United States Government Accountability Office

GAO Testimony 

Before the Committee on Environment 

and Public Works, U.S. Senate 

ENVIRONMENTAL 

LIABILITIES 

Hardrock Mining Cleanup 

Obligations 

Statement for the Record by John B. Stephenson, Director 

Natural Resources and Environment 

For Release on Delivery

Expected at 9:30 a.m. EDT

Wednesday, June 14, 2006 

 

GAO-06-884T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-06-884T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact John B. 

Stephenson at (202) 512-3841 or 

stephensonj@gao.gov. 

Highlights of GAO-06-884T, a report to the 

Committee on Environment and Public 

Works, U.S. Senate 

June 14, 2006

ENVIRONMENTAL LIABILITIES 

Hardrock Mining Cleanup Obligations 

EPA could better ensure that companies at high risk of incurring 

environmental liabilities—including hardrock mining companies—meet their 

cleanup obligations by making greater use of existing authorities. Most 

significantly, EPA has not implemented a 1980 statutory mandate under 

Superfund to require businesses handling hazardous substances to provide 

the agency evidence of their ability to pay to clean up contamination that 

could result from their operations. Businesses can provide this evidence, 

called financial assurance, in several ways, including providing a letter of 

credit from a financial institution and establishing a dedicated trust fund. 

The 1980 law requires EPA to use a risk-based approach for both (1) 

identifying the entities that would be covered and (2) specifying the financial 

assurance coverage they would be required to have. The law also requires 

EPA to give priority in developing these requirements to those classes of 

facilities, owners, and operators that EPA believes present the highest level 

of risk of injury. Although implementing the financial assurance requirement 

could help avoid the creation of additional Superfund sites and could 

provide funds to help pay for cleanups, EPA has cited competing priorities 

and lack of funds, among other things, as reasons for having made no 

progress in this area for nearly 25 years. Without the mandated financial 

assurance regulations, significant gaps in EPA’s environmental financial 

assurance coverage exist, thereby increasing the risk that taxpayers will 

eventually have to assume financial responsibility for cleanup costs. For 

example, none of EPA’s current financial assurance regulations require 

companies or industries that pose significant risk of environmental 

contamination to provide assurance that they can meet cleanup obligations 

for potential accidents or spills of hazardous substances or wastes. 

Hardrock mining can cause significant environmental problems; these sites 

are typically large, complex, and costly to clean up. For example, in 2004, 

the EPA Inspector General estimated that cleaning up 63 mining sites on the 

Superfund’s National Priorities List would cost up to $7.8 billion. In applying 

the Superfund law’s risk-based approach for developing financial assurance 

requirements, EPA may want to consider hardrock mining—for example, 

gold, copper, and iron ore mining—a high priority because it presents 

taxpayers with an especially serious risk of having to pay cleanup costs for 

thousands of abandoned, inactive, and operating mines in the United States. 

Some mine owners have defaulted on multiple occasions on environmental 

liabilities associated with their mines, and the cleanup costs for these sites 

are being, or are expected to be, borne largely by taxpayers. As a result, EPA 

may wish to give priority in developing financial assurance requirements to 

facility owners whose prior actions indicate that they may pose a high risk of 

default on their environmental obligations. Finally, financial assurances for 

businesses at risk for environmental contamination can help mitigate the 

fact that businesses can legally organize or restructure in ways that can limit 

their future expenditures for cleanups by, for example, separating their 

assets from their liabilities using subsidiaries to protect their assets. 

Key federal environmental statutes, 

such as the Resource Conservation 

and Recovery Act (RCRA) and the 

Comprehensive Environmental 

Response, Compensation, and 

Liability Act (CERCLA), which 

established the Superfund program, 

require that parties statutorily 

responsible for pollution bear the 

cost of cleaning up contaminated 

sites. In many cases, liable parties 

meet their cleanup responsibilities. 

However, many parties responsible 

for hardrock mining sites include 

businesses that no longer exist, 

having been liquidated through 

bankruptcy or otherwise dissolved. 

Under these circumstances, some 

hardrock mining companies that 

have caused environmental 

contamination have left the 

problem for others, typically the 

government, to address. 

