[Federal Register Volume 61, Number 107 (Monday, June 3, 1996)]
[Notices]
[Pages 27984-27987]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13713]




[[Page 27983]]


_______________________________________________________________________

Part IV





Environmental Protection Agency





_______________________________________________________________________



Interim Policy on Compliance Incentives for Small Businesses; Notice

Federal Register / Vol. 61, No. 107 / Monday, June 3, 1996 / 
Notices

[[Page 27984]]



ENVIRONMENTAL PROTECTION AGENCY

[FRL-5512-7]


Interim Policy on Compliance Incentives for Small Businesses

AGENCY: Office of Enforcement and Compliance Assurance, EPA.

ACTION: Notice of final policy.

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SUMMARY: The Office of Enforcement and Compliance Assurance (EPA) is 
issuing this Final Policy on Compliance Incentives for Small 
Businesses. This Final Policy is intended to promote environmental 
compliance among small businesses by providing them with incentives to 
participate in compliance assistance programs or to conduct 
environmental audits and to then promptly correct violations. The 
Policy accomplishes this in two ways: by setting forth guidelines for 
the Agency to reduce or waive penalties for small businesses that make 
good faith efforts to correct violations, and by providing guidance for 
States and local governments to offer these incentives.

EFFECTIVE DATE: This Policy is effective June 10, 1996.

FURTHER INFORMATION CONTACT: David Hindin, 202-564-2235, Office of 
Regulatory Enforcement, Mail Code 2248-A, or Karin Leff, 202-564-7068, 
Office of Compliance, Mail Code 2224-A, United States Environmental 
Protection Agency, 401 M Street, S.W., Washington, D.C. 20460.

SUPPLEMENTARY INFORMATION: Pursuant to this Policy, EPA will refrain 
from initiating an enforcement action seeking civil penalties, or will 
mitigate civil penalties, whenever a small business makes a good faith 
effort to comply with environmental requirements by receiving on-site 
compliance assistance or promptly disclosing the findings of a 
voluntarily conducted environmental audit, subject to certain 
conditions. These conditions require that the violation: is the small 
business's first violation of the particular requirement; does not 
involve criminal conduct; has not and is not causing a significant 
health, safety or environmental threat or harm; and is remedied within 
the corrections period. Moreover, EPA will defer to State actions that 
are consistent with the criteria set forth in this Policy.
    This Final Policy supersedes the Interim version of the Policy 
issued in June 1995. See 60 FR 32675, June 23, 1995. The Agency revised 
the Interim version based on the comments we received from the public 
in response to the Federal Register notice, as well as the comments we 
received from EPA Regional offices and States. The major change in this 
final version of the Policy is to allow small businesses to obtain the 
penalty relief provided by this Policy not only by using on-site 
compliance assistance, but also by conducting an environmental audit, 
and promptly disclosing and correcting the violations. There are two 
reasons for this change. First, this addresses the major criticism of 
the Interim Policy that there are few on-site compliance assistance 
programs sponsored or run by government agencies. Thus, this change 
enables more small businesses to use the Policy. Second, fairness 
suggests that if small businesses who seek tax-payer funded compliance 
assistance from the government can get penalty relief, then businesses 
who spend their own money to do an audit, should be able to get similar 
relief.
    We also have slightly modified the penalty relief guidelines in 
section F of the Policy. Guidelines 1 and 2 remain the same as they 
were in the June 1995 Interim version. We have added a new third 
guideline which states:

    3. If a small business meets all of the criteria, except it has 
obtained a significant economic benefit from the violation(s) such 
that it may have obtained an economic advantage over its 
competitors, EPA will waive up to 100% of the gravity component of 
the penalty, but may seek the full amount of any economic benefit 
associated with the violations. EPA retains this discretion to 
ensure that small businesses that comply with public health 
protections are not put at serious marketplace disadvantage by those 
who have not complied. EPA anticipates that this will occur very 
infrequently.

    This new guideline is necessary to ensure that we continue to 
provide a national level playing field. Small businesses that make 
significant expenditures to comply with the law should not be put at an 
economic disadvantage by those who did not comply. Most of the other 
changes in the final Policy are clarifications or editorial in nature. 
The entire text of the Policy appears below.

    Dated: May 10, 1996.
Steven A. Herman,
Assistant Administrator, Office of Enforcement and Compliance 
Assurance, United States Environmental Protection Agency.

