<DOC>
[105 Senate Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:46584.wais]
S. Hrg. 105-305
ENVIRONMENTAL AUDITS
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON
ENVIRONMENT AND PUBLIC WORKS
UNITED STATES SENATE
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
ON
THE REVIEW OF ACTIVITIES BY THE FEDERAL GOVERNMENT CONCERNING
INDIVIDUALS OR ORGANIZATIONS VOLUNTARILY SUBMITTING TO ENVIRONMENTAL
AUDITS
__________
OCTOBER 30, 1997
__________
Printed for the use of the Committee on Environment and Public Works
<snowflake>
______
U.S. GOVERNMENT PRINTING OFFICE
45-438 cc WASHINGTON : 1998
_______________________________________________________________________
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
ONE HUNDRED FIFTH CONGRESS
JOHN H. CHAFEE, Rhode Island, Chairman
JOHN W. WARNER, Virginia MAX BAUCUS, Montana
ROBERT SMITH, New Hampshire DANIEL PATRICK MOYNIHAN, New York
DIRK KEMPTHORNE, Idaho FRANK R. LAUTENBERG, New Jersey
JAMES M. INHOFE, Oklahoma HARRY REID, Nevada
CRAIG THOMAS, Wyoming BOB GRAHAM, Florida
CHRISTOPHER S. BOND, Missouri JOSEPH I. LIEBERMAN, Connecticut
TIM HUTCHINSON, Arkansas BARBARA BOXER, California
WAYNE ALLARD, Colorado RON WYDEN, Oregon
JEFF SESSIONS, Alabama
Jimmie Powell, Staff Director
J. Thomas Sliter, Minority Staff Director
(ii)
C O N T E N T S
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Page
OCTOBER 30, 1997
OPENING STATEMENTS
Allard, Hon. Wayne, U.S. Senator from the State of Colorado...... 16
Baucus, Hon. Max, U.S. Senator from the State of Montana......... 5
Bond, Hon. Christopher S., U.S. Senator from the State of
Missouri....................................................... 3
Chafee, Hon. John H., U.S. Senator from the State of Rhode Island 1
Hutchinson, Hon. Tim, U.S. Senator from the State of Arkansas.... 20
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma... 2
Lautenberg, Hon. Frank R., U.S. Senator from the State of New
Jersey......................................................... 5
Sessions, Hon. Jeff, U.S. Senator from the State of Alabama...... 4
Smith, Hon. Robert, U.S. Senator from the State of New Hampshire. 19
Thomas, Hon. Craig, U.S. Senator from the State of Wyoming....... 20
WITNESSES
Bangert, Patricia S., director, legal policy, Attorney General's
Office, State of Colorado...................................... 30
Prepared statement........................................... 87
Enzi, Hon. Michael B., U.S. Senator from the State of Wyoming.... 7
Prepared statement........................................... 47
Herman, Steven A., Assistant Administrator, Office of Enforcement
and Compliance Assurance, Environmental Protection Agency...... 21
Prepared statement........................................... 49
Hutchison, Hon. Kay Bailey, U.S. Senator from the State of Texas. 24
Lott, Hon. Trent, U.S. Senator from the State of Mississippi..... 26
McBee, Barry R., chairman, Texas Natural Resource Conservation
Commission..................................................... 27
Prepared statement........................................... 82
Wallach, Paul, senior partner, Hale and Dorr..................... 31
Letters, environmental audits, New England Council........... 104
List, examples of reporting obligations to government
agencies................................................... 98
Platform, Corporate Environmental Enforcement Council........ 99
Prepared statement........................................... 91
Woodall, Mark, Sierra Club, Georgia Chapter...................... 34
Grassroot letters to U.S. Senators........................... 114
Prepared statement........................................... 106
Statement of Linda Briscoe and Solomon Lundy................. 111
ADDITIONAL MATERIAL
Articles:
Environmental Democracy, Journal of Corporation Law.......... 141
Small Businesses Respond to Minnesota's Audit Program........ 204
Charts supplied by EPA:
Exhibit 1, State Support for EPA Audit Policy................ 56
Exhibit 2, Rough Breakdown of Industry Disclosures Under
Federal Audit Policy....................................... 57
Exhibit 3, Opposition to Audit Privilege and Immunity
Legislation................................................ 58
Letters:
Attorney General Janet Reno.................................. 133
California District Attorneys Association.................... 76
Intertanko................................................... 219
Louisiana Environmental Action Network....................... 72
Maine's Attorney General..................................... 80
Missouri Department of Natural Resources..................... 74
National Academy of Public Administration.................... 190
National District Attorneys Association...................... 184
New England Council.......................................... 104
New York State District Attorneys Association................ 186
Sierra Club.................................................. 114
U.S. Attorney for Alaska Robert C. Bundy..................... 68
List, State environmental audit privilege legislation............ 156
Press release, Cahill announces environmental enforcement plan,
Office of Gov. Pataki of New York.............................. 61
Report, Resolving the Paradox of Environmental Protection,
National Academy of Public Administration...................... 191
Statements:
Airports Council International-North America and American
Association of Airport Executives.......................... 135
American Farm Bureau Federation.............................. 135
Briscoe, Linda and Lundy, Rev. Solomon....................... 111
Bundy, Robert C., U.S. Attorney for Alaska, and Lois J.
Schiffer, Assistant Attorney General, U.S. Department of
Justice.................................................... 129
Geltman, Elizabeth Glass..................................... 137
Representative statements supplied by EPA opposing audit
privilege and/or penalty immunity legislation.............. 60
Wisconsin's Attorney General James E. Doyle.................. 63
ENVIRONMENTAL AUDITS
----------
THURSDAY, OCTOBER 30, 1997
U.S. Senate,
Committee on Environment and Public Works,
Washington, DC.
The committee met, pursuant to notice, at 9:32 a.m. in room
106, Senate Dirksen Building, Hon. John H. Chafee [chairman of
the committee] presiding.
Present: Senators Chafee, Inhofe, Bond, Baucus, Sessions,
Lautenberg, and Allard.
OPENING STATEMENT OF HON. JOHN H. CHAFEE, U.S. SENATOR FROM THE
STATE OF RHODE ISLAND
Senator Chafee. OK, we'll get started.
I want to welcome everyone here this morning. Everybody
please take a seat.
The purpose of today's hearing of the Committee on
Environment and Public Works is to receive testimony on the
topic of environmental audit legislation. This is a topic that
we touched on during the hearing the committee held in June on
enforcement issues.
At the outset, it might be useful to briefly describe what
environmental audit laws do. Audit laws typically include one
or both of the following features: An evidentiary privilege
against disclosure of information discovered in the course of
an audit, that's one part of it; and some form of an immunity
from criminal or civil fines or penalties from any violations
discovered, disclosed or corrected incident to an audit.
It's timely to hear about developments on environmental
audits. While there is no legislation currently pending before
this committee on this topic, two bills have been introduced in
the Senate, and we'll hear from the sponsors of each bill.
Senator Kay Bailey Hutchison of Texas sponsored S. 866, the
Environmental Protection Partnership Act. It's my understanding
she will be joining us shortly to discuss her bill. The
approach in Senator Hutchison's bill is to create a privilege
and immunity under Federal law.
We will also hear from Senator Mike Enzi of Wyoming, whom
we welcome here today. Yesterday he introduced the State
Environmental Audit Protection Act. Senator Enzi, during his
service in the Wyoming State Senate, was the principal sponsor
of Wyoming's environmental audit law. The approach in Senator
Enzi's draft bill is to create a safe harbor for qualifying
State audit laws that would prevent Federal interference.
We look forward to the testimony from both Senators, and we
welcome them as they come before us.
State legislatures have been very active on environmental
audit legislation. Since 1994, which is after all, only 3 years
ago, approximately 24 State have enacted legislation that
either establishes a privilege for information discovered
during an environmental audit or provides some form of an
immunity from violations of laws discovered during an audit.
Some States provide both a privilege and an immunity. I
note the two States that have enacted legislation most recently
on environmental audits are Rhode Island and Montana. Today, we
will hear from representatives from Texas and Colorado on the
topic.
It's apparent from the testimony this is a controversial
topic. EPA and the Department of Justice strongly oppose the
creation of any Federal audit privileges or immunities.
Further, they oppose Federal or State action to enact such
privileges. EPA believes its administrative policies, which
feature discretionary penalty reductions in immunities, are a
success and provide sufficient incentives for regulated
entities to conduct audits.
EPA recognizes that despite its policy position, 24 States
have acted. EPA has therefore adopted a legal position on the
minimum requirements of a State audit law, where a State also
enforces a delegated Federal statute, such as the Clean Water
Act. This is a position that's caused tension between EPA and
many States. Mr. Herman, head of EPA's enforcement office, will
present EPA's views today.
We will also hear from a representative of the business
community to describe why Federal legislation is needed on the
topic. Why the States that have acted to create audit laws and
what they advise Congress to do to make State audit laws work
better.
We will also hear from a representative of a group of over
120 organizations and individuals who oppose the creation of
statutory audit privileges or immunity.
So I look forward to hearing from our witnesses.
I just saw Senator Baucus. He'll be here shortly. We're
going to start. Senator Inhofe, do you have anything you wish
to say?
OPENING STATEMENT OF HON. JAMES M. INHOFE, U.S. SENATOR FROM
THE STATE OF OKLAHOMA
Senator Inhofe. I do, Mr. Chairman. I'm glad you're having
this hearing. I'm glad that Senator Enzi is introducing this
bill.
Voluntary environmental audits are fast becoming one of the
best tools to identify and eliminate the violation of our
environmental laws. All too often, the EPA has adopted an
attitude that is adversarial to industry, and it's been a great
concern to me in all of our subcommittees, and particularly my
Clean Air subcommittee.
I understand that EPA does have a policy regarding
environmental audits. However, I do not think it adequately
addresses the current concerns of most business. For a
voluntary environmental law to be truly effective, participants
must have assurances that full and honest disclosure will not
result in massive fines and years of litigation due to lawsuits
from the Federal Government and outside organizations.
My first concern revolves around the core mission of the
EPA. I believe that the EPA should, above all else, work to
ensure that environmental laws are being complied with.
Instead, the EPA would rather focus their money and efforts on
enforcement and issuance of penalties.
I have told the story many times, and I feel moved to tell
it one more time, Mr. Chairman, about our Brandon Mill Creek
Lumber Company, the phone call I got the last year I was in the
House of Representatives. Here was a lumber company that was a
third generation lumber company, very competitive. He called up
and said, you know, they've put us out of business. I said, who
has? He said, the EPA.
I said, what did you do that was illegal? They said, well,
I don't think we did anything. We've been selling our used
crankcase oil to the same contractor for the last 10 years.
That contractor is licensed by the Federal Government, by the
County of Tulsa, by the city of Tulsa, and yet they've traced
some of that oil to the Double Eagle Superfund site.
He said they had a letter, that he read to me over the
phone, that any normal person would say they're going to invoke
fines of $5,000 a day to this individual. Well, when you read
it real carefully, you can see they say, that's our intention,
we are authorized to do that, we intend to do that. But they
don't commit.
So I wonder, so often, we're able to stop it. But how many
people think to call their Congressman, how many people that
don't do it out there. Right now, we have a company in Oklahoma
that has a way of recycling CFCs. They're saying, no, we have
to incinerate them. Yet, when you incinerate them, more of the
CFCs get into the air than they do when you recycle them.
So it just seems to me that we have an agency that is
constantly harassing the private sector, those who are
employing people and paying taxes. I applaud you in introducing
this Act. I think this is a way that might instill some kind of
confidence and working relationship between the EPA and
industry.
While I can't stay for the whole hearing, we're having an
Indian Affairs hearing, where we have the new director
designated for the BIA, and I have to be there, Mr. Chairman.
But I will be very much interested in following this
legislation.
Senator Chafee. Thank you, Senator.
Senator Bond.
OPENING STATEMENT OF HON. CHRISTOPHER S. BOND, U.S. SENATOR
FROM THE STATE OF MISSOURI
Senator Bond. Thank you very much, Mr. Chairman.
I, too, we have a couple of conference committees going on,
so I'm going to have to leave fairly shortly. I would advise
you that one of our witnesses, Mr. Paul Wallach, is a fellow
car pool dad, and friend of mine. So I have not had a great
opportunity to speak about environmental matters with him, but
we do follow sporting events and other educational activities,
much more significant things.
But this is a very significant hearing, Mr. Chairman. When
we approach this issue as we approach other issues, the
objective of this committee ought to be, how can we do the best
job of cleaning up the environment. Senator Inhofe has just
pointed out a problem that he's encountered in Oklahoma. I can
tell you a horror story in Missouri.
One of our major manufacturing companies in Jackson County,
MO, just east of Kansas City, voluntarily audited its
operations, found an environmental problem, worked it out with
the State of Missouri so that they could cleanup and take
appropriate measures and pay the appropriate sums. They thought
they had an agreement, and then the EPA comes in and over-files
and wants to fine them more.
I am hard-pressed to explain, and maybe some of the
witnesses later on can explain to us, how that is not only
going to assure cleaning up the environment in this particular
instance, but what impact is that going to have on future
activities. Aren't we all about cleaning up the environment? If
we are, is there a reasonable grounds, is there a reasonable
basis for proceeding in this area to assure that somebody who
is willing to take the initiative, a company that finds out it
has caused pollution, how they can deal with that problem and
not be subjected to stiff penalties.
So I think the testimony today is going to be very
important. My staff will be following it closely and I will be
following the record. I know the Missouri General Assembly has
been unable to pass a decent legislation. I would hope that we
could hear out all sides and figure out how we achieve the
objective of assuring a cleaner environment.
Thank you.
Senator Chafee. Thank you, Senator.
Senator Sessions.
OPENING STATEMENT OF HON. JEFF SESSIONS, U.S. SENATOR FROM THE
STATE OF ALABAMA
Senator Sessions. Mr. Chairman, thank you very much.
I applaud Senator Enzi for his insight and effort to
improve the environment. I certainly believe that is the intent
of this bill. It ought to be the situation in this country that
if someone finds an inadvertent error in their activities that
they could report those errors without serious consequences
raining down upon their heads. In so allowing them to do, we
ought to thereby improve the environment by encouraging
companies and individuals who may have violated pollution laws
to come forth and correct that problem.
As a prosecutor for quite a number of years, I have been
troubled by the proliferation of criminal law in America. For
hundreds of years, the law on robbery was, whoever takes
property by force and violence from the person of another is
guilty of robbery. That's all it said. That sufficed for
hundreds of years.
Now we draw crime bills that are hundreds of pages,
involving one minor area of law. I think what we're seeing in
this bill is an attempt to deal, to mitigate some of the
unintended consequences of strong environmental law.
But I say, at least what concerns me, Mr. Chairman, is the
possibility that we will so muddle the law and add so many
confusions with it that it becomes even less clear than it is
today.
I think the goal is good. I look forward to working with
this legislation to see if we can do it. But I also believe
that when we pass a criminal law in this body, it ought to meet
the classic goal or requirements of a good criminal law. It
ought to be clear, it ought to be enforceable. Nobody ought to
have doubts about when they're violating the law and when
they're within the law.
I think this Congress over the years has gotten away from
that principle. It's something that I'm concerned about. I just
want to review this legislation with that in mind.
Senator Chafee. Thank you, Senator.
Senator Baucus.
OPENING STATEMENT OF HON. MAX BAUCUS, U.S. SENATOR FROM THE
STATE OF MONTANA
Senator Baucus. Thank you, Mr. Chairman.
First of all, let me say that I think environmental audits
are a good idea. It's pretty hard to be against environmental
audits. They increase compliance with the law, and as a result,
they improve the quality of our air and water.
At the same time, I'm skeptical about the need for Federal
legislation that would prevent information gathered in an
environmental audit from being disclosed to the public. Our
legal system is based on the principle that when a law
enforcement investigation is underway, as the Supreme Court has
said, ``The public is entitled to every person's evidence.''
It's an important element of the public's right to know.
I don't see why we should create a special exception for
environmental laws, compared to employment discrimination laws,
antitrust laws, immigration or work place safety laws. To my
mind, the toughest issue involves the Federal-State
relationship. As a general matter, our Federal environmental
laws do not and should not require States to always march in
lockstep to the beat of the Federal drum. Within limits, they
can reach different conclusions. States can experiment.
However, at some point, a State environmental audit law may
undermine State law enforcement efforts to such an extent that
the States enforcement system is inadequate. If we allow that
to happen, we won't have a level playing field. That would
threaten to undermine the progress we have made in protecting
the environment over the last 25 years.
I look forward to addressing these issues during our
hearing.
Senator Chafee. Senator Lautenberg.
OPENING STATEMENT OF HON. FRANK R. LAUTENBERG, U.S. SENATOR
FROM THE STATE OF NEW JERSEY
Senator Lautenberg. Thanks, Mr. Chairman.
I listened with great interest, I have respect and a good
relationship with the Senator from Wyoming. Therefore, I listen
when he says something or proposes something.
