[Federal Register Volume 60, Number 63 (Monday, April 3, 1995)]
[Notices]
[Pages 16875-16879]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-8218]



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ENVIRONMENTAL PROTECTION AGENCY
[FRL-5184-4]


Voluntary Environmental Self-Policing and Self-Disclosure Interim 
Policy Statement

AGENCY: Environmental Protection Agency (EPA).

ACTION: Interim policy statement and request for comment.

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SUMMARY: The Environmental Protection Agency (EPA) announces and 
requests comment on an interim policy to provide incentives for 
regulated entities that conduct voluntary compliance evaluations and 
also disclose and correct violations. These incentives include 
eliminating or substantially reducing the gravity component of civil 
penalties and not referring cases for criminal prosecution where 
specified conditions are met. The policy also states that EPA will not 
request voluntary audit reports to trigger enforcement investigations. 
This interim policy was developed in close consultation with EPA's 
regional offices and the Department of Justice, and will be applied 
uniformly by the Agency's enforcement programs.

DATES: This interim policy statement is effective as interim guidance 
15 days after publication, in order to give the Agency time to 
coordinate implementation of the policy throughout EPA Headquarters and 
the Regions. EPA urges interested parties to comment on this interim 
policy in writing. Comments must be received by EPA at the address 
below by June 2, 1995.

ADDRESSES: Submit three copies of comments to the U.S. EPA Air Docket, 
Mail Code 6102, 401 M Street, SW, Washington, D.C. 20460, attention: 
Docket #C-94-01.

FOR FURTHER INFORMATION CONTACT: Additional documentation relating to 
the development of this interim policy is contained in the 
environmental auditing public docket. Documents from the docket may be 
requested by calling (202) 260-7548, requesting an index to docket #C-
94-01, and faxing document requests to (202) 260-4400. Hours of 
operation are 8 a.m. to 5:30 p.m., Monday through Friday, except legal 
holidays. Additional contacts are Geoff Garver or Brian Riedel, at 
(202) 564-4187.

SUPPLEMENTARY INFORMATION:

I. Background

A. Introduction

    One of the Environmental Protection Agency's most important 
responsibilities is obtaining compliance with federal laws that protect 
public health and safeguard the environment. That goal can be achieved 
only with the voluntary cooperation of thousands of businesses and 
other regulated entities subject to these requirements. Today, EPA is 
announcing incentives for those who take responsibility for voluntarily 
evaluating, disclosing and correcting violations. These incentives, 
developed after nine months of public meetings and empirical analysis, 
are set forth in detail below and take effect in 15 days. At the same 
time, EPA expects to continue a dialogue with stakeholders and consider 
further refinements to this interim policy. The incentives that EPA is 
offering fall into three distinct categories.
    First, the Agency will completely eliminate gravity-based (or 
``punitive'') penalties for companies or public agencies that 
voluntarily identify, disclose and correct violations according to the 
conditions outlined in this policy. EPA will also reduce punitive 
penalties by up to 75% for [[Page 16876]] companies that meet most, but 
not all, of these conditions. Second, EPA will not recommend to the 
Department of Justice that criminal charges be brought against a 
company acting in good faith to identify, disclose, and correct 
violations, so long as no serious actual harm has occurred. Finally, 
the Agency will not request voluntary environmental audits to trigger 
enforcement investigations.
    The incentives offered in this policy have been structured above 
all to protect human health and the environment. For example, even 
where the conditions for mitigated enforcement are met, EPA will 
reserve the right to collect full civil penalties for criminal conduct, 
violations that present an imminent and substantial endangerment or 
result in serious actual harm, or repeat violations. Sources will not 
be allowed to gain an economic advantage over their competitors by 
delaying their investment in compliance. Nor will EPA hesitate to bring 
a criminal action against individuals responsible for criminal conduct.
    EPA is considering additional incentives for voluntary compliance 
beyond the benefits offered in the policy today. On April 7, 1995, the 
Agency will announce 12 Environmental Leadership Program (ELP) pilot 
projects with companies and public agencies to test criteria for 
auditing and certification of voluntary compliance programs. If 
successful, standards developed through Environmental Leadership could 
lead to reduced inspections and public recognition for companies or 
agencies with state-of-the-art compliance programs. In keeping with the 
President's announcement on March 16, 1995, EPA also will shortly be 
announcing additional compliance incentives for small businesses.
    The Agency is especially interested in comments relating to whether 
this interim policy appropriately defines the criteria for determining 
whether a self-audit, self-evaluation or disclosure is voluntary; 
whether the interim policy adequately preserves the Agency's authority 
to assess a gravity penalty component in appropriate cases; and 
whether, and according to what criteria, the Agency should consider 
giving credit against the economic benefit component of a penalty for 
state-of-the-art environmental management systems.