A. Introduction

    This document sets forth the U.S. Environmental Protection Agency's 
Policy on Compliance Incentives for Small Businesses. This Policy is 
one of the 25 regulatory reform initiatives announced by President 
Clinton on March 16, 1995, and implements, in part, the Executive 
Memorandum on Regulatory Reform, 60 FR 20621, April 26, 1995.
    The Executive Memorandum provides in pertinent part:

    To the extent permitted by law, each agency shall use its 
discretion to modify the penalties for small businesses in the 
following situations. Agencies shall exercise their enforcement 
discretion to waive the imposition of all or a portion of a penalty 
when the violation is corrected within a time period appropriate to 
the violation in question. For those violations that may take longer 
to correct than the period set by the agency, the agency shall use 
its enforcement discretion to waive up to 100 percent of the 
financial penalties if the amounts waived are used to bring the 
entity into compliance. The provisions [of this paragraph] shall 
apply only where there has been a good faith effort to comply with 
applicable regulations and the violation does not involve criminal 
wrongdoing or significant threat to health, safety, or the 
environment.

    This Policy also implements section 223 of the Small Business 
Regulatory Enforcement Fairness Act of 1996, signed into law by the 
President on March 29, 1996.
    As set forth in this Policy, EPA will refrain from initiating an 
enforcement action seeking civil penalties, or will mitigate civil 
penalties, whenever a small business makes a good faith effort to 
comply with environmental requirements by receiving compliance 
assistance or promptly disclosing the findings of a voluntarily 
conducted environmental audit, subject to certain conditions. These 
conditions require that the violation: is the small business's first 
violation of the particular requirement; does not involve criminal 
conduct; has not and is not causing a significant health, safety or 
environmental threat or harm; and is remedied within the corrections 
period. Moreover, EPA will defer to State actions that are consistent 
with the criteria set forth in this Policy.

B. Background

    The Clean Air Act (CAA) Amendments of 1990 require that States 
establish Small Business Assistance Programs (SBAPs) to provide 
technical and environmental compliance assistance to stationary 
sources. On August 12, 1994, EPA issued an enforcement response policy 
for stationary sources which provided that an authorized or delegated 
state program may, consistent with federal requirements, either:

    (1) Assess no penalties against small businesses that 
voluntarily seek compliance assistance and correct violations 
revealed as a result of compliance assistance within a limited 
period of time; or
    (2) Keep confidential information that identifies the names and 
locations of specific

[[Page 27985]]

small businesses with violations revealed through compliance 
assistance, where the SBAP is independent of the state enforcement 
program.

    In a further effort to assist small businesses to comply with 
environmental regulations, and to achieve health, safety, and 
environmental benefits, the Agency is adopting a broader policy for all 
media programs, including water, air, toxics, and hazardous waste.

C. Purpose

    This Policy is intended to promote environmental compliance among 
small businesses by providing incentives for them to participate in on-
site compliance assistance programs and to conduct environmental 
audits. Further, the Policy encourages small businesses to 
expeditiously remedy all violations discovered through compliance 
assistance and environmental audits. The Policy accomplishes this in 
two ways: by setting forth a settlement penalty Policy that rewards 
such behavior, and by providing guidance for States and local 
governments to offer these incentives.

D. Applicability

    This Policy applies to facilities owned by small businesses as 
defined here. A small business is a person, corporation, partnership, 
or other entity who employs 100 or fewer individuals (across all 
facilities and operations owned by the entity).<SUP>1 This definition 
is a simplified version of the CAA Sec. 507 definition of small 
business. On balance, EPA determined that a single definition would 
make implementation of this Policy straightforward and would allow for 
consistent application of the Policy in a multimedia context.
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    \1\  The number of employees should be considered as full-time 
equivalents on an annual basis, including contract employees. Full-
time equivalents means 2,000 hours per year of employment. For 
example, see 40 CFR Sec. 372.3.
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    This Policy is effective June 10, 1996 and on that date supersedes 
the Interim version of this Policy issued on June 13, 1995 and the 
September 19, 1995 Qs and As guidance on the Interim version. This 
Policy applies to all civil judicial and administrative enforcement 
actions taken under the authority of the environmental statutes and 
regulations that EPA administers, except for the Public Water System 
Supervision Program under the Safe Drinking Water Act.<SUP>2 This 
Policy applies to all such actions filed after the effective date of 
this Policy, and to all pending cases in which the government has not 
reached agreement in principle with the alleged violator on the amount 
of the civil penalty.
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    \2\  This Policy does not apply to the Public Water System 
Supervision (PWSS) Program because it already has an active 
compliance assistance program and EPA has a policy to address the 
special needs of small communities. See November 1995 Policy on 
Flexible State Enforcement Response to Small Community Violations.
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    This Policy sets forth how the Agency expects to exercise its 
enforcement discretion in deciding on an appropriate enforcement 
response and determining an appropriate civil settlement penalty for 
violations by small businesses. It states the Agency's views as to the 
proper allocation of enforcement resources. This 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 
third parties. This Policy is to be used for settlement purposes and is 
not intended for use in pleading, or at hearing or trial. To the extent 
that this Policy may differ from the terms of applicable enforcement 
response policies (including penalty policies) under media-specific 
programs, this document supersedes those policies. This Policy 
supplements, but does not supplant the August 12, 1994 Enforcement 
Response Policy for Treatment of Information Obtained Through Clean Air 
Act Section 507 Small Business Assistance Programs.

