Region 5 - Office of Regional Counsel

Introduction

Bertram C. Frey and Kathryn McCollough*

This article serves as an update and expansion of an article by the same name presented at the American Bar Association’s 27th Annual Conference on Environmental Law in March 1998. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the copyright owners. The views expressed in this article are those of the authors and are not necessarily those of U.S. EPA.

Copyright © 2003. All rights reserved by the copyright owners (Bertram C. Frey and Kathryn A. McCollough)

Click here to view the original article by Bertram C. Frey and Matthew Sanders.

States that have enacted audit privilege/immunity laws as of September 2003		States that have enacted audit privilege/immunity rules as of September 2003	States that have adopted audit privilege/immunity self-disclosure policies as of September 2003
Alaska	Montana	Oklahoma	Arizona	Oregon
Arizona*	Nebraska		California	Pennsylvania
Arkansas	Nevada		Connecticut	Tennessee
Colorado	New Hampshire		Deleware	Vermont
Idaho	New Jersey		Florida	Washington
Illinois	Ohio		Hawaii
Indiana	Oregon		Indiana
Iowa	Rhode Island		Maine
Kansas	South Carolina		Maryland
Kentucky	South Dakota		Massachusettes
Michigan	Texas		Minnesota
Minnesota	Utah		New Mexico
Mississippi	Virginia		New York
Wyoming			North Carolina

Overview

This article, like the original, examines what the term “cooperation” means in major federal policies, state audit privilege/immunity laws, and state self-disclosure policies and rules in existence as of September 2003. In particular, this article discusses the role cooperation with a government agency plays when a regulated entity self-discloses violations of environmental laws to those agencies. As these policies, rules, and statutes have evolved over recent years, this article also sheds some light on growing trends in how government agencies seek to provide incentives for entities to achieve voluntary compliance.

This article should prove useful to legal practitioners because it provides, in table form, a synopsis of what constitutes cooperation with government agencies under environmental self-disclosure policies and audit privilege/immunity laws. The article is divided into four sections: Federal Policies (Table I), State Audit Privilege/Immunity Laws (Table II), State Environmental Audit Rules (Table III), and State Self-Disclosure Policies (Table IV). Each of the four tables summarizes how cooperation is treated within each category, thus allowing for easy comparison and elucidation of trends.

The following paragraphs explain in greater detail the information contained in each of the tables, specifically, the role cooperation plays in the respective law, rule, or policy; changes in the law, rule or policy pertaining to cooperation since the time of the original article’s publication; and recent trends. It is important to note that this article does not answer or discuss questions about what role cooperation with government agencies should play and does not comment on a preference for a definition of cooperation or on the desirability of the laws, rules, and policies examined.

Table I: Federal Policies

On April 11, 2000, the United State Environmental Protection Agency ("EPA") released revised statements of its Small Business Compliance Policy ⁽²⁾ and Self-Policing Policy ⁽³⁾ (also commonly referred to as the EPA "Audit" Policy). The revisions to the Small Business Compliance Policy focus primarily on lengthening the disclosure period and extending the policy's applicability to violations uncovered "through any means of voluntary discovery." Under the revised Small Business Compliance Policy, cooperation with EPA is still a requirement of "good faith." "Good faith," however, is not one of the listed criteria for civil penalty mitigation, but rather a condition implied by the prompt disclosure requirement. ⁽⁴⁾ Thus, "cooperation" is no longer a direct requirement under the revised policy, but a factor implicit in EPA's determination of whether a small business may qualify for a penalty reduction. As with its 1996 predecessor, the revised Small Business Compliance Policy does not specifically address the extent to which "cooperation" may apply differently in criminal, civil, and administrative contexts, except for the specification that the policy is not applicable to criminal violations.

