lead) were more widespread and it would be much more expensive to

clean up the site than anticipated. In response, Phelps Dodge officials—under the

leadership of the company president—apparently employed a strategy of concealment to attempt to strap the Post Office and the U.S. taxpayers with the costs of

cleanup. One major strategy was to claim attorney-client privilege for extensive

studies conducted by consultants documents revealing information relevant to the

extent of contamination and costs of cleanup. In 1994 the court reviewed these attorney-client privilege claims, document by document, and found that about 80 percent of the documents were ineligible for such treatment. The court issued an explicit ruling, with a six page long list showing the numerous studies, letters and

evaluations that the company inappropriately attempted to keep out of government

hands.

The lengthy list of documents which the company had attempted to cover as ‘‘privileged’’ included many documents which had merely been copied to attorneys, and

others in which attorneys had no real role. U.S. Postal Service v. Phelps Dodge Refining Corp. 852 F Supp. 156 (E.D.N.Y. 1994). The court noted that the data were

‘‘generated through studies and collected through observation of the physical condition of the Property . . . Such underlying factual data can never be protected by

attorney-client privilege and neither can the resulting opinions and recommendations.’’

In contrast, many of the State environmental audit laws allow precisely such onsite observations, resulting opinions and recommendations to be given privileged

treatment at great detriment to public accountability. Had these documents remained out of public view in the Phelps Dodge matter the government may have

been incapacitated from winning the later court decision, in 1997, finding that

Phelps Dodge had breached its contract with the U.S. Postal Service by delaying

and declining its contractual responsibility to excavate all of its contamination.’’ The

court might not have had enough information before it on the scope of contamination to rescind the contract, ordering the corporation to take back the tainted property sold to the Postal Service. U.S. Postal Service v. Phelps Dodge refining Corporations 950 F Supp. 504 (E.D. NY, 1997).

Summitville Mine. Summitville Consolidated Mining Company filed for bankruptcy in 1992, leading to an emergency takeover of cleanup of its cyanide leach

gold mine near Del Norte, Colorado by the U.S. EPA. After the Federal Environmental Protection Agency (EPA) examined the situation, the site became the State’s

best known Superfund cleanup project. According to an article in the Denver Post

on May 15, 1997, some of Summitville’s officers filed a lawsuit in Canada to keep

about 1,800 documents related to the operation of the Mine from a grand jury,

claiming the cover of attorney-client privilege. The documents sought include details

of discussions with regulators and mine consultants, records discussing ‘‘drainage,

flows, discharges, seeps, spills or runoff’’ as well as finances. At stake is liability for

an estimated $120 million cleanup.

Tobacco Cases. Outside of the environmental field, we can see the damage that

‘‘audit privilege’’ could do in the high profile tobacco cases. In those matters, attorneys attempted to bring all potentially damaging internal scientific documents

under attorney work product and attorney-client privilege to avoid discovery. One

witness reported that Brown and Williamson’s assistant general counsel routinely

marked scientific research papers ‘‘attorney work product’’ even when they had not

been created for use in litigation.

Finally, some other examples of demonstrating the history of corporate attempts

to withhold information regarding environmental problems include:

• According to the August 22, 1995, Columbus, Georgia, Ledger-Enquirer, ‘‘The

DuPont Co. was slapped with sanctions totaling almost $115 million on Monday by

U.S. District Judge K. Robert Elliott of Columbus, who ruled the chemical company

systematically lied, cheated and withheld evidence in efforts to protect itself during
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lawsuits over its fungicide Benlate.’’ Unfortunately, Judge Elliott was reversed on

appeal and the growers are still fighting to recover.

• According to the Associated Press on July 15, 1997, ‘‘the man investigating the

Texaco tapes said Monday he found a file—carefully labeled—containing documents

company executives allegedly withheld from lawyers in a race discrimination case

. . . the folder had a yellow note on it labeled ‘documents withheld from legal’.’’

C. Editorial Boards, District Attorneys, and Others Oppose Secrecy and Immunity

Laws As Industry Campaign To Hide Dirty Secrets

Most people who review this corporate campaign for secrecy and immunity see it

for what it really is. Dozens of editorial writers have railed against the concept calling it a ‘Polluter Protection Act’, ‘Polluters Relief Act’, ‘Dirty Secrets’ and the ‘Bhopal Bill’. A few of those editorials are included in Appendix IV.

In a June 7, 1996 letter, to Congressman Condit, the Co-Chairs of the National

District Attorneys Association wrote, ‘‘it is our view that the adoption of a self-audit

privilege is an extreme measure far beyond any remedy necessary. Furthermore,

that if the Congress enacts a self-audit privilege you will be doing a vast disservice

to law enforcement efforts not only in the realm of environmental law, but across

the spectrum of ‘white collar’ crime.’’

The Charleston, West Virginia Gazette observed, ‘‘more than 4,000 people were

killed in Bhopal, India by a leak at the Union Carbide plant in 1984. If such a tragedy ever occurred at a Carbide plant in West Virginia—God forbid—we’re sure the

company would loved to be able to hide information about conditions leading up to

the accident.’’

Stephanie Kessler of the Wyoming outdoor Council said, ‘‘This bill is about big

companies that already do environmental audits to now legally hide the information

they discover from the public . . . They get the privilege even if they don’t do a

thing.’’ Jack McGraw, acting EPA Regional Administrator in Denver, ‘‘The Colorado

bill is the worst of the worst. It has all kinds of abuse.’’

D. Pollution Secrecy and Immunity Laws Are Completely Unnecessary To Accomplish

Their Purported Goals

Finally, having shown that bad actors can and will abuse environmental audit

privileges and immunity rights, it worth noting in conclusion that the legitimate

purported goals of these audit privilege proposals—namely to encourage self-audits

and voluntary compliance while providing some measure of protection for those who

self-disclose violations—are already being accomplished by EPA’s self-audit/self-policing policy with notable success. EPA’s policy, which was the developed through

a lengthy and exhaustive multi-stakeholder process, contains NO secrecy privilege,

NO immunity for criminal violations, and NO automatic immunity for civil violations, but does allow for significant mitigation of civil penalties for self-disclosed violations in appropriate cases. Under the policy, hundreds of companies have disclosed

violations, and EPA has waived penalties in most cases.

V. CONCLUSION

Thus, the conclusion is clear. Pollution secrecy and immunity laws are an unnecessary attack on environmental law enforcement and the public’s right to know

about pollution. Such proposals present numerous opportunities for abuse, and lawbreaking companies have a demonstrated track record of using any and every tool

available to hide information and avoid responsibility. Therefore, Sierra Club and

U.S. PIRG strongly urge members of the Senate to oppose S. 866 and any proposal

that would limit EPA’s oversight authority with regard to State pollution secrecy

laws.

Thank you for the opportunity to testify today.
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PREPARED STATEMENT OF ROBERT C. BUNDY, U.S. ATTORNEY, DISTRICT OF ALASKA,

AND LOIS J. SCHIFFER, ASSISTANT ATTORNEY GENERAL, ENVIRONMENT AND NATURAL RESOURCES DIVISION, U.S. DEPARTMENT OF JUSTICE

I. INTRODUCTION

We are submitting the views of the Department of Justice on audit and self-disclosure policy issues because of the great importance of these issues to effective law

enforcement. Our statement briefly outlines the Department’s concerns. Although

the Department of Justice was not invited to testify at this hearing, we would welcome the opportunity to address these issues in greater depth.

