You are the owner of Chromers and Platers, Inc., a business that you started thirty years ago and have grown to employ sixty people on a full time basis. You have diligently tried to comply with the environmental laws over the years, but with the myriad of paperwork associated with the environmental laws, you really are not sure if you have been successful.
Recently, you decided to sell the business, but before listing the business for sale, you decided to have a compliance audit of your facility completed by a local environmental consulting company. After the audit, the environmental consultant revealed that your company was in violation of several different environmental laws. The violations are mostly caused by failure to maintain appropriate records. None of the violations would result in a criminal prosecution, but some of the violations could result in a significant civil penalty if discovered by U.S. EPA. You immediately make plans to ensure that future violations will not occur. However, selling the business with the potential for U.S. EPA to come in and levy large civil penalties against your company will certainly affect the selling price.
Unsure of what to do, you contact an environmental attorney for assistance. The attorney explains that since you are aware of the past violations and the possibility that an enforcement action could be brought against the company because of the violations, you must disclose the violations to any potential buyer. If you choose not to disclose the past violations, the buyer could sue you for fraud if U.S. EPA brings an enforcement action against the company after you sell. The attorney explains that his recommendation is for you to report the violations to U.S. EPA yourself. Your attorney explains that under a new U.S. EPA policy, if you self-report the violations, you may be entitled to a complete waiver of any penalty that would otherwise be assessed against the company.
Your attorney explains that on May 23, 1996, U.S. EPA implemented one of the twenty-five regulatory reform initiatives announced by President Clinton on March 16, 1995. The regulatory reform initiative recently implemented was EPA's Policy on Compliance Incentives for Small Businesses and implements, in part, the Executive Memorandum on Regulatory Reform, issued on April 21, 1995, by President Clinton.
The new policy sets guidelines to reduce or waive penalties for small businesses that make good faith efforts to correct violations under most EPA statutes. The policy does not apply when public health or the environment is seriously threatened, or when the violation involves criminal conduct. Since the violations at your business are unintentional paperwork violations that did not involve criminal conduct, your attorney explains that your case is a good candidate for a penalty waiver under the new policy.
For a facility to be eligible for a penalty waiver, the company must be a "small business." The policy defines a small business as a company that employs one hundred or fewer persons on a company-wide basis. Furthermore, a facility must demonstrate a good faith attempt at complying with the environmental laws. Facilities can demonstrate good faith in two ways: either by conducting a self or third-party compliance audit and promptly disclosing and correcting the violations or by getting on-site compliance assistance from a state, federal or other government-sponsored compliance assistance program. Assuming the company discovered the violation as part of a self-compliance audit, the company must report the violation promptly to U.S. EPA in writing.
The violation itself must be a first time, non-criminal violation that does not pose a significant threat to public health, safety or the environment for the policy to apply. For purposes of a first time violation, within the past three years the facility must not have received or been subject to an information request, warning letter, notice of violation, field citation, citizen suit or other enforcement action or received penalty mitigation pursuant to the new policy for the current violation and, in the past five years, has not been subject to two or more enforcement actions for violations of environmental requirements.
In addition, the company must correct the violation remedy any harm caused to the environment within 180 days of being discovered, or 360 days if the company must install pollution prevention equipment. If a business meets all the criteria but takes additional time to correct the violation or, in the rare event that a business obtains a significant economic benefit from the violation, U.S. EPA will waive up to 100 percent of the gravity or punitive portion of the penalty, but may seek the amount that company saved through its non-compliance. According to U.S. EPA, this will eliminate any economic advantage that violators have over those companies that do comply with the law.
You explain to your environmental attorney that you believe your company meets all the requirements. You employ less than one hundred people, attempt in good faith to comply with the environmental laws, discovered the violations during a self-audit, and have never been party to a prior enforcement action. In addition, your company received no economic advantage from the violation, did nothing criminal, and never harmed the environment, nor did your company pose a significant threat of harm to the environment. Under the circumstances, your company should be eligible to have the entire penalty that would otherwise be applicable to your situation waived by U.S. EPA after you report and correct the violations. You feel relieved; finally, a policy from U.S. EPA that could actually improve your company's profitability.
My advice to clients who are performing self-audits is to be aware of the latest environmental policies coming out of U.S. EPA. U.S. EPA's latest policies are designed to save you money. However, U.S. EPA has no track record under the new policy, and many of the criteria necessary for a company to be eligible for a penalty waiver are subjective. I would never recommend that any company cover-up its violations of the environmental laws. However, proceed with caution when reporting violations to U.S. EPA and remember that you are making admissions that you will be held accountable for if U.S. EPA later decides that your company is not eligible for a penalty reduction. What is more important, if U.S. EPA decides that the conduct is a criminal violation, you may have made the admission necessary to prosecute the case against you.
In addition, policies come and policies go for various reasons such as court challenges, election year campaign promises, and federal budget balancing considerations. U.S. EPA's new policy on Small Business Compliance Incentives is a good idea, in my opinion. However, it has not yet withstood the test of time. As for now, if your company has discovered violations that must be reported, such as in this case due to a pending sale of the business, be aware that President Clinton has promised relief to those small businesses who meet the above criteria. As for large businesses, you may want to write to the President and ask him why his new policy does not apply equally to you.