Incentives for Self-Policing: Discovery, Disclosure, Correction, and Prevention of Violations

• Author: Frank B. Friedman
• Pages: 539-554

Incentives for Self-Policing: Discovery, Disclosure, Correction

and Prevention of Violations (EPA, April 11, 2000)

I. Explanation of Policy

A. Introduction

On December 22, 1995, EPAissued its final policy on “Incentives for Self-Policing: Dis-

covery, Disclosure, Correction and Prevention of Violations”(60 FR 66706) (Audit Policy,

or Policy). The purpose of the Policy is to enhance protection of human health and the envi-

ronment by encouraging regulated entities to voluntarily discover, disclose, correct and pre-

vent violations of Federal environmental law.Benefits available to entities that make disclo-

sures under the terms of the Policy include reductions in the amount of civil penalties and a

determination not to recommend criminal prosecution of disclosing entities.

Today,EPA issues revisions to the 1995 Audit Policy.The revised Policy reflects EPA’s

continuing commitment to encouraging voluntary self-policing while preserving fair and ef-

fective enforcement. It lengthens the prompt disclosure period to 21 days, clarifies that the

independent discovery condition does not automatically preclude Audit Policy credit in the

multi-facility context, and clarifies how the prompt disclosure and repeat violations condi-

tions apply in the acquisitions context. The revised final Policy takes effectMay 11, 2000.

B. Background and History

The Audit Policy provides incentives for regulated entities to detect, promptly disclose,

and expeditiously correct violations of Federal environmental requirements. The Policy

contains nine conditions, and entities that meet all of them are eligible for 100% mitigation of

any gravity-based penalties that otherwise could be assessed. (“Gravity-based” refers to that

portion of the penalty over and above the portion that represents the entity’s economic gain

from noncompliance, known as the “economic benefit.”) Regulated entities that do not meet

the first condition—systematic discovery of violations—but meet the other eight conditions

are eligible for 75% mitigation of any gravity-based civil penalties. On the criminal side,

EPAwill generally elect not to recommend criminal prosecution by DOJ or any other prose-

cuting authority for a disclosing entity that meets at least conditions two through nine—re-

gardless of whether it meets the systematic discovery requirement—as long as its self-polic-

ing, discovery and disclosure were conducted in good faith and the entity adopts a systematic

approach to preventing recurrence of the violation.

The Policy includes important safeguards to deter violations and protect public health

and the environment. For example, the Policy requires entities to act to prevent recurrence of

violations and to remedy any environmental harm that may have occurred. Repeat viola-

tions, those that result in actual harm to the environment, and those that may present an im-

minent and substantial endangerment are not eligible for relief under this Policy.Companies

will not be allowed to gain an economic advantage over their competitors by delaying their

investment in compliance. And entities remain criminally liable for violations that result

from conscious disregard of or willful blindness to their obligations under the law,and indi-

viduals remain liable for their criminal misconduct.

When EPAissued the 1995 Audit Policy,the Agency committed to evaluate the Policy af-

ter three years. The Agency initiated this evaluation in the spring of 1998 and published its

preliminary results in the Federal Register on May 17, 1999 (64 FR 26745). The evaluation

consisted of the following components:

· An internal survey of EPAstaff who process disclosures and handle enforce-

ment cases under the 1995 Audit Policy;

· Asurvey of regulated entities that used the 1995 Policy to disclose violations;

· Aseries of meetings and conference calls with representatives from industry,

environmental organizations, and States;

Incentives for Self-Policing 539

· Focused stakeholder discussions on the Audit Policy at two public confer-

ences co-sponsored by EPA’s Officeof Enforcement and Compliance Assur-

ance (OECA) and the Vice President’s National Partnership for Reinventing

Government, entitled “Protecting Public Health and the Environment through

Innovative Approaches to Compliance”;

· A Federal Register notice on March 2, 1999, soliciting comments on how

EPA can further protect and improve public health and the environment

through new compliance and enforcement approaches (64 FR 10144); and

· An analysis of data on Audit Policy usage to date and discussions amongst

EPAofficials who handle Audit Policy disclosures.

The same May 17, 1999, Federal Register notice that published the evaluation’sprelimi-

nary results also proposed revisions to the 1995 Policy and requested public comment. Dur-

ing the 60-day public comment period, the Agency received 29 comment letters, copies of

which are available through the Enforcement and Compliance Docket and Information Cen-

ter.(See contact information at the beginning of this notice.) Analysis of these comment let-

ters together with additional data on Audit Policy usage has constituted the final stage of the

Audit Policy evaluation. EPAhas prepared a detailed response to the comments received; a

copy of that document will also be available through the Docket and Information Center as

well as on the Internet at www.epa.gov/oeca/ore/apolguid.html.

Overall, the Audit Policy evaluation revealed very positive results. The Policy has en-

couraged voluntary self-policing while preserving fair and effective enforcement. Thus, the

revisions issued today do not signal any intention to shift course regarding the Agency’spo-

sition on self-policing and voluntary disclosures but instead represent an attempt to fine-tune

a Policy that is already working well.

Use of the Audit Policy has been widespread. As of October 1, 1999, approximately 670

organizations had disclosed actual or potential violations at more than 2,700 facilities. The

number of disclosures has increased each of the four years the Policy has been in effect.

Results of the Audit Policy User’s Survey revealed very high satisfaction rates among us-

ers, with 88% of respondents stating that they would use the Policy again and 84% stating

that they would recommend the Policy to clients and/or their counterparts. No respondents

stated an unwillingness to use the Policy again or to recommend its use to others.

The Audit Policy and related documents, including Agency interpretive guidance and

general interest newsletters, are available on the Internet at www.epa.gov/oeca/ore/apolguid.

Additional guidance for implementing the Policy in the context of criminal violations can be

found at www.epa.gov/oeca/oceft/audpol2.html.

In addition to the Audit Policy,the Agency’s revised Small Business Compliance Policy

(“Small Business Policy”) is also available for small entities that employ 100 or fewer indi-

viduals. The Small Business Policy provides penalty mitigation, subject to certain condi-

tions, for small businesses that make a good faith effort to comply with environmental re-

quirements by discovering, disclosing and correcting violations. EPAhas revised the Small

Business Policy at the same time it revised the Audit Policy.The revised Small Business Pol-

icy will be available on the Internet at www.epa.gov/oeca/smbusi.html.

C. Purpose

The revised Policy being announced today is designed to encourage greater compliance

with Federal laws and regulations that protect human health and the environment. It pro-

motes a higher standard of self-policing by waiving gravity-based penalties for violations

that are promptly disclosed and corrected, and which were discovered systematically—that

is, through voluntary audits or compliance management systems. Toprovide an incentive for

entities to disclose and correct violations regardless of how they were detected, the Policy re-

duces gravity-based penalties by 75% for violations that are voluntarily discovered and

promptly disclosed and corrected, even if not discovered systematically.

540 Practical Guide to Environmental Management