The 2000 revisions to the 1995 Self-Policing Policy maintain its basic structure and terms, but clarify some if its language and broaden its availability in accordance with EPA's actual practice in implementing the policy over the previous five years. "Cooperation" is still a condition that must be met in order to qualify for incentives under the new policy. The revised Self-Policing Policy deletes the language in the 1995 policy statement describing what "cooperation" entails. Although the revised statement of policy is less specific with regard to the threshold requirements of "cooperation," the "Background and History" section does elaborate on this point. The section suggests that, while what constitutes "cooperation" may depend on the individual case, when a criminal violation is disclosed minimum threshold requirements will still apply, including: access to all requested documents; access to all employees of the disclosing entity; assistance in investigating the violation, any noncompliance problems related to the disclosure, and any environmental consequences related to the violations; access to all information relevant to the violations disclosed, including that portion of the environmental audit report or documentation from the compliance management system that revealed the violation; and, access to the individuals that conducted the review. The above requirements for criminal cases mirror those listed in EPA's 1997 policy statement on the implementation of its Self-Policing Policy for disclosures involving potential criminal violations ("Criminal Implementation Policy"). ⁽⁵⁾ This suggests a possible recognition by EPA that the criteria for meeting the "cooperation" condition under the 1995 Self-Policing Policy may have been too burdensome in some civil and administrative cases, at the same time bringing it into line with the more stringent Criminal Implementation Policy (which remains in effect). The revised Self-Policing Policy's bifurcated approach to the interpretation of the "cooperation" requirement allows EPA to tailor "cooperation" requirements to the severity of the violations.

Table II: State Environmental Audit Privilege/Immunity Laws

Since the first state (Oregon) did so in 1993, a total of 27 states have passed laws providing qualified privilege for environmental audit reports and associated documents and/or penalty immunity for violations of environmental laws when an entity voluntarily discloses a violation. ⁽⁶⁾ As of September 2003, only 23 states maintain such laws on their books. ⁽⁷⁾ Of these 23 laws, ten make "cooperation" a requirement or condition that must be met in order for an entity to qualify for the benefits they confer. ⁽⁸⁾ The state laws continue to provide little guidance as to what "cooperation" actually entails, with only Rhode Island's law providing a specific definition of the term. ⁽⁹⁾ It is notable, however, that since the original or amended versions of 17 of the state laws ⁽¹⁰⁾ (including seven of those making "cooperation" a requirement) are not applicable to criminal actions, this lack of specificity about the definition of "cooperation" is not unlike the approach taken in EPA's revised Self-Policing Policy.

Of the 23 states that currently maintain audit laws on their books, 21 have amended and/or interpreted their laws to meet EPA concerns with their legal authority to continue administering delegated, approved, or authorized federal environmental programs. This evidences a clear trend among state legislatures of moving away from using statutory privilege and immunity as an incentive for businesses and individuals to achieve voluntary compliance by either limiting those incentives or adopting policies that provide similar penalty mitigation incentives, but while affording more flexibility. ⁽¹¹⁾

Table III: State Audit Rules

Only one state, Oklahoma, has adopted an audit rule and it remains substantively unchanged. The rule does require "cooperation" in order for an entity to receive some or all of its benefits. Nevertheless, like the state laws described above, Oklahoma's rule does not define the term. ⁽¹²⁾

Table IV: State Self-Disclosure Policies

Of the 19 states that have adopted some type of self-disclosure policy, ⁽¹³⁾ all but three- Maine, North Carolina, and Washington-list "cooperation" as a condition for receipt of some or all of the offered benefits. In addition, more than half of the policies requiring "cooperation" with a government agency specifically define the term (using a definition identical or nearly identical to that set forth in EPA's 1995 Self-Disclosure Policy). ⁽¹⁴⁾ In contrast to state audit privilege/immunity laws, a disproportionately smaller number of state self-disclosure policies exclude disclosures of criminal violations from eligibility for policy incentives (typically, penalty mitigation and/or an agreement not to recommend the entity for prosecution). ⁽¹⁵⁾ Of those few states whose policies are not applicable to criminal violations, only those of Delaware, Maryland, and New York require "cooperation" as a condition for receiving benefits. While this increased specificity combined with broader applicability may seem at odds with the trends noted above, such dissonance may be due, in part, to the nature of the policies. In contrast to state audit laws, self-disclosure policies are not binding.

The analysis set forth in the tables below is based on the plain language of the various laws and policies addressed. As is the case where state agencies have discretion in implemeinting and interpreting a law or policy, or courts act in interprting a provision of a law, the analysis provided in the tables below, in certain instances, may differ from the acutal effect given a particular provision of law or policy in a given state. Consequently, a definative interpretation of a provision of law or policy in a particular state can only be given by the appropriate legal authority in the state.

