EPA Proposes to Extend Reporting Period for Voluntary Self-Disclosures of Environmental Violations

Date: Jun 15, 1999

In a move that will benefit environmentally responsible companies, the U.S. Environmental Protection Agency (EPA) is proposing to extend the current 10 day period for self-disclosing potential violations of EPA administered environmental laws under the agency’s 1995 Self-Disclosure Policy to 21 calendar days. This and other proposed changes to EPA’s Self-Disclosure Policy constitute EPA’s latest response to comments from industry on the relative merits and drawbacks of the agency’s 1995 Incentives for Self-Policing: Discovery, Disclosure, Correction, and Prevention of Violations." 60 Fed. Reg. 66706 (Dec. 22, 1995). The agency’s proposed changes were announced on May 17, 1999. 64 Fed. Reg. 26745 (May 17, 1999).

EPA’s self-disclosure policy provides a significant incentive for companies to voluntarily disclose and correct violations of federal environmental laws — the potential to eliminate 100% of the gravity-based penalty associated with the violation. To qualify, a company must meet EPA’s requirements for environmental audits or, alternatively, the agency’s criteria for a "due diligence" investigation. Companies are generally required to commit to correcting the violation within sixty (60) days of its discovery. Even if all of EPA’s criteria are not met, a company can qualify for a penalty reduction of up to 75% for self-reporting under the policy. While EPA retains the authority to recover any economic benefit realized due to non-compliance, the agency has rarely chosen to impose economic penalties, and has instead opted to err on the side of encouraging companies to self-report. Violations not eligible for penalty reductions under the policy are repeat violations, violations of consent orders, violations involving criminal conduct, and violations posing imminent or substantial endangerment, or that cause serious actual harm to human health or the environment.

Many companies have taken advantage of EPA’s policy. As of March 1, 1999, EPA reports that 455 entities have self-disclosed violations at approximately 1850 facilities. EPA has completed actions for penalty relief in 166 cases thus far, affecting approximately 936 facilities. In 131 instances, no monetary penalty was assessed. In 19 instances, gravity-based penalties were reduced by 75%.

An important requirement of EPA’s policy has been the need to self-report violations within 10 days of their discovery. Based on a survey EPA sent to companies that have used the policy, the most consistent comment received was that the 10-day reporting window is insufficient to sort through the complexity of whether a violation has indeed occurred. In response, EPA has proposed broadening the disclosure period to 21 days as a means to encourage the continued and widespread use of the self-reporting policy by industry. This change will benefit companies when circumstances are particularly complex or indeterminate by allowing time for a more thorough internal evaluation of a potential violation. In its announcement, EPA also:

    • clarifies that it will not initiate a criminal investigation or referral of companies that self report, even if the "systematic discovery" criteria of the policy are not met;

    • proposes to define when a violation "may have occurred," which starts the period required for self-reporting. According to EPA, the reporting period begins when any officer, director, employee, or agent of the company has an objectively reasonable basis to conclude that a violation may have occurred; and

    • provides greater flexibility for multi-facility violations, by establishing that an investigation which has begun at one facility does not disqualify another facility owned or operated by the company from receiving relief through self-disclosure under the policy.

Generally speaking, EPA’s proposed changes are welcome. These revisions are intended to encourage companies to make good faith efforts to self-disclose violations and offer significant penalty reductions in return. However, in overview, EPA can and should go further in addressing these and other serious issues associated with the self-disclosure policy. In particular, industry would benefit from additional guidance on what establishes an objectively reasonable basis for discovering that a violation has occurred. Consistent with guidance previously supplied by EPA under the Toxic Substances Control Act (TSCA) on intent, a violation could be deemed to occur if it were "known or reasonably anticipated" or "reasonably ascertained" by a knowledgeable person, based on supporting information that establishes that a violation exists. By allowing companies to develop adequate supporting information to substantiate that a violation has occurred, companies would be at less risk of having to report potential violations based on mere assertion. Supporting information to substantiate discovery could include technical, economic, monitoring, or utility considerations.

EPA also should provide additional guidance to the regulated community on when systematic investigations based on customer inquiries can qualify for penalty reductions under the policy, and streamline procedures for ensuring that additional violations discovered during the sixty day compliance period qualify for penalty reductions. While EPA’s policy is particularly beneficial when large fines or numerous violations are at stake, use of the policy currently increases the risk of a future compliance inspection. Because EPA is adopting changes to the policy through notice and comment procedures, however, EPA could offer to forego inspection of companies that self-report for a defined period of time as a further incentive to self-report, without creating the deficiency of notice that led a court of appeals to recently strike down a somewhat similar incentive program offered by the Occupational Safety and Health Administration. See U.S. Chamber of Commerce v. U.S. Department of Labor, No. 98-1036 (D.C. Cir. 1999).

Companies are also faced with the need to make judicious use of the self-reporting policy because of the bar on use for the same or similar violation by the same facility within three years, or when the violation constitutes a "pattern of violations" by the facility’s parent organization in the previous five year period. Industry would greatly benefit from additional guidance from EPA on this aspect of the policy. EPA could expand on the number and type of violations that would constitute a pattern ineligible for penalty reductions under the policy. EPA could even go further to provide at least partial penalty reductions in such cases, rather than establishing an absolute bar to self-reporting.

EPA will be accepting comments until July 15, 1999.