B. Public Process

    In May 1994, the Administrator asked the Office of Enforcement and 
Compliance Assurance to determine whether additional incentives are 
needed to encourage voluntary disclosure and correction of violations 
uncovered during environmental audits and self-evaluations.
    In developing this interim policy, the Agency held a major two-day 
public meeting in July 1994 announced in the Federal Register on June 
20, 1994 (59 FR 31914); published a Restatement of Policies Related to 
Environmental Auditing in the Federal Register on July 28, 1994 (59 FR 
38455); considered over 80 written comments submitted to the 
environmental auditing policy docket; held a focus group meeting in San 
Francisco on January 19, 1995 with key stakeholders from industry, 
trade groups, State environmental commissions, State attorneys general 
offices, district attorneys' offices, environmental and public interest 
groups, and professional environmental auditing groups; and held a 
public comment session in San Francisco on January 20, 1995.
    In addition to considering opinion from stakeholders, EPA conducted 
its own analysis of relevant facts. For example, the Agency considered 
EPA and other Federal policies relating to environmental auditing, 
self-disclosure, and correction, as well as incentives suggested by 
State and local policies and legislation, and by applications submitted 
for the ELP pilot program. The Agency also considered relevant surveys 
on auditing practices and incentives.

C. Purpose

    This interim policy is intended to promote environmental compliance 
by providing greater certainty as to EPA's enforcement response to 
voluntary self-evaluations, and voluntary disclosure and prompt 
correction of violations. The policy further provides guidance for 
States and local authorities in encouraging this behavior among 
regulated entities.
    Federal laws and regulations set minimum standards for protecting 
human health and achieving environmental protection goals such as clean 
air and clean water. EPA will continue to uphold these laws through 
vigorous enforcement actions that appropriately penalize violators. 
Penalties help ensure a level playing field by ensuring that violators 
do not obtain an unfair economic advantage over their competitors who 
made the necessary investment in compliance. Penalties also promote 
protection of the environment and public health by encouraging adoption 
of pollution prevention and recycling practices that limit exposure to 
liability for pollutant discharges and deterring future violations by 
the violator and others.
    At the same time, the Agency recognizes that we cannot achieve 
maximum compliance without the cooperation of a regulated community 
willing to act responsibly by detecting, disclosing, and correcting 
violations. Already, regulated entities have many compelling incentives 
to implement environmental management/auditing systems, as noted in 
EPA's 1986 auditing policy. Indeed, recent surveys show that the vast 
majority of large companies engage in environmental auditing and/or 
have environmental management systems in place. Nonetheless, EPA has 
concluded that the additional incentives in this interim policy will 
further promote the regulated community's commitment to adopting 
systems for maximizing compliance.

D. Principles for Voluntary Compliance

    The interim policy that EPA is announcing today is based on seven 
principles:
    1. Self-policing by regulated entities can play a crucial role in 
finding, fixing and preventing violations.
    2. Violations discovered through self-policing should be disclosed 
and promptly corrected.
    3. Regulated entities that self-police and that voluntarily 
disclose and self-correct violations in accordance with this policy 
should be assessed penalties that are consistently and predictably 
lower than penalties for those who do not.
    4. Regulated entities that self-police and voluntarily disclose and 
self-correct violations in accordance with this policy should also not 
be recommended for criminal prosecution.
    5. Providing predictable incentives for voluntary disclosure and 
correction of violations identified through self-policing offers a 
positive alternative to across-the-board privileges and immunities that 
could be used to shield criminal misconduct, drive up litigation costs 
and create an atmosphere of distrust between regulators, industry and 
local communities.
    6. EPA should not seek voluntary environmental audit information to 
trigger an investigation of a civil or criminal violation of 
environmental laws.
    7. To preserve a level playing field, EPA should recover any 
economic benefit realized from violations of environmental law.