We were asked to provide a 

statement for the record on the 

cleanup of contamination resulting 

from hardrock mining as it relates 

to our August 2005 report, 

Environmental Liabilities: EPA 

Should Do More to Ensure that 

Liable Parties Meet Their Cleanup 

Obligations (GAO-05-658). We 

made nine recommendations in this 

report aimed at reducing the 

government’s financial burden for 

costly environmental cleanups. 

The agency generally agreed with 

many of the recommendations, 

stating its intent to further evaluate 

some of them. 
Page 1 GAO-06-884T 

Mr. Chairman and Members of the Committee: 

We are pleased to have the opportunity to comment on the cleanup of 

contamination resulting from hardrock mining as it relates to our work on 

environmental liability issues. Key federal environmental statutes, such as 

the Resource Conservation and Recovery Act (RCRA) and the 

Comprehensive Environmental Response, Compensation, and Liability Act 

(CERCLA),1

 which established the Superfund program, require that parties 

statutorily responsible for pollution bear the cost of cleaning up 

contaminated sites.2

 In many cases, liable parties have met their cleanup 

responsibilities. However, many parties responsible for hardrock mining 

sites include businesses that no longer exist, having been liquidated 

through bankruptcy or otherwise dissolved. Under these circumstances, 

some hardrock mining companies that have caused environmental 

contamination have left the problem for others, typically the government, 

to address. 

As the Committee considers legislation that would waive certain cleanup 

requirements for such parties as industry partners and nonprofit 

organizations who agree to clean up contaminated hardrock mining sites 

abandoned by their owners, it is also appropriate to consider other actions 

the government can take to better ensure that companies with a high risk 

for incurring environmental liabilities—including hardrock mining 

companies—meet their cleanup obligations. As detailed in our 2005 report 

on environmental liabilities, the Environmental Protection Agency (EPA) 

could better ensure that bankrupt and other financially distressed 

businesses carry out their cleanup responsibilities by making greater use 

of EPA’s existing authorities and enforcement tools.3

Most significantly, EPA has not implemented a 1980 statutory mandate 

under Superfund to require businesses handling hazardous substances to 

provide the agency evidence of their ability to pay to clean up potential 

spills or other environmental contamination that could result from their 

 1

For simplicity in this testimony, the Comprehensive Environmental Response, 

Compensation, and Liability Act of 1980 will generally be referred to as the Superfund law. 

2

The Superfund law generally applies to cleanups of contaminated sites that are no longer 

in use. RCRA generally applies to operating businesses that treat, store, or dispose of 

hazardous wastes. 

3

Environmental Liabilities: EPA Should Do More to Ensure that Liable Parties Meet 

Their Cleanup Obligations, GAO-05-658, Aug. 17. 2005. 
Page 2 GAO-06-884T 

operations. Businesses can provide this evidence, called financial 

assurance, in several ways, including providing a letter of credit from a 

financial institution and establishing a dedicated trust fund. The 1980 law 

requires EPA to use a risk-based approach for both (1) identifying the 

entities that would be covered and (2) specifying the financial assurance 

coverage they would be required to have. The law also requires EPA to 

give priority in developing these requirements to those classes of facilities, 

owners, and operators that EPA believes present the highest level of risk 

of injury. Although implementing the financial assurance requirement 

could help avoid the creation of additional Superfund sites and could 

provide funds to help pay for cleanups, EPA has cited competing priorities 

and lack of funds, among other things, as reasons for having made no 

progress in this area for nearly 25 years. 

As we noted in our 2005 report, in applying the Superfund law’s risk-based 

approach for developing financial assurance requirements, EPA may want 

to consider hardrock mining—for example, gold, copper, and iron ore 

mining—a high priority because history tells us that it presents taxpayers 

with an especially serious risk of having to pay cleanup costs for 

thousands of abandoned, inactive, and operating mines in the United 

States. As detailed in a 2004 report by EPA’s Office of Inspector General, 

hardrock mining can cause significant environmental problems, and these 

sites are typically large, complex, and costly to clean up.4

 According to the 

EPA IG report, 63 hardrock mining sites were on the Superfund’s National 

Priority List (NPL) and another 93 sites had the potential to be added to 

the list. At least 19 of the 63 NPL mining sites had estimated cleanup costs 

of $50 million or more. In total, the 63 sites were estimated to cost up to 

$7.8 billion to clean up, $2.4 billion of which was expected to be borne by 

taxpayers rather than the parties responsible for the contamination. The 

IG report also highlighted the fact that the projected operation and 

maintenance period for cleanup remedies ranges from 40 years to “in 

perpetuity.” Thus, the costs to taxpayers would increase if the liable 

 4

EPA, Office of Inspector General, Nationwide Identification of Hardrock Mining Sites, 