Many prosecutors at the local, State and Federal levels—including United States

Attorneys across the Nation—have grave concerns that laws creating an evidentiary

privilege for environmental audits, and bestowing immunity on violators who ‘‘voluntarily’’ disclose their violations, seriously threaten our ability to protect the public

through the enforcement of the environmental laws. While the Department of Justice fully supports the use of self-auditing as a means to ensure compliance with

environmental laws, we strongly oppose audit privilege and disclosure immunity legislation such as S. 866.

II. AUDIT PRIVILEGE AND DISCLOSURE IMMUNITY LAWS ARE NOT NEEDED TO

ENCOURAGE ENVIRONMENTAL AUDITING AND COMPLIANCE

The Environmental Protection Agency (‘‘EPA’’) and the Department of Justice

have adopted and implemented policies designed to encourage both compliance auditing and candid disclosure of identified violations. Those policies are working. Neither the Department nor EPA routinely requests audit reports from a regulated entity until there is an independent basis for believing that a violation of law has occurred; and when companies do perform audits, disclose the existence of violations

uncovered by those audits, and correct those violations, the Department’s enforcement record over many years demonstrates our commitment to give such actions

great weight when deciding the appropriate government response. While proponents

of audit privilege and disclosure immunity law have argued that legislation is needed to ensure that environmental audits performed by well-meaning companies are

not misused by government agencies and Federal prosecutors, the fact is that such

laws are not only unnecessary; they are bad public policy that will hinder enforcement of the law and interfere with the public’s right to know about threats to

human health and the environment.

A. Justice Department Policies

In order to encourage audits and compliance, in July 1991 the Department of Justice issued a guidance memorandum for prosecutors making decisions involving environmental crimes. In making such decisions, prosecutors are to consider whether

there has been: (1) prompt and complete disclosure; (2) cooperation; (3) preventative

measures and compliance programs; and (4) correction of the violation. The basic

message of the guidance is that good-faith efforts by a violator to identify and prevent problems, report them, and promptly fix them, should be among the factors

taken into account in prosecutorial decisionmaking (the other factors including State

of mind, duration of the violations, human health or environmental effects, and

whether the violations reflected a common attitude within an organization). Such

efforts may even have a mitigating effect sufficient to convince prosecutors that a

case should not be brought criminally at all.

This Department of Justice policy is yielding positive results. When the Potomac

Electric Power Company (PEPCO) determined that pollutants had been unlawfully

discharged for years from one of its facilities in Maryland, it disclosed that fact to

the Federal Government and cooperated with authorities. As a result, PEPCO was

not prosecuted criminally, but the person actually responsible for the violations was

charged.

A case from Alaska similarly illustrates the favorable treatment that a forthright

and cooperating company can receive under the Department’s 1991 policy. When

Russell Metals, Inc. learned that managers of recently acquired corporate subsidiaries, the White Pass Alaska companies, were under investigation for trying to cover

up a large oil spill into the Skagway River, it cooperated with the Alaska United

States Attorney’s Office by fully disclosing the circumstances of the oil spill, the

cover-up, and other of the White Pass companies’ environmental violations. The

White Pass companies’ CEO and a contractor were prosecuted, as were the White

Pass companies. But as a result of Russell Metals’ cooperation and disclosure, Russell Metals was not prosecuted at all.
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1See, Note, Environmental Criminal Enforcement and Corporate Environmental Auditing:

Time For A Compromise?, 31 Am. Crim. L. Rev. 123 (1993), citing a 1992 Arthur D. Little, Inc.

survey for Fortune 100 companies in which 80 percent of respondents stated that they planned

to expand their corporate environmental auditing programs. 2The Arthur D. Little, Inc. study also found that, among the primary reasons for the expansion of audits, is the existence of significant penalties for non-compliance.

Likewise, in a South Dakota case involving a meat-packing plant, when a parent

corporation, Chiquita Brands, learned from an internal investigation that its subsidiary, the John Morrell Company, was repeatedly violating the Clean Water Act

by dumping slaughterhouse waste into the Big Sioux River and deliberately submitting falsified reports to conceal its crimes, Chiquita forced Morrell to disclose the

violation to Federal authorities. Morrell and several employees, who had known of

the violations for years but had done nothing to correct or stop them, were prosecuted for the violations, but Chiquita was not.

These examples demonstrate the effect that the Justice Department’s policy is

having in prosecutions around the country. When companies work to identify and

prevent non-compliance through audits, come forward promptly when they do discover violations, and quickly correct the violations, the Department’s prosecutors

take those actions into account in making decisions about charging and sentencing.

Forthright and responsible companies receive appropriate consideration from the

government, but prosecutors are not hampered in their ability to go after the people

and entities that need to be pursued.

B. EPA Policies that the Justice Department Applies

In 1995 EPA took another important step toward encouraging compliance audits

when it published its ‘‘Incentives for Self-Policing: Discovery, Disclosure, Correction

and Prevention of Violations,’’ which addresses how the Agency will treat both compliance audits and self-disclosure of violations. 60 Fed. Reg. 66706 (Dec. 22, 1995).

In that statement EPA explained that, if certain specified conditions are met, it:

will not seek penalties or, under specific circumstances, will seek only reduced levels

of ‘‘gravity-based’’ penalties (i.e. penalties based on the seriousness of the violation),

while retaining the ability to recover financial gains that otherwise would give violators an economic advantage over their law-abiding competitors; will not refer violations to the Justice Department for criminal prosecution if the violations did not involve either managerial concealment of offenses or high level involvement in, or

blindness toward, violations (while reserving the ability to proceed against responsible individuals); and will not routinely request audit reports at the onset of its

civil or criminal investigations. We concur with Assistant Administrator Steven Herman that that policy is working. It provides the appropriate level of incentives for

companies to audit and report the results of audits, without jeopardizing the ability

of the government to protect the public from threats to human health and the environment, and to ensure that the environmental laws are enforced effectively around

the country.

III. STRONG, FAIR ENFORCEMENT ENCOURAGES AUDITING AND COMPLIANCE

The available evidence demonstrates that what actually encourages auditing is

strong enforcement. As the Federal and State governments continue to vigorously

enforce the environmental laws, more companies are performing audits all the time,

and companies that conduct audits are expanding and improving those programs.1

A survey of trends in corporate environmental auditing, Price Waterhouse’s Voluntary Environmental Audit Survey of U.S. Business (March 1995), found that 75

percent of the companies surveyed have existing auditing programs, and that 1⁄3 of

those companies without an existing auditing program plan to develop one. And one

of the primary reasons for the increase in auditing in recent years is the strength

of the current environmental enforcement program, a principal component of which

is the civil and criminal prosecution of environmental violations by the Department.2 Companies perform audits and correct violations found in those audits because they know that if they do not, they may be subject to civil penalties, criminal

sanctions, the cost of remediation of environmental harm, tort liability, and litigation costs. If increased environmental auditing is truly the goal, we should be fostering strong environmental enforcement, not hamstringing that enforcement by allowing companies to hide their violations and escape punishment for them.

IV. ENVIRONMENTAL AUDIT PRIVILEGES ONLY CONCEAL FROM CITIZENS AND GOVERN- MENT OFFICIALS INFORMATION VITAL TO HUMAN HEALTH AND THE ENVIRONMENT

Indeed, there is little or no reason to believe that environmental audit privileges

increase the amount or the quality of environmental auditing. Among the companies
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responding to the Price Waterhouse survey, the most important reason given by

those that do not currently audit for not doing so was a belief that their products

and processes have insignificant environmental impacts. A concern that audit information could be used against them for any purpose was identified by slightly fewer

than one in five respondents. For those companies unwilling to expand an existing

auditing program, limited company resources was the principal reason identified.

