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Penalty Reductions May Be Available for Voluntary Self-Disclosure of Violations

Fall 1995

The U.S. EPA has recently developed an interim policy on self-policing and self-disclosure designed to provide incen-tives for the regulated community to conduct internal compliance audits and to disclose and correct any environmental violations which are discovered as a result. In particular, according to the terms of this interim policy, the EPA has authority to completely eliminate or substantially reduce the gravity-based component of civil penalties which might otherwise be assessed. In addition, the EPA may also refrain from referring cases for criminal prosecution in certain circumstances. The availability of these potential penalty reductions is particularly important for companies that may have experienced compliance problems with the provisions of either the Emergency Planning and Community Right-to-Know Act ("EPCRA"), Toxic Substances Control Act ("TSCA"), or Resource Conservation and Recovery Act ("RCRA"), since the gravity-based component is usually the largest compo-nent of penalties assessed under these regulatory programs.

To qualify for the potential civil penalty reductions, a company must demonstrate compliance with the following criteria:

- The violation must be discovered through a voluntary audit or self-evaluation.
- The company must voluntarily disclose the violation in full to all appropriate local, state, and federal agencies as soon as it is discovered and before any local, state, or federal agency begins an inspection, investigation, or similar request for information and prior to the company’s receipt of a citizen suit notice or filing of a complaint against the company by a third party.
- The company must correct the violation within 60 days of discovery or as soon as possible thereafter.
- The company must expeditiously rectify any condition or situation that has created or may create an imminent and substantial endangerment to human health or the environment.
- The company must undertake remedial measures to address any environmental harm that has occurred and must undertake steps to prevent a reoccurrence of the violation.
- The violation must not indicate by its occurrence that the company failed, in the past, to take appropriate steps to avoid reoccurring violations.
- The company must cooperate with the EPA and provide information reasonably necessary to determine whether the penalty reduction policy is applicable.

If the company is able to demonstrate compliance with most, though not all, of these criteria, the EPA has authority to reduce the gravity-based component of the penalty by 75%.

If criminal prosecution is warranted, the EPA may refrain from referring the matter for criminal enforcement if the company can successfully establish that the violation does not demonstrate or involve:

- prevalent corporate practice or philosophy designed to conceal or condone environmental violations;
- conscious involvement in or "willful blindness" to a violation by high level corporate officials and managers; or
- serious actual harm to human health or the environment.

Companies that discover environmental noncompliance should be aware that the potential for fines and penalties and/or criminal prosecution may be reduced through self-disclosure and expeditious correction of the violation pursuant to the terms of this policy. However, the EPA has specifically cautioned that this policy is to be considered as interim guidance only. The EPA has reserved the right to apply the policy on a case-by-case basis and may decline to follow the policy entirely if circum-stances warrant.

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