E. Relationship to Emerging Standards

    EPA also recognizes the development of and growing reliance on 
international voluntary environmental management standards in the U.S. 
and other [[Page 16877]] countries. These standards, if properly 
crafted and implemented, can provide a powerful tool for organizations 
to improve their overall compliance with environmental requirements and 
move beyond compliance through innovative approaches to pollution 
prevention. In addition to issuing this interim policy, EPA will 
continue to pursue a dialogue with interested parties and to pilot 
policy approaches through programs such as the ELP to determine how EPA 
can make use of and encourage these standards.

II. Interim Policy

A. Definitions

    For purposes of this interim policy, the following definitions 
apply:
    ``Environmental auditing'' has the definition given to it in EPA's 
1986 policy on environmental auditing, i.e. ``a systematic, documented, 
periodic and objective review by regulated entities of facility 
operations and practices related to meeting environmental 
requirements.''
    ``Environmental audit report'' means all documentation of 
information relating to an environmental audit, but not including the 
factual information underlying or testimonial evidence relating to such 
information.
    ``Regulated entity'' means any entity, including a federal, state, 
and municipal facility, regulated under the federal environmental laws 
that EPA administers.
    ``Self-evaluation'' means an assessment, not necessarily meeting 
all the criteria of a full environmental audit, by a regulated entity 
of its compliance with one or more environmental requirements.
    ``Voluntary'' means not required by statute, regulation, permit, 
order, or agreement.

B. Conditions

    The conditions for reducing civil penalties and not making criminal 
referrals in accordance with Sections II.C. and II.D. of this interim 
policy are as follows:
    1. Voluntary self-policing. The regulated entity discovers a 
violation through a voluntary environmental audit or voluntary self-
evaluation appropriate to the size and nature of the regulated entity; 
and
    2. Voluntary disclosure. The regulated entity fully and voluntarily 
discloses the violation in writing to all appropriate federal, state 
and local agencies as soon as it is discovered (including a reasonable 
time to determine that a violation exists), and prior to (1) the 
commencement of a federal, state or local agency inspection, 
investigation or information request; (2) notice of a citizen suit; (3) 
legal complaint by a third party; or (4) the regulated entity's 
knowledge that the discovery of the violation by a regulatory agency or 
third party was imminent; and
    3. Prompt correction. The regulated entity corrects the violation 
either within 60 days of discovering the violation or, if more time is 
needed, as expeditiously as practicable; and
    4. Remediation of imminent and substantial endangerment. The 
regulated entity expeditiously remedies any condition that has created 
or may create an imminent and substantial endangerment to human health 
or the environment; and
    5. Remediation of harm and prevention of repeat violations. The 
regulated entity implements appropriate measures to remedy any 
environmental harm due to the violation and to prevent a recurrence of 
the violation; and
    6. No lack of appropriate preventive measures. The violation does 
not indicate that the regulated entity has failed to take appropriate 
steps to avoid repeat or recurring violations; and
    7. Cooperation. The regulated entity cooperates as required by EPA 
and provides such information as is reasonably necessary and required 
by EPA to determine applicability of this policy. Cooperation may 
include providing all requested documents and access to employees and 
assistance in any further investigations into the violation.
    Where appropriate, EPA may require that to satisfy any of these 
conditions, a regulated entity must enter into a written agreement, 
administrative consent order or judicial consent decree, particularly 
where compliance or remedial measures are complex or a lengthy schedule 
for attaining and maintaining compliance or remediating harm is 
required.
C. Reduce Civil Penalties for Voluntarily Disclosed and Promptly 
Corrected Violations