Even among companies currently performing audits, audit privileges only reduce

the effectiveness of the audits that are conducted. The existence of an audit privilege diminishes the incentive to correct violations promptly, and reduces the urgency to identify violations before enforcement authorities do. With the veil of secrecy that an audit privilege provides, unscrupulous companies may believe that

they are be able to conceal from both the regulators and the public both the violations themselves and the environmental harm resulting from the violations.

It is simply common sense—not to mention the empirical conclusion of enforcement and regulatory efforts generally, both in the environmental context and in

such other contexts as securities and food safety regulation—that public and governmental scrutiny of corporate behavior increases the level of responsible behavior.

Corporate secrecy does not. And an environmental audit privilege would allow polluters to hide their activities from the government and the public. This is true

whether the privilege is created by Federal law or State law. While the States may

be excellent laboratories for change in many circumstances, environmental audits is

not one of those circumstances. The problems are too obvious and the risks are too

great. The Federal environmental laws were established to ensure that all Americans, wherever they live, will be protected from the threats posed by pollution. The

creation of environmental audit privileges jeopardizes that protection. For the same

reasons, we also oppose legislative proposals that would make Federal enforcement

subject to State audit privilege or disclosure immunity laws.

Moreover, aside from any direct concerns about enforcement and compliance, community residents have a right to know about environmental hazards that may pose

a threat to their community. The entire system of environmental regulation is built

on self-reporting and on government and public scrutiny of information relating to

the handling of environmental contaminants. Citizens and government agencies use

such information to make reasoned judgments regarding steps to protect human

health and the environment and to fashion appropriate responses to violations. An

environmental audit privilege runs directly counter to this most basic premise of the

environmental regulatory system, and represents the first time that Federal environmental legislation will have acted to limit the availability of information to the

public, rather than to expand it. That is not the direction that we should be taking

the environmental laws.

Now, some have tried to analogize the privilege created by environmental audit

legislation to the ‘‘self-test’’ privilege to be established by regulation under the Fair

Housing and Equal Credit Opportunity Acts. The analogy does not hold. As an initial matter, as members of the Department and other prosecutors have frequently

stated, any new evidentiary privilege impedes the truth-finding process so critical

in enforcement of our nation’s laws, and allows violations and violators to go undetected and unpunished. The Attorney General has enumerated a number of the Department’s concerns in regard to audit privileges in her letter to Administrator

Browner, dated April 6, 1995, which we have attached to this testimony.

When the bill creating a privilege in the lending context was being considered,

the Department likewise opposed creation of a broad privilege because of the threat

such a privilege would have posed to effective enforcement of the anti-discrimination

laws. Indeed, in that context, the Justice Department supported only a very narrow

privilege centered on matched pair testing, a technique especially suited to fair

housing and fair lending issues—and one that has no real analogue in almost any

other area of law, including environmental law. Matched pair testing allows a lender to gauge the inclination of its employees to violate the lending discrimination

statutes without running the risk of depriving an actual applicant of a loan. Thus,

matched pair testing really creates a new opportunity, which would not have existed

but for the matched pair test itself, to examine whether the employees of the company performing the test are violating the law through discrimination; yet the performance of the test does not result in a bona fide borrower being denied a loan application. In contrast, the privilege that some recent State legislation creates for environmental audits shields from disclosure past and even ongoing environmental

violations that can pose a real and present risk to human health and the environment. We cannot support the creation of such a privilege.
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V. AN ENVIRONMENTAL AUDIT PRIVILEGE WOULD IMPAIR ENFORCEMENT AND DRIVE UP

LITIGATION COSTS

The impediments that an audit privilege would create for civil and criminal enforcement are profound. As just one example, many criminal investigations begin

with a tip from a company insider who is disturbed by illegal activities he or she

has observed and notifies authorities, often providing written corroboration of the

violations. In the face of an environmental audit privilege, an investigator may be

unable to pursue that tip effectively because the investigator would not know

whether the corroboration provided by the whistle blower came from an environmental audit report. Even the whistle blower might not know whether the document

was originally created as part of an audit.

If the investigation proceeded despite such uncertainty and it was later determined that the corroborative document was protected under the audit privilege law,

all subsequently obtained evidence could be suppressed as fruits of the privileged

document, even if that evidence demonstrated criminal conduct. At the very least,

important information which could corroborate the testimony of the whistle blower,

whose credibility would almost inevitably be strongly attacked by the company’s

lawyers, would be withheld from the jury.

To prevent such a result, prosecutors will frequently be forced very early in an

investigation to initiate an in camera proceeding before a court. Aside from taking

scarce court time, such a proceeding will require notification of the company being

investigated, and may thereby cutoff the investigative phase of the case prematurely. The result could very well be that the investigation will be so hobbled

that charges will not be able to be pursued. Criminal activity would thus go

unpunished and environmental violations unaddressed.

Even after a prosecution is initiated, litigation over audit privileges diverts scarce

judicial and prosecutorial resources from quickly and efficiently concluding environmental litigation and remedying threats to human health and the environment.

Time must be spent on litigating in detail, every time the privilege is invoked,

whether such new and legally untested privileges apply, rather than on trying to

resolve the substance of the matter as expeditiously as possible. And the disputes

over the applicability of the privilege will recur throughout the litigation, always

consuming more and more of the court’s time. It would be a poor lawyer, indeed,

who could not delay investigations or trials for weeks or months in litigating the

complicated claims of privilege that inevitably arise under environmental privilege

statutes. This drain on courts’ resources and the associated escalation of government resources and private lawyers’ fees that will have to be spent on environmental cases—not to mention the delay that will result in addressing environmental

threats—simply is not in the public interest, and cannot be justified.

VI. IMMUNITY FOR SELF-DISCLOSED VIOLATIONS WOULD DIRECTLY INTERFERE WITH

FAIR AND EFFECTIVE ENFORCEMENT OF THE LAW

In addition to the problems created by an audit privilege, statutory grants of immunity for voluntary disclosures like those contained in S. 866 raise additional problems. Such immunity provisions allow violators, including those engaged in criminal

violations of environmental statutes, to go unpunished. In essence, such immunity

for criminal violations is like allowing anyone who confesses to robbing a bank to

escape prosecution, so long as the person apologizes and promises to give the money

back.

Environmental crimes are real crimes, with real impacts on communities. Imagine

the public outcry if, following an environmental violation that caused death, serious

bodily injury, or major environmental harm, the government were prevented from

prosecuting those responsible because of an immunity law. Indeed, in the wake of

the Exxon Valdez disaster, Congress amended the immunity provision in the oil

spill reporting requirements of the Clean Water Act to ensure that the government

would not be prevented from utilizing an oil spill notification against a corporation

or responsible parties other than the natural person actually providing the notice.

Providing immunity for violations voluntarily disclosed to the government frustrates legitimate enforcement efforts and discourages regulated entities from taking

sufficient precautions to avoid committing violations in the first instance. Currently,

the law sends a powerful message that those who are in a position to prevent or

to remedy a violation must do so, or bear the consequences. An immunity provision

sends a different message: it tells those same people that there is no need to take

a proactive approach to environmental management because the company employing those people can immunize itself from civil and criminal penalties even after it

has caused serious environmental problems. All it has to do is conduct an audit, disclose its violations, and only then, when the harm is already done, initiate action
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to correct those problems. The only thing companies would make sure to do promptly in such a regime is invoke the protections of the immunity statute.