2004-P-00005 (Washington, D.C.: Mar. 31, 2004). 
Page 3 GAO-06-884T 

parties expected to pay for the cleanup remedies proved to be unable to 

do so.5

Further, we reported in 2005 that some mine owners have defaulted on 

multiple occasions on environmental liabilities associated with their 

mines, and the cleanup costs for these sites are being, or are expected to 

be, borne largely by taxpayers. These owners may reasonably be viewed as 

at high risk for defaulting on environmental obligations associated with 

mines or businesses that they currently own. For example, one individual 

is associated with several businesses that have filed for bankruptcy 

protection. Like other mine owners with serial bankruptcies involving 

contaminated mining sites, this owner continues to operate businesses 

having sites with significant contamination whose cleanup may eventually 

fall to the Superfund. If EPA developed and implemented the financial 

assurance regulations that the Superfund law mandates, EPA could 

require such owners to provide financial assurances now for existing and 

future cleanups, thereby reducing the amount that taxpayers would 

otherwise likely be required to pay. 

However, without the mandated financial assurance regulations, 

significant gaps in EPA’s environmental financial assurance coverage 

exist, thereby increasing the risk that taxpayers will eventually have to 

assume financial responsibility for cleanup costs. First, none of EPA’s 

current financial assurance regulations require companies or industries 

that pose significant risk of environmental contamination to provide 

assurance that they can meet cleanup obligations associated with potential 

accidents or spills of hazardous substances or wastes. For example, when 

EPA reaches settlement agreements with parties regarding cleaning up 

existing Superfund sites, the agency generally requires the businesses to 

provide financial assurance demonstrating their ability to pay for the 

agreed-upon cleanup activities. Similarly, under RCRA’s corrective action 

program, EPA typically requires that owners and operators of hazardous 

waste treatment, storage, and disposal facilities provide financial 

 5

The EPA Inspector General reported that at least one “clearly viable” party had been 

identified for 70 percent of the 63 NPL mining sites (including 11 percent where the viable 

party was a federal agency, such as the Department of the Interior). However, the report 

also emphasized that EPA should be concerned about the viability of these parties over 

time because of the long-term nature of the cleanups liabilities at mines. 
Page 4 GAO-06-884T 

assurance for cleanups of spills or other existing contamination at 

hazardous waste facilities.6

Another significant gap in financial assurance coverage that the Superfund 

mandate could address involves types of waste excluded from RCRA 

coverage. Some types of wastes associated with mining activities can 

result in substantial cleanup costs but are excluded from the definition of 

hazardous wastes and therefore are not regulated under RCRA’s 

hazardous waste provisions. This exclusion has resulted in a significant 

gap in financial assurance. In addition, we note that mining activities on 

private lands are not covered by the Department of the Interior’s Bureau of 

Land Management financial assurance requirements for mines on federal 

land it manages.7

 However, some of these mining facilities handle 

hazardous substances as defined under the Superfund law, and, therefore, 

financial assurance regulations issued under the Superfund law could 

apply to these facilities. The Superfund financial assurance mandate could 

also address the significant gap in financial assurance that exists because 

generators of hazardous waste (such as metal-plating facilities), which are 

regulated under RCRA, are generally not required to maintain any financial 

assurances for contamination they have caused. 

By its inaction on the Superfund mandate to require businesses to provide 

financial assurance, EPA has continued to expose the Superfund program, 

and ultimately the U.S. taxpayers, to potentially billions of dollars in 

cleanup costs for facilities that currently are not required to have financial 

assurances for cleanup costs, such as many gold, lead, and other hardrock 

mining sites and metal-plating facilities. By implementing the financial 

assurance requirement under Superfund. EPA could help close the 

financial assurance gaps discussed above by requiring financial assurances 

for cleaning up existing and future contamination at facilities that handle 

hazardous substances but are not subject to RCRA’s closure/post-closure 

or corrective action programs, including many mining sites and facilities 

that generate, but do not treat, store, or dispose of hazardous waste. These 

financial assurance gaps may be more significant since the authority for an 

 6

RCRA’s closure and post-closure financial assurances cover normal costs of closing and 

conducting post-closure care but do not cover cleanups stemming from accidental releases. 

