What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-658.

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-05-658, a report to 

congressional requesters 

August 2005

ENVIRONMENTAL LIABILITIES 

EPA Should Do More to Ensure That 

Liable Parties Meet Their Cleanup 

Obligations 

While more than 231,000 businesses operating in the United States filed for 

bankruptcy in fiscal years 1998 through 2003, the extent to which these 

businesses had environmental liabilities is not known because neither the 

federal government nor other sources collect this information. Information 

on bankrupt businesses with federal environmental liabilities is limited to 

data on the bankruptcy cases that the Justice Department has pursued in 

court on behalf of EPA. In that regard, the Justice Department initiated 136 

such cases from 1998 through 2003. 

In seeking to hold liable businesses responsible for their environmental 

cleanup obligations, EPA faces significant challenges that often stem from 

the differing goals of environmental laws that hold polluting businesses 

liable for cleanup costs and other laws that, in some cases, allow businesses 

to limit or avoid responsibility for these liabilities. For example, 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. While many such actions are legal, transferring 

assets to limit liability may violate federal law in some cases. However, such 

cases are difficult for EPA to identify and for the Justice Department to 

prosecute successfully. In addition, bankruptcy law presents a number of 

challenges to EPA’s ability to hold parties responsible for their cleanup 

obligations, challenges that are largely related to the law’s intent to give 

debtors a fresh start. Moreover, by the time a business files for bankruptcy, 

it may have few, if any, assets remaining to distribute among creditors. The 

bankruptcy process also poses procedural and informational challenges for 

EPA. For example, EPA lacks timely, complete, and reliable information on 

the thousands of businesses filing for bankruptcy each year. 

Notwithstanding these challenges, EPA could better ensure that bankrupt 

and other financially distressed businesses meet their cleanup obligations by 

making greater use of existing authorities. For example, EPA has not 

implemented a 1980 statutory mandate under Superfund to require 

businesses handling hazardous substances to demonstrate their ability to 

pay for potential environmental cleanups—that is, to provide financial 

assurances. EPA has cited competing priorities and lack of funds as reasons 

for not implementing this mandate, but its inaction has exposed the 

Superfund program and U.S. taxpayers to potentially enormous cleanup 

costs at gold, lead, and other mining sites and at other industrial operations, 

such as metal-plating businesses. Also, EPA has done little to ensure that 

businesses comply with its existing financial assurance requirements in 

cleanup agreements and orders. Greater oversight and enforcement of 

financial assurances would better guarantee that cleanup funds will be 

available if needed. Also, greater use of other existing authorities—such as 

tax offsets, which allow the government to redirect tax refunds it owes 

businesses to agencies with claims against them—could produce additional 

payments for cleanups from financially distressed businesses. 

The burden of cleaning up 

Superfund and other hazardous 

waste sites is increasingly shifting 

to taxpayers, particularly since 

businesses handling hazardous 

substances are no longer taxed 

under Superfund and the backlog 

of sites needing cleanup is growing. 

While key environmental laws rely 

on the “polluter pays” principle, the 

extent to which liable parties cease 

operations or restructure—such as 

through bankruptcy—can directly 

affect the cleanup costs faced by 

taxpayers. GAO was asked to (1) 

determine how many businesses 

with liability under federal law for 

environmental cleanups have 

declared bankruptcy, and how 

many such cases the government 

has pursued in bankruptcy court; 

(2) identify challenges the 

Environmental Protection Agency 

(EPA) faces in holding bankrupt 

and other financially distressed 

businesses responsible for their 

cleanup obligations; and (3) 

identify actions EPA could take to 

better ensure that such businesses 

pay for their cleanups. 

What GAO Recommends

GAO’s nine recommendations 

include EPA’s (1) implementing a 

financial assurance mandate for 

businesses handling hazardous 

substances and (2) enhancing its 

oversight and enforcement of 

existing financial assurances and 

authorities. EPA generally agreed 

with many of the 

recommendations, stating its intent 

to further evaluate some of them.