VII. CONCLUSION

The voluntary disclosure policies of the Department of Justice and EPA are a fair

and balanced approach to handling audits and self-disclosure, and they are working

well. They achieve the results that proponents of audit privilege and disclosure immunity legislation say they are trying to achieve, without adversely affecting environmental enforcement and compliance, or the public’s right to have access to information about threats to their health and their environment. The Department therefore opposes the enactment of audit privilege or immunity legislation—at the Federal level and at the State level. Such legislation is bad for enforcement, bad for

the environment, and bad for human health and the environment.

OFFICE OF THE ATTORNEY GENERAL,

Washington, DC, April 6, 1995.

Hon. CAROL M. BROWNER,

Administrator, U.S. Environmental Protection Agency, Washington, DC.

DEAR MS. BROWNER: At our meeting in December, 1994, we discussed the issues

raised by proposed legislation that would create an evidentiary privilege for environmental audits, or bestow immunity on violators. We also discussed our belief in the

importance of voluntary compliance to environmental protection. I appreciate EPA’s

significant efforts, working cooperatively with the Department, to re-examine its

policies on environmental audits and voluntary disclosure, especially the work of Assistant Administrator Steve Herman and his stiff in gathering a wide range of information and views on this topic.

Having looked closely at this issue, and having heard many views, I have reached

several conclusions. First, as a former prosecutor, I oppose the creation of a new evidentiary privilege, or an immunity law, be cause such legislation would reduce our

ability to enforce the environmental laws that protect the public’s health and safety

and our precious natural resources. In a recent meeting with State and local prosecutors we discussed this topic, and I advised them of my views on this matter. I

note that my objection is to the creation of a new evidentiary privilege for environmental self-evaluations. I am not addressing existing privileges, such as attorneyclient and work product, to the extent that those privileges may apply to certain

environmental audits. Second, I believe there are positive measures that can be undertaken to encourage voluntary compliance without resorting to a problematic statutory solution.

The legislative push for a privilege began with allegations that the government

used environmental audits unfairly to punish those attempting to comply with the

law. EPA’s review, and a review of our own cases, have shown that allegation to

be criminal cases and found no instance where a company voluntarily disclosed environmental violations discovered by an audit and was subsequently prosecuted as

a result of its disclosure. What has emerged from this review is a picture of sound

enforcement practices that have substantially improved environmental compliance.

In fact, it appears that the effect of our joint enforcement program has been to inspire more companies to undertake audits in order to discover and correct violations.

While proponents have failed to demonstrate the need for an audit privilege, such

a privilege would carry a very heavy cost. Environmental protection has improved

under the environmental laws based on a system of openness and self-reporting.

Yet, an evidentiary privilege statute would be tantamount to an environmental secrecy act, shielding information about environmental violations and environmental

harm. Moreover, a privilege could serve to confuse the regulated community about

their existing legal obligations to report violations. An audit privilege would constitute a major step away from corporate accountability. I would restrict the truthfinding process and limit our ability to seek relevant evidence on the public’s behalf.

In addition, a privilege statute would mire federal enforcement efforts in a morass

of litigation over the applicability and reach of the privilege and the scope of exemptions. Crucial terms in the various audit privilege statutes are broad or ill-defined,

and there are no established definitions or standards for environmental audits. This

would allow violators to claim the privilege for a wide range of internal activities

and communications, while agents in the field would lack clear guidance on how to

proceed with their investigations. At worst, environmental violations would go undetected and environmental criminals unpunished. At best, the privilege statutes

would introduce new layers of litigation, including pre-indictment and pretrial motions and in camera hearings.
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This added litigation would consume scarce judicial, prosecutorial and investigative resources, and the resulting delays would sometimes leave underlying health

and environmental problems uncorrected and the public unprotected. I note that

these are among the reasons why all Federal, State and local prosecutors whose

views have been communicated to the Department, uniformly oppose statutes that

would establish an evidentiary privilege for environmental law violators.

An environmental audit privilege would be especially susceptible to abuse. Proposed legislation cannot be analyzed solely on the model of the good environmental

citizen, since that person is not likely to be an enforcement target. We must also

consider environmental violators who are willing to break the law to save money,

and who, as recent prosecutions have demonstrated, will lie to government officials

to conceal their actions. We can expect that a privilege would be raised, often on

frivolous grounds, just to interfere with the enforcement process. An audit privilege

could be used to shield serious continuing violations and criminal conduct.

Proponents of an audit privilege mistakenly claim that the privilege would reduce

the involvement of lawyers and thereby make audits more affordable for small businesses. To the contrary, in order to ensure that statutory privileges cover their actions, businesses would have to involve lawyers in the audit process at least as

much as they already do, thus diverting funds to lawyers rather than to environmental compliance.

Some State statutes and proposed Federal legislation provide immunity under certain circumstances to those who voluntarily disclose their violations to the government. These unprecedented immunity provisions have the potential to allow serious

environmental criminals and other violators to escape responsibility for their acts

when, after the fact and when the harm is done, they elect to come forward and

reveal their action. These immunity provisions require enforcement to focus on a

single factor—self-disclosure—and ignore all the other considerations that should inform prosecutorial decisionmaking, such as the duration and seriousness of the

harm.

For all these reasons, the damage to environmental protection by such laws would

far outweigh any speculative gains they might accomplish.

I am convinced that we can take additional affirmative steps to encourage selfaudits, self-correction and voluntary disclosures. Among the steps that the Department would support are the following: • Expansion of EPA’s program of compliance assistance and penalty mitigation

for small businesses regulated by the clean Air Act to other environmental statutes.

A broader compliance assistance program might be specially beneficial to small businesses, although great care must be taken in expanding an amnesty provision to

regulatory programs that are far from new. If budgetary constraints limit expansion

of this assistance program, the Department is willing to work with EPA to find

methods of supplementing the Agency’s resources.

• Modification of current EPA penalty policies to give substantial penalty mitigation for efforts at self-evaluation and self-disclosure. In particular, where a company

with a comprehensive management system in place, discovered, reported and swiftly

corrected the violations, and no harm to the public or the environment resulted from

the violation, EPA could elect to forego the gravity component of a penalty calculation. However, no company should be able to benefit financially from breaking the

law, thereby gaining an unfair competitive advantage.

• Expansion of the Environmental Leadership Program into a broad-based standardized program for environmental leaders. Such a program would recognize those

companies that demonstrate truly excellent environmental management.

• Clarification of EPA’s practice of not requesting audits during routine inspections, and of the Department’s practice of not utilizing audits as a means of initiating cases. We should publicly adopt these practices as the Department’s and EPA’s

policy, with the proviso that, once a civil or criminal investigation begins based on

independent information of violations, it is appropriate to obtain all relevant information, including audits or other self-evaluative reports.

• Announcement of the Department’s intention to view the use by organizations

of effective programs to prevent and detect violations of law, as well as self-reporting, cooperation and acceptance of responsibility as mitigating factors in the sentencing phase of environmental criminal cases against corporations.

• Development of an acceptable standard definition of the term ‘‘environmental

audit’’ and to crate a generally accepted set of standards for conducting such audits

in conjunction with the efforts of private standard-setting entities.

