Dave Scriven-YoungPeckar & Abramson, P.C.

Voluntarily Disclosing Violations and Responding to Violation

Notices Amid Next Generation Compliance Initiatives

Outline(1) What is an environmental audit?(2) How can businesses take advantage of U.S. EPA’s

Audit Policy?(3) Developments Concerning U.S. EPA’s Audit Policy(4) EPA Enforcement Process(5) Notice of Violation(6) Strategy for Responding to a Notice of Violation

What Is An Environmental Audit?

Environmental AuditingEnvironmental Auditing is the process of determining whether operations and practices are in compliance with regulatory requirements, company policies and procedures, and accepted standards.

It is a systematic, objective evaluation of facility activities for a finite review period designed to:

Environmental Auditing• Verify compliance with environmental regulations, internal policies, and accepted practices.

• Evaluate the effectiveness of environmental management systems in place, and

• Identify and assess any reasonably foreseeable risks associated with hazardous conditions attributable to company operations and prevent or mitigate such risks.

Goals of an Environmental Audit

• Identify and assess environmental risks

• Optimize Resources

• Provide assurance to senior management

• Increase environmental awareness throughout the company

• Identify and document facility compliance status

• Improve overall environmental performance at facilities

• Assist facility management

What Help Does A Company Need To Conduct An Environmental Audit?

What Help Does A Company Need To Conduct An Environmental Audit?

It depends on the company . . .

E-Discovery Process OverviewWhat Help Does A Company Need To Conduct An Environmental Audit?

It depends on the company . . .• Plant Manager

• Environmental Health & Safety Manager

• Senior Management

• Outside Environmental Consultant

• Attorney (privilege, audit policy letters, negotiates with agencies)

How can businesses take advantage of U.S. EPA’s Audit Policy?

What Is U.S. EPA’s Audit Policy?

• “Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations” (65 Federal Register 19,618)

• The goal of the policy is to safeguard human health and the environment by providing several major incentives for regulated entities to voluntarily come into compliance with federal environmental laws and regulations.

Benefits of U.S. EPA’s Audit Policy?• No gravity-based penalties if all nine of the

Policy’s conditions are met. – EPA retains the ability to collect economic benefit

received due to noncompliance.– Reduction of gravity-based penalty by 75% where

all conditions met except detection of violation through a systematic discovery process.

• No recommendation for criminal prosecution.• No routine requests for audit reports.

Conditions of U.S. EPA’s Audit Policy?

1. Systematic Discovery of the Violation Through an Environmental Audit or a Compliance Management System.

Conditions of U.S. EPA’s Audit Policy?

2. Voluntary Discovery of the Violation—Was Not Detected as a Result of a Legally Required Monitoring, Sampling, or Auditing Procedure.

Conditions of U.S. EPA’s Audit Policy?

3. Prompt Disclosure of the Violation in Writing to U.S. EPA Within 21 Calendar Days After Discovery.

Conditions of U.S. EPA’s Audit Policy?

4. Discovery and Disclosure Independent of Government or Third-Party Plaintiff.

Conditions of U.S. EPA’s Audit Policy?

5. Correction and Remediation within 60 Calendar Days, in Most Cases, From the Date of Discovery.

Conditions of U.S. EPA’s Audit Policy?

6. Agree to Take Steps to Prevent Recurrence of the Violation.

Conditions of U.S. EPA’s Audit Policy?

7. Repeat violations are ineligible (i.e., the specific (or closely related) violations occurred at same facility within past 3 years or occurred as a part of a pattern at multiple facilities owned or operated by the same entity within past 5 years).

Conditions of U.S. EPA’s Audit Policy?

8. Violation must not be excluded from Policy (e.g., those that result in serious actual harm, present an imminent and substantial endangerment, or violate an administrative or judicial order or consent agreement).

Conditions of U.S. EPA’s Audit Policy?

9. Cooperate with EPA and Provide it with the Information it Needs to Determine Policy Applicability.

Federal Rule of Civil Procedure 34Developments Concerning U.S. EPA’s Audit Policy

• New Owners• EPA's Proposed Changes in 2012• Change in EPA's Enforcement Efforts• eDisclosure

New Owners

• “Interim Approach to Applying the Audit Policy to New Owners” (73 Federal Register 44,991): – Tailored Audit Policy incentives for new owners

that want to make a “clean start” at their recently acquired facilities by addressing environmental noncompliance that began prior to acquisition.

EPA's Proposed Changes in 2012• April 30, 2012 National Program Manager Guidance

"Since implementation of the Audit Policy began in 1995, EPA‘s enforcement program has increased its understanding of environmental compliance auditing, and believes that internal reviews of compliance have become more widely adopted by the regulated community, as part of good management. In addition, EPA has found that most violations disclosed under the Policy are not in the highest priority enforcement areas for protecting human health and the environment."

EPA's Proposed Changes in 2012• April 30, 2012 National Program Manager Guidance

"EPA believes it can reduce investment in the program to a limited national presence without undermining the incentives for regulated entities to do internal compliance reviews to find and correct violations. As we reduce investment in this program, EPA is considering several options, including a modified Audit Policy program that is self-implementing."