But frankly, as a former CEO of a very good-sized company,
a company involved in financial recordkeeping, a company I
left, had 16,000 employees when I left there, and I was one of
those who started the company. So I know something about
audits, etc. They're necessary to keep things in proper
perspective.
So I will challenge the notion that those who make
mistakes, those who commit an error have innocently done so,
that we should rely on the good will of people to fix problems
when it affects their neighbor, that we are, I remind everybody
here, a Nation of laws, as initially constructed. Laws. That's
what we're about. It's not to curb behavior. It's to make sure
that no one steps on other people's rights.
That's the purpose. Everybody should be treated the same.
So as I look at this, Senator Enzi, I have some questions
and I hope we'll be able to resolve them. Some in favor of
audit privilege law, they talk about helping the environment,
they talk about requests from the States for non-regulatory
approaches to environmental protection. Many State governments
likewise talk of building partnerships with their business
community to address their environmental concerns, trying
carrots instead of sticks.
But I'm concerned that the legislation we're considering
will help encourage a race to the environmental bottom when it
comes to such issues as State enforcement of environmental
protection laws, allowing a privilege status to environmental
audit reports and material related to such reports. I think it
sends us in that direction.
There have long been calls for new approaches to
environmental regulation other than enforcement, and command
and control legislation. Voluntary incentives sometimes do
work. I would hope we wouldn't put our income tax system in
voluntary compliance.
I am particularly proud of my contribution, alternative
approaches to environmental protection law, embodied in a piece
of legislation I offered called the Community Right to Know
Law. Under that law, polluters are only required to disclose to
the community what they're releasing into the air, sent out as
trash or dump into the waterways.
Because companies would rather not have to publicly explain
the content of their toxic emissions, many companies have
proactively changed their environmental behavior. They have
changed environmental protection from an end of the pipe
cleanup process to a pollution prevention process.
As a result, industries have reduced toxic emissions in
some cases, on average more than 40 percent since 1988,
voluntarily. But the key to the success of the law is that the
people in the community, those most immediately affected by the
pollution, have a genuine right to know. They have a right to
know what pollution is being discharged in their community.
It's their right.
However, audit privileges go in the other direction. They
will turn what is now a right to know into a right to keep
secrets, potentially toxic secrets. This proposal, I believe,
could frustrate investigations of environmental wrongdoings
with illegal maneuvering that have no place in protecting our
environment.
Companies could keep secret needed information about how
their actions may contaminate a local drinking water well. They
could keep secret potential crimes from the public and
employees.
I don't know, I haven't heard any examples of companies
that have stepped forward and said, you know what, we poisoned
the town's well. I haven't ever heard that kind of good will
coming. I've heard at a later date that some companies have
tried to clean it up. But why shouldn't the public have the
right to know?
Contractors and others working at a factory would not be
free to talk about what's going on. While the Supreme Court has
said that we cannot limit spending on political campaigns,
because money is equal to speech, in the environmental area,
we're saying corporate polluters will now have the right of
concealment.
In Idaho, a surprise State inspection of a Federal lab run
by Lockheed Martin found illegal handling of toxic wastes. As
the State inspectors left the plant, they were given files and
told they were privileged under State audit law. Is it not
surprising that the State of Idaho let their audit law sunset?
EPA has an audit policy that encourages audits without
limiting risks to environmental protection. It waives certain
penalties but does not allow companies to have an unfair
advantage over their competitors.
I believe in States having flexibility in implementing the
Federal environmental laws. But those States that put the
polluter ahead of the public should lose their authority over
those environmental statutes authorized to them.
Thank you, Mr. Chairman.
Senator Chafee. Thank you, Senator.
Senator Enzi, we welcome you, and I know you've had a long
interest in this. This hearing came about because, as I recall,
you were moved to add this as an amendment, and I indicated to
you that we would have a hearing. Therefore, you are gracious
in cooperating with us and we now have this hearing. We welcome
you.
Senator Kay Bailey Hutchison might be along. If she is,
we'll put her on at that time. But you go right ahead, Senator,
and again, we're pleased to have you here.
STATEMENT OF HON. MICHAEL B. ENZI, U.S. SENATOR FROM THE STATE
OF WYOMING
Senator Enzi. Thank you, Mr. Chairman and members of the
committee. I really appreciate your holding this hearing.
The opening statements were very interesting to me. I'm
glad to know that you're open to the possibilities that there
are for the environmental audits.
For years, many of us have been concerned about making the
environment cleaner, safer and healthier. For two and a half
decades, the EPA has been cleaning things up. But there is
still lots to do. We've got to get more people involved. We're
not going to get all of the problems until everyone is
involved.
I come from a small business background. I've worked in a
variety of business sizes. I serve on the Small Business
Committee. I need to tell you that my opinion of a small
business is one where the owner of the business sweeps the
sidewalks, cleans the toilets and waits on customers. I'm
talking about really small.
If we design things so that the small business can handle
them, other businesses don't have any problem. Unfortunately,
there are a lot of small businesses out there that view the EPA
more like the IRS. They have questions they'd like to ask, but
they're afraid to. Yes, I'm talking about small business. Big
business has staff and specialization that allows them to get
answers. In fact, big business can act through their attorneys
and even have some lawyer-client privilege.
Several years ago, I watched Oregon craft a solution.
Shortly afterwards, I saw Colorado do something similar, but
different. I was in the Wyoming legislature at the time, and I
watched these two pieces of legislation for a couple of years
to see what results they would get, and to see if there were
any court challenges.
The legislation worked and there were no court challenges.
A couple of other States copied one or the other of the laws. I
combined the two laws for a bill for Wyoming.
I took that bill through the legislature. The bill was
unanimous out of committee. It passed both houses by more than
a two-thirds majority, and was signed into law.
As you know, that's a lot of steps and a lot of public
input. There was a consensus, not only did people have a chance
to get involved in the process, but the debate itself raised
important, raised the importance of a cleaner environment. It
forced people to focus on the fact that our objective is to
have a cleaner, safer environment. That's not an emphasis on
levying big fines.
This winter, when I got to Washington, several States with
audit laws were meeting with the EPA. Since I had been involved
in the drafting and passage of one of these laws, they met with
me. The EPA was using threats of over-filing and delaying
approval of State enforcement programs.
Of course, over-filing means the EPA could come in and use
the audit information as a road map for prosecution and levying
fines. They can do this even after a person has conducted an
audit according to State law. After a business has gone through
the expense and exposure to be sure that they are not harming
the environment. The EPA was sounding like the IRS.
So how do we encourage especially a small business to spend
extra money looking for environmental problems and then also
expect them to pay for the cleanup of the problems if they find
them? Twenty-four States have found that all you have to do is
take the fear out of the effort. A small business doesn't want
to go to all the expense of checking for problems, and then all
the expense of cleaning up problems if the reward is simply
fines and penalties, and especially the rumored fines and
penalties of the EPA.
Have you ever heard of a small fine from them? Small
business people never have, particularly in relation to the
size of their business. To a small business person, a small EPA
fine would seem huge. They have just as much fear of the
embarrassment. What if their neighbors think they have been
polluting? They have to worry about what others in the
community think of them. Their reputation is what holds their
businesses together.
I want to thank you, Mr. Chairman, and the Environment and
Public Works Committee, for holding this hearing. Because it
deserves congressional attention. To date, 24 States have
chosen to enact some form of environmental audit law.
Legislation is pending in 16 other States.
I would point out that 11 members who sit on this committee
come from States that have audit laws. Another five members
come from States that are considering audit laws. I don't want
to spend a lot of time explaining the intricacies of the laws,
because you have an expert panel of witnesses here today that
can do a good job of that.
How do you ease people's fear of the EPA and get them to
clean up the environment at their own cost? You simply assure
them that they won't be fined in addition to their personal
effort. You assure them that they don't have to turn over any
more of a road map of their problem than the law already
required. Protection of voluntary gathered information.
Material that wouldn't have been available if it weren't for
the audit.
If they don't do the audit, these materials are not
available. We don't protect bad actors. We don't protect repeat
offenders. We don't protect people that have had an
environmental accident. A carefully crafted audit law, and
that's what you get the excitement of working on, assures that
the audit protections apply only to good faith efforts, efforts
that are voluntary, that are above and beyond what is otherwise
required by law.
People conduct audits to find things they do not already
know about. There are examples from the existing audit laws of
multiple audits by the Environmental Protection Agency
themselves that missed things that were found in their own
audit.
Entities that conduct audits can include businesses, but
they also include schools, hospitals, towns and counties. Any
disclosures are a net gain above the traditional enforcement.
They are a net gain for a safer, cleaner and healthier
environment.
Now, audits do cost money. If a violation is found, it
costs to clean it up as well. Because if you're under an audit
process, and you don't clean it up and you know about it, it's
a criminal activity. That's more pressure on the businesses.
Once they report it, without audit protections, they can be
fined and even taken to court.
So in deciding to conduct an audit, a person takes on a big
risk. It's big enough so that most small businesses won't
voluntarily undertake it. These folks choose instead to take
their chances and wait for the inspectors. After all, only 2
percent, only 2 percent of regulated entities are on inspection
schedules anyway. Just 2 percent, Mr. Chairman.
How do we encourage the other 98 percent to really think
about their environmental performance, when we reward them with
fines?
I'd like to take a minute to explain my approach to the
issue. The State laws have been working. They can work better.
They need some Federal assurances. The legislation I've
introduced would provide a safe harbor for State laws that fit
within certain limits. It's the limits that are important. It
would not give any authority to any State unless they go
through the full legislative process, including all of the
local discussion and debate that it entails.
This doesn't give a blanket authorization nationwide for an
audit law. It requires that local debate, that local concern,
the local detail and the local differences. That's a critical
part of this process, and something of value that we should
recognize. State legislators live in the places that the laws
affect. It's their home.
This bill would allow Congress to set the boundaries of the
safe harbor and determine what State laws may provide, such as
limited protection from discovery for audit information. But
only information that is not required to be gathered. All legal
reporting requirements and permitting disclosures remain in
effect and could not be covered by audit privilege.
The State audit law may provide limited protection from
penalties if violations are promptly disclosed and cleaned up.
Note the protection will not cover criminal actions and the law
must preserve the ability of regulators to halt activities that
pose imminent danger to public health.
Third, a State law falls within the safe harbor, the EPA
would be prohibited from withholding State enforcement
authority or over-filing against individuals simply because of
the State's audit law. Lastly, the bill would require an annual
State performance report that would help measure the success of
the different laws, so we can see what works and what doesn't.
I want to point out that this legislation will not dilute
enforcement. There are safeguards to ensure that the State
audit laws always act to supplement, not to supplant, the
existing enforcement. It's important to note that. Audits are
an affirmative tool. Used properly, they can only be used to
achieve an environment that's safer and healthier than the
status quo. They do not protect any entity from regular
inspection or monitoring.
Some form of Federal legislation is necessary to provide
the certainty our State laws need in order to be effective. I
think it's a tragedy that the EPA has been so obstructive in
giving States a chance to test reasonable and innovative
solutions to a cleaner environment. Instead of promoting
reinvention that the EPA talks about, the EPA is perpetuating
an environmental race of mediocrity.
I'd like to close by telling you how Wyoming's law has
weathered the process. I'm pleased to report that in the last
couple of months, after many delays, the EPA has been into the
State and taken a look at our law. I've been pleased with the
comments that they've made on it and the ability that we have
to continue to use it.
At least that's what they tell us today. They just might
change their minds tomorrow and decide to over-file against
Wyoming people who use it. So it's no wonder that people are
afraid to use the law. It's time we put this issue to rest by
defining some level of a safe harbor, some level, in giving
State laws the certainty they need to be effective.
I'd encourage the members of the committee to take a look
at this bill and see if they can find a reasonable solution
that will assure a cleaner and healthier environment.
Thank you, Mr. Chairman and members of the committee.
Senator Chafee. Thank you, Senator.
This is a little bit complex, I must say. See if I
understand it.
Currently, let's take the Wyoming situation. Currently in
Wyoming, which I presume is somewhat typical, you have an audit
law. Does that apply in those areas where the Federal
Government has given the enforcement procedures to the State,
as in the Clean Water Act, for example, in many instances?
Senator Enzi. Yes, it does.
Senator Chafee. But the reason you're coming before us now,
after all, if Wyoming's situation is working well, and Colorado
or whatever it is might be working well, you're saying that you
want Federal legislation in order to prevent over-filing, is
that it? Is that why you're here?
Senator Enzi. They're not working well only from the aspect
that people are afraid to utilize the law, because they're not
sure what the status will be of EPA intervention in their law.
Senator Chafee. I see.
Senator Enzi. They're not going to hang themselves out by
going to all this work and all of this cost and then have the
EPA say that it wasn't worth anything, that they have to go
ahead and levy the fines on them.
Senator Chafee. Because under the current situation, even
though you have a Wyoming law, for example, and the business
owner conducts and audit and discovers that he's made some
mistakes, and addresses those mistakes, you're saying that
despite the Wyoming law, the EPA can still come in on top of
that business man and subject him to fines.
Senator Enzi. Yes, Mr. Chairman, that's the threat that was
brought to us in January that got me involved in this issue
again. Several of the States were here for a meeting, and
that's exactly why they were here.
Senator Chafee. We're going to hear from Mr. Herman from
the EPA. It's my understanding, obviously, that EPA opposes the
State protection laws. But as I understand, they've issued some
guidance that details minimum standards that a State audit law
must protect to gain the approval of EPA. So it seems to me
they're working both sides of the street, as I understand it.
We'll hear from Mr. Herman on that.
One of the questions that's going to be raised here is, why
do you restrict it to environmental laws? I guess Senator
Baucus or maybe Senator Lautenberg said, what about the
Internal Revenue laws?
Senator Enzi. I haven't taken a look at it from that aspect
yet, but it might be a good idea.
Senator Chafee. Well, I suppose you've bitten off enough.
Senator Enzi. In Wyoming, we're limited to one topic per
bill.
[Laughter.]
Senator Chafee. Well, I think they were talking, I think
Senator Baucus listed several items, several areas where this
might apply but yet has not been addressed.
Senator Baucus.
Senator Baucus. Thank you, Mr. Chairman.
This is an interesting subject. I think it was in 1975 when
Congress codified the Federal Rules of Civil Procedure. A
question arose as to whether we should codify privileges to a
general rule and all evidence that's relevant or could lead to
relevant evidence is admissible, and the public has a right to
know of it.
Congress decided not to codify those privileges, as, say,
the attorney-client privilege. Because Congress felt that since
evidentiary rules, including exceptions to the rule and its
various privileges, was developed really through the common
law, that it should be left that way and left to the courts to
interpret and decide what evidence is properly admissible and
what is not.
In fact, interestingly, on the subject that the chairman
raised, IRS audits, for example, it's not directly on point,
but I think the Supreme Court has ruled that there is no work
product privilege between a taxpayer and an auditor and an
accountant. That is not privileged information.
The question also does come up, as the chairman said, what
about all these other areas? Why should environmental audit
information be privileged when virtually all other information
is not privileged, civil rights or employment discrimination
laws, OSHA for example, that's not privileged.
I'm not so sure, frankly, that companies that are going to
audit much more than they currently do if this law were passed.
I think companies are going to audit because it's in their own
self interest to conduct these audits, to find out whether
they're doing it right anyway.
Obviously, too, our environment's been cleaned up quite a
bit in the last 25, 30 years since we passed major
environmental laws. As you know, one of the premises,
underlying assumptions of our Federal environmental laws is
that they are Federal laws, they are national laws, Clean Water
Act, Clean Air Act, etc. But a lot of States do have some
flexibility, because each State is a little bit different.
That assures the country that a person traveling around the
country is going to have virtually the same environmental
protection in whatever State he or she might be in. It also
prevents States from gaming the Federal statute by enacting
certain weaknesses to attract industry or what-not. It's worked
pretty well. Nothing's perfect, and we struggle with trying to
find the right balance.
But the question I have is, what happens under your statute
and bill, for example, when an attorney general certifies that
a State is properly enforcing the laws but the Justice
Department or the EPA have a different point of view? For
example, because the State audit law prevents a State from
recovering economic benefits derived from the violation, what
do we do there?
Senator Enzi. In that particular case, there would be court
action that would result in the opportunity for the State as
well to present its case, not just the Federal.
Senator Baucus. But wouldn't the information be protected
under your bill?
Senator Enzi. The only information that's protected under
my bill is additional information beyond the Federal Government
requirements. If it's required to provided at the present time,
it doesn't come under privilege at all. This doesn't change
Federal law. The same laws will apply nationwide that apply at
the present time. So we'll still have the same uniformity of
law. We'll just have an opportunity varying by State on how
they can do an audit and what kinds of protection they get for
the audit.
Senator Baucus. I understand. But does the State audit law,
it prevents a State from recovering economic benefit derived
from violation, that would be a significant change from general
Federal enforcement of environmental laws.