These approaches, coupled with our shared commitment to tough yet fair enforcement against those who seek an unfair advantage by avoiding the costs of compliance, will encourage environmental compliance auditing, voluntary disclosure, and

greater compliance with the environmental laws.
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In conclusion, I ask you to join me in vigorously opposing Federal legislation that

would create an evidentiary privilege for environmental audits or bestow immunity

on violators. Working together we can take steps that will encourage compliance

without weakening the enforcement of our Nation’s environmental laws.

Sincerely,

JANET RENO.

PREPARED STATEMENT OF AIRPORTS COUNCIL INTERNATIONAL-NORTH AMERICA AND

AMERICAN ASSOCIATION OF AIRPORT EXECUTIVES

Dear Mr. Chairman and Members of the Committee: The Airports Council International—North America (ACI–NA) and the American Association of Airport Executives (AAAE) appreciate the opportunity to submit written comments for the record

of the hearing on liability from voluntary audits, held on October 30, 1997.

ACI–NA’s members are the local, State and regional governmental entities that

own and operate commercial service airports in the United States and Canada.

ACI–NA member airports serve more than 90 percent of the U.S. domestic scheduled air passenger and cargo traffic and virtually all U.S. scheduled international

travel. AAAE is the professional organization representing the men and women who

manage the primary, commercial service, reliever and general aviation airports

which enplane 99 percent of the passengers in the United States.

ACI–NA and AAAE appreciate your taking the initiative to provide a forum for

Congress, the Administration, and industry to examine this issue. In particular, airports support passage of S. 866, the ‘‘Environmental Protection Partnership Act,’’ introduced by your colleague, Senator Kay Bailey Hutchison. The bill would prevent

certain voluntary disclosures of violations from being subject to investigatory procedure or admitted into evidence during a judicial or administrative proceeding. As

part of general pollution prevention and environmental planning efforts, airports

often employ self audits to ensure that all activities undertaken on airport property

comply with environmental laws and regulations.

Periodic voluntary audits allow airport management to identify potential environmental problems, to evaluate current pollution prevention and control technologies,

and to develop more effective methods for future use. However, airport operators

have been discouraged from continuing or expanding this practice, in the face of

EPA’s requirement that they disclose this information as a matter of public record,

subject to enforcement action and penalties.

The airport community believes that self-policing can play a crucial role in finding, correcting and preventing violations. The current EPA-imposed policy effectively

penalizes airport operators who attempt to monitor their own activities and activities of their tenants in an effort to ensure environmental compliance. Ironically, the

EPA’s policy requiring full disclosure of self-audit ultimately creates a disincentive

for airports to do everything possible to ensure compliance with environmental laws

and regulations.

On behalf of U.S. airports, thank you for holding today’s hearing on this very important issue.

PREPARED STATEMENT OF THE AMERICAN FARM BUREAU FEDERATION

The American Farm Bureau Federation (AFBF) is the largest general farm organization in the nation. AFBF has affiliated State Farm Bureaus in all 50 States and

Puerto Rico, representing the interests of more than 4.7 million member families nationwide.

We are pleased to submit this statement for the hearing record on the issue of

environmental audits. The debate on this issue is extremely important to farmers

and ranchers, because the way that the environmental audit issue is finally resolved

will go a long way toward determining how agricultural compliance with environmental laws is finally achieved.

The American Farm Bureau Federation believes that the approach taken in Senator Hutchinson’s bill, S. 822, offers the most promise, and we support its passage.

Senator Enzi’s bill, S. 1332, which would provide Federal recognition of the protections provided in State environmental audit legislation, is also on the right track.

We believe, however, that Federal legislation needs to do more than recognize State

audit laws.

Farmers and ranchers bring a different perspective to this issue than that presented at the hearing. Most of the testimony at the hearing focused on environmental auditing by heavy industry or larger corporations. Farmers and ranchers fit
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into neither category, yet they are subject to as many or more environmental regulations. Just trying to keep up with all the new environmental regulations that impact

agriculture is a full-time job for most farm and ranch operations.

Unlike large corporations, farm and ranch operations do not have fully staffed environmental departments or divisions. Most farm and ranch operations do not have

the time or manpower to conduct their own thorough environmental audits, or routinely study all of the environmental rules and regulations that are promulgated.

But that does not mean that farmers and ranchers do not want to be in compliance

with environmental requirements.

Farmers and ranchers depend on the land for their food, fiber and livelihoods.

They have to take care of that land so it will continue to produce year after year.

An appropriate program of voluntary environmental auditing would go a long way

toward ensuring that farmers and ranchers are in compliance with the myriad environmental rules and regulations that now confront them.

The debate on environmental audits strikes to the core of the purpose for environmental rules and regulations. It requires an answer to these fundamental questions:

Is the goal of environmental laws and regulations to have people comply with their

provisions, or is it to provide a mechanism to punish those who do not? Is it the

role of the Environmental Protection Agency to bring about compliance with environmental standards, or to punish those who do not? Are the general public and the

environment best served by people protecting or enhancing the environment, or by

punishing those who do not? Should the goal of environmental audit legislation be

to assist people to comply with environmental laws and regulations, or to assist the

EPA and other Federal agencies in identifying violations of environmental laws?

We believe that environmental goals can best be attained and the public better

served through compliance rather than convictions. We should not forget that these

statutes were enacted for the purpose of improving environmental conditions, not

as penal statutes. The best way to accomplish that goal is for as many people as

possible to comply with the standards set forth in those laws and regulations. We

promote the goal of full compliance with applicable environmental provisions in our

members’ farm and ranch operations.

Distressingly, the testimony of Steven Herman of EPA at the October 30 hearing

indicates that EPA views its primary mission as punishing those not in compliance

with environmental laws, rather than trying to achieve compliance. The testimony

evidenced a clear intent to not let violations go unpunished, even at the expense

of losing potential users of the voluntary audit program. The fundamental problems

with the EPA view are: (1) focus on punishment rather than compliance does not

improve environmental quality; (2) there are not enough enforcement personnel to

uncover and investigate all of the environmental violations; (3) to do an adequate

job of enforcement will take much more money and manpower that might be better

used to assist people to improve environmental quality through compliance with the

many and varied environmental laws and regulations; and (4) people who understand their environmental conditions and what to do about them (as through results

of an environmental audit) and who want to take proper steps are likely to be more

successful in achieving the goals of environmental laws and regulations than those

who are punished for noncompliance.

The current ‘‘command and control’’ system of environmental compliance is not

working. The more enforcement role that EPA and other regulatory agencies assume, the more inadequate existing enforcement resources are.

A voluntary environmental audit policy like the one embodied in S. 822 will assist

in promoting compliance with environmental rules and regulations and achieving

environmental protection. Given the inadequate resources for policing environmental compliance, a system must be devised to encourage people to take steps to

assess their own situations and bring their operations into compliance with environmental laws.

Most of the agricultural producers who might avail themselves of the environmental audit procedure do not intentionally violating the law. Rather, of the violations of environmental laws that producers are likely to incur, the vast majority of

them are either accidental events, technical violations resulting from regulations

that are too complex, or are violations about which the producer has insufficient

knowledge. Environmental rules and regulations are so technical and complex that

it is not difficult to be in violation of some unknown regulation. One of the primary

uses of environmental audits is to determine whether an operation is in compliance

or in violation in the first place.

Another primary use of environmental audits is to discover ways that violations

might be corrected and ways that practices can be modified to prevent future violations. Operations that are not in compliance can be brought into compliance. The
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environment is protected and enhanced, and both the producer and the public benefit.

Everyone interested in protecting and enhancing the environment should support

the concept of environmental audits.

