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EPA announces expansion of its Audit Policy to provide additional penalty mitigation for "New Owners" in Buy/Sell Transactions

August 05, 2008

Effective August 1, 2008, EPA announced that it was expanding its Audit Policy to include additional penalty mitigation incentives to new owners who identify and report violations of environmental laws at recently acquired facilities. Interim Approach to Applying the Audit Policy to New Owners, 73 Fed. Reg. 44991 (Aug. 1, 2008). The additional opportunities for penalty mitigation offered to qualifying new owners provide a considerable potential for protection from penalties arising from past violations at newly acquired facilities. The potential benefits that this expansion of the Audit Policy may have are an important consideration for all buy/sell transactions.

EPA established its Audit Policy in 1995. Incentives for Self-Policing: Discovery, Disclosure, Correction, and Prevention of Violations, 60 Fed. Reg. 66706 (Dec. 22, 1995) as revised 65 Fed. Reg. 19618 (Apr. 11, 2000). The Audit Policy provides for mitigation from penalties resulting from violations of Federal environmental laws when the violations are voluntarily discovered, promptly reported, and corrected by industry. The intent of the Audit Policy is to encourage self-reporting of violations by providing considerable benefits to entities that make disclosures under the terms of the Policy. To be eligible for up to 100% mitigation of certain penalties, including criminal liability, the disclosing entity must meet nine eligibility criteria.

On August 1, 2008, EPA announced changes to the Audit Policy that are specifically tailored to provide additional incentives for qualifying new owners of facilities. The following are highlights of the changes:

  • The expanded Audit Policy for new owners is available for nine months following closing of the transaction. A new owner of a facility must identify and disclose violations of environmental laws within the time frames prescribed by the Audit Policy to be eligible for penalty mitigation.
  • New owners may be eligible for mitigation of penalties for violations discovered through required monitoring that were previously ineligible for mitigation. An example is violations discovered for monitoring required to meet the compliance certification under a Title V air permit.
  • In certain circumstances, new owners may be eligible for mitigation of substantial “economic benefit” penalties that were previously ineligible for mitigation.
  • Past violations of the same or similar laws will not exclude a facility under control of a new owner from eligibility for penalty mitigation.
  • Except in the most egregious circumstances, EPA will not exclude facilities where the violation has resulted in serious actual harm to the environment.

 

To qualify as a new owner, an entity must meet specific criteria that depend on prior ownership and control of the facility. Businesses must carefully consider the specific circumstances of a transaction to determine eligibility for the purposes of the Audit Policy. In addition, the Audit Policy only applies to mitigation of penalties under Federal law and businesses should also consider availability of state audit protection programs.

In summary, the revisions to the Audit Policy provide businesses an approach that can afford protection from considerable penalties for past violations of Federal environmental laws when ownership and control of a facility changes to a new owner. The revisions applying to new owners are currently available on an interim basis. After a period of review and assessment, EPA will finalize, revise or discontinue these revisions to the Audit Policy.

Please contact Michael Roubitchek in the Milwaukee Office (414-273-3500 or mroubitchek@gklaw.com) for further details.

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If you have a media request or need an attorney with particular knowledge for comment, please contact Susan Steberl, Director of Marketing, at 414.287.9556 or ssteberl@gklaw.com.

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