Senator Enzi. The bill itself allows Congress to provide
the parameters of that safe harbor, whatever that might be. The
States would have to operate within those parameters then.
Senator Baucus. Which leads me to my final question. Isn't
it really working out pretty well now? I say that because EPA
looked at Wyoming's environmental audit law, and said, you
know, it's OK. EPA looked at the Texas environmental audit and
said woops, you've got to make a change here. Texas did make a
change.
Now, maybe that's the reason for the bill, is that Senator
Hutchison did not want the change. But that was an economic
benefit situation.
So in certain circumstances, it seems to me it's just not
necessary. It's a solution in search of a problem. Because the
current system, although not perfect, certainly has lots of
flexibility, which is in many ways good. Whereas on the other
hand, if we lock into a statute, a provision that reduces the
flexibility, but also, the real question is then what about all
the parameters and guidelines that Congress would enact, and
exceptions? We may be just back where we started from again.
Senator Enzi. We'd be back where we started from with one
large exception, and that's that the businesses out there could
rely on it. That's what happens when we codify the law. The
businesses can then rely on the action that's taken. That's the
missing part in the environmental audit right now, what can you
rely on, will you be over-filed.
Senator Baucus. The logical question is, why do businesses
need protection here but not in other areas?
Senator Chafee. That's getting back to the question of the
IRS and OSHA and so forth.
Senator Baucus. That's right, and why not the
discrimination laws?
Senator Enzi. If we want people to take an active part in
discovering errors that may have been made, the more incentive
you give them to do it, the more errors they'll find.
Senator Baucus. Thank you.
Senator Chafee. Senator Sessions.
Senator Sessions. Thank you, Mr. Chairman.
I think it may not be fair to say it's not necessary. I
think Senator Enzi is suggesting that there may be a lot of
even minor violations that if business officials knew that if
they promptly discovered it and reported it and fixed it, they
would be constantly monitoring. They may be afraid to do a lot
of monitoring, because they may find some minor error that
would cost them thousands of dollars. Or if they proceed in a
way that would satisfy State law, they could still be penalized
by EPA.
Is that the fundamental concern, that if you go in and
report a problem, you pay to clean it up and stop doing it in
the future, or you could still be subjected to very large fines
from Environmental Protection Agency? Is that the basic problem
you have?
Senator Enzi. Yes, that's correct. The businesses are
afraid that if they, and when you make this step, it's a huge
commitment, because you can't just do an audit and then ignore
what you found. You have to pay for the audit. That costs
money. Then you also have to pay to clean up anything you find.
When you start an audit, you're agreeing to do that, or you
have absolutely no protection and possible criminal action. So
they're taking a huge risk. They are willing to do that, if
they have some assurances on the fines and penalties and in
some States, they have the assurance that the additional
information that they're generating themselves, to find their
own problem, won't have to be shared.
Senator Sessions. It's really a policy decision, it seems
to me, whether you think the benefits of utilizing the results
of that confidential audit, I don't know if using a
confidential audit against the company, the threat over them to
prosecute them or otherwise penalize them, so that they don't
produce that information. It's a policy decision.
I recall, Mr. Chairman, it being discussed within the
Department of Justice on the issue of defense fraud, what about
large companies who discover a lower level employee of that
company who's committed fraud and how we could encourage them
to come forward and report that? So I don't know if laws were
ever passed in that regard or not, but I know it was seriously
considered a number of years ago.
I would, as I just repeated earlier, though, this is
contrary to classical criminal law, though we're not dealing
with classical criminal law and environmental laws. That's it.
Agencies are given authority to change the percentage of
emissions that can be done. There's great dispute over whether
some of these things can safely be put in a landfill or not
safely be put in a landfill. So there's so much uncertainty
about it. I think that gives value to your proposal.
Let me ask this. With regard to the privilege, I share that
concern. Do you think there's any way that part of your bill
and most of the environmental audit bills could be modified in
some way, so that evidence of serious wrongdoing would not be,
they wouldn't be able to withhold that from the Government?
Senator Enzi. Mr. Chairman, there is provision in there
that there's no criminal activity that's protected. Withholding
that would be criminal activity.
So there would probably be greater prosecution, not less. I
don't know if that answers the question or not.
Senator Sessions. I'm not sure I read it that way. But
there is language to that effect in there, and I have not
studied it carefully.
The other point that would concern me, I think we've got to
deal with, would be the language that says with regard to
immunity, which is a serious act, to give someone an immunity
from an offense, that you couldn't get immunity if the
violation were intentional and willful. I think having both of
those requirements is probably too strong, and I would be
concerned about that.
That's something I have not studied, and would like to look
at it more. Because there are some offenses, as presently
written, don't even require willfulness, for example. So it may
go broader than you intend, I think, in that statute.
Senator Enzi. It should probably be or, in that instance.
Senator Sessions. Or may solve that problem.
Senator Enzi. The immunity is from fines, not from criminal
prosecution.
Senator Sessions. Is that right?
Senator Enzi. Yes.
Senator Sessions. Well, that helps me a lot. I didn't
realize that. I misread that. So if that is just from civil
fines or penalties, then I'm less concerned about that than if
I thought it were the actual criminal offense.
Senator Enzi. There's no protection at all from criminal.
That's strictly from civil. I think that every State that's
passed one of these laws also has in camera reviews allowed by
the judges to see if there's anything there that could have any
criminal activity in it as well.
Senator Sessions. Well, I think that is a positive step.
Because as I said, there may be instances in which it would not
be appropriate to maintain a privilege on evidence involving
serious criminal violation.
Senator Enzi. Absolutely.
Senator Sessions. Mr. Chairman, thank you.
Senator Chafee. Thank you, Senators.
Senator Sessions. Thank you, Senator Enzi, for your work. I
think it's raising an important issue. I know it will take a
lot of effort, and I applaud you for that.
Senator Enzi. Thank you.
Senator Chafee. Thank you. Senator Lautenberg.
Senator Lautenberg. Thanks, Mr. Chairman.
As I understand EPA's policy on audits, penalties are
waived. There's really no such thing as a small fine. Penalties
are waived except for economic advantages for non-compliance.
So I think the specter of these egregious acts by EPA and fines
and so forth is probably a little less real than as I heard the
discussion going on, Senator. I don't know whether that in any
way mitigates somehow or other your mistrust or your wariness
about an EPA action.
What I find here is that we've said that in camera, the
information can be revealed. Once again, establishing privilege
for another group that must respect confidentiality.
The ones who are left out are the people who are affected
by it directly. If a judge hears the case, it's in the closed
environment of a private session of the court. But the people
whose water supply may be affected or whose children might be
endangered by an environmental condition, they're not allowed
to know what's going on.
Frankly, I must tell you, and I respect what you're trying
to do, if we can reduce regulation without losing the mission
that we want to accomplish, that's OK with me. But I find it
hard to imagine that making internal discoveries of violations
of environmental rules ought to be guarded such that you can't
discuss, that it can't be forced to be brought to the attention
of those who are in charge.
So I again, I think we're applying an honor system
differently in this case than we are in almost any other. I
would ask you that, if someone violates the rules, a law, as an
employee of a company, and the company manager discovers it.
Are they then forced to make it known to authorities, or are
they allowed to keep that quiet as a privilege? At the same
time say, OK, from now on this employee is terminated or else
he or she's got to change the way they do things?
Senator Enzi. I'm not sure I understand the question.
Senator Lautenberg. Is the manager of the company required
to, are they permitted to keep this as privileged even though
it was by no intent of the company's to have it done this way,
illegal discharge, let's say? Are they entitled to keep that as
privileged information by simply taking the corrective action
in there to change what's going on within the work system
without getting on with the cleanup or advice to someone that
there's a danger out there?
Senator Enzi. No, that wouldn't happen. In fact, under the
Wyoming law, they're required to report that they're going to
do an audit. Anything discovered before that point is criminal
if they don't take care of it.
So the employee reporting it to management is making
management aware of an activity that's out there that they're
required to clean up anyway. None of that is privileged. Of
course, we're usually talking about small businesses with this.
Big businesses already have their own forms of protection on
it.
Senator Lautenberg. All right, well, small businesses can
create havoc with the environment just like the big businesses
if they're handling mercury or some other highly toxic
material. The size of the business shouldn't determine what the
outcome is. If someone uses a small gauge pistol, it causes as
much danger, aimed properly, as a big shotgun. So we don't say,
well, if it's small, it's excusable, the person's dead on the
other end. I don't understand why a small business isn't
compelled to obey sensible environmental laws. Or environmental
law, let's strike that. The sensible, we can discuss that.
Senator Enzi. The small businesses do have to observe the
same rules, to the same extent, with the same reporting, but
with less people and less capability. They don't have the
specialization, they don't have the experts, they can't afford
the experts.
But they come under the same fine structure as the bigger
ones. They also know that their possibilities of being
inspected are probably once in 50 years. So there's not much
incentive for them to do anything there. They might as well
just wait and see if there's a problem, rather than take an
aggressive look and see if there's a problem.
We're not talking about the environmental accidents here.
What usually turns up in these laws as a result of the use of
the laws is not environmental violations. What usually turns up
is environmental eyesores. Not things that are illegal, just
things that look bad. But there are businesses out there that
are afraid to even ask about those for fear of the fines they
might sustain. They know that if they wait, they may have sold
the business before anybody fines it.
So what usually turns up as eyesore is not violations.
Senator Lautenberg. Beauty is in the eyes of the beholder,
I guess, or the reverse of that.
Thanks.
Senator Chafee. Senator Allard.
Senator Allard. Thank you, Mr. Chairman. I apologize for
being late.
I have an opening statement I would like to make part of
the record, if I may.
Senator Chafee. Certainly.
[The prepared statement of Senator Allard follows:]
Prepared Statement of Hon. Wayne Allard, U.S. Senator from the State of
Colorado
Thank you Mr. Chairman. This is an appropriate and timely topic for
a committee hearing. The issue of environmental audits has been at
issue in the State of Colorado for some time now, with the
Environmental Protection Agency attempting to force State agencies to
act as mirror image of themselves instead of allowing states to try
innovative compliance methods. It's always disappointing when the
Federal bureaucracies fall back on a command and control approach to
problems when they feel intimidated by innovation.
What is more disappointing is that EPA's rhetoric fails to match
their efforts in the area of Federal facilities. If the EPA were to
pursue Federal agencies who are responsible for some contamination at a
research institute at the Colorado School of Mines as vigorously as
they pursue States who are trying to increase compliance with
environmental laws, we would all be better off. Unfortunately, EPA
appears to be more interested in controlling states than helping to
clean up the environment.
To address EPA's policy toward innovative compliance policies we
have an excellent group of witnesses, but I'm particularly pleased that
we have Trish Bangert who is the director of Legal Policy in the
Colorado Attorney General's office. She has been in the forefront of
the debate on environmental audits nationwide and unlike other States,
she has been key in assuring that what Colorado's elected legislature
has determined is best for the State, isn't overturned by unelected
Washington bureaucrats. It was Trish who in hearing before this
committee last June identified the hypocrisy of the EPA with respect to
its treatment of States versus the Federal Government when she said,
``I cannot help but mention that EPA's fine sentiments about protecting
the environment extend only to private parties, and, seemingly not to
the Federal Government.'' It is ironic that the states EPA doesn't
trust are begging the EPA to do their job against the Federal
Government.
I commend the chairman for calling this hearing, and look forward
to all the witnesses, but would like to particularly welcome the
witness from my State.
Senator Allard. Mr. Chairman, I think the fundamental
question here is do you want to make the small business man out
there a part of the team in cleaning up the environment, or do
you want to create him as an adversary and discourage him from
working and trying to clean up the environment in a responsible
manner.
I have some examples I can point to in the State of
Colorado, where we've had self-audits. The Environmental
Protection Agency, after sometimes, many times it's not always
the business man. When we're talking about a small business
man, sometimes it's local government. Many times it's local
government. It's small communities.
We can point to one situation in Colorado. We had a small,
local entity of government, local government, made a violation.
They discovered it. It was an employee, a problem with an
employee, as Senator Lautenberg alluded to in his question.
They took the question, but then the Environmental Protection
Agency comes in behind them and subjects this local entity of
government to a lot of harassment and threat of serious fine
after they did the responsible thing of reporting it and trying
to immediately remediate it.
It's impossible for us to put an EPA employee in every
small business in America. One way that you can get this is to
pass some common sense legislation, like Senator Enzi and
Senator Hutchison, that says, OK, let's make the small business
administrator, local government administrator part of the team.
Let's give them some incentives to work with the Environmental
Protection Agency to recognize these problems and clean them
up. They'll get cleaned up faster and better.
I think Senator Lautenberg made a good point there. If you
can make that part of the employee record, then the employee
becomes subject to discipline through the administration. If
for some reason you can't make that, then it makes that much
more difficult to dismiss that employee, perhaps at a later
time, if he persists in that type of behavior.
Trish Bangert is going to testify before your committee
here in the next panel. She works with the Attorney General's
office from the State of Colorado. They are working on this
issue, and she'll be able to go into more detail on some of
these problems that we've had in the State of Colorado.
But basically, Senator Enzi, that's what you're trying to
do, is just make the business man or perhaps the local
government, I don't think we have enough EPA employees to be
involved in each local government to monitor them, as a matter
of fact. You're trying to make them a part of the team in
cleaning up the environment, isn't that basically what you're
trying to do?
Senator Enzi. Yes, I'm trying to increase the amount of
people that are interested in getting something done. I know we
can't afford to hire 50 times as many EPA auditors.
Senator Allard. Well, you know, I happen to agree with
that. I can point, you know, the Federal Government is one of
the largest polluters in the country. In the State of Colorado,
they treat themselves differently than they do everybody else.
I have a real problem with this adversarial relationship that
the Environmental Protection Agency is trying to set up with
the local governments or the local communities when they have a
problem in their own back yard.
It seems to me if we can pull things together and make
everybody, if we really want to clean up the environment, the
success to that is having everybody work together. So Mr.
Chairman, those are just some brief comments I wanted to make.
I wanted to give Senator Enzi an opportunity to elaborate a
little more.
I suspect that probably a lot of his Wyoming constituents
have seen what's happened in Colorado and backed off on self-
audits, because they saw what happened in our State and other
States.
Would you like to respond to that, Senator Enzi?
Senator Enzi. Yes. I can respond more than just for
Wyoming, in fact, on it. That's that in most of the States
where it passed, there's been a sudden decrease in the number
of people that are out there looking for their environmental
problems, because there is that uncertainty. They're not sure
what the EPA and the Federal Government are going to do.
So it's stopping a process that was solving a lot of
problems. As I mentioned, it was solving problems even in
instances where the EPA came in and did the inspections, when
they did their own thorough inspection, they found problems
that the EPA had missed on as many as three or four previous
inspections.
So it can solve problems, it is a solution, it's a way to
encourage people. Of course, the value of it is in the way that
you draw the parameters. That's the opportunity that you have.
You have a chance to get people involved in environmental
cleanup and still protect against some of the things that have
been brought up here today. I think the legislation that I've
drafted takes care of most of the concerns you have.
Senator Chafee. I'm not sure I understood this latest
exchange. What your point is that, and what Senator----I'm not
sure what Senator Allard meant when he said people in Wyoming
saw what happened in Colorado.
Senator Enzi. Yes.
Senator Chafee. Is the point you're making here that under
the State laws you passed, there's an encouragement to come
forward and reveal, to conduct an audit to start with and then
try to do something about it. But the point you're making is
that the Federal Government then comes in, the EPA does, and
over-files, as it were, and comes down on you like a ton of
bricks? If you'd remained quiet, you wouldn't have gotten into
all that trouble? Is that the point?
Senator Enzi. That's the point.
Senator Chafee. So that's the need for the Federal
legislation.
Senator Enzi. Yes.
Senator Chafee. That's why you're here.
Senator Allard. Mr. Chairman, the State of Colorado, this
incident that happened in the State was reviewed by the
Colorado Department of Health. There are no shrinking violets
in that department when it comes to environmental concerns.
They worked it out.
The problem that I think probably Trish Bangert will talk
to you about was handled in a very responsible manner, and then
quickly remediated. Then the EPA ignores all that, they say,
well, there's that initial violation, so you're subject to a
$10,000 fine.
The fact is, if that self-audit wasn't there, that
employee, that local unit of government would not have reported
it, and nobody would even have known that there was that
violation.
Senator Chafee. That's the need for the Federal law.
Senator Allard. That's the need, and that's the way I see
it, that's the need for the Federal legislation.
Senator Chafee. All right, fine. Thank you very much,
Senator. Senator Enzi, if you'd like to come up and join us
here on the rostrum, you can do so. I know you're very
interested in this subject. I have several statements by
Senators who cannot be here today, but wish to have their
statements placed in the record.