Farmers, ranchers and others would be very reluctant to conduct environmental

audits if the results of an audit could be used to convict them of environmental violations. This is especially true in cases where the producer is not sure whether there

is any violation, because in that situation doing an audit becomes ‘‘roll of the dice’’

for stakes higher than most individuals are willing to accept. While this may be attractive to larger corporations, the reduced penalties embodied in the EPA audit policy offer little or no inducement for farmers and ranchers to do environmental audits. Asking people to voluntarily take actions so that the results of those actions

might be used to incriminate them in court is hardly an inducement.

But the government is not the only entity for farmers and ranchers to worry

about. The Clean Air Act, the Clean Water Act, the Endangered Species Act and

most other environmental statutes contain expansive ‘‘citizen suit’’ provisions, which

allow ‘‘any person’’ to bring a civil action against anyone suspected of violating environmental laws. Certain entities have very aggressively used these citizen suit provisions against farmers and ranchers. Opponents of environmental audit legislation

speak about the public’s ‘‘right to know’’ information on environmental violations.

Does that ‘‘right to know’’ mean the ability to obtain information such as an environmental audit to enable them to file citizen suits?

We believe that the approach taken in S. 822 solves this problem. The bill provides that a voluntary environmental audit report made in good faith shall not be

subject to discovery in any investigative proceeding, nor shall it be admissible in

any judicial or administrative proceeding. This immunity does not cover information

that is required to be reported, or information that is obtained by an agency from

independent sources.

The immunity does not extend to situations where (1) violations are intentional,

(2) where there is a pattern of violations by the entity, (3) where disclosure is made

with fraudulent intent, or (4) where any violations are not remedied in a timely

manner. The bill also does not prohibit the use of injunctive relief to remedy significant environmental or human health and safety concerns that are discovered in the

course of an environmental audit. By these exclusions, the bill seeks to extend its

shield of protection only to those who are serious about assessing their operation

and correcting any problems that might be found.

S. 822 would not protect major polluters, as its critics claim. Nor will it allow people to use the protections of S. 822 for dishonest purposes. Its narrow scope is limited to providing inducement to honest operators to voluntarily assess their own operations and take corrective action where problems are discovered. If the goal of environmental legislation is to have everyone comply with their provisions, the approach taken in S. 822 is exactly what environmental audit legislation should accomplish.

We would like to also address the issue of State environmental audit laws. We

support the efforts of States to promote environmental awareness and protection

within their borders by passing legislation to encourage the use of environmental

audits. We also support the provisions of S. 822 and S. 1332 to federally recognize

State environmental audit laws and the inducements they provide. Farm Bureau

has long advocated that management at the State level is preferable to Federal legislation in most cases.

In this situation, we believe that affirmative Federal recognition of environmental

audits is necessary, and that Federal legislation should go beyond the mere recognition of State laws. The heretofore heavy Federal presence in environmental matter

requires Federal legislation on the issue. Federal uniformity of inducements will

also resolve potential legal issues of which State law applies in cases where there

may be multi-State implications. that is not to say that States should not enact environmental audit legislation to protect the environment within their borders. We

just believe that the more complete approach in S. 822 will more likely resolve the

issues.

PREPARED STATEMENT OF ELIZABETH GLASS GELTMAN

‘‘HOW A FEDERAL AUDIT PRIVILEGE FURTHERS THE NEW AMERICAN

ENVIRONMENTALITY’’

Thank you for inviting me to testify today. A few years ago I had an opportunity

to visit Disney World in Orlando, Florida. Much to my family’s chagrin, I didn’t tour
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the magic kingdom. Instead, I toured the facility co-generation plant, recycling station and composting operations in order to view the environmental policies and

practices of the Disney enterprise. Disney called their environmental program

‘‘environmentality;’’ and they dictated that all employees should be concerned with

environmental compliance matters.

I am here today to talk to you about what I call the ‘‘New American

Environmentality’’ and how you as senators have an opportunity to further this

environmentality at no cost to taxpayers, business or our communities. To the contrary, this low cost market based mechanism of encouraging environmental auditing

saves business’ money, makes our communities cleaner and greener and increases

government efficiency. Of course, I am talking about environmental audits and the

bill you are considering making environmental audit documents privileged under

certain circumstances.

As a people, Americans want environmental compliance. They want clean air,

clean water and green lands. They also want less government bureaucracy in accomplishing these goals.

Corporate America, working together with State regulators and the EPA regions,

has had incredible success in improving that air and water quality over the last 20

years. In many cases the air and the water are cleaner. In other cases, the air and

water are no dirtier than it was 20 years ago, notwithstanding the incredible development and population increase in that time. These are successes to be proud of;

but we, as a nation, need to do more.

We need to improve the New American Environmentality to improve environmental quality throughout the country. Government cannot do this alone. We do not

have enough regulators to enforce all violations of all environmental laws. Moreover,

we can not regulate all environmental matters. Many important issues, such as

nonpoint source runoff and fugitive emissions, remain unregulated. We have to work

together with industry and the American people to improve the quality of the American environment.

Enter environmental audits. Environmental audits are designed to identify environmental problems that can become either a liability issue or a regulatory concern.

The goal of a well designed environmental audit is to check a facility and identify

potential problems and correct them. Industry uses audits to keep environmental

costs down as well as to avoid fines.

To date, sixteen (16) States have enacted environmental audit privilege or immunity laws. The concept of environmental audit privilege is to encourage industry to

conduct audits candidly and proactively. Privilege allows regulated entities to look

for problems that they are not legally required to check. If the company fixes the

problem identified as problematic in the audit document, then the document itself

(and not the underlying data the document discusses) will be privileged from discovery by enforcement authorities.

Note that the audit document is privileged if—and only if—the regulated entity

fixes the problems identified in the audit. There is no privilege absent a correction

of the environmental problems identified in the audit. Hence, contrary to some assertions by U.S. EPA and the U.S. Department of Justice respecting the privilege

of an audit document, industry cannot hide evidence of negligence. If the problem

is discovered in an audit and not fixed, then not only can a suit lie for common law

negligence (as well as the full panoply of environmental laws), but the audit document would not be considered privileged because a critical element necessary to invoke the privilege—correcting the problem—has not been met.

Which brings me to a second argument often made by U.S. EPA and the Department of Justice: use of the audit document to prove the scienter (or knowledge) element in a criminal prosecution. U.S. EPA and the Department of Justice consistently argue that they will not routinely ask for audit documents, but reserve the

right to do so to prove scienter. This is bad policy. As I have already said, the must

important aspect of the privilege in most States is that it is absolutely conditioned

on coming into environmental compliance.

If a company does an audit, discovers a problem and corrects it before there is

any harm to the environment, then we as a society have accomplished the primary

goal of environmental laws—to keep society safe. If a company does an audit after

there has been an environmental disaster and tries to use the audit to deter the

effort the Justice Department, then the document would not be privileged. Moreover, if there is an environmental disaster there is likely to be a lot of independent

evidence of the environmental crime committed. Simply said, the audit document

itself would not be the only evidence of criminal conduct.

If on the other hand, an audit is conducted and environmental disaster is averted,

there may be no independent evidence of wrongdoing without discovering the audit

document. But do we really want to spend valuable enforcement resources prosecuting
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people who found a problem, fixed it and averted environmental disaster?