1. Incentive
    Regulated entities will be eligible for the following reductions in 
civil penalties:
    a. EPA will eliminate all of the gravity component of the penalty 
for violations by regulated entities that meet conditions 1 through 7 
outlined in Section II.B., except for violations involving (i) criminal 
conduct by the regulated entity or any of its employees, or (ii) an 
imminent and substantial endangerment, or serious actual harm, to human 
health or the environment.
    b. EPA may mitigate up to 75% of the unadjusted gravity component 
of the penalty, taking into account any of conditions 1-7 in Section 
II.B. that are met, in the following cases:
    (i) cases in which most but not all of the conditions in Section 
II.B. are met; or
    (ii) cases involving an imminent and substantial endangerment, but 
not serious actual harm, in which all the conditions in Section II.B. 
are met; or
    (iii) cases involving the disclosure of criminal conduct in which 
all the conditions in Section II.B. are met.
    c. EPA will retain its full discretion to recover any economic 
benefit gained as a result of noncompliance to preserve a ``level 
playing field'' in which violators do not gain a competitive advantage 
through noncompliance. However, EPA may forgive the entire penalty for 
violations which meet conditions 1 through 7 outlined in Section II.B. 
and, in EPA's discretion, do not merit any penalty due to the 
insignificant amount of any economic benefit.
2. Discussion
    a. Providing a clear and significant reduction in civil penalties 
for companies that assume responsibility for finding, disclosing and 
correcting violations will create a strong incentive for regulated 
entities to prevent or fix violations before EPA expends enforcement 
resources. The policy states clearly the conditions under which EPA 
will forgive all or part of the gravity component of a penalty for 
voluntary disclosure and correction;
    b. The policy appropriately preserves the concept of recovering 
economic benefit, except where it is insignificant, as recommended by a 
broad spectrum of commenters, including industry commenters;
    c. Retaining EPA's discretion to collect the gravity component of 
the penalty in appropriate cases, such as where a violation involves 
criminal conduct, or imminent and substantial endangerment, will help 
to deter the most egregious environmental violations. At the same time, 
by preserving flexibility to reduce the gravity element by up to 75% 
for good faith efforts to disclose and promptly comply even in those 
cases, the policy will retain an appropriate compliance incentive.

D. Limit Criminal Referrals for Voluntary Disclosure and Correction of 
Violations

1. Incentive
    EPA will not recommend to the Department of Justice that criminal 
[[Page 16878]] charges be brought against a regulated entity where EPA 
determines that conditions 1-7 in Section II.B. above for reduction of 
civil penalties are met, and the violation does not demonstrate or 
involve (1) a prevalent corporate management philosophy or practice 
that concealed or condoned environmental violations; (2) high-level 
corporate officials' or managers' conscious involvement in or willful 
blindness to the violation; or (3) serious actual harm to human health 
or the environment. This policy does not apply to criminal acts of 
individual managers or employees. Where EPA determines pursuant to this 
Section that a criminal referral to the Department of Justice is 
unwarranted, EPA may nonetheless proceed with civil enforcement in 
accordance with Section II.C. of this policy or other applicable 
enforcement response and penalty policies.
2. Discussion
    The policy will promote candid and thorough self-policing by 
providing greater certainty as to how EPA will exercise its criminal 
investigative discretion to encourage voluntary disclosure and prompt 
correction by regulated entities.

E. Eliminate Routine Requests for Audit Reports in Pre-Enforcement 
Proceedings

1. Incentive
    EPA will not request a voluntary environmental audit report to 
trigger a civil or criminal investigation. For example, EPA will not 
request an audit in routine inspections. Once the Agency has reason to 
believe a violation has been committed, EPA may seek through an 
investigation or enforcement action any information relevant to 
identifying violations or determining liability or extent of harm.
2. Discussion
    a. This policy makes clear that EPA will not routinely request 
audit reports. At the same time, the policy in no way limits the right 
of regulated entities to claim common law privileges (e.g., attorney-
client and work product) as appropriate. EPA believes that this 
clarification, along with the other incentives in this interim policy, 
should greatly reduce any perception that environmental audits may be 
used unfairly in environmental enforcement.
    b. With respect to federal facilities, although federal facility 
environmental audit reports may be accessible to the public under the 
Freedom of Information Act (FOIA) in certain circumstances, EPA cannot 
utilize FOIA to request information from other federal agencies. Thus, 
EPA will apply this policy on requests for audit reports to federal 
(and state and municipal) facilities the same as it does for other 
regulated entities.

F. Applicability

    This interim policy applies to violations under all of the federal 
environmental statutes that EPA administers and supersedes (unless 
otherwise noted) any conflicting or inconsistent provisions in the 
media-specific penalty or enforcement response policies and EPA's 1986 
Environmental Auditing Policy Statement. Existing enforcement policies 
will continue to apply in conjunction with this interim policy, except 
where inconsistent with this policy. In addition, where appropriate, 
EPA's Supplemental Environmental Project Policy may at EPA's discretion 
be applied in conjunction with this policy.