Conclusion

In summary, the federal EPA and an increasing number of state agencies have provided new incentives to regulated entities to audit and self-disclose violations of environmental laws. In 2000, the U. S. EPA revised its Self-Policing and Small Business Compliance Policies to encourage more auditing and self-disclosure of violations. Since 1998, a significant number of states have enacted, amended and/or interpreted their audit privilege/immunity laws to provide incentives for auditing and self-disclosure of environmental violations. The actions generally were in response to and satisfied U.S. EPA’s concerns with the states’ legal authority to continue administering delegated, approved or authorized federal environmental programs. In addition, 19 states have issued new self-disclosure policies to provide incentives to companies to self-disclose violations. Almost all of these policies are modeled on U.S. EPA’s Self-Policing Policy.

While the federal policies both define and require (either explicitly or implicitly) “cooperation” with the U.S. EPA, the majority of state environmental audit privilege/immunity laws neither define nor require “cooperation” with the state regulatory agency. Of the 23 state environmental audit laws only 10 laws require “cooperation” in order to qualify for the law’s benefits and only one law specifically defines what “cooperation” with a state environmental agency entails. The only state environmental audit rule requires the disclosing entity to “cooperate” with the investigating state agency but does not define the term. The majority of state self-disclosure policies, however, follow the federal policies. Sixteen of the 19 state policies require “cooperation”; 10 of the 19 state policies specifically define “cooperation”; and one state specifically incorporates by reference the definition of “cooperation” contained in the U.S. EPA’s Self-Policing Policy.

 

*Bertram C. Frey is acting regional cousnel for the United States Environmental Protection Agency Region V. Kathryn McCollough is a law student at Northwestern University School of Law and at the time of this writing served as a legal extern with EPA Region V. The views expressed in this article are the views of the authors and are not necessarily those of the EPA.

Notes:

1. Bertram C. Frey and Matthew J. Sanders, Cooperation with Government Agencies Under Environmental Audit Privilege/Immunity Laws, Rules, and Policies, A.B.A Section of National Resources, Energy, and Environmental Law, 27^th Annual Conference on Environmental Law Session 4, Keystone, Colorado (March 12-15,1998).

2. Small Business Compliance Policy, 65 Fed. Reg. 19629-19634 (April 11, 2000) (available from the ELR Guidance & Policy Collection, ELR No. AD04881).

3. Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violation, 65 Fed. Reg. 19617-19627 (April 11, 2000) (available from the ELR Guidance & Policy Collection, ELR No. AD04885).

4. "Prompt disclosure is evidence of the small business's good faith in wanting to achieve or return to compliance as soon as possible." Small Business Compliance Policy, 65 Fed. Reg. 19633.

5. Memorandum from Earl E. Devaney, Director, Office of Criminal Enforcement, Forensics, and Training to all EPA Employees working in or in support of the Criminal Enforcement Program (October 1, 1997) (on file with authors) (available from the ELR Guidance & Policy Collection, ELR No. AD03709).

6 .As of September 2003, the states and their laws are as follows: Alaska (Alaska Stat. §§ 09.25.450-490 (Michie 2002)), Arizona (Ariz. Rev. Stat. §§ 49-191, and 49-191.01 to 49-191.07 (2000) (never became effective)), Arkansas (Ark. Code Ann §§ 8-1-301 to -312 (Michie 2002)), Colorado (Colo. Rev. Stat. §§ 13-25-126.5, 25-1-114.5 (2003)), Idaho (Idaho Code §§ 9-801 to -811, sunset Dec. 31, 1997), Illinois (Ill. Comp. Stat. 415 § 5/52.2 (2003)), Indiana (Ind. Code Ann. §§ 13-28-4-1 to -11 (West 2002)), Iowa (Iowa code Ann §§ 455K.1 to -12 (2002)), Kansas (Kan. Stat. Ann. §§ 60-3332 to -3339 (2002)), Kentucky (Ky. Rev. Stat. Ann. §§ 224.01 to -040 (Banks-Baldwin 2003), Michigan (Mich. Comp. Laws §§ 324.14801 -14809 (2003)), Minnesota (Minn. Stat. §§ 114C.20-31 (2003)), Mississippi (Miss. Code Ann §§ 49-2-71, 49-17-43, 49-17-427, 17-17-29 (2003)), Montana (Mont. Code Ann. §§ 75-1-1201 to -1206 (sunset Oct. 1, 2001), Nebraska (Neb. Rev. Stat. §§ 25-21,254 -264 (2002)), Nevada (Nev. Rev. Stat. §§ 445C.020 -120 (2002)), New Hampshire (N.H. Rev. Stat. Ann. §§ 147-E:1 to -E:9, sunset July 1, 2003), New Jersey (N.J. Stat. Ann. §§ 13:1D-125 to -130 (2003)), Ohio (Ohio Rev. Code Ann. §§ 3745.70 -73 (West 2003)), Oregon (Or. Rev. Stat. § 468.963 (2001)), Rhode Island (R.I. Gen. Laws §§ 42-17.8-1 to -4 (2002)), South Carolina (S.C. Code Ann. §§ 48-57-10 to -110 (2002)), South Dakota (S.D. Codified Laws §§ 1-40-33 to -37 (Michie 2003)), Texas (Tex. Rev. Civ. Stat. Ann. art. 4447cc (Vernon 2001)), Utah (Utah Code Ann. §§ 19-7-101 to -109 (2002)), Virginia (Va. Code Ann. §§ 10.1-1198 to -1199 (2003)), Wyoming (WY ST s 35-11-1105 (West 2002)). NOTE: Table II excludes the Arizona statute because the law’s effectiveness was conditioned upon passage of an appropriations bill to fund a program to administer the law that was never enacted.