[The prepared statements of Senators Smith, Thomas, and
Hutchinson follow:]
Prepared Statement of Hon. Bob Smith, U.S. Senator from the State of
New Hampshire
I am pleased to attend this hearing regarding the legal privilege
issues associated with environmental audits. This issue provides a
useful opportunity to see whether common sense can be part of our
environmental laws. I look forward to hearing what the witnesses will
have to say on this matter.
I believe the Senate should seriously consider environmental audit
legislation for a variety of reasons. In general, I believe it has the
potential to encourage companies to act proactively to do the right
thing with regard to the environment. Environmental audits will
encourage companies to search out and correct problems and not be
afraid of doing so. Many States have come to the conclusion that
industry needs to be provided with more incentives to encourage
environmental innovation, not merely more penalties for noncompliance.
Increasingly, I think some in Congress are coming to the same
conclusion.
My home State of New Hampshire has an audit law that was strongly
supported in the State legislature. In just the last few years, 24
States have enacted environmental audit laws, and recent experience
with these statutes has demonstrated that positive results are already
being accomplished in meeting our common goal of protecting human
health and the environment.
I believe that the congressionally-enacted protection of State
environmental laws may be necessary to stop the chilling effect caused
by needless and destructive meddling from inside-the-beltway
bureaucrats. Unfortunately, some people still think they know more just
because they work in Washington. Hopefully, today's hearing will shed
some light on this important matter. Thank you.
______
Prepared of Statement of Hon. Craig Thomas, U.S. Senator from the State
of Wyoming
Mr. Chairman, thank you for holding this hearing today. I welcome
my colleague from Wyoming, Senator Enzi, and look forward to his
testimony. It is important that we examine the concept of environmental
self-audits. Well over half of the States have some kind of audit law
or policy. The question is then, are we going to allow States to pursue
this innovative concept to protect the environment, or is the
Environmental Protection Agency (EPA) going to insist on its
traditional command and control, outdated way of doing business?
In 1995, the Wyoming Legislature, under the leadership of now U.S.
Senator Enzi, passed an environmental self-audit law. It was good
legislation that would create incentives for businesses to identify and
correct their pollution problems. It is important to emphasize that
point; the intent of the Wyoming law and all audit laws is to protect
the environment. They don't roll back other environmental standards.
They take a different approach than the traditional environmental
enforcement methods of the past, that is focusing on environmental
protection and cleanup rather than penalties and sanctions. These laws
will allow enforcement officials to focus their limited enforcement
resources on ``bad actors.''
Unfortunately, earlier this year, EPA delayed the transfer of final
authority over several pollution programs, including the Resource
Conservation and Recovery Act (RCRA) and the Clean Air Act, to the
Wyoming Department of Environmental Quality (DEQ) because of concerns
over the State's environmental self-audit law. EPA also threatened to
remove State primacy for other environmental laws. Aside from the very
serious issue of trampling on the State of Wyoming's 10th Amendment
rights, EPA's adversarial approach won't help us get any closer to
achieving our mutual goal of protecting the environment. It is my
understanding that EPA has backed off a bit and is now negotiating in
good faith with the State of Wyoming. I strongly encourage EPA to
continue that dialog and reach a constructive agreement.
I am sure that we will hear today from EPA that Federal legislation
is not necessary because they have an administrative policy to
encourage self-disclosure. Indeed, it is a good, first step forward.
However, the EPA policy doesn't provide enough incentives to businesses
for it to be an effective environmental protection tool. In a nutshell,
the EPA's policy is that it will not prosecute businesses as
aggressively as it could otherwise if a company comes forward and
discloses a violation. The business is not protected from lawsuits or
penalties. In fact, EPA strongly opposes providing privilege or
immunity for these businesses, alleging that it will ``let polluters
off the hook'' Nothing could be further from the truth. Under these
laws, there is no protection for: Willful and intentional violations;
companies that do not promptly cure violations; companies asserting the
law fraudulently. Further, companies can't hide information through
audits that they would ordinarily have to disclose under other laws and
regulations.
Our environment is cleaner than it was 25 years ago. In order to
protect our natural resources for the next century, we need to follow
the States' lead and utilize innovative concepts like self-audit laws.
I commend Senators Enzi and Hutchison for coming forward with this
legislation and look forward to working with them on this important
issue in the future.
______
Prepared Statement of Hon. Tim Hutchinson, U.S. Senator from the State
of Arkansas
Thank you, Mr. Chairman. Mr. Chairman, I am pleased that you have
seen fit to call this hearing today on environmental self-audits. In my
opinion, this is one of the more important environmental issues that
this committee will consider this Congress.
Environmental self-audits can be a first step toward creating a
system whereby industry becomes an actor in improving our environment,
instead of being labeled as a participant in destroying it. Instead of
constantly fighting against the Environmental Protection Agency,
industry can become a partner by working out environmental problems
before they become too severe.
There certainly is precedent in passing this type of legislation,
in that it has been approved in 24 States, with several others
considering similar legislation. These States have recognized the
necessity of protecting those industries who are attempting to be
responsible environmental stewards.
Self-audits, however will not be a legitimate reality unless
Federal legislation like we are considering today is passed. This
legislation will encourage industry to actively pursue an aggressive
strategy of self-audits, without the fear of reciprocation from the
EPA, the Department of Justice or other law enforcement agencies.
Environmental self-audits are the epitome of environmental
responsibility on the part of industry. In this day when environmental
rules and regulations have become so complex that it takes hundreds of
experts to determine whether a company is in compliance with
environmental laws, it only makes sense that a company have a system
whereby they test their compliance. This type of testing will not only
allow a company to avoid unnecessary red tape and potential fines, but
it could dramatically increase environmental protection, and in the
long term, eliminate costly cleanup.
These responsible companies must have the protection from potential
litigation that may result from their internal audits. If the results
of their audits are used against them in litigation, not only is there
no incentive to perform internal audits, there is significant incentive
to avoid them.
While there is criticism that companies would take advantage of
this law to get around environmental protection, I believe there are
significant safeguards that will prevent this from happening. Among
other willful violations, companies who intentionally violate the law,
don't promptly mend violations, or have patterns of violations are
exempted from any kind of protection.
I strongly support this legislation and look forward to working
with Senators Hutchison and Enzi toward passing a bill that is both
environmentally responsible and fair to those companies who perform the
audits.
Senator Chafee. Now let's have the next panel please come
forward. If Senator Hutchison comes in, we'll insert her in and
let her proceed.
But we now have the Honorable Steven Herman, assistant
administrator for the Office of Enforcement and Compliance; Mr.
Barry McBee, chairman, Texas Natural Resource Conservation
Commission; Ms. Patricia Bangert, director, Legal Policy,
Colorado Office of the Attorney General; Mr. Paul Wallach, on
behalf of the National Association of Manufacturers and the
Corporate Environmental Enforcement Council; and Mr. Mark
Woodall, from the Sierra Club.
So we'll go in that order. We'll start with Mr. Herman. We
welcome you here, Mr. Herman. Go to it.
STATEMENT OF STEVEN H. HERMAN, ASSISTANT ADMINISTRATOR, OFFICE
OF ENFORCEMENT AND COMPLIANCE ASSURANCE, ENVIRONMENTAL
PROTECTION AGENCY
Mr. Herman. Thank you very much, Mr. Chairman. It's a
pleasure to be here before you today.
One of the first actions----
Senator Chafee. I would say, I failed to mention, if you
can have your statements roughly in the area of five minutes,
and you can see the clocks here. We'll give you a little
latitude, but don't press me too hard.
Mr. Herman. I'm going to try and come in within that limit,
Mr. Chairman.
One of the first actions we took when Administrator Browner
reorganized the enforcement program at EPA was to develop a
policy to encourage the performance of voluntary self-audits by
the regulated community. We believe that self-policing
incentives, along with a strong environmental enforcement
program, are essential to protecting the environment through
achieving better environmental compliance with our
environmental laws.
The EPA environmental self-auditing policy was issued two
years ago. Under that policy, companies that voluntarily
discover, promptly disclose and correct violations, prevent
their recurrence and remedy any environmental damage, do not
face gravity-based penalties. In addition, our policy does not
recommend, and I think this goes to what Senator Sessions was
talking about a little before, our policy does not recommend
corporate criminal prosecution for companies that meet the
terms of the policy.
To protect public health and safety, the policy does not
apply to disclosures involving individual criminal conduct,
repeat violations, and violations involving serious harm to the
environment or people, or imminent and substantial
endangerment. Our policy has won praise from some in industry,
environmental groups and from local, State and Federal law
enforcement officials. Even more important, the policy has been
a success.
Just this month, EPA and the GTE corporation used the
policy to resolve more than 600 violations at 314 facilities in
21 States. Under the agreement, GTE pays a $52,000 penalty.
That's what its economic benefit was. EPA waived $2.38 million
in penalties. GTE corrected the violations and has taken steps
to prevent future ones.
Overall, and I want to emphasize, overall, 225 companies
have disclosed and corrected violations under the policy at
more than 700 facilities around the country. These include
Fortune 500 companies and small businesses. EPA has made the
use of the audit policy a priority for next year, and during
the next 18 months we will also be evaluating the results of
our self-policing policy.
Many States have adopted auditing incentives, some
administratively, and others by legislation. A number of State
approaches are consistent with EPA's. Other State approaches we
feel are less protective, because they impose secrecy and they
provide for arbitrary immunities.
Where there should be openness, State audit privilege laws
strip the State of statutory authority to obtain information.
EPA has both legal and policy concerns where States create
such audit privileges and immunities. As a legal matter, for
example, Federal environmental laws mandate that EPA ensure
that delegated States maintain minimum enforcement authority,
including the authority to get injunctive relief and penalties,
and also have minimum authorities to secure information
necessary to monitor and ensure compliance.
Our goal is to ensure that States have the minimum
authorities required to run delegated State programs. We are
dependent on these programs to achieve a high level of
compliance and protection.
In light of these requirements, we have worked with States
to modify their audit laws so that they will meet minimum
Federal-State standards. We are not against experimentation. We
are not against different approaches. What we are saying is
that the experiments have to be done within the bounds of
existing Federal law.
Our discussions with Utah and Texas have resulted in
changes to their laws that meet the needs of both the State and
the Federal Government. We have continued to have discussions
with other States, and many of them have gone favorably.
As a policy matter, which is different than the constraints
imposed by the law, but as a policy matter, as I have stated in
this committee and on numerous other occasions, EPA opposes
privilege and immunity legislation, including what we have been
able to see of S. 866. We have not studied Senator Enzi's bill
to date.
Audit privilege laws promote secrecy. That is their
purpose. They are anti-law enforcement. They impede the
public's right to know. Some even penalize employees who report
illegal activity to law enforcement authorities.
These statutes interfere with the Government's ability to
obtain the information it needs to protect the public health
and safety. They may also shield environmental criminals from
prosecution. In short, why should we make it easier for
violators and harder for our State and local law enforcement
officials?
While we support penalty mitigation as an incentive to
self-policing, we believe that to immunize serious violations,
including those where there may be criminal conduct, imminent
and substantial endangerment and actual harm, is wrong. Such
immunity laws discourage needed investments in pollution
control, lower the standard of care, and undermine the rule of
law.
It is unfortunate, Mr. Chairman, that representatives from
numerous States that support a balanced approach to
environmental auditing are not able to appear here today. In
Exhibit 3 to my written statement, I have included opinions
from some of the many local, State, and Federal law enforcement
and environmental officials and citizens who support
environmental auditing, but who oppose privileges and
immunities.
In conclusion, I would like to quote from an October 24,
1997 letter sent to you, Mr. Chairman, by William Murphy, the
president of the National District Attorneys Association. The
NDAA emphasizes its opposition to environmental self-audit
privilege as contained in legislation before the States. ``We
continue to believe that this is an extreme measure far beyond
any remedy necessary, and that if you enact self-audit
privilege you will be doing a vast disservice to law
enforcement efforts, not only in the realm of environmental
law, but across the spectrum of white collar crime.''
Finally, and I will be glad to go into more detail----
Senator Chafee. That letter was addressed to me,
apparently?
Mr. Herman. That's correct.
Senator Chafee. I'll make sure that the other members get a
copy of that.
Mr. Herman. Thank you, Mr. Chairman.
One last thing that both Senator Enzi and Senator Allard
mentioned, the importance of bringing in small business. I
would mention that our small business policy was referenced in
the Small Business Regulatory Enforcement Fairness Act (SBREFA)
legislation passed last session, and was referenced as a
positive approach to working with small business in terms of
mitigating penalties.
Thank you again very much for the opportunity to testify
before your committee. I agree, this is a very important issue,
and I look forward to answering any questions you may have.
Senator Chafee. Thank you, Mr. Herman.
This is what we're going to do. We'd like the panel to stay
here, and we'll ask that you wait until everybody testifies,
then we'll have questions for the panel.
Now we're going to have a slight change. Mr. Herman, if you
could just step back into a chair back there.
Senator Hutchison is here and we want to give her an
opportunity. We welcome you, Senator, and you forward.
STATEMENT OF HON. KAY BAILEY HUTCHISON, U.S. SENATOR FROM THE
STATE OF TEXAS
Senator Hutchison. Thank you, Mr. Chairman.
I do not want to disrupt the panel, and I apologize for
being late. I'm chairman of the Surface Transportation
Subcommittee, and a member of the Surface Transportation Board
was before our committee. That's why I was late.
Senator Chafee. Well, that's very important in our lives.
We give you wide privileges.
Senator Hutchison. I don't want to hold up this panel. But
I would like to just have a statement submitted for the record
regarding my bill, which is similar in some ways to Senator
Enzi's bill. I do support Senator Enzi's bill. I think his bill
is very important, because the States that have taken this
approach are showing that it does increase environmental
quality. What his bill does on the State level my bill does on
the Federal level. Texas is one of those States being
challenged by EPA. I'm pleased that Barry McBee, the chairman
of our Natural Resources Conservation Commission in Texas, is
here. He will talk about the difficult situation in Texas.
My bill, the Environmental Protection Partnership Act,
speaks also to the Federal level. It allows many of the same
activities to go forward by encouraging the companies to
voluntarily do audits and take corrective action and report the
violations without being penalized unfairly by the EPA. It does
it at the Federal level, what I think Senator Enzi's bill
allows States to do under their own laws that have the same
type of protection.
Basically, I think audit regulation is so important because
if we can encourage companies to voluntarily audit themselves
so that they can root out any environmental problems they have,
I think we will be able to go beyond just what the EPA and
regulators are able to do under the present structure. Although
the EPA has a policy on this, I think it's important that there
be a law because the policy can be changed without any notice
to parties. This discourages companies from relying on the
policy.
So my goal is to put into law a policy that will encourage
companies to do self-audits and take corrective action and be
able to report that they have done so. My bill would allow
companies to do this without penalty if they take corrective
action. However, if their audit is done and they do not take
corrective action, or they refuse to take corrective action,
then they could still be penalized.
I think this is a good approach. I would like to work with
the committee to try to form a policy that is positive.
I know that you have many other witnesses. But I would like
for you to look at both my bill and Senator Enzi's bill and
perhaps even work on both of them at the same time.
[The prepared statements of Senators Hutchison and Lott
follow:]
Prepared Statement of Hon. Kay Bailey Hutchison, U.S. Senator from the
State of Arkansas
Thank you, Mr. Chairman for the opportunity to present testimony on
the important issue of voluntary environmental audit.
Environmental protection as we have known it in this country for
the last quarter century is based on the command-and-control model and
we have greatly improved our environment as a result. Our rivers are
cleaner, we breathe cleaner air.
But it is precisely this progress that makes it necessary for us to
reconsider our present regime. Experience shows that we can increase
environmental protections even more if, in addition to existing
enforcement tools, we partner with businesses by encouraging them to
voluntarily assist oar State and Federal agencies in protecting the
environment. We must institute policies that accommodate this broader
effort so we can target enforcement resources where they will be most
effective.
Many companies have developed sophisticated environmental
compliance systems to determine not only whether their operations are
complying with existing standards, but how they can avoid future
problems. These companies have invested in cutting-edge technology and
expert personnel to search for ways to improve their environmental
performance. They are way ahead of the regulators in finding potential
problems and avoiding environmental harm. Clearly, it is to everyone's
advantage to encourage these efforts.
Nevertheless, under present Federal law, we almost always treat
companies that voluntarily audit their compliance worse than companies
that violate the law and hide the violations. The law punishes a
company that ``comes clean'' and reports violations that it finds and
fixes. Meanwhile, a company that fails to investigate or otherwise
hides violations could likely go scot free. In addition, the law
discourages companies from producing detailed reports beyond those
required by law, since they thereby increase their potential liability
to third parties in an era of billion-dollar lawsuit awards.
This situation is worse in States with audit protection laws. Right
now in Texas, if a company in good faith finds, fixes and reports a
violation to the State, it is not punished by the State. Unfortunately,
the Federal Government has the authority to use this same information
the company willingly turned over to the State to fine the company for
Federal violations of the very same law. This hardly creates an
atmosphere of cooperation.