Shouldn’t we spend our scarce enforcement resources prosecuting those who cause

harm to the environment or who rountinely thumb their noses at environmental

rules and regulations? In other words, do we really want to criminally prosecute

parties where there is no harm to the environment and there is no independent evidence of wrongdoing aside from the audit document—the document which led to fixing the problem? To me, the answer is clear: where environmental disaster has been

averted, we should be encouraging the efforts of industry—not threatening them

with criminal lawsuits. The goal is environmental compliance, not prosecution for

prosecutions sake.

I like to explain this principle to my law students by analogizing to my kids. We

have rules in our house and my two boys know that they are supposed to abide by

all the rules in the house all of the time. Sometimes, however, they forget. Or make

mistakes. The other day my sons were throwing a ball in the living room. Both boys

know they weren’t supposed to do so, but they were excited about the upcoming

Ravens/Redskins game (we follow both teams). While ‘‘hiking’’ the ball, one boy accidentally knocked over a vase I had been given by a dear friend for my wedding.

My younger son looked at the breakage and immediately suggested that they hide

evidence of the ‘‘crime.’’ My older son (wiser than his years) told my baby that hiding evidence of the damage was not a wise idea. He said they needed to tell me,

but he was sure ‘‘Mommy would be fair.’’ He knew it would be worse to lie by not

telling me of the problem. The boys, thus, ran to me apologetically, confessed theirs

‘‘sins’’ and promised never to do it again. I admonished them for their errant behavior, but did not ground them for the next 20 years. Balls haven’t been flying in my

house since—although I expect there may be mistakes in the future.

Industry is like children. The job of U.S. EPA and the Department of Justice is

that of a responsible parent. We can not possible police all industry for all environmental compliance all the time. Even the best company will have problems and

make mistakes. If we punish them drastically, then they are unlikely to come forward and confess the problems and work cooperatively with the agency. Instead,

they are more likely to hide the problems and let them fester until they become true

environmental disasters.

Americans want environmental compliance. Environmental audit laws encourage

environmental compliance by conditioning privilege on correcting problems identified in the audit. Many States have enacted audit privilege statutes to increase their

environmental compliance efforts. All preliminary data indicate that environmental

compliance (and beyond compliance environmental efforts) have increased in States

with privilege laws. Moreover, no State has indicated that the existence of an environmental audit privilege law has interfered with the ability of the agency to prosecute environmental matters any more than the attorney client privilege hinders

prosecution. Nor has the U.S. Department of Justice been able to point to any case

where the existence of any environmental audit privilege or immunity law has impaired prosecution beyond the discovery dispute normally occurring in, for example,

the attorney-client privilege context.

For these and many other reasons I have written on in the past, I believe the

passage of a Federal environmental audit privilege law would be good for the environment, business and the public welfare. I urge you to carefully consider the legislation before you; and I thank you for your time.

Appendix A

Table of Audit Privilege Laws By Date Enacted

Date Enacted 1994 (4) 1995 (5) 1996 (6) 1997 (2)

States .......... Arkansas, Colorado,

Idaho, Kentucky.

Illinois, Indiana, Kansas,

Minnesota, Mississippi, New Jersey,

Oregon, Texas, Utah,

Virginia, Wyoming.

Michigan; New Hampshire; Ohio; South

Carolina; South Dakota; Utah.

Idaho (Revised); Michigan (Revised).
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Appendix B

Table of Audit Immunity Laws By Region

Region States with Enacted Audit Immunity Laws (16) States with Proposed Audit Immunity Laws

(24)

States with Neither Proposed Nor Enacted Audit Immunity Laws (10)

1 ..... New Hampshire ....................................... Maine, Massachusetts, Rhode Island Connecticut, Vermont.

2 ..... New Jersey ............................................... New York ...........................................

3 ..... Virginia .................................................... Delaware, Maryland, Pennsylvania,

West Virginia.

4 ..... Kentucky, Mississippi, South Carolina .... Alabama, Florida, Georgia, North

Carolina, Tennessee.

5 ..... Michigan, Minnesota, Ohio ...................... None .................................................. Illinois, Indiana, Wisconsin.

6 ..... Texas ........................................................ New Mexico, Oklahoma.

7 ..... Kansas ..................................................... Iowa, Missouri, Nebraska ................. Arkansas, Louisiana.

8 ..... Colorado, South Dakota, Utah, Wyoming Montana ............................................ North Dakota.

9 ..... None ......................................................... Arizona, California, Hawaii ............... Nevada.

10 ..... Idaho ........................................................ Alaska, Washington .......................... Oregon.
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NEW YORK STATE,

DISTRICT ATTORNEYS ASSOCIATION,

Kew Gardens, NY, October 28, 1997.

Hon. JOHN H. CHAFEE,

Chairman, Environment and Public Works Committee,

U.S. Senate, Washington, DC.

RE: ENVIRONMENT AND PUBLIC WORK COMMITTEE HEARINGS ON

VOLUNTARY AUDITS TO BE HELD ON OCTOBER 30, 1997

DEAR SENATOR CHAFEE: Thank you for the opportunity to present written testimony to the Environment and Public Works committee on behalf of the New York

State District Attorneys Association (NYSDAA) and the 62 elected district attorneys

whom it represents. As President of the Association, I urge that the Committee carefully consider the

unintended consequences of the proposed Environmental Protection Partnership Act

(Senate 866). If enacted, the Act would, in our judgment, cause serious harm to

those whom it is intended to protect and would intrude upon the right of our States

to enact and enforce their own laws.

PROVISIONS OF THE ENVIRONMENTAL PROTECTION PARTNERSHIP ACT

(SENATE 866)

The proposed Environmental Protection Partnership Act (EPPA) has two major

components, each of which would shield criminal activity. Taken together, they

would create a haven for criminal conduct on the part of industry, environmental

service providers and even government employees.

Privilege Provisions

The first component of the proposed Act creates a very broad privilege for environmental audit reports. In effect, it creates a corporate fifth amendment privilege in

the environmental arena. where no such Federal or State corporate privilege exists

in other areas. The Act makes audit documents inadmissible in evidence and exempt from discovery. The privilege creates a cloak of secrecy around a host of items

which are not protected by any traditional privilege: personal observations, scientific

tests, field analysis, laboratory results, photographs, graphs, and other empirical

data; expert testimony and opinions; recommendations; and documents which describe the scope and methodology of the audit. The privilege also limits testimony

by those who participated in an audit. The privilege cloak keeps government in the dark about an audit even if the company voluntarily shares that audit with a lender, buyer, potential business associate, or competitors. The privilege shield, with very limited exceptions, would equally

thwart efforts of prosecutors, grand juries, government lawyers, regulatory agencies,

citizens’ groups and next door neighbors to learn the truth about an environmental

violation.

Immunity Provisions

The proposed Act would grant criminal, civil and administrative immunity to companies and officers without the consent of or notification to State or Federal prosecutors. Any company which makes a ‘‘prompt’’ disclosure of a violation to a State

or Federal environmental agency, setting forth plans for any necessary remediation

would receive an automatic presumption of immunity from prosecution (‘‘disclosure

immunity’’). If the regulatory agency does not dispute the disclosure immunity within 60 days,

the immunity is conclusive. In considering whether to dispute a disclosure immunity, the agency has no right to see the audit documents giving rise to the disclosed

violation. Those documents, including the empirical data, remain privileged and inaccessible except to the extent a company chooses to share it. To dispute the immunity, the agency must establish that the company was repeatedly found guilty of distinct violations based on the exact same legal requirements,

with different underlying causes, during the three preceding years. Other criminal

acts or different environmental violations are not a basis for denying immunity. Assuming a prosecutor learns about a disclosure, and convinces the agency to dispute the immunity due to an ongoing criminal investigation, the question of immunity cannot be resolved until the criminal charges are filed. In the criminal proceeding, the prosecutor must prove to the court beyond a reasonable doubt that the defendant was not entitled to immunity-by showing the same pattern of repeat violations, or an elevated intent to actually violate the applicable laws. The audit documents cannot be reviewed by the prosecutor to develop evidence of the enhanced intent.
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Background

In January 1995, the NYSDAA unanimously adopted a resolution opposing environmental self-audit privilege and immunity laws. This resolution was adopted after

members of our Environmental Subcommittee had participated in formal working

groups negotiating sessions, debates and public hearings on voluntary audits and

compliance initiatives.