E. Criteria for Civil Penalty Mitigation

    EPA will eliminate or mitigate its settlement penalty demands 
against small businesses based on the following criteria:
    1. The small business has made a good faith effort to comply with 
applicable environmental requirements as demonstrated by satisfying 
either a. or b. below.
    a. Receiving on-site compliance assistance from a government or 
government supported program that offers services to small businesses 
(such as a SBAP or state university), and the violations are detected 
during the compliance assistance. If a small business wishes to obtain 
a corrections period after receiving compliance assistance from a 
confidential program, the business must promptly disclose the 
violations to the appropriate regulatory agency.
    b. conducting an environmental audit (either by itself or by using 
an independent contractor) and promptly disclosing in writing to EPA or 
the appropriate state regulatory agency all violations discovered as 
part of the environmental audit pursuant to section H of this Policy.
    For both a. and b. above, the disclosure of the violation must 
occur before the violation was otherwise discovered by, or reported to 
the regulatory agency. See section I.1 of the Policy below. Good faith 
also requires that a small business cooperate with EPA and provide such 
information as is necessary and requested to determine applicability of 
this Policy.
    2. This is the small business's first violation of this 
requirement. This Policy does not apply to businesses that have 
previously been subject to an information request, a warning letter, 
notice of violation, field citation, citizen suit, or other enforcement 
action by a government agency for a violation of that requirement 
within the past three years. This Policy does not apply if the small 
business received penalty mitigation pursuant to this Policy for a 
violation of the same or a similar requirement within the past three 
years. If a business has been subject to two or more enforcement 
actions for violations of environmental requirements in the past five 
years, this Policy does not apply even if this is the first violation 
of this particular requirement.
    3. The business corrects the violation within the corrections 
period set forth below.
    Small businesses are expected to remedy the violations within the 
shortest practicable period of time, not to exceed 180 days following 
detection of the violation. However, a small business may take an 
additional period of 180 days, i.e., up to a period of one year from 
the date the violation is detected, only if necessary to allow a small 
business to correct the violation by implementing pollution prevention 
measures. For any violation that cannot be corrected within 90 days of 
detection, the small business should submit a written schedule, or the 
agency should issue a compliance order with a schedule, as appropriate. 
Correcting the violation includes remediating any environmental harm 
associated with the violation,<SUP>3 as well as implementing steps to 
prevent a recurrence of the violation.
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    \3\  If significant efforts will be required to remediate the 
harm, the Policy will not apply since criterion 4 is likely not to 
have been satisfied.
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    4. The Policy applies if:
    a. The violation has not caused actual serious harm to public 
health, safety, or the environment; and
    b. The violation is not one that may present an imminent and 
substantial endangerment to public health or the environment; and
    c. The violation does not present a significant health, safety or

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environmental threat (e.g., violations involving hazardous or toxic 
substances may present such threats); and
    d. The violation does not involve criminal conduct.

