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Legal alert
Legal Alert by John H. Phillips
Compliance Incentives for Small Businesses
Y
ou are the owner of Chromers and Platers Inc., a business that you started 30 years ago, which has grown to employ 60 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. Before listing the business for sale, you decided to have an environmental 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 25 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. 70
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 100 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, noncriminal 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 3 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 5 years, has not been subject to two or more enforcement actions for violations of environmental requirements. In addition, the company must correct the violation and 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% of the gravity or punitive portion of the penalty, but may seek the amount that company saved through its noncompliance. 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 100 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
0 Copyright Elsevier Science Inc.
METAL
FINISHING
??
SEPTEMBER
1996
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. As with any legal mutter, you should always consult with your attorney. The above information, while deemed accurate by the author, should not he relied upon. Each set of facts and circumstances will be different and may lead to a different legal conclusion.
John H. Phillips is a general partner in the law firm of Sanders and Phillips, Cincinnati. MF
TheDuakopeMl?4 formeasuring coatingthickness. The DualScope MP4, the latest unit in a complete line of hand-held instrumentation, has one very smart feature. Intelligent probes. With the MP4 specific application information is stored directly in the probe. That means, when the probe is connected, the MP4 automatically loads application specific parameters. No calibration is needed, so you work faster. And smarter. Just consider these other benefits: Cl Measures platings/coatings over steel and aluminum.
?Variety ? of interchangable
probes. 0 One-point calibration for new applications. 0 RS232 interface for connecting to a printer, or downloading to a host computer or data logger. 0 Expanded application memories. When speed and accuracy count, count on Fischer. It’s the wise choice. For more information, call us at 1-800-243-8417. In Connecticut, (203)683-0781. Or fax us: (203) 6886496.
Powder Coating Show - See us
FischerTechnology,
at Booth #449
Inc., 750 Marshall PhelpsRoad,Windsor, CT 06095.
ration card
METAL
FINISHING
??
SEPTEMBER
1996
71
Compliance Incentives for Small Businesses
Y
ou are the owner of Chromers and Platers Inc., a business that you started 30 years ago, which has grown to employ 60 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. Before listing the business for sale, you decided to have an environmental 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 25 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. 70
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 100 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, noncriminal 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 3 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 5 years, has not been subject to two or more enforcement actions for violations of environmental requirements. In addition, the company must correct the violation and 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% of the gravity or punitive portion of the penalty, but may seek the amount that company saved through its noncompliance. 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 100 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
0 Copyright Elsevier Science Inc.
METAL
FINISHING
??
SEPTEMBER
1996
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. As with any legal mutter, you should always consult with your attorney. The above information, while deemed accurate by the author, should not he relied upon. Each set of facts and circumstances will be different and may lead to a different legal conclusion.
John H. Phillips is a general partner in the law firm of Sanders and Phillips, Cincinnati. MF
TheDuakopeMl?4 formeasuring coatingthickness. The DualScope MP4, the latest unit in a complete line of hand-held instrumentation, has one very smart feature. Intelligent probes. With the MP4 specific application information is stored directly in the probe. That means, when the probe is connected, the MP4 automatically loads application specific parameters. No calibration is needed, so you work faster. And smarter. Just consider these other benefits: Cl Measures platings/coatings over steel and aluminum.
?Variety ? of interchangable
probes. 0 One-point calibration for new applications. 0 RS232 interface for connecting to a printer, or downloading to a host computer or data logger. 0 Expanded application memories. When speed and accuracy count, count on Fischer. It’s the wise choice. For more information, call us at 1-800-243-8417. In Connecticut, (203)683-0781. Or fax us: (203) 6886496.
Powder Coating Show - See us
FischerTechnology,
at Booth #449
Inc., 750 Marshall PhelpsRoad,Windsor, CT 06095.
ration card
METAL
FINISHING
??
SEPTEMBER
1996
71