Change in EPA's Enforcement Efforts• EPA’s Reduced Enforcement Goals for 2014-2018 – 25% decrease in inspections and evaluations of

regulated entities– 28% fewer civil and enforcement actions

Change in EPA's Enforcement Efforts• Next Generation Compliance Initiative

"The most effective way to achieve compliance with the law is to make it easier to comply than to violate. EPA is using new technologies and lessons learned about what drives compliance to reduce pollution and improve results." Cynthia Giles, Assistant Administrator for EPA's Office of Enforcement and Compliance Assurance

eDisclosure• eDisclosure: EPA’s Electronic Audit Policy Self-

Disclosure System– Was used by facilities nationwide to disclose

violations of the Emergency Planning and Community Right-to-Know Act (EPCRA)

– Was used by facilities in Region 6 states (Arkansas, Louisiana, New Mexico, Oklahoma, and Texas) to disclose violations of other environmental laws.

eDisclosure• eDisclosure: EPA’s Electronic Audit Policy Self-

Disclosure System– As of July 1, 2013, EPA decommissioned the

eDisclosure system. – However, companies can make still make "paper"

disclosures.

eDisclosure• June 2015: EPA announces an "eDisclosure portal"– New, centralized, "Next Generation" web-based system for

more efficiently receiving and processing violations disclosed to EPA under its self-disclosure policies.

– Targeted to launch in Fall 2015; Federal Register notice will accompany launch and describe implementation.

– Will accept new disclosures involving almost all types of civil violations, except certain EPCRA disclosures and New Owner disclosures.

eDisclosure• How Will It Work?– Register with system– Promptly disclose violations online within 21 days

of discovery– Submit online Compliance Report certifying that

any noncompliance was timely corrected (ordinarily within 60 days of submitting online disclosure)

eDisclosure• How Will Self-Disclosed Violations Be Resolved?– Tier 1 Disclosures• EPCRA violations that meet all Audit Policy or Small

Business Compliance Policy conditions, but not including (1) CERCLA 103/EPCRA 304 chemical release reporting violations; or (2) EPCRA violations with significant economic benefit as defined by EPA.• EDisclosure system will automatically issue an

electronic Notice of Determination confirming that the violations are resolved with no assessment of civil penalties, conditioned on the accuracy and completeness of the submitter's certified eDisclosure.

eDisclosure• How Will Self-Disclosed Violations Be Resolved?– Tier 2 Disclosures• Include: (1) all non-EPCRA violations; (2) EPCRA

violations where the violator can only certify compliance with Audit Policy Conditions 2-9; and (3) EPCRA/CERCLA violations excluded from Tier 1.• EDisclosure system will automatically issue an

electronic Acknowledgement Letter confirming EPA's receipt of the disclosure, and promising that EPA will make a determination as to eligibility for penalty mitigation if and when it considers taking an enforcement action for environmental violations.

Should the Company Self-Disclose: Factors to Consider

1. Ideally, only self-disclose violations for which you can meet all factors in audit policy and that are discovered through well-developed audits.

2. The five-year statute of limitations may bar EPA from seeking penalties not discovered by EPA within the statutory period.

3. Consider whether internal investigations should be used.

EPA Enforcement Process

EPA Enforcement Process

(a) Notice of Violation: Indicates that EPA believes that the company is in violation of the law and that it should come into compliance or be prepared to defend its actions in subsequent enforcement.

(b) Filing of Action: If negotiations fail, EPA files a civil administrative action, civil judicial action, or criminal action.

BEWARE Concurrent State Enforcement

Notice of Violation

Notice of Violation

• Facts (what the inspector found)• Legal standard and how you violated that standard• Process for next steps: Set up conference with EPA to

discuss alleged violation

Strategy for Responding to a Notice of Violation

Strategy for Responding to NOV

(A) Gather information to determine the cause of the violation.

• Gather information internally and discuss with key players involved in the process that was involved in the violation.

• Gather information from EPA (request copies of inspection report and any other documents relating to the incident).

Strategy for Responding to NOV

(B) Determine if the problem is fixed and how to avoid the problem in the future.

• If the problem has not been fixed, then determine the timeline for fixing the problem.

Strategy for Responding to NOV

(C) How big will the potential penalty will be?• Starting point is the statute. Usually a maximum

penalty plus factors to determine the amount of penalty.

• Look at the penalty policy and figure out potential penalty. Calculation includes economic benefit, gravity, adjustments, litigation risk, and ability to pay.

Strategy for Responding to NOV

(D) Set up meeting date and prepare letter:• Your side of the story (what happened)• What steps you took to prevent this specific problem

from occurring.• What efforts you took to fix the problem after it

happened. If not fixed, provide a timeline.• What efforts you will take to ensure that this

problem will not occur in the future.

Strategy for Responding to NOV

(E) PREPARE for Meeting with EPA• EPA will give you the opportunity to make

presentation.• Plant manager and senior team involved with the

process should plan to be there.• Bring any documents relevant to defense or shows

that plan was in place to prevent problem from occurring.

Strategy for Responding to NOV

• Discuss in advance who will make initial presentation, which will tell your story on how the problem occurred, what you did to prevent the problem, how the problem was fixed or the timeline for fix, how the problem will be prevented going forward.

• Unless you intend to argue that the Company did nothing wrong, be prepared to discuss settlement.

Strategy for Responding to NOV

(F) Meeting with EPA• Initial presentation• Questions and Answers• Settlement Negotiations (Elements might include:

penalty, new compliance or monitoring program, and/or Supplemental Environmental Project)

Questions

Dave Scriven-YoungPeckar & Abramson, P.C.

30 N. LaSalle Street, Suite 4126Chicago, IL 60602(312) 239-9722

dscriven-young@pecklaw.comhttp://illinoisenvironmentallaw.com