7. As of March 1998 (see note 1, supra), 24 states had passed environmental audit privilege and/or immunity laws. Since that time three additional states, Arizona, Iowa, and Nebraska, enacted audit privilege/immunity laws (although Arizona's law never became effective) while Idaho's, Montana's and New Hampshire's laws succumbed to sunset provisions.

8. Those 10 states are Alaska, Colorado, Kansas, Kentucky, Mississippi, Nebraska, Ohio, Rhode Island, South Carolina, Texas. It should also be noted that Virginia's law contains a lack of "bad faith" requirement. See Table II, infra. "Cooperation" can either be a direct requirement (i.e., it is one of the several conditions necessary for receiving privileges and/or immunity) or an indirect one (i.e., it is one of the several conditions needed to make a disclosure voluntary, and the voluntariness of the disclosure is one of the requirements for receiving the law's benefits).

9. The definition of "cooperation" used in the Rhode Island law is the same as that used in EPA's 1995 Self-Disclosure Policy. See Table II, note 23, infra.

10. Seventeen state audit privilege/immunity laws are only applicable in civil and administrative actions, including those of Alaska, Arkansas, Indiana, Iowa, Kentucky, Michigan, Mississippi, Montana, Nebraska, New Hampshire, New Jersey, Ohio, Oregon, South Carolina, Texas, Virginia, and Wyoming. Of those, the laws of Alaska, Kentucky, Montana, Nebraska, Ohio, South Carolina, and Texas make "cooperation" a requirement.

11. See Table IV, infra.

12. Okla. Admin. Code § 252:4-9-5 (2003). On August 17, 2003, New Jersey proposed an environmental audit self-disclosure rule entitled, “Penalty Reductions for Self-Disclosure of Violations.” The proposal number for this proposed rule is PRN 2003. The proposed citation for the proposed rule is N.J.A.C. 7:33.

13. As of September 2003, the states that have adopted policies requiring "cooperation" are: Arizona, California, Connecticut, Delaware, Florida, Indiana, Maryland, Massachusetts, Minnesota, New Mexico, New York, Oregon, Pennsylvania, Tennessee, and Vermont. Hawaii incorporates by reference EPA’s 1995 Self-Policing Policy; accordingly, cooperation is a requirement in that state.

Minnesota’s environmental audit law was enacted in 1995. Section of 114C.26 of the audit law incorporated by reference the Minnesota Pollution Control Agency’s policy on environmental auditing. In 1999, section 114C.26 was amended and the reference to the state’s policy was omitted. In its place, the amendment requires that a self-disclosing entity follow procedures and criteria set forth in the amended statute. Although the Minnesota policy on environmental auditing has never been formally abolished, because the statutory procedures and criteria must now be used, the policy, as a practical matter, has been superceded.

14. The term "cooperation" is defined in the following states' self-disclosure policies: Arizona, California, Connecticut, Florida, Indiana, Massachusetts, New Mexico, Oregon, and Tennessee. Hawaii's policy incorporates by reference the definition of "cooperation" contained in U.S. EPA's 1995 Self-Policing Policy.

15. The self-disclosure policies of Delaware, Maine, Maryland, New York, and Washington make criminal disclosures ineligible for policy incentives. Although the terms of Arizona's policy do not explicitly exclude criminal violations from eligibility for incentives, the general terms of the policy imply such an exclusion.