The notion that voluntary audits should be encouraged is not ground
breaking. Even back in 1990, Congress strongly encouraged voluntary
audits in the conference report on the Clean Air Act amendments, noting
that substantial benefits could be achieved.
Yet here we are at the close of 1997, and Congress still has not
acted to give companies the go-ahead to conduct voluntary environmental
audits.
States have, however. States have boldly--and bipartisanly--adopted
laws that ensure companies that they will not be punished for
cultivating thoroughness and vigilance in environmental compliance. 23
States have these laws so far.
What I propose is that Congress take its cue from the States and
adjust Federal law to encourage companies to search for possible
violations of environmental regulations. Together with Majority Leader
Trent Lott, I introduced the ``Environmental Protections Partnership
Act of 1997'', S. 866.
Under this bill, if a regulated entity voluntarily audits its
compliance with environmental laws, the government may not turn around
and use the audit report against the company in an enforcement action.
In addition, if a company does an audit, promptly corrects any
violations, and reports the violations to EPA, no punitive action will
be taken against the company for the violations. By ensuring companies
that they will not be dragged into court for being honest, the bill
encourages companies to find and fix violations and report them to EPA.
In order to ensure that these laws do not protect bad actors, I
have included several protections: (1) No one gets the benefits of this
bill who does not promptly correct and disclose violations uncovered in
an audit. (2) Repeat violators do not get any benefits of the bill. (3)
Willful and intentional violators are in no way protected by the bill.
(4) The Federal Government is not prohibited from getting an injunction
against a violator if it is necessary to protect public health or the
environment, nor is the government prohibited from inspecting or
monitoring compliance with existing law.
Our old-world model of environmental protection will not serve us
in the next century. An the new model--a public/private joint venture
to find and fix violations--is already in place in 23 States. Congress
should resign its role as the ball and chain of environmental
enforcement and start looking for ways to encourage positive action and
compliance beyond the scope of present capability.
______
Prepared Statement of Hon. Trent Lott, U.S. Senator from the State of
Mississippi
I would like to thank Chairman Chafee and the Committee for this
opportunity to comment on S. 866, Senator Kay Bailey Hutchison's
environmental voluntary self-audit legislation. I commend the committee
for addressing this very important issue, and hope that my testimony is
helpful in highlighting the need for a Federal initiative in this area.
S. 866 provides a necessary Federal standard regarding voluntary
environmental self-auditing for States. There are nearly two dozen
States that have passed or are experimenting with laws to encourage
self-audits. These laws are aimed at increasing environmental
protection and directing scarce enforcement resources toward the real
bad actors. We need Federal legislation to make these State laws work
as they were intended. I believe that Senator Hutchison has found a
balanced and fair approach.
As the number and scope of Federal regulations increase, there is
an even greater need for self-audit programs. Generally, an
environmental audit is a means of reviewing a business' activities in
order to get a ``snapshot'' of its overall compliance with the law and
to avoid potential future problems. Although no State or Federal law
requires companies to undertake comprehensive self-audits, it is a good
business practice initiated by those taking extra steps to stay in full
compliance.
Self-audits are more extensive than an inspection by a State or
Federal regulator because they are done more often and because
companies simply know much more about their operations and permit
obligations than regulators do. A company conducting its own audit can
identify and correct a much wider range of potential environmental
violations.
Unfortunately, many companies do not perform self-audits because
the information contained in the audit documents can be obtained by
government regulators, prosecutors, citizens' groups and private
citizens and used to sue the company. These documents, if made public,
are a roadmap for third parties to sue even if the problem has been
corrected and no environmental harm has occurred. Due to the complexity
of environmental law, it is possible and logical that companies which
take on the task of self-evaluation will find problems--and that is
what we want them to do. The threat of a lawsuit is a tremendous
disadvantage to self-auditing.
Almost half of the nation's States, including Mississippi, have
recognized this disincentive and have acted to correct this problem.
These State laws typically do three things: (1) provide qualified
evidentiary protection for internal audit documents, (2) grant penalty
immunity to companies that conduct audits and voluntarily disclose all
violations they discover in their audit, and (3) require prompt cleanup
of the violation.
Under these State laws, the incentive to self-audit is reinstated.
Responsible companies that find, report and fix problems are rewarded.
These companies do not have to pay fines and are protected from any
court action on an internal audit. But these companies must correct the
deficiencies. This is key because without the audit, this particular
deficiency would not have been corrected.
Americans get more environmental protection by allowing honest
companies freedom from sanctions and penalties. Taxpayers get a better
return on their tax dollars because enforcement resources can be
directed toward those not complying with the law.
Critics of self-audit legislation claim that these State laws are
about secrecy and letting polluters off the hook. This is just not
true. These laws do not protect any information required by law to be
collected, developed, maintained, reported or otherwise made available
to a government agency. Any action that causes an imminent threat is
not protected and must be immediately reported to authorities.
Companies gain nothing from these laws if they are using an audit for a
fraudulent purpose or if they find a violation and don't fix it.
These laws present a new way of doing business. Twenty-three States
think this is a better way to get things done. Twenty-five others are
considering voluntary self-audit legislation. Legislation on the
Federal level will assist these States with a full and effective
implementation of this concept if they desire to enact it.
Mr. Chairman, 95 million Americans live in States which have
learned that self-audit legislation is a successful way to get there. I
thank you for the opportunity to address the Committee and hope that
this hearing will convince you of the need for Federal legislation.
Senator Chafee. Well, thank you, Senator. We'll certainly
carefully examine your bill.
I think the point you make, and I'm going to obviously ask
Mr. Herman about this when we get to the questions. There's a
difference between a policy and a statute. As you point out,
EPA has a policy but that can be changed. What worries me a
little bit is the indefiniteness of it. It's not clear and
certainly not written down what the law is in this subject as
far as EPA dealing with these situations, where disclosure is
made.
I'll ask Mr. Herman about that when the questioning period
comes.
Now, we want to give the Senators a chance to ask you any
questions.
Senator Baucus.
Senator Baucus. Thanks, Mr. Chairman. I have no questions,
just want to thank Senator Hutchison.
This is not an easy area. It's not an easy subject. On the
one hand, we want to encourage States to be flexible in their
law enforcement approaches. On the other hand, we want our
environmental statutes enforced. Therein lies the rub.
Your bill is certainly a contribution to the subject, and
we appreciate your introducing it.
Senator Hutchison. Thank you, Senator Baucus.
Senator Chafee. Senator Sessions, do you have any questions
of Senator Hutchison?
Senator Sessions. No, I just thank you very much for your
work in raising this important issue. I do think we need to
encourage our reporting and self-evaluation, and thank you for
raising it.
Senator Chafee. Senator Lautenberg.
Senator Lautenberg. Thanks to Senator Hutchison.
But I also, Mr. Chairman, will forgo any questioning at
this point.
Senator Chafee. All right. Again, thank you very much,
Senator.
Senator Hutchison. Thanks for your forbearance.
Senator Chafee. You've made a fine contribution here, and
we appreciate it.
Senator Hutchison. Thank you very much.
Senator Chafee. Now, Mr. McBee, Chairman, Texas Natural
Resource Conservation Commission. Mr. McBee, why don't you
proceed.
STATEMENT OF BARRY R. McBEE, CHAIRMAN, TEXAS NATURAL RESOURCE
CONSERVATION COMMISSION
Mr. McBee. Thank you, Mr. Chairman, and members. I am the
chairman of Texas----
Senator Chafee. Senator, if you wish to sit up here, you
may do so. I know you have a heavy schedule, so you do as you
wish.
Senator Hutchison. I thank you very much. I do want to
welcome my colleague here, and he is very, very knowledgeable.
So I hope he can explain our Texas law. But I will not be able
to stay. Thank you very much.
Senator Chafee. A George Bush appointee?
Senator Hutchison. Yes, he is.
Mr. McBee. Yes, Senator.
Senator Chafee. OK, thank you.
Go to it, Mr. McBee.
Mr. McBee. Thank you again, Mr. Chairman and members of the
committee.
As noted, I am Barry McBee. I am chairman of the Texas
Natural Resource Conservation Commission, Texas' multimedia,
comprehensive environmental agency. One of our guiding
principles is to promote and foster voluntary compliance with
environmental laws. To further this goal, we pursue an
effective and efficient compliance and enforcement program that
maximizes voluntary compliance, ensures that potential
polluters are informed of their environmental responsibilities,
and compels compliance through legal action when necessary to
protect public health and the environment.
This opportunity to provide testimony regarding privilege
and immunity provisions of environmental self-audit laws comes
at a critical time for the future course of the State-Federal
relationship. EPA Administrator Carol Browner has said that she
views the relationship between the Federal and State
environmental agencies much like a marriage.
Based on my experience, EPA often sees States as children
and itself as the parent in a paternalistic relationship that
is not appropriate, given the capabilities of State
environmental agencies today. It is not healthy. It is one that
we must both work to change.
In May 1995, Texas enacted an environmental audit privilege
act, an initiative that our legislature thought was sound and
beneficial public policy, for many of the reasons already
articulated this morning. As we have heard, 24 State
legislatures today have agreed and have adopted laws
encouraging this type of partnership between we, the regulator,
and those we regulate.
Rather than embracing these innovative State approaches and
providing Federal support, however, EPA has been a persistent
antagonist. Delegation to Texas of Federal environmental
programs has been threatened, and ultimately, Texas was forced
to compromise by amending its audit law to address some of
EPA's concerns in order to get delegation back on track.
In passing the Texas audit act, the legislature believed
that it was enacting a creative solution to achieving and
monitoring compliance in a collaborative system, just the kind
of approach espoused by President Clinton and by this
Administration. EPA has not sought, in our view, to foster, but
to stifle that sort of creativity.
In March of this year, a coalition of States, including
Texas, met with EPA Administrator Browner and presented what
was thought to be a reasonable compromise: A 2-year evaluation
period of State environmental self-audit laws in States whose
attorney general had certified that the State had the necessary
regulatory authority to carry out any new or existing program.
Administrator Browner rejected that proposal outright, telling
States that there would be no moratorium, and that each State
must negotiate with EPA officials to resolve their differences.
Texas came to the table with proposed revisions addressing
the specific concerns EPA had raised, including changes to our
statute to remove immunity and privilege with respect to
criminal violations. In March 1997, high level negotiations
between EPA and Texas resulted in a compromise being reached
and specific legislative changes were adopted by our
legislature this year, and became effective on September 1,
1997.
However, I would take an opportunity to point out that in
those negotiations, in our view, EPA stretched the common and
clear meaning of the words of its regulations to incorporate
instead its philosophies and policies. For example, out of the
words appropriate penalty EPA concluded, contrary to our
reading of regulatory and judicial precedent that Texas must
recoup the economic benefit of non-compliance.
This language is not taken from any law passed by Congress
that we can find, but only from EPA policy. We believe statutes
should be strictly adhered to, and that EPA's arbitrarily
selecting language that must be included in State laws from
among its policies is inappropriate.
It should also be noted that EPA has actively pursued its
opposition to the audit act in Texas outside the delegation
context. In December 1996 and January 1997, five Texas
companies that had taken advantage of the audit act and
voluntarily disclosed violations were confronted with
threatening EPA letters of inquiry regarding those same
violations. These companies today remain under EPA
investigation.
Texas now has almost 2\1/2\ years of very positive
experience implementing our audit act. The audit privilege has
shifted part of the burden to the regulated community to fund
their own compliance, rather than keeping it on the State to
fund more inspections. As noted in my written testimony
provided to the committee, the audit act has provided very
significant benefits to Texas and to our State's environment.
At the same time, we have maintained a strong inspection and
enforcement presence to provide a disincentive to fraudulent
misuse of the audit legislation.
The lack of Federal cooperation in the implementation of
State self-audit laws has created needless tension and
uncertainty that hampers State efforts to experiment with
innovative enforcement tools, and deters regulated entities
from utilizing them. Federal legislation expressly allowing
States authority to pursue such innovations would be a welcome
development, to restore the States' ability to pursue
approaches that differ from EPA's preferred policies. That is,
I think, the gist of Senator Enzi's and Senator Hutchison's
bills.
I hope, in closing, that my statement has provided you with
some opportunity to understand the benefits Texas has derived
from its use of self-audits as a compliance tool. We hope that
next week, when EPA's inspector general visits the TNRCC to
begin an investigation of the implementation of the Texas audit
act that they will also recognize the merits of the Texas law,
and that EPA will prepare for its implementation of the Federal
environmental audit privilege and immunity legislation that we
hope will be enacted by this session of the Congress.
Thank you all very much.
Senator Chafee. Thank you very much, Mr. McBee.
Now, Ms. Bangert, we welcome you, Director of Legal Policy,
Colorado Office of the Attorney General.
STATEMENT OF PATRICIA S. BANGERT, DIRECTOR, LEGAL POLICY,
ATTORNEY GENERAL'S OFFICE, STATE OF COLORADO
Ms. Bangert. Thank you, Mr. Chairman, members of the
committee.
I'm here today to testify on behalf of Gale Norton, the
attorney general of Colorado. We appreciate this opportunity to
address the important subject of State voluntary audit laws.
I'm going to concur in Mr. McBee's remarks and add some
insight, hopefully, from the Colorado experience.
Specifically, I want to make two points. Audit laws are
good for the environment. The audit experiment may well fail.
Sounds contradictory? Let me try to explain.
State audit programs may well fail, not because they're bad
ideas, but because a Federal agency wants them to fail, and is
working very hard to make them fail. Before I get to EPA, let
me explain why I think the audit laws are good for the
environment.
The Colorado audit law is not intended to allow anyone to
hid information. Its purpose is to encourage companies and
other regulated entities to create new information,
specifically to encourage them to look voluntary at their
environmental compliance, and to correct any deficiencies found
there. All of this without Government participation or expense.
Twenty-five entities in Colorado have disclosed violations
found in voluntary self-evaluations. Most of the disclosures
solved problems that never would have been found absent the
audit. Some resulted in long term benefits for the environment.
An example of this is the Denver Water Board, a situation
mentioned by Senator Allard. The Denver Water Board is a
municipal entity responsible for supplying water to Denver
residents. In 1995, the board hired CH2MHill to perform an
audit of its environmental compliance. The audit found
discharges into old storm sewers and minor violations of the
hazardous waste laws.
Upon finding the violations, the Water Board immediately
notified the Department of Health and set about correcting the
problems. What I'd like you to do is notice several things
about the situation. First, the violations would never have
been found absent the audit. The discharges into the old storm
sewers had been occurring since before the Clean Water Act was
passed in 1972, and had never been discovered. Second, the
hazardous waste violations were so minor that a routine
inspection would never have found them.
Also note that most of the violations were corrected
immediately, within the same week that the discoveries were
made, much, much sooner than a normal enforcement action would
have required. Most important, notice that CH2MHill recommended
changes going way beyond anything the regulators could have
ordered. Changes the Denver Water Board, most of the changes,
the Denver Water Board accepted and put into effect.
The Denver Water Board is a success story for self-audit
laws. We could have more of these if it were not for EPA
interference. In short, EPA has launched a campaign to ensure
the failure of the audit experiment. In this campaign, the
agency has used two tactics. I'll call them the delegation ploy
and the over-file ploy.
The delegation ploy works as follows. EPA sets out a
minimum for State delegated program that's a combination of law
and EPA policy. EPA then negotiates separately with each State.
EPA rejected Ecosys' suggestion for a 2-year moratorium while
the States experimented with audit laws and worked with EPA as
a block.
In the individual negotiations, EPA pressures the States to
eliminate or change their audit laws. Not surprisingly, the
results of the negotiations are either no audit laws or an
audit law that looks an awful lot like EPA's audit policy. As
you know, Idaho sunsetted its law, Texas changed its law, Utah
changed its law, Michigan has agreed to change its law.
At the same time that the EPA is intimidating States into
changing their laws, the agency is discouraging companies from
utilizing the audit laws. I call this the over-file ploy. Let's
take Colorado. We've seen a dramatic increase in over-filings
in Colorado in the past year.
Mr. Herman stated in earlier testimony to this committee
that EPA over-filed in only four cases nationwide from October
1995 through October 1996. In the first several months of 1997,
EPA over-filed in 3 cases in Colorado alone, and has threatened
to over-file in 10 more. In addition, EPA has threatened to
over-file against three entities that used the disclosure
immunity provisions of the audit law in Colorado.
Remember the Denver Water Board? When the board disclosed
violations to our Department of Health, it asked for immunity
from fines under the audit law. The disclosures made the
violations public. Upon learning of the disclosures, EPA
rewarded the Water Board for its sensitivity to environmental
compliance by requesting hundreds of pages of documents
concerning the disclosed violations. Further, the agency has
made no secret of the fact that it's considering over-filing
against the board.
In conclusion, State representatives have tried to meet
with EPA and come to some compromise regarding audit programs.
The results have been disappointing. Unfortunately, EPA
continues to wage its aggressive war against self-audits. We
have no recourse then but to ask for legislative assistance.