For more than 3 years, we have successfully opposed privilege and immunity legislation introduced in New York State. New York State Governor George E. Pataki

and its Attorney General Dennis C. Vacco have also rejected such legislation. Meetings with our State business community, professional auditing associations and

other privilege proponents have convinced us that there are more effective ways to

address industry complaints and encourage compliance.

THE FOCUS OF THE AUDIT PRIVILEGE/IMMUNITY DEBATE

Testimony favoring audit legislation in previous congressional hearings has focused on the complex, sometimes burdensome environmental regulations with which

industry must comply. Proponents have claimed unfair treatment by regulatory

agencies, and suggest that environmental violations in this era are largely technical

in nature. Privilege and immunity laws would offer companies protection from both

government enforcement actions and private party litigation.

The United States Department of Justice and the National District Attorneys Association have consistently opposed enactment of environmental self-audit privilege

and immunity laws. If Senate 866 were enacted it would shroud important evidence

in secrecy and shield from prosecution the most serious of offenders. These offenders

are not ‘‘technical’’ violators.

Throughout our State, drums of hazardous waste are dumped in our woods and

streams; stolen tractor trailers full of hazardous waste from other jurisdictions are

abandoned in our industrial parks; tanker trucks dump waste on our highways and

in our town landfills; generators pay unlicensed truckers cash to take their waste

without manifests; manufacturers intentionally dump industrial waste into cesspools and storm drains to leach into our water supplies; and greedy environmental

contractors defraud government of millions of dollars doing shoddy asbestos and

lead abatement in our poorest neighborhoods and schools.

These intentional violators are the most likely to perform sham audits, make selfserving disclosures and benefit from both the privilege and immunity aspects of the

law.

THE UNINTENDED CONSEQUENCES OF SENATE 866

The Impact of Privilege on Public Safety

The privilege is too broad and the exceptions do not allow government access to

audit documents when they are needed to protect public health, safety and the environment: • Emergency responders trying to contain an active spill or determine a cause of

physical injury would be denied access to documents necessary to limit environmental depredation or save lives. • A grand jury or government agency conducting an investigation into workplace

injuries or fatalities would be denied access to documents which might reveal management’s knowledge of dangerous conditions. There is no provision in the Act to

balance public safety against rights of private parties, such as exist in other areas

of the law. For example, hospitals are encouraged to review deaths in their facilities

to improve procedures and prevent similar occurrences. Those reviews are not accessible to plaintiffs suing for wrongful death, but are available to government agencies

which license doctors and hospitals and to grand juries investigating whether the

death constituted a homicide. Under the EPPA, evidence necessary for the government to prevent future threats to public safety would remain secret.

The Privilege Exceptions are Too Narrow

Circumstances in which audit related documents are relevant to criminal investigations are not contemplated by the Act. This legitimate need for information does

not satisfy the narrow privilege exceptions. • When an environmental service provider such as a hazardous waste hauler defrauds an unsuspecting company by charging for lawful disposal services, and then

illegally dumps the company’s waste, audit documents may be necessary to make

a criminal case against the hauler. The privilege exceptions do not allow the government to obtain those documents to prove the hauler knew the waste it dumped was

hazardous.
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• When a business is investigated for its current illegal activities, any audit conducted prior to the activities under investigation would be relevant to prove knowledge and intent in the current case. The narrow privilege exception would not give

prosecutors access to those previously generated documents if the illegal acts were

discontinued when first discovered, even if the company consciously resumed illegal

dumping activities for financial motives after receiving immunity. • Audit documents from one company would not be available under the Act to

prove criminal activity of another company. Where there is hidden ownership or

where a shell corporation operates a facility, audit documents from any number of

companies may establish criminal intent of a particular individual. The limited

privilege exceptions would prevent government from piercing corporate veils to

prove an ongoing course of criminal environmental violations. • The privilege exceptions are applied on a case by case basis under the Act.

Where there is organized criminal activity, it is necessary to review patterns of activity and develop circumstantial evidence of intent. The limited exceptions do not

allow a review of a company’s ongoing course of conduct and do not make audit information available to prosecute crimes which may be peripheral to environmental

performance.

The Immunity is Too Broad

The prosecutor’s obligation to balance individual needs against public safety in resolving criminal cases is nullified by the automatic immunity provisions of the proposed Act. The immunity provisions are too broad because they do not take into account any of the following: • The seriousness of the offense, extent of environmental damage, potential harm

to health of the community. • Whether remediation has been completed as planned by the company at the

time immunity was granted. • Whether the immunized activity was a major or minor violation, whether the

company violated other environmental laws in addition to the one for which a disclosure immunity is claimed, or whether the management has committed other nonenvironmental crimes such as perjury or defrauding the government. • Whether the company can benefit and is willing to participate in government

assisted compliance efforts to improve overall performance. • Whether the audit activity giving rise to the disclosure was appropriate to the

size and nature of the facility, professionally conducted, accurate in its findings and

likely to prevent future violations.

The Combined Impact of Immunity & Privilege Provisions

The sunset provision of the proposed Act suggests that the impact of EPPA would

be scrutinized by Congress before extending it. However, the secrecy and automatic

immunity provisions would prevent any scrutiny at all. • There is no way to measure whether a particular immunized act or the program

itself has actually helped or harmed public health, safety or the environment. There

is no means of determining whether remediation has been completed or future violations prevented. • There is no penalty for a company that hides evidence of undisclosed crimes,

and no way to revoke immunity if illegal conduct is resumed subsequent to the

grant of immunity. • Crucial evidence would not be available if a grand jury is investigating a public

servant for bribery or other misconduct in office. There is no way to scrutinize the

activities of regulators who administer the programs created by the proposed Act.

Once immunity is granted to the company even if the company bribed a regulator

not to dispute disclosure immunity-a grand jury cannot obtain copies of audit documents to indict, to determine where the process failed or even to recommend legislative change. This protects from scrutiny the very employees of regulatory agencies

who are charged with administering environmental programs, even if they are suspected of unlawfully disclosing proprietary information from an audit document to

a company’s competitors. • Because there is no review process, there is no incentive for companies to conduct good audits. In fact, the promise of immunity may well encourage sham audits

by criminally motivated manufacturers and unqualified or fraudulent auditors.

The District Attorneys of New York State are attuned to the needs of businesses

in our respective jurisdictions and like all elected officials we are interested in the

economic well-being and ability of those businesses to survive. We will work with

them—and renew our commitment to work with you—to devise solutions for some

of the very real problems raised by industry regarding how it is regulated. However,

our primary responsibility as prosecutors is to protect the health and safety of our
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citizens. Enactment of environmental self-audit privilege and immunity laws, where

none exist with respect to other business relationships, will seriously impede our

ability to do so.

Very truly yours,

RICHARD A. BROWN,

President.
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