ENVIRONMENT: EPA revises fines and penalties policy on environmental audits

The EPA recently revised its fines and penalties policy associated with environmental audits.

This revision may provide an incentive for companies to avail themselves of the benefits of an environmental audit in order to avoid fines and penalties that may otherwise be applicable.

In 1995, the EPA published a policy which had the intent of providing an incentive for regulated industries to self-police or “audit” their environmental compliance status. Unfortunately, it had fairly rigid guidelines which, if not met, would negate any benefits of a self audit. Accordingly, the policy was rarely used unless a company knew that it was squarely within the four corners of the rule.

An environmental audit is essentially a systematic process of evaluating a company’s environmental compliance status. If a violation of an environmental law or regulation is found during the company’s audit process, the company could elect to disclose the violation to the government and correct it without suffering extensive fine or penalty assessments.

Unfortunately, the 1995 policy had fairly restrictive criteria which were difficult to meet. If all of the criteria were not met, a company was still exposed to these extensive fines and penalties. This regimented enforcement approach caused many companies to elect not to undertake environmental audit programs.

Changes to the audit policy (effective April 11, 2000) will allow for a significant reduction in fines or penalties, even if all of the elements of an audit cannot be satisfied. There are nine elements that create the backbone of the audit policy:

1. The audit should be a systematic process the company regularly undertakes to determine its environmental status.

If a violation discovery does not come as part of a “systematic” audit, but through some other mechanism less than a regularly-conducted audit, a fine or penalty may be assessed but would be reduced by 75 percent.

2. The audit must be conducted on a voluntary basis and not pursuant to a legally-mandated monitoring or sampling requirement. Accordingly, if the violation is discovered pursuant to a state or federal mandate for stack testing, permit condition, etc., the audit privilege may not apply, or the benefits of the audit privilege may be reduced.

3. Disclosure must occur within 21 days after discovery of the violation. Again, delays in disclosure may mitigate the benefits of the policy.

4. The discovery of the violation may not be made by a third party, such as during a state or federal environmental inspection.

5. The violation must be corrected and a plan submitted for remediation within 60 days of discovery. The government may require an enforceable administrative agreement to verify and guarantee that remedial measures will be taken to address any contamination which results from the violation.

6. The company reporting the violation must submit a plan which demonstrates how it will prevent future similar violations.

7. The policy is not available to individuals who have had a similar violation within the last three years.

8. The company disclosing a violation must cooperate with any governmental investigation that occurs, including any follow-up inspections to assure remedial actions or corrective measures have been undertaken.

9. The violation disclosed must not be one that results in serious actual harm or may have presented an imminent and substantial endangerment to human health or the environment.

It is important to note that the fine and penalty reductions are based on somewhat of a sliding scale depending upon the relevant compliance with each of the above conditions.

Also, it should be noted that the fine/penalty limitations are for the gravity based component of the penalty. The government is still free to pursue a fine or penalty based upon any economic benefit or competitive advantage enjoyed by the violating entity as a result of the violation. However, if properly postured and implemented, use of the audit policy should result in a limitation of any fine or penalty which a company may have to pay as the result of the discovery of an environmental violation.

The changes in the EPA audit policy are significant in Michigan due to the fact that the state audit statute and policy closely follows the U.S. EPA policy guidelines. Although not binding upon the state, similar audit procedures will hopefully have the effect of providing an incentive for regulated interests to self-police their facilities to obtain better compliance records.

Any specific questions which may relate to your facility should be discussed with a qualified environmental consultant or counsel.

Joseph Quandt is a partner with the Traverse City law offices of Menmuir, Zimmerman, Kuhn, Taylor and Quandt, PLC. His practice focuses on environmental and business matters. Prior to private practice, he was an enforcement specialist with the Michigan DEQ.

This article is intended to address information of general interest. It does not provide, nor is it intended to provide, any legal advice regarding any particular situation or subject. BIZNEWS

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