27984 Federal Register / Vol. 61, No. 107 / Monday, June 3, 1996 / Notices

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.

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 taxpayer 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
Federal Register / Vol. 61, No. 107 / Monday, June 3, 1996 / Notices 27985

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 § 372.3.

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.

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.

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).1 This definition is

a simplified version of the CAA § 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.

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.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.

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,3 as well as implementing

steps to prevent a recurrence of the

violation.

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
27986 Federal Register / Vol. 61, No. 107 / Monday, June 3, 1996 / Notices

4The ‘‘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.

5For 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.

6Compliance assistance is sometimes called

compliance assessments or technical assistance.

7Of 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.

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.4

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.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 SelfPolicing: Discovery, Disclosure,

Correction and Prevention of Violations

Policy of December 1995 (60 FR 66706,

December 22, 1996).

G. Compliance Assistance

1. Definitions and Limitations

Compliance assistance 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.7

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 onsite 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
Federal Register / Vol. 61, No. 107 / Monday, June 3, 1996 / Notices 27987

8The 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.

9States includes tribes.

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 SelfPolicing, 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 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.

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.

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