legislation: Show-and-Tell May Help Big-Time Violators

If a company discovers a big-time environmental violation - serious enough for criminal charges - while conducting a compliance audit at a facility or other site, but doesn't try to hide the situation from authorities, the firm may escape prosecution, according to a new U.S. Environmental Protection Agency (EPA) policy.

For the past 211/42 years, EPA has given leniency to companies that voluntarily disclose civil violations. The agency reduces or waives fines for companies that uncover, report and correct civil or administrative violations in the course of due diligence or other formal compliance reviews.

Although "an increasing number of companies have voluntarily come forward to disclose environmental violations" to get relief under the policy, says Earl E. Devaney, who directs EPA's criminal enforcement program, very few firms divulged criminal violations they had discovered. Instead, he adds, the companies tried to negotiate a waiver of prosecution as part of a comprehensive settlement of all actual and potential charges.

The new policy, which Devaney announced to EPA criminal enforcement program personnel last October, extends the disclosure incentives to criminal violations. It describes the circumstances and conditions under which the agency will not press local federal prosecutors to bring criminal charges against "regulated entities."

If the Justice Department declines prosecution, a disclosing company still may be subject to civil fines - for example, an administrative action to recover any economic benefit resulting from the violation.

Significantly, the policy does not cover individuals. Even where EPA declines to refer an "entity" for criminal prosecution, the agency still may recommend prosecution for the criminal acts of managers or employees.

According to Devaney, the average fine assessed in an environmental criminal case is nearly $2 million. Thus, the incentives for voluntary reporting are strong.

A company that seeks to take advantage of the self-policing policy must demonstrate to EPA officials its sincere efforts to discover, disclose and correct the shortcomings that gave rise to the violations. Such efforts must fulfill nine criteria:

1. The company must discover the violation through an environmental audit, due diligence or other voluntary self evaluation. Nevertheless, the agency says it will consider any good-faith disclosures made before a criminal investigation officially begins.

2. Discovery of a violation is not considered "voluntary" if it occurs through a legally mandated regimen such as a monitoring or sampling program.

3. Disclosure of a possible violation must be made within 10 days of discovery. Nevertheless, EPA may accept past-due disclosures where the apparent violation is complex and compliance cannot be determined within a 10-day period.

4. Disclosure must be made before a formal criminal investigation starts and before EPA investigators begin pursuing "promising investigative leads from independent sources," including citizen groups, whistleblowers and government authorities.

5. Within 60 days of the disclosure, the company must correct the underlying causes of the violation and remedy any resulting environmental harm, or else explain to EPA why it needs more than 60 days to do the job.

6. The company must agree in writing to take the appropriate steps to prevent a recurrence of the violation. The agency wants to see a detailed plan.

7. The company cannot be a repeat offender. EPA will review its compliance and enforcement history.

8. The agency will not consider requests for relief in potential criminal cases that produced actual harm or imminent and substantial endangerment to human health or the environment.

9. Finally, EPA expects the requesting entity to fully cooperate with investigators. Such cooperation includes access by federal agents to information in the audit or report that revealed the violations, access to employees and access to documents. The policy notes that cooperation does not require the entity to waive "legitimate" legal privileges. However, the policy continues, "privilege issues raised during the course of the criminal investigation [must] be made in good faith."

The Voluntary Disclosure Board, comprised of officials from EPA's criminal enforcement group and the Justice Department's Environmental Crimes Section, will consider all requests for relief and will make recommendations to Devaney, who, in turn, will make a "final recommendation" to the local U.S. Attorney's Office.

Despite all these formalities, the policy does not change the fact that every U.S. attorney has the last word: the independent discretion to prosecute or not.