7

 Our report Hardrock Mining: BLM Needs to Better Manage Financial Assurances to 

Guarantee Coverage of Reclamation Costs, GAO-05-377 (Washington, D.D.: June 20, 2005) 

recommends ways for BLM to better manage financial assurances it requires of operators 

to guarantee reclamation costs if they fail to reclaim BLM-managed lands after operations 

cease. 
Page 5 GAO-06-884T 

environmental tax on corporations, crude oil, and certain chemicals, that 

had largely funded the Superfund program expired in 1995. As a result, the 

federal government’s general appropriations fund is increasingly being 

tapped to fund the cleanups paid for by the Superfund trust fund when 

responsible parties do not. For example, for fiscal year 2004, EPA’s 

appropriation for the Superfund program was from general revenues only. 

As we noted in our 2005 report, EPA may wish to give priority in 

developing financial assurance requirements to facility owners whose 

prior actions indicate that they may pose a high risk of default on their 

environmental obligations. Factors EPA may wish to consider in 

evaluating owner risk include compliance history—such as a history of 

noncompliance with environmental laws, including cleanup obligations, 

and magnitude of past, current, and potential environmental liabilities. 

Finally, financial assurances for businesses at risk for environmental 

contamination can help mitigate the fact that businesses can legally 

organize or restructure in ways that can limit their future expenditures for 

cleanups by, for example, separating their assets from their liabilities using 

subsidiaries. A subsidiary that is engaged in a business that is at risk of 

incurring substantial liability, such as mining or chemical manufacturing, 

can protect its assets by transferring the most valuable ones—such as 

equipment and patents—to a related entity, such as the parent or other 

subsidiary engaged in less risky endeavors. The high-risk subsidiary can 

continue to use the transferred assets, as appropriate, by leasing or renting 

them. It has become common practice for experts in asset protection to 

recommend that corporations protect their assets in this way. A goal is to 

continually draw down on the subsidiary’s remaining assets, such as cash 

from the sale of equipment, to pay operating expenses, including rental 

and lease payments and salaries. If a liability arises, the high-risk 

subsidiary’s remaining assets may be reached—but generally not those of 

the parent corporation or other subsidiaries to which assets were 

transferred. 

While these asset protection strategies are generally legal depending on 

the circumstances, it is generally unlawful to transfer assets with the 

intent to hinder or defraud creditors. Most states have laws that contain 

prohibitions on fraudulent transfers. Creditors generally must seek to 

invalidate such transfers within 4 years of their occurrence. Perhaps for 

these reasons, publications by financial and legal advisors have suggested 

that asset transfers be implemented in stages over time to avoid calling 

attention to them. The use of such strategies by parties liable for 

environmental cleanups presents a significant challenge to EPA in 
Page 6 GAO-06-884T 

obtaining cleanup costs because it is hard for the agency to know about 

such transfers, much less obtain sufficient information to successfully 

challenge them within the time permitted by law. Further, because 

businesses typically are aware of Superfund liabilities for many years 

before they actually have to fund the cleanups, they have ample time to 

reorganize and structure themselves in ways that can limit the 

expenditures they may be required to make in the future. 

In closing, these are issues we believe the committee should consider in 

evaluating legislation to encourage the cleanup of contaminated hardrock 

mining sites. Our report on environmental liabilities identifies several ways 

EPA can and should protect its financial interests, including implementing 

the mandate in the Superfund law to require businesses at risk of 

environmental contamination to provide financial assurance that it can 

clean up any spills or contamination that might occur in the future. 

For further information on this statement,please contact John Stephenson 

at (202) 512-3841 or stephensonj@gao.gov. Contact points for our Offices 

of Congressional Relations and Public Affairs may be found on the last 

page of this statement. Individuals who contributed to this statement 

include Nancy Crothers, Christine Fishkin, Richard P. Johnson, Ches Joy, 

and Susan Swearingen. 

GAO Contact and 

Staff 

Acknowledgments 

(360729) 
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