F. Penalty Mitigation Guidelines

    EPA will exercise its enforcement discretion to eliminate or 
mitigate civil settlement penalties as follows.
    1. EPA will eliminate the civil settlement penalty in any 
enforcement action if a small business satisfies all of the criteria in 
section E.
    2. If a small business meets all of the criteria, except it needs a 
longer corrections period than provided by criterion 3 (i.e., more than 
180 days for non-pollution prevention remedies, or 360 days for 
pollution prevention remedies), EPA will waive up to 100% of the 
gravity component of the penalty, but may seek the full amount of any 
economic benefit associated with the violations.<SUP>4
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    \4\ The ``gravity component'' of the penalty includes everything 
except the economic benefit amount. In determining the appropriate 
amount of the gravity component of the penalty to mitigate, EPA 
should consider the nature of the violations, the duration of the 
violations, the environmental or public health impacts of the 
violations, good faith efforts by the small business to promptly 
remedy the violation, and the facility's overall record of 
compliance with environmental requirements.
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    3. If a small business meets all of the criteria, except it has 
obtained a significant economic benefit from the violation(s) such that 
it may have obtained an economic advantage over its competitors, EPA 
will waive up to 100% of the gravity component of the penalty, but may 
seek the full amount of the significant economic benefit associated 
with the violations. EPA retains this discretion to ensure that small 
businesses that comply with public health protections are not put at a 
serious marketplace disadvantage by those who have not complied. EPA 
anticipates that this situation will occur very infrequently.
    If a small business does not fit within guidelines 1, 2 or 3 
immediately above, this Policy does not provide any special penalty 
mitigation. However, if a small business has otherwise made a good 
faith effort to comply, EPA has discretion, pursuant to its applicable 
enforcement response or penalty policies, to refrain from filing an 
enforcement action seeking civil penalties or to mitigate its demand 
for penalties.<SUP>5 Further, these policies allow for mitigation of 
the penalty where there is a documented inability to pay all or a 
portion of the penalty, thereby placing emphasis on enabling the small 
business to finance compliance. See Guidance on Determining a 
Violator's Ability to Pay a Civil Penalty of December 1986. Penalties 
also may be mitigated pursuant to the Interim Revised Supplemental 
Environmental Projects Policy of May 1995 (60 F.R. 24856, 5/10/95) and 
Incentives for Self-Policing: Discovery, Disclosure, Correction and 
Prevention of Violations Policy of December 1995 (60 FR 66706, December 
22, 1996).
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    \5\ For example, in some media specific penalty policies, if 
good faith efforts are undertaken, the penalty calculation 
automatically factors in such efforts through a potentially smaller 
economic benefit or gravity amount.
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G. Compliance Assistance

1. Definitions and Limitations

    Compliance assistance <SUP>6 is information or assistance provided 
by EPA, a State or another government agency or government supported 
entity to help the regulated community comply with legally mandated 
environmental requirements. Compliance assistance does not include 
enforcement inspections or enforcement actions.<SUP>7
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    \6\ Compliance assistance is sometimes called compliance 
assessments or technical assistance.
    \7\ Of course, during an inspection or enforcement action, a 
facility may receive suggestions and information from the regulatory 
authority about how to correct and prevent violations.
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    In its broadest sense, the content of compliance assistance can 
vary greatly, ranging from basic information on the legal requirements 
to specialized advice on what technology may be best suited to achieve 
compliance at a particular facility. Compliance assistance also may be 
delivered in a variety of ways, ranging from general outreach through 
the Federal Register or other publications, to conferences and computer 
bulletin boards, to on-site assistance provided in response to a 
specific request for help.
    The special penalty mitigation considerations provided by this 
Policy only apply to civil violations which were identified as part of 
an on-site compliance assistance visit to the facility. If a small 
business wishes to obtain a corrections period after receiving 
compliance assistance from a confidential program, the business must 
promptly disclose the violations to the appropriate regulatory agency 
and comply with the other provisions of this Policy. This Policy is 
restricted to on-site compliance assistance because the other forms of 
assistance (such as hotlines) do not expose a small business to an 
increased risk of enforcement and do not provide the regulatory agency 
with a simple way to determine when the violations were detected and 
thus when the violations must be corrected. In short, small businesses 
do not need protection from penalties as an incentive to use the other 
types of compliance assistance.

2. Delivery of On-Site Compliance Assistance by Government Agency or 
Government Supported Program

    Before on-site compliance assistance is provided under this Policy 
or a similar State policy, businesses should be informed of how the 
program works and their obligations to promptly remedy any violations 
discovered. Ideally, before on-site compliance assistance is provided 
pursuant to this Policy or similar State policy, the agency should 
provide the facility with a document (such as this Policy) explaining 
how the program works and the responsibilities of each party. The 
document should emphasize the responsibility of the facility to remedy 
all violations discovered within the corrections period and the types 
of violations that are excluded from penalty mitigation (e.g., 
violations that caused serious harm). The facility should sign a simple 
form acknowledging that it understands the Policy. Documentation 
explaining the nature of the compliance assistance visit and the 
penalty mitigation guidelines is essential to ensure that the facility 
understands the Policy.
    At the end of the compliance assistance visit, the government agent 
should provide the facility with a list of all violations observed and 
report within 10 days any additional violations identified resulting 
from the visit, but not directly observed, e.g., results from review 
and analysis of data or information gathered during the visit. Any 
violations that do not fit within the penalty mitigation guidelines in 
the Policy--e.g., those that caused serious harm--should be identified. 
If the violations cannot all be corrected within 90 days, the facility 
should be requested to submit a schedule for remedying the violations 
or a compliance order setting forth a schedule should be issued by the 
agency.