Thank you, and again, we appreciate being here. We'd be
happy to answer any questions that you might have when the time
comes.
Senator Chafee. Thank you very much, Ms. Bangert.
Now Mr. Paul Wallach on behalf of the National Association
of Manufacturers and the Corporate and Environmental
Enforcement Council. Mr. Wallach.
STATEMENT OF PAUL WALLACH, SENIOR PARTNER, HALE AND DORR, LLP
Mr. Wallach. Thank you, Mr. Chairman and members of the
committee.
In addition to being a part-time car pool driver, as
Senator Bond mentioned, and by the way, that was a bipartisan
car pool, I have practiced environmental law with the law firm
of Hale and Dorr for many more years than I want to remember.
I prepared, Mr. Chairman, a written statement that I ask be
submitted into the record. The staff has copies.
Senator Chafee. That's fine.
Mr. Wallach. As you mentioned, I am here today on behalf of
the National Association of Manufacturers and the Corporate
Environmental Enforcement Council. As I believe you know, NAM
is one of the oldest and largest broad-based industrial trade
associations. It is the oldest and largest in the country. It
has more than 14,000 members. It includes approximately 10,000
small manufacturers in every State.
CEEC is an organization of 22 major companies that are all
regarded as having very progressive and strong commitments to
the environment and environmental programs. It was formed
several years ago to look at environmental enforcement policy
issues exclusively, and the question of whether environmental
enforcement is always furthering the goal of environmental
protection, and where it is not, to address those issues.
I brought with me a copy of CEEC's Platform, which is also
attached to my statement, and would ask that it also be
introduced into the record.
I should add, Mr. Chairman, as you know, I chair the New
England Council's Environment Committee, although I am not here
in that capacity. I do want to say that we have had extensive
meetings at the New England Council and have spoken with the
New England congressional delegation. As New Englanders who are
very concerned about the environment, the council has adopted a
very strong resolution in support of Federal audit legislation.
Both NAM and CEEC have carefully considered, and their
members have carefully considered, the issues relating to
voluntary auditing and voluntary disclosure. Without question,
the failure to have in place adequate and certain protection
for voluntary audits has created strong disincentives and
obstacles to auditing. A lot of companies do audits, even in
the face of these obstacles.
It is the right thing to do. But I can tell you that the
lack of protection for these audits has a very real, chilling
effect, which in practical terms limits their scope, their
aggressiveness, and really, I think if you look at the people
who have to provide the information to the auditors, quite
frankly, their concerns limit the ability to get information
during these audits, because of the chilling effects.
Let me pose another policy issue, or pose the issue in
another way. A manufacturer, university, governmental entity,
hospital, that aggressively audits, as well as their management
and personnel, should not be placing themselves in the position
of greater potential liability than a company or entity that
does not audit. Yet this is exactly what is happening.
Documents and information developed through voluntary self-
evaluations can and are being used against regulated entities
and individuals in a variety of contexts.
The concerns of individuals and of companies is really
heightened by the massive potential civil penalties and very
real possibility of criminal convictions under the
environmental laws for inadvertent conduct. If time allows and
the question is appropriate, I would like to address the issue
later of why the environmental area is different, Senator
Baucus, than other areas.
I should also mention that seven years ago, in a bipartisan
fashion, in a statement of managers and the conference report
for the Clean Air Act amendments of 1990, when both you and
Senator Chafee, Senator Baucus, were very much involved, there
was very strong support given for environmental auditing, and
mention of the fact that the hope would be that these criminal
provisions would not interfere with that, and audits would not
be misused.
Well, they have been. We support, NAM and CEEC support
Federal legislation because we see a very important opportunity
for the environment. We hope this opportunity is not lost in
rhetoric and skepticism. We hope you will see through that.
The regulated community has no ulterior motive. It simply
wants to feel comfortable and wants its people to feel
comfortable--aggressively auditing facilities, correcting non-
compliance, spotting problem areas and improving operations.
It's not fair to expose those who do all that to enhanced
potential liability.
I have to say that I am somewhat puzzled by EPA's position.
The agency has repeatedly emphasized that it is not going to go
after audit reports, it is not going to seek audit reports, and
it has not done that in the past. If that's the case, I don't
understand how it can impede its ability to enforce
environmental laws not to get these audit reports. EPA cannot
have it both ways.
I'd also like to say that the parade of horribles and the
concerns that have been identified, when you really analyze
them, which I think is important, we don't have specific
examples from the opponents, and I'd like to hear specific
examples, because in my 20 odd years of practice, I can't come
up with them.
In fact, I think very clearly this is going to provide a
greater right to know than we would have now, because of the
disclosure requirements under the environmental laws. One of
the attachments in my written statement contains a full page
listing of all of the disclosure requirements where you are
required to disclose when you find out, for example, that
there's been a release of reportable quantity that you may not
have known about before.
That will get that information out to the public, to the
neighbors. It might not have been discovered before,
inadvertently. There's not going to be blanket immunity,
there's going to be no protections at all for intentional bad
actors. I think, as I said, there's not going to be any
secrecy.
I think it's important, and I can give specific examples
during the questions as to how more additional information will
get out. I think the States have recognized the benefits,
you've heard the EPA's reaction. I'm especially troubled
because I see from a very practical standpoint representing
individual companies, and I see it from NAM members and CEEC
members, the concern that this conduct is having on the
regulated community. They're sort of a pawn in the battle, in
some respects, between the States and EPA.
EPA is sending letters, demanding a huge amount of
production of documents from those companies that do utilize
the audit laws in the different States. That has a very, very
real chilling effect.
I frankly don't understand EPA's position with respect to
the State laws and I'd just like to mention one point. EPA says
that they don't have access to audit reports, the State does
not have an adequate enforcement structure or an adequate
enforcement authority.
My question would be, what happens if no one in the State
audited? Does that mean that the State doesn't have adequate
enforcement authority? Or if the companies in a State assert
the attorney-client privilege for their audits, which a lot do.
Does that mean the State doesn't have adequate enforcement
authority?
The argument, upon analysis, really does not make sense.
Finally, with respect to the policy that EPA issued in
December 1995, I do want to compliment the agency. Steve Herman
in particular, I think he's worked very hard in terms of
issuing that policy and implementing it. It is an important
step forward. I think industry recognizes that.
We respectfully disagree on the significance, however. It
does not eliminate the disincentives and obstacles to auditing
and disclosure. It does not create the certainty that we need
to have the people who provide the information. There are nine
criteria in there that you have to satisfy to meet the policy,
for the policy to apply, Senators. Those are very
discretionary. You cannot be certain the policy is going to
apply.
It does not apply to individuals. The policy offers no
protection whatsoever to individuals. I could go through a
number of other deficiencies in the policy. But even if the
policy were a perfect policy, it would not supplant the need
for Federal legislation. Because it cannot, the agency does not
have the authority to remove the obstacles.
With that, I'd like to say that both NAM and CEEC look
forward to working with the Congress in a bipartisan fashion to
see if we can fully explain the values of audit legislation and
have them recognized, and hopefully get a bill through that's
good for the environment.
Thank you.
Senator Chafee. Thank you very much for that testimony, Mr.
Wallach.
I would call Mr. Herman's attention to Mr. Wallach's
testimony, on page 18.
Senator Baucus. We have another witness here.
Senator Chafee. Yes, I know. I'm going to get right to him.
Mr. Herman, if you would have your folks take a look at
page 18 where Mr. Wallach lists elements of this legislation.
He says they're neither novel nor without precedent, and lists
some other outfits where these are taking place. I just thought
I'd forewarn you that I will be asking you a question about
that.
Now we have Mr. Mark Woodall from the Sierra Club. We look
forward to your testimony, Mr. Woodall.
STATEMENT OF MARK WOODALL, CHAIR, LEGISLATIVE COMMITTEE, SIERRA
CLUB, GEORGIA CHAPTER
Mr. Woodall. Thank you, Mr. Chairman and members of the
committee. I want to thank you for allowing me to make a
statement on behalf of over 500,000 members of the Sierra Club.
I'm the chair of our legislative committee in the State of
Georgia and also the volunteer chair of our National Audit
Privilege Task Force. I'm a commercial tree farmer by
occupation.
I'm co-submitting this testimony on behalf of U.S. Public
Interest Research Group. The Sierra Club and U.S. PIRG are
organizations that have brought numerous citizen enforcement
actions under our national environmental laws, are committed to
preserving the legal tools that ordinary citizens have fought
for and need to protect themselves from harmful pollution in
their communities. This is one of the many reasons that Sierra
Club and PIRG and over 100 other public interest groups, both
national, local and State, are bitterly opposed to the creation
of any secrecy privilege or broad immunity rights for
institutes who undertake environmental self-audits at either
the State or Federal level.
In particular, we strongly oppose S. 866, as well as any
other bill that would restrict our Federal EPA from its ability
to administer delegated programs in States with these audit
privilege immunity laws. As you heard earlier, the District
Attorneys Association has written to you and in the past that
the adoption of such a privilege is an extreme measure, far
beyond any remedy necessary. We would say it is a radical
measure that would create a vast dumping ground for corporate
dirty secrets.
I think we need to take a look, as we observe the 25th
anniversary of the Clean Water Act, and think about why it is
that we have made progress. What are the current incentives
under our present legal system. We believe that the reason that
people just don't dump it in the river, whether it's a Federal
facility or corporation or whatever, is because they fear
liability, they fear enforcement, both of Federal, citizen or
State enforcement. Certainly, they're concerned about the
public right to know, as Senator Lautenberg pointed out. We
have the public right to know, which is often followed by the
public pressure to clean up these neighborhoods.
Those are the current incentives that really drive what's
going on in the United States. What we're talking about here is
directly opposite, it's a direct attack on the incentives that
we had in place. What we're talking about here is turning the
right to know into the right to know nothing, or the right to
keep dirty secrets. What we're talking about here is hurting
real people. The experience we've had out there, we've already
found, I think, the kind of mischief that's going to come up
with these laws, which will be even worse with a Federal law.
I would call your attention to the testimony written by the
folks in Cincinnati, Ms. Briscoe and Reverend Lundy in
Cincinnati. They submitted this testimony so you could see the
experience they've had with a giant corporation, and their use
and abuse of audit privilege.
The lessons they want to share here were learned in
attempting to find out about toxic landfill gas next to a waste
management landfill in Cincinnati. They say they were forced to
organize to protect themselves because time and again, local
and State authorities did not protect them. They were willingly
or carelessly misled by Waste Management, Inc.
Now, this landfill has operated since 1973 in the midst of
a densely populated area of Cincinnati, thousands of people
living within a short distance of the landfill. What they had
is landfill gas migration. They say it's robbed those of us who
live near the landfill of the use of our yards, the ability to
have our windows open in summer, and has eroded their quality
of life. They believe they had a right to know about this gas
exposure years ago.
But if you follow what has gone on, first there was an
administrative proceeding when Waste Management wanted to
expand this landfill. At that time, Waste Management said its
internal audits were confidential and privileged and hid the
information, therefore, from the community. After numerous
motions to compel disclosure, some of this information came
across. But then, Waste Management said they had a pending Ohio
audit privilege bill and started holding documents back.
So the folks blocked the expansion in this administrative
procedure. Then the Ohio legislature actually passed the audit
privilege bill. Waste Management had the brass, I guess you
would call it, to call up the EPA in Ohio, Ohio EPA, and say,
give us our audits back, we passed a State law making that
privileged.
Then the citizens went to Federal court, Federal citizens
suit, to try and get them to do what they should have done, and
they knew they should have done, to mitigate this landfill gas.
Now, that's ongoing, and Waste Management has tried to block
discovery, block the truth about this, from Federal court,
based on the State's audit privilege law.
I would say to you that this is a fine example and I think
there are more coming of the kind of mischief we're going to
get into. They asked some questions here which I think are very
relevant. If one of the national architects of this audit
privilege movement around the States is capable of making this
use of just a pending bill, since a company will apply pending
legislation to audits prior to the passage of a bill, what
basis is there to believe that other polluters will act any
differently?
They also ask, how will anyone know if when a polluter has
secretly slipped the truth about its pollution into a file
which the polluter has labeled audit. I think that's one thing,
as we study what's going on in State laws, I noticed in
Colorado the headline was, polluters get off scott free, in the
Denver paper.
The thing you need to understand is, these folks can set up
a file cabinet and just start stuffing documents in there that
they don't want to see the light of day. To make all this
information privileged, secret from judges and juries, is just
a terrible threat to the health and human environment here in
the United States. We urge you to strongly oppose this reckless
proposal.
Senator Chafee. All right, thank you, Mr. Woodall.
Now, Mr. Herman, you've heard the presentations here of the
others. It seems to me it boils down to, I don't want to get
back and forth on the privilege business, but it seems to me
the problems that the others raise is the indefiniteness that
comes up under EPA, that if a company goes ahead and has an
audit, does the right thing, and reports it in advance, has the
audit, discovers certain things, takes actions to correct
those, everything that we'd want a company to do, they're not
sure that EPA will not be able to come in with considerable
force later on and slap them with a great big fine.
Now, I must say, Mr. McBee, I think it was he that said he
wasn't, Texas didn't really want the fine to include monetary
advantage that the company had achieved over its competitors as
being part of the fine. I may be misquoting you there, but we
can get to that in a minute.
But I must say, I think that any advantage that a company
had gotten because it was a bad actor should be included in the
damages allowed. But what do you say? You say you've got a
policy, but they, the opponents, Mr. Enzi, and so forth say,
well, that isn't enough. You folks can change a policy. I think
Ms. Bangert said that. Then leave the company that made all
this effort high and dry.
What do you say to that?
Mr. Herman. Well, Senator, I think there's two parts. One
is, I think certainty and consistency are both important and
should be expected. I think what we have publicly stated, we're
abiding by our policy. I set up a group, made up of regional
and headquarters personnel, to review every single audit
submission.
We have had, and I mention this again, over 600, or it's
over 700, I think, facilities come in to us and we have
processed these matters. Over 95 percent, I think, have
resulted in no penalty.
Let me make one thing clear, I think there has been
consistency and there is certainty. Why no Federal legislation?
I think for a couple of reasons. One is, we're dealing with a
very new area. We have not had evaluations in this area and to
go in and legislate now, and I think potentially tie the hands
and limit the discretion of law enforcement personnel,
regulatory personnel, is not the most constructive thing. You
have not been faced with abuses, certainly, in the Federal
implementation of the policy.
With regard to the policy, let me make one thing very
clear. We are 100 percent in favor of audits, of self-audits.
We are 100 percent in favor of self-policing. We are 100
percent in favor of giving incentives to businesses that take
it upon themselves to self-audit.
What we are not for, and what we don't think should be
overlaid on our public policy is secrecy and immunity. Those
have no place in good public policy. We have established
privileges. They did develop in the common law. They are very
special. I don't think that there is a reason to establish
privileges in this area.
The fact is, thousands of companies are auditing. The fact
is, according to a survey that was taken, the fact that there
isn't a privilege doesn't dissuade them. You've heard
conflicting things here about some States are being chilled
while others aren't.
But the fact is, we think audits are good. We think
companies are doing them, and we know that they're coming in
and disclosing problems. I think we're dealing with them
fairly.
Senator Chafee. Some are suggesting that if you don't have
a statute, at least have a rule under the Administrative
Procedures Act. But you haven't even done that. You have this
policy. If I get the complaint, it's that you say it's
definite, the others say no, it's not definite. That's the
hitch.
Mr. Herman. I don't know that, I think even if you have a
rule or you have a statute, there is going to be some amount of
flexibility for, and I assume you want flexibility for your
assistant attorney general, your assistant U.S. attorney, your
EPA attorney, to implement these regulations and laws. Each
case has some different factors.
One thing I would say is, certainly we are evaluating our
policy. There are others evaluating the State laws. At this
point, to lock something in, in stone, just seems very, very
premature to me.
Senator Chafee. My time's up. Senator Baucus.
Senator Baucus. I wonder whether Mr. McBee, Mr. Wallach or
Ms. Bangert have examples of where the EPA has left a self-
auditor out to hang and dry because EPA has changed its policy.
Mr. Wallach. Senator, do you mean are there examples where
EPA has requested audit reports?
Senator Baucus. No, it's where a company has relied on EPA
policy and then conducted the self-audit and then EPA has
changed its mind and is much more strict with respect to that
audit than the company was led to believe when it conducted the
audit. I was looking for examples. The nature of the charge is,
it's discretionary, it can change. I'm looking for examples
where there has been change.
Mr. Wallach. I would like to answer your question, and go
back one step, though. Because with all due respect, I think
it's a mistake to just focus on the EPA policy and the question
of the indefiniteness or lack of indefiniteness.
Senator Baucus. Oh, I'm not going to just focus on that. I
have many focuses. That's my one focus right now.
Mr. Wallach. All right. The answer is yes, but it's very
difficult to provide them, because they're essentially pending,
they're either pending cases, the EPA has, I think, resolved
for the audit policy a number of cases. I personally would
categorize them as some of the easier cases. Others might
disagree with me.