III. Favor These Incentives Over Broad Privileges and Immunities

    This interim policy offers a positive alternative to across-the-
board privileges and immunities that could be used to shield criminal 
misconduct, drive up litigation costs and create an atmosphere of 
distrust between regulators, industry and local communities.

A. Discussion

    1. Penalty immunity provisions for voluntary disclosures of 
violations can give lawbreakers an economic advantage over their law-
abiding competitors. It makes sense to give substantial penalty 
reductions for those who come forward with their violations and 
promptly correct them, but to maintain a level playing field, the 
federal and state governments must be able to recoup the economic 
benefit of violations.
    2. A principal rationale for environmental audit privileges and 
penalty immunities for voluntary disclosures is to reduce the exposure 
of regulated entities that conduct self-evaluations and act on the 
findings by immediately correcting violations. EPA has addressed this 
concern with the incentives for disclosure and correction outlined 
above.
    3. Privilege runs counter to efforts to open up environmental 
decisionmaking and encourage public participation in matters that 
affect people's homes, workplaces and communities.
    4. An environmental audit privilege could be misused to shield bad 
actors or to frustrate access to crucial factual information.
    5. Environmental audit privileges and penalty immunities could 
encourage increased litigation as opposing lawyers battle over what is 
privileged or immune from penalties and what is not. Litigation over 
the scope of the privileges and immunities could burden our already 
taxed judicial system, drain government and private resources, and in 
some cases prevent quick action to address environmental emergencies.
    6. The Supreme Court has noted, ``privileges are not lightly 
created nor expansively construed for they are in derogation of the 
search for the truth.'' United States v. Nixon, 418 U.S. 683, 710 
(1974). Moreover, the self-evaluation privilege has regularly and 
uniformly been rejected by the courts in cases where documents were 
sought by a governmental agency.

IV. Consequences for States

    EPA recognizes that states are important partners in federal 
enforcement, and that it is desirable to create a climate in which 
states can be innovative. At the same time, EPA is required to 
establish a certain minimum consistency in federal enforcement, so that 
the sanctions a business faces for violating federal law do not depend 
on where the business is located.
    Accordingly, to maintain national consistency:
    A. EPA will scrutinize enforcement more closely in states with 
audit privilege and/or penalty immunity laws and may find it necessary 
to increase federal enforcement where environmental self-evaluation 
privileges or penalty immunities prevent a state from obtaining:
    1. information needed to establish criminal liability;
    2. facts needed to establish the nature and extent of a violation;
    3. appropriate penalties for imminent and substantial endangerment 
or serious harm to human health or the environment, or from recovering 
economic benefit;
    4. appropriate sanctions or penalties for criminal conduct and 
repeat violations; or
    5. prompt correction of violations, and expeditious remediation of 
those that involve imminent and substantial endangerment to human 
health or the environment.
    B. EPA will bring to the state's attention any provisions of state 
audit privilege and/or penalty immunity statutes that raise any of the 
concerns outlined above, and will work with the state to address those 
concerns and ensure that federal requirements are satisfied. 
[[Page 16879]] 

V. Limitations on Applicability of This Policy

    This interim policy sets forth internal guidelines which amend 
EPA's penalty policies in situations involving voluntary self-policing, 
disclosure and correction. In conjunction with the applicable penalty 
policy, these guidelines will aid EPA personnel in proposing 
appropriate penalties or negotiating settlements in administrative and 
judicial enforcement actions. The interim policy also serves to 
structure the Agency's enforcement authority and states the Agency's 
view as to the proper allocation of its enforcement resources. 
Deviations from these guidelines, where merited, are authorized so long 
as the reasons for the deviations are documented.
    This interim 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 in litigation with the 
United States. EPA officials may decide to follow the guidance provided 
in this interim policy or to act at variance with the guidance based on 
analysis of case-specific facts and circumstances. Application of this 
policy to the facts of any individual case is at the sole discretion of 
EPA and is not subject to review by any court. In addition, the policy 
has no effect on the calculation of any cleanup costs, remedial costs, 
natural resources damages or emergency response costs associated with a 
violation. EPA reserves the right to change this interim policy at any 
time without public notice.

    Dated: March 30, 1995.
Steven A. Herman,
Assistant Administrator for Enforcement and Compliance Assurance.
[FR Doc. 95-8218 Filed 3-31-95; 8:45 am]
BILLING CODE 6560-50-P