3. Requests for On-Site Compliance Assistance

    EPA, States and other government agencies do not have the resources 
to provide on-site compliance assistance to all small businesses that 
request such assistance. This Policy does not create any right or 
entitlement to compliance assistance. A small business that requests 
on-site compliance assistance will not necessarily receive such 
assistance. If a small business requests on-site compliance assistance 
(or any other type of assistance) and the

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assistance is not available, the government agency should provide a 
prompt response indicating that such assistance is not available. The 
small business should be referred to other public and private sources 
of assistance that may be available, such as clearinghouses, hotlines, 
and extension services provide by some universities. In addition, the 
small business should be informed that it may obtain the benefits 
offered by this Policy by conducting an environmental audit pursuant to 
the provisions of this Policy.

H. Environmental Audits

    For purposes of this Policy, an environmental audit is defined as 
``a systematic, documented, periodic and objective review by regulated 
entities of facility operations and practices related to meeting 
environmental requirements.'' See EPA's new auditing policy, entitled 
Incentives for Self-Policing, 60 FR 66706, 66711, December 22, 1995.
    The violation must have been discovered as a result of a voluntary 
environmental audit, and not through a legally mandated monitoring or 
sampling requirement prescribed by statute, regulation, permit, 
judicial or administrative order, or consent agreement. For example, 
the Policy does not apply to:
    (1) emissions violations detected through a continuous emissions 
monitor (or alternative monitor established in a permit) where any such 
monitoring is required;
    (2) violations of National Pollutant Discharge Elimination System 
(NPDES) discharge limits detected through required sampling or 
monitoring; or
    (3) violations discovered through an audit required to be performed 
by the terms of a consent order or settlement agreement.
    The small business must fully disclose a violation within 10 days 
(or such shorter period provided by law) after it has discovered that 
the violation has occurred, or may have occurred, in writing to EPA or 
the appropriate state or local government agency.

I. Enforcement

    To ensure that this Policy enhances and does not compromise public 
health and the environment, the following conditions apply:
    1. Violations detected through inspections, field citations, 
reported to an agency by a member of the public or a ``whistleblower'' 
employee, identified in notices of citizen suits, or previously 
reported to an agency as required by applicable regulations or permits, 
remain fully enforceable.
    2. A business is subject to all applicable enforcement response 
policies (which may include discretion whether or not to take formal 
enforcement action) for all violations that had been detected through 
compliance assistance and were not remedied within the corrections 
period. The penalty in such action may include the time period before 
and during the correction period.
    3. A State's or EPA's actions in providing compliance assistance is 
not a legal defense in any enforcement action. This Policy does not 
limit EPA or a state's discretion to use information on violations 
revealed through compliance assistance as evidence in subsequent 
enforcement actions.
    4. If a field citation is issued to a small business (e.g., under 
the Underground Storage Tank program <SUP>8), the small business may 
provide information to the Agency to show that specific violations 
cited in the field citation are being remedied under a corrections 
schedule established pursuant to this Policy or similar State policy. 
In such a situation, EPA would exercise its enforcement discretion not 
to seek civil penalties for those violations.
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    \8\ The Underground Storage Tank (UST) field citation program 
provides for substantially reduced penalties in exchange for the 
rapid correction of certain UST violations for first time violators. 
See Guidance for Federal Field Citation Enforcement, OSWER Directive 
9610.16, October 1993.
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J. Applicability to States \9\

    EPA recognizes that states are partners in enforcement and 
compliance assurance. Therefore, EPA will defer to state actions in 
delegated or approved programs that are generally consistent with the 
criteria set forth in this Policy. Whenever a State agency provides a 
correction period to a small business pursuant to this Policy or a 
similar policy, the agency should notify the appropriate EPA Region.
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    \9\ States includes tribes.
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    This notification will assure that federal and state enforcement 
responses are properly coordinated.

K. Public Accountability

    Within three years of the effective date of this Policy, EPA will 
conduct a study of the effectiveness of this Policy in promoting 
compliance among small businesses. EPA will make the study available to 
the public. EPA will make publicly available the terms of any EPA 
agreements reached under this Policy, including the nature of the 
violation(s), the remedy, and the schedule for returning to compliance.

[FR Doc. 96-13713 Filed 5-31-96; 8:45 am]
BILLING CODE 6560-50-P