I think some of the more complicated cases are still
pending. I can't tell you whether the company is going to be
left high and dry or not. Clearly, some of the individuals
involved in that, that provided the information, received no
protections whatsoever.
Senator Baucus. What about Mr. Herman's point that this is
really an evolving area? Isn't it premature for Congress to
pass a statute?
Mr. Wallach. I think Oregon passed its law in 1993.
Senator Baucus. Sorry?
Mr. Wallach. Oregon passed its law in 1993.
Senator Baucus. That's true, but each State has different
approaches. There are all kinds of different self-auditing laws
that States pass.
District courts have, I don't know if this is the case, but
I would assume have different views on all this, too. We're
really in a new, evolving area here.
Mr. Wallach. But Congress, as you know, has acted, in the
Equal Credit Opportunity Act there was a privilege.
Senator Baucus. That's true, in a few cases. But the
general rule is, Congress does not create privileges,
evidentiary privileges. That's the general rule.
Mr. Wallach. That's correct. We feel that the public policy
reasons in this area are important enough that as the
environmental protection goals are important enough that that's
an issue Congress should consider.
Senator Baucus. Mr. McBee, I'm just curious, hasn't it
worked out pretty well, in the final analysis, the Texas self-
audit provisions, after working on it, the negotiations with
EPA? I say that because I was astounded when you said that the
earlier Texas version gave immunity to criminal----
Mr. McBee. Not complete immunity to criminal violations.
Senator Baucus. But still partial.
Mr. McBee. For criminal negligence.
Senator Baucus. For criminal. That's a bit much. You're
getting to intent there, which is an area that I don't know
should be protected. I'm glad that Texas has changed its
statutes.
Mr. McBee. Senator, there are certain changes we made in
Texas.
Senator Baucus. Didn't it work out OK?
Mr. McBee. We made some changes to the Texas law that I
think, from a personal standpoint, improved the law. I have
said that previously. What I think, well, two comments.
We have not yet seen if it has worked out these issues of
delegation that I raised as what propelled us to come to the
negotiating table are not yet resolved. There are petitions
still pending against the State's delegated programs that have
not been yet withdrawn by EPA. There are proposed programs for
delegation that we have not received decisions on.
So I don't know yet if it's been adequately resolved in my
view. That statute has been passed and we reached some
accommodations. My view is, I would have preferred not to have
been compelled to the negotiating table to take what EPA handed
me, essentially, and to instead let State legislatures across
the country experiment, if you will, to do what Mr. Herman
said.
Senator Baucus. But what if the result of those State
legislatures is significant reduction of environmental law
enforcement? Doesn't the Federal Government have a
responsibility to see that the Federal environmental laws are
adequately enforced?
Mr. McBee. But it's my respectful view that what we have
seen in Texas from 1995 onward was not a dilution of the
enforcement capabilities of our State.
Senator Baucus. Immunity from criminal prosecution?
Mr. McBee. But again, Senator, the law in Texas was drafted
to allow for any reckless conduct, any intentional conduct, to
still be pursued in a criminal fashion. We were looking at a
narrow range of criminal negligence. Again, that is, from a
personal perspective, one of the changes in the Texas law that
I believe improved our law.
Senator Baucus. But which EPA insisted upon.
Mr. McBee. They did. But there are other provisions, for
example, the requirement to disgorge economic benefit that we
don't find anywhere in statute or regulation at EPA that was
also thrust upon the State of Texas. That is one, for example,
where I have a different view as to whether that's absolutely
the appropriate policy.
Senator Baucus. But do all three States, Mr. Wallach, would
agree that the States should restore, the company should
restore all economic gains derived from pollution? That is, I
guess EPA's policy has non-gravity penalties, as I understand
it. A fancy term, as I understand it, that is, penalties not
above but the lost economic benefit.
Ms. Bangert. Economic benefit, though, can be a policy
decision as much as a legal decision. Whether a company has
gotten any competitive advantage can very much be a policy
determination, and a factual determination where the----
Senator Baucus. Well, I'm just talking about the general
principle. I'm not going to get into each case, but just as a
general principle.
Ms. Bangert. What we found in a couple of the over-filings
is that EPA has over-filed on the stated ground that the
penalty was not high enough to deter future violations. That's
a policy decision. It's also a decision that the State should
determine, and not the people from Washington.
Senator Baucus. Mr. Herman, I thought EPA policy and its
penalty policy was not deterrent but rather compensation, to
make whole again. Did EPA level a fine above the economic loss
in order to deter?
Mr. Herman. Not under the audit policy, Senator. No. What
Ms. Bangert may be referring to is differences we had in other
cases where, in Colorado, where we have over-filed and it's
because we determined that the penalty was not appropriate.
Let me give you one example. One involved the Public
Service case. There you had your opacity violations not
corrected by the State, and the State allowed the company to
gain an economic advantage worth several hundred thousand
dollars.
The State assessed a fine of $4,000, and did not get any
injunctive relief to ensure that the violations do not recur.
The Sierra Club had filed a citizens suit alleging 19,000
violations over a 5-year period. We joined the lawsuit, we
obtained a $2 million cash penalty and $2 million in
supplemental environmental projects, which meant that the money
went to make environmental improvements that actually went
beyond compliance. That was not an audit case, but that's an
over-filing case.
Senator Baucus. I see my time has expired. Thank you.
Senator Chafee. Senator Sessions.
Senator Sessions. Mr. Wallach, is it fair to say that the
average business man or woman in America today does have fear
about reporting, fear that the EPA will not be kind and gentle,
but will utilize that information to disrupt their business and
be very aggressive in punishment?
Mr. Wallach. Senator, I think there are a lot of people
that have that fear. I'm not sure I can say that the average
person does. I think, for instance, EPA has not been entirely
unreasonable in every enforcement situation we've seen. I think
Steve Herman and the people he's brought in have tried to
moderate it to some extent.
But you also have citizen suits, you have mass toxic tort
actions, you have a whole spectrum of other things. So I think,
yes, people do have that fear, and perhaps it's second only to
the IRS in some respects. I think the more informed people have
that fear even greater than the people who have been involved
with it before, and the average businessman.
Senator Sessions. I'm not suggesting, I have a sense that
if a government entity, city or whatever, reports, they're
likely to get a fair hearing when it's all said and done. But
I'm not sure they believe that. I think this legislation would
help allay fears and give some certainty and confidence that
would result in more audits and self-reporting. Is that your
position?
Mr. Wallach. I absolutely agree with that. I think the
perception out there, in terms of Senator Baucus' question
before, is that unlike most Federal laws, and I was a
prosecutor, a number of environmental laws, especially as
interpreted by prosecutors, do not require specific intent or
willful action. I think there is a tremendous concern out there
by the regulated entities and the individuals in the front
lines, even if it hasn't always happened, that that's going to
happen to them.
So you're absolutely right.
Senator Sessions. Mr. McBee, let me raise this issue. I
think fundamentally that the best argument we have against this
bill is, maybe we ought to wait a bit and see how these laws
work out. Second argument could be that there could be some
technical improvements in it. Setting aside the first argument,
let me ask you, Mr. Herman, would you be willing to review the
bill for technical improvements and help make it a viable bill
that you could support?
Mr. Herman. Senator, let me say this, because I have not
seen Senator Enzi's bill yet. But let me say, I think there are
other problems that are very fundamental. One of them is
privilege and putting an overlay of secrecy.
Senator Sessions. Let's talk about that. What is being kept
secret? Other than the internal work product that goes into the
audit that wouldn't have been available if they hadn't reported
the violation anyway, presumably. It's not a major secrecy
benefit. The employees would still be subject to deposition.
They would still be subject to being interviewed by EPA and FBI
and other investigators. So the only thing is that just that
work product within the audit, is there anything else?
Mr. Herman. It is the material that's there, and it can go
to intent. You can have a situation where a farmer's
groundwater, for instance, is damaged, is polluted. You find
out that the next door neighbor, who was some regulated entity,
knew that there was a problem because they had an audit 2 years
before, but for economic reasons or some other reasons, they
decided not to fix it. They delayed their trying to fix the
problem.
You also have a situation in some of the statutes where, if
somebody does an audit, they come in and then they go home.
They're free. They don't have a penalty. They are immunized. I
think that's very dangerous. It takes away accountability and
responsibility.
The other thing I would urge you to do, because I know that
you are a very, very experienced prosecutor, is look at these
bills and see the machinations that you have to go through. I
know that when I put together a case, I don't know exactly
where the trail will lead.
Senator Sessions. I agree with that. One thing you said,
you have to prove beyond a reasonable doubt that it was
voluntarily disclosed. I think that's too high a burden on a
prosecutor. It turns into a trial of a trial of a trial.
I have some technical concerns about it. I would just make
this point. You've made----my time's up----you made four points
in opposing this legislation. Almost all of them deal with
secrecy. I think that's overblown. I think you can still
interview every employee of that company, can't you, Mr. McBee?
Still take their depositions?
Mr. McBee. Under the Texas law, Senator, materials required
to be kept are not going to be privileged, nor is in-person
observation of the violation privileged.
Senator Sessions. I don't think it's that big a deal. I
think you could work something out we could live with that
would perhaps further the improvement of the environment if we
put our mind to it.
Senator Chafee. Thank you, Senator.
Senator Lautenberg.
Senator Lautenberg. Thanks very much, Mr. Chairman.
I want to ask you, Mr. Herman, does the right to know law
that we've made frequent reference to and everybody's familiar
with, is the information that the companies produce for the
public record, is that material available for prosecution?
Mr. Herman. Yes, it is.
Senator Lautenberg. It is. So that we get very good
response rates from companies, I know that we've seen it in New
Jersey and I know that's also true across the country.
Mr. Herman. Yes.
Senator Lautenberg. Do you think, have there been cases
brought, to your knowledge, under the right to know law against
companies, citizen suits or otherwise, as a result of the
revelation of information that they've put out?
Mr. Herman. I am aware we've had cases against companies
that have not reported. We could certainly look into it. None
come to mind.
Senator Lautenberg. I'd be interested in that. Because I
wonder, especially Mr. Wallach here, an attorney with a
distinguished background, you made the statement about the fact
that under environmental law, there is less of a standard for
willfulness conduct than there is under other laws. Did I
understand you correctly?
Mr. Wallach. That willful and intentional are not required
for criminal convictions under the environmental laws, Senator.
Senator Lautenberg. Right. Is that true, Mr. Herman?
Mr. Herman. There are not always specific provisions. But I
think if you look at how the law has been applied by Federal
prosecutors around the country, only the most egregious cases
have been brought as criminal actions. I don't know that the
standard the prosecutors use is any different.
Senator Lautenberg. Mr. Wallach, do citizen suits represent
a danger to business in our country?
Mr. Wallach. I don't think the concept of the citizen suit,
Senator, represents a danger to the business. But I think the
purpose for which they were originally created and the nature
of the environmental arena has changed. I think there are a lot
of abuses right now in the citizen process. In fact, there's a
case before the Supreme Court that's dealing with the question
of citizen suits and whether they can sue for wholly past
violations under statutes other than the Water Act, such as the
TRI issue that they tried to take up there.
I'd like to get back to the one question you raised,
though, which I think is critically important. The right to
know law that you were so much involved in is a very, very
important law. I think it has the benefits that you identified.
I think the concern that, as an example I wanted to give,
if you do an aggressive audit and you miss something on a form
that you submitted, but you do an aggressive audit, you go back
and you find out it was entirely inadvertent. We had a
malfunction in equipment, we didn't pick up that there was this
release of compound of a quantity. It did go out into the
neighborhood.
As soon as you find that out during your audit, you have a
statutory obligation to report it. You cannot keep it
privileged. The right to know law is not impacted whatsoever
unless a company wants to willfully and intentionally go out
and violate the law. You're not going to stop those people no
matter what you do.
So I think this is going to get a lot more information out
to the public. Because you're going to have companies
aggressively pursuing every nook and cranny, and the
individuals, more importantly, pursuing every nook and cranny.
Inadvertent things will get out to the community.
Senator Lautenberg. There is that possibility. On the other
hand, there's a distinct possibility that the privilege
opportunity could be easily misused. I don't want to try to
teach a law course here, I'm not a lawyer and I wouldn't have
very good students out there. Considering the source of the
information, I wouldn't expect them to be.
But we've seen cases now where attorney-client privilege
has been extended far more than that. It appears in the
discussions about tobacco that there was a refuge for data that
wasn't to be released to the public that was cloaked under the
attorney-client privilege statutes. So it's an easy place to
conceal information, I think. I could be persuaded more if I
thought that that information, maybe, and here I'm stepping
into dangerous territory, maybe not available for prosecution,
although as I understood it, the trail that's offered is often
a very valuable asset in prosecution, if that condition could
be developed where the information couldn't be used for further
prosecution if the company voluntarily released it.
Would that then take away the need to cloak it under a
privileged position?
Mr. Wallach. That is one approach if it cannot be used at
all for that. I think on the other hand, you could have other
uses for it. If you are talking about all uses, citizen suits,
mass tort actions and things like that, but that's something
else I think that could be explored. Our position is for the
very limited privilege, the qualified privilege, which is not
very different in some respects from the deliberative process
privilege that the Congress gave the Government under FOIA. So
you have free flow of communications from within the Government
and within regulated entities.
On the other hand, it would have significant benefits. It
would really increase environmental protection.
Senator Lautenberg. Thanks, Mr. Chairman.
Senator Chafee. Thank you, Senator.
Senator Enzi.
Senator Enzi. Thank you, Mr. Chairman.
I appreciate that you're allowing me to have access to the
testimony and to be able to ask a few questions. It's very kind
of you.
Senator Chafee. Go to it.
Senator Enzi. Mr. Herman, you mentioned that there were
some 762 audits so far that have been agreed to. Can you give
me any kind of an indication of how many of those were small
business? We'll use maybe 100 employees as small business.
That's very rough, so you can be very rough on the answer.
Mr. Herman. It is very rough. What I do know is----I will
get you that information with preciseness for the record
following the hearing. But my understanding and my review is
that there is a good mix of both Fortune 500 companies and
small companies.
I would also just point out that a couple of years ago, one
of the first things I did after meeting with representatives of
small business associations in Washington, they were brought in
by our small business ombudsman at EPA, was to promulgate a
policy for small business, which basically waives penalties
when a small shop or whatever comes in and seeks assistance
from us.
We have also set up compliance assistance centers in the
printing sector, metal finishing, auto repair and agriculture,
where small businesses can call in, get information. We've done
this in cooperation with the trade associations. So the point
I'm trying to make is that we are reaching out and we are
trying to accommodate just the kinds of fears or injustices
that I know you're concerned about.
Senator Enzi. I think I was rather complimentary to the
agency when I started my statement and mentioned that you are
doing a good job and that there's two and a half decades of
good work. Your Web page is, incidentally, to be congratulated
too. It has a lot of excellent help for small businesses again.
How many enforcement people do you have, roughly?
Mr. Herman. Roughly, across the country, including lawyers,
criminal investigators, inspectors, scientists, it's probably
3,000 or so.
Senator Chafee. What did you say?
Mr. Herman. Three thousand. That includes Superfund.
Senator Enzi. How many of those would be inspectors?
Mr. Herman. A relatively small percentage. An unfortunately
small percentage.
Senator Enzi. Earlier, in response to one of Senator
Sessions' questions, you mentioned the person who had damaged a
water well and then didn't disclose it. Wouldn't that be a
criminal action?
I note that under the bill as I have proposed it, that
would be criminal action. So there would be nothing privileged
in that case.
Mr. Herman. I don't know whether or not it would be
criminal. There certainly would be, if you had a suit by the
farmer, forgetting about regulatory, but a result of some of
these privilege laws is that if you had a suit of the
individual farmer against the person who polluted his
groundwater, certainly many lawyers would claim privilege as to
the audit, which might show when the polluter knew that he was
polluting. That could cause a problem.
Excuse me, if I could make just one other point, it's
opening up a whole other area to litigation. In other words,
everybody's concerned about the amount of litigation we have.
This opens a whole new element to it, whether it's in camera
proceedings or otherwise. That's one of the things I think we
should try and guard against.
Senator Enzi. In the proposal that I have, of course, any
information that's required to be given anyway has no
privilege. Could you go into a little bit more explanation of
what you mean by in camera doesn't help?
Mr. Herman. What I meant by, my concern about in camera is
a couple of fold. No. 1, it's another proceeding that a
prosecutor or a lawyer will have to go through to break through
to get to see whether or not information is one, validly
privileged once the privilege is claimed, No. 2, anybody that's
been involved, I've been involved in some huge lawsuits. When
you get into the discovery process, it can take, well, it can
take months and months if not years.
This is something else. I think it was Senator Lautenberg
who said about the use of the attorney-client privilege in the
tobacco context. It is not that unusual. Now, we do, as Mr.
Wallach said, you could use attorney-client privilege and it
has been used in the environmental context. I don't think
that's particularly good.
But attorney-client is at least a well established
privilege, established over centuries. This, we're going into
uncharted territory. I don't think, I guess----
Senator Enzi. Attorney-client is primarily available to
those big companies. As Senator Sessions mentioned, what we're
talking about is if the companies don't do an audit at all,
there's no information available. We don't even know if there's
a problem.
I see my time has expired, and I thank you, Senator Chafee.
Ms. Bangert. Could I just add one thing?
Senator Chafee. Sure.
Ms. Bangert. I want to add one thing about the poisoned
well situation. That's ridiculous. Under Colorado law, if
somebody poisoned a well and they did not correct that right
away, the privilege wouldn't be available in the first
instance. Disclosure immunity would not be available. I think
that's carried through in Senator Enzi's bill.
Also just for the honor of Colorado, Mr. Herman mentioned
the Public Service Corporation case. I think it's much more
complicated than what he mentioned. I think the State had
brought a case against Public Service under certain, for
certain violations. I think EPA brought a case for other
violations completely. So we're really comparing apples and
oranges here when we do the 4,000 and the 1 million.
The State participated in the negotiations that got the $1
million fine. But I can give you more information.
Senator Chafee. Well, let's not debate the Colorado case
here. Senator, if you've got a couple more questions, you go to
it.
Senator Enzi. I appreciate the time. Thank you.
Senator Chafee. I've got a question here that I'm asking
the panel. I'm going to read it.
One of the more serious charges leveled is that EPA is
using information provided in State audits to target reporting
companies. On page 6 of Mr. Herman's testimony it says, ``The
reality is that neither EPA nor the Department of Justice seeks
audit reports as a means of identifying targets for civil or
criminal prosecution. Further, I'm not aware of any case which
a voluntary audit has been used to enforce, I presume to
enforce means to bring an enforcement action, against the
company that discovered a violation on its own, disclosed and
promptly corrected it.''
Now, that's pretty definite. Both Mr. McBee, on page 6 of
his testimony, and Ms. Bangert, on pages 10 and 11 of her
testimony, seem to refute EPA's claim. I would assume they have
used the information that's been brought forward.
Could you please try to explain the apparent discrepancy of
the legitimate, non-audit reasons for Federal enforcement of
these sites? I'll let you go first, Mr. Herman.
Mr. Herman. OK, I'll start with the definite statement that
I made, which came as a result of basically the 19-month review
that we did when we were formulating our own policy.
Mr. Wallach and Ms. Bangert participated actively in our
deliberations as we got views from many different interests. We
asked for examples, because we did a search of our files and we
asked the Justice Department to do a search of their files to
see whether or not we used audits, basically whether we went
after the low-hanging fruit to see whether or not we should
prosecute. There were no examples of that.
This is what we have said, and that's the basis of that
statement. With regard to targeting companies that perform
audits under the State audit laws, our policy is the same. It
is not to target companies that do audits. However, it is not
not to target them. In other words, they are not immune from
review.
We do have a legitimate interest in seeing how States are
administering their laws. Are they getting an appropriate
penalty? Are they getting a correction of the environmental
problem? Are they recovering in some cases the economic
benefit? Was there a criminal violation?
We've done this in States that have and don't have audit
statutes.
Senator Chafee. Mr. McBee.
Mr. McBee. Senator, it may be a question of semantics, to
some extent, how we define target. The experience in Texas was
while we were in the midst of these delicate negotiations
between EPA and the State, as I noted in my testimony, letters
were sent to five companies with respect to six facilities.
Those letters were, if you will, mirror images of what had
been disclosed as a result of those companies' audits in the
State of Texas. I interpreted that as a targeting of companies
that had done audits and it was very easy to follow along. What
was sought by EPA mirrored again exactly what was being
conducted by the companies.
They did not, if I recall, did not ask for the audit
reports themselves. But it was very clear what they were about,
for whatever reasons they might have wished to explore that
particular area. In Texas, those cases have not been brought to
closure yet, although it is my understanding that penalties are
being considered against one of the companies, which in my mind
is the classic situation of why we need audit legislation in
Texas and nationally.
This was a company that acquired this particular facility.
Being I think a very good corporate citizen, came in and
conducted a very aggressive audit to find the problems, and to
fix those problems as they commenced operations at a new
facility. I think that is good. That is what we at the Federal
and State level should induce and commend. Yet that company
now, in my view, has faced targeting by EPA, and they face the
possibility of penalties from EPA.
Senator Chafee. Ms. Bangert?
Ms. Bangert. I return again to the Denver Water Board case.
We had minor hazardous waste violations in the Denver Water
Board case. We had discharges that were stopped immediately. We
had structural changes made to the facility. We had long-term
changes that went way, way, way beyond what EPA or the State
could ever have ordered.
I can't imagine that EPA doesn't have better things to do
with its time than to target a company in that situation.
Senator Chafee. All right, final word, Mr. Herman.
Mr. Herman. Thank you, Mr. Chairman. I would just say that
there are two sides to every story, while the Denver Water
Board case is an open matter, I would just say that I would not
necessarily accept all of Ms. Bangert's characterizations of
the facts in that case, and that they're being reviewed for the
reasons that I've stated.
Senator Chafee. All right. Fine.
I want to thank all the witnesses very much. You've come
some distance, several of you, and we appreciate the advantage
of your testimony.
That concludes the hearing.
[Whereupon, at 12 noon, the committee was adjourned, to
reconvene at the call of the chair.]
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Michael B. Enzi, U.S. Senator from Wyoming
Mr. Chairman, I want to first thank you for giving me the
opportunity to testify today on the issue of environmental audits. I
have worked closely with this issue for many years. I was the prime
sponsor of the Wyoming audit law that passed our State Legislature in
1995 by over a two-thirds majority, and it was a bipartisan vote. I am
sure my friend and colleague from Wyoming who sits on this committee,
Senator Thomas, recalls the vigorous debate that occurred in our State
at that time.
When I got to Washington, several States that had audit laws were
meeting with the EPA. The EPA was using threats of overfiling and
delaying approval of State enforcement programs because of the State
laws. Overfiling means the EPA could come in and use audit information
as a road map for prosecution and levying fines. They can do this after
a person has conducted an audit according to a State law after a
business has taken on the expense and exposure in order to be sure they
are not harming the environment. The EPA wanted us to change the
Wyoming law--in spite of repeated assertions from our own State
Attorney General that the law did not compromise our enforcement
authority.
I want to point out that the Wyoming law is not extreme. In
crafting it, I studied examples and results from other States that had
gone through the process. I worked closely with our State Department of
Environmental Quality and with members of the regulated community. I
worked with various resource and conservation groups in Wyoming and we
crafted a bill that provides very reasonable incentives for people to
review their operations and cleanup the problems they find. We provided
no criminal immunity or criminal privilege. We deferred to Federal laws
wherever conflicts existed. And there was a consensus.
Not only did people have a chance to be involved in the process,
but the debate itself raised the importance of a cleaner environment.
It forced people to focus on the fact that our objective is to have a
cleaner, safer environment--not to levy big fines.
Wyoming's scenario is not unique. It has happened in many other
States and that has led me to offer this piece of legislation.
I do want to thank you, Mr. Chairman, and the Environment and
Public Works Committee for holding this hearing today because the issue
deserves congressional attention. To date, twenty-four States have
chosen to enact some form of environmental audit law and legislation is
pending in sixteen other State legislatures. I would point out that
eleven members who sit on this Committee come from States that have
enacted audit laws. Another five members come from States where some
form of legislation is pending.
Mr. Chairman, I did not want to spend a lot of time explaining the
intricacy of audit laws because you have an expert panel of witnesses
here today who can do a good job of that. But I do need to outline the
process so I can discuss concepts for resolving the problems.
The purpose of audit laws are to provide incentives for regulated
entities to search for and disclose environmental violations and to
clean them up. The EPA argues that these entities are already required
to be in compliance so we should not offer them incentives to clean up
their violations. The point is that people conducts audits to find
things they do not already know about. Many of them will never look for
problems if they are threatened with fines for their good will.
Entities that can conduct audits range from businesses to schools,
to hospitals, towns, and counties. The incentives can range from relief
from penalties to protection of voluntarily gathered information. It is
important to keep in mind a carefully crafted audit law ensures that
audit protections apply only to good faith efforts--efforts that are
voluntary, or ``above and beyond'' what is otherwise required by law.
If we ensure that, then any disclosures are a net gain above
traditional enforcement. They are a net gain for a safer, cleaner and
healthier environment.
Consider for a moment the decisions a small business faces with
regard to its environmental performance. Many small businesses are
already required to monitor and report certain emissions. Audit
protections do not cover those reports because they don't apply to any
monitoring that is required by law. But consider a business that is not
on an inspection schedule and has no required emissions reporting. If
that entity wants to review its environmental performance, it would
have to conduct a study. It would have to pay an auditor to come in and
review its operations--that would be voluntary and it costs money. If
it finds a violation, it must pay to clean it up. (Because if they find
it and don't clean it up, they risk criminal activity). Once they
report it, without audit protections, they could be fined and even
taken to court.
So in deciding to conduct an audit, a person takes on a big risk.
It is big enough so that most small businesses won't voluntarily
undertake it. These folks choose instead to ``take their chances'' and
wait for the inspectors. After all, only 2 percent of all regulated
entities are on inspection schedules anyway. Just 2 percent, Mr.
President.
How do we encourage the other 98 percent to really think about
their environmental performance when we reward good will with fines?
That is the principle of audit laws. They recognize good faith
efforts to make a cleaner, healthier environment. They encourage people
to look for problems and know with certainty that they won't be
penalized for their efforts.
The EPA has formulated an environmental audit policy that is
working for some very large companies. It works well for companies with
big legal departments that are used to negotiating with the EPA. It is
often far easier for big business to use EPA's audit policy than to
negotiate consent agreements, besides many of these companies use
audits anyway. In fact, the EPA often cites the widespread use of
audits as one of the reasons why we don't need State audit incentives.
But they are missing the point. The objective of State audit laws is to
increase the use of audits--to make them worthwhile for small entities
as well as large ones.
The fact is, that small businesses and towns won't use the EPA's
audit policy because it provides no certainty. Small businesses cannot
afford costly environmental litigation from the EPA. (And I define
small businesses as those with less than 100 employees). These people
don't trust the EPA. They see the EPA Office of Compliance Assistance
trying to help them out, while Criminal Enforcement across the hall is
concocting ways to put them in jail--and they think those offices work
together!
The principle of audit incentives is simple and reasonable. It is
no surprise to me that so many State legislatures have chosen to enact
some form of audit legislation. It is a positive tool that helps people
understand and comply with environmental laws. It gives people a chance
to ask questions without being penalized. It gives them the chance to
figure out what they are doing wrong and fix it--without adding steep
penalties to the cost of compliance.
Mr. Chairman, small business owners don't take time to read the
thousands of pages of Byzantine regulations constructed here in
Washington. They don't have time to read every law. They try to do what
is right and avoid doing what is wrong. I know because my wife and I
were small-business owners for twenty-six years. In a small business,
the owner is the same one who counts the change, helps the customers
and vacuums the floor.
He or she has to stay in business, make payroll, and keep up with
constantly evolving mandates from a never-ending supply of Federal
attorneys. And while the small business owner has many jobs, these
attorneys have only one job, to create and modify mandates and to
investigate citizens. There are over 17,000 employees at the EPA and
now, in spite of the rhetoric about reinventing regulations, the EPA
wants funds for another 200 enforcement police.
We don't need more police to improve compliance--we need
translators to interpret the regulations.
I would like to take a minute to explain my approach to the issue.
The legislation I have introduced would provide a ``safe-harbor'' for
State laws that fit within certain limits. It would not give authority
to any State unless they go through the full legislative process,
including all of the local discussion and debate that entails. That is
a critical part of this process and something of value we should
recognize. Keep in mind that State legislators and their families live
in the places these laws will affect.
This bill would allow Congress to set the boundaries of the ``safe-
harbor'' and determine what State laws may provide, such as:
<bullet> Limited protection from discovery for audit information--
but only information that is not required to be gathered. All legal
reporting requirements and permitting disclosures remain in effect and
could not be covered by an audit privilege.
<bullet> A State audit law may provide limited protection from
penalties if violations are promptly disclosed and cleaned up. Note,
the protection will not cover criminal actions, and the law must
preserve the ability of regulators to halt activities that pose
imminent danger to public health.
<bullet> Third, if a State law falls within the ``safe-harbor,''
the EPA would be prohibited from withholding State enforcement
authority or overfiling against individuals simply because of the
State's audit law.
<bullet> Lastly, the bill would require an annual State performance
report that will help measure the success of different laws, so we can
see what works and what does not.
I want to point out that this legislation will not dilute
enforcement. There are safeguards to ensure that State audit laws
always act to supplement--not to supplant existing enforcement. It is
important to note that. Audits are an affirmative tool. Used properly,
they can only be used to achieve an environment that is safer and
healthier than the status quo. They do not protect any entity from
regular inspection, sampling requirements or monitoring.
Some form of Federal legislation is necessary to provide the
certainty our State laws need to be effective. I think it is a tragedy
that the EPA has been so obstructive in giving States a chance to test
reasonable and innovative solutions to a cleaner environment. Instead
of promoting reinvention, the EPA is perpetuating an environmental race
to mediocrity.
______
Prepared Statement of Steven A. Herman, Assistant Administrator, Office
of Enforcement and Compliance Assurance, Environmental Protection
Agency
i. introduction
Thank you, Mr. Chairman, for the opportunity to testify on the
topic of environmental auditing. Last summer, I testified before this
committee on the Environmental Protection Agency's (EPA's) overall
enforcement and compliance assurance program and EPA's enforcement
relationship with the States. I am pleased that today's hearing
provides an opportunity for me to testify in greater detail about EPA's
self-disclosure policy, EPA's relationship with the States regarding
State audit laws, and proposed Federal audit legislation. I firmly
believe that EPA is pursuing the right course in this area.
I want to make three points today:
(1) EPA supports environmental auditing and other forms of self-
policing and has an effective policy in place to encourage such
conduct.
(2) Audit privilege and immunity legislation is not only
unnecessary, but it is unwise because it undermines law enforcement,
impairs protection of human health and the environment, and interferes
with the public's right to know of potential and existing environmental
hazards.
(3) EPA has been and is working with States to ensure that at least
the statutory minimum enforcement and information gathering authorities
are maintained by all States implementing a Federal environmental law.
ii. epa support for environmental auditing and opposition to audit
privilege and immunity laws
EPA strongly supports environmental auditing and use of compliance
management systems by regulated entities to improve compliance and
prevent and reduce pollution. Self-auditing can result in the prompt
detection and correction of violations as well as the identification of
potential future violations that can be averted through preventative
measures. Companies that conduct audits or use compliance management
systems thus safeguard and improve public health and the environment.
In addition, because government compliance and enforcement resources
are limited, maximum compliance cannot be achieved without active
efforts by the regulated community to police itself. Where more
companies find and correct their own violations, scarce government
resources may be focused on higher risk violators.
Accordingly, it is important for government to encourage
environmental auditing, but it must do so without compromising the
integrity and enforceability of our environmental laws. Approaches--
including legislation--that guarantee amnesty for environmental
violators and promote the secrecy of environmental compliance
information damage the credibility and effectiveness of the Nation's
environmental enforcement program, are unnecessary and, in the final
analysis, undermine the integrity of incentives for responsible
business.
EPA's approach to environmental auditing is designed to further
some key principles of this Administration's environmental enforcement
program.
First, industry and government both bear certain responsibilities
in achieving compliance. Industry has a responsibility to stay in
compliance with the law. Government must maintain an enforcement
program that punishes wrongdoers, deters potential violators, brings
violators into compliance, and ensures that damage to the environment
is rectified. Government should give credit to industry's good faith
efforts to comply, but it must do so without compromising its ability
to enforce environmental obligations firmly and fairly. The public and
law-abiding regulated entities rightly expect EPA to take strong
enforcement action against polluters.
Second, business earns the public trust by being open with
government and the public at large. Openness is an essential component
of corporate accountability.
Third, EPA fully recognizes that it shares with all levels of
government a common interest in environmental protection and compliance
with environmental requirements. The Federal and State relationship
must be guided by recognition of the delegated State's primary
responsibility for running a strong enforcement program and the
benefits of a well-defined Federal role as national environmental
steward. In its Federal role, EPA safeguards the national standards for
environmental protection for all citizens and also maintains a level
playing field for law abiding companies--regardless of their location.
Fourth, environmental compliance incentives must reflect the
legitimate interests of the public, the regulated community, and local,
State, and Federal officials who enforce the law. Incentives in the
form of legislative privilege and immunity have proved divisive and are
opposed by many local, State, and Federal prosecutors, environmental
agencies, and citizens concerned about environmental pollution.
A. EPA's Self-Disclosure Policy
In 1995, EPA issued its policy, ``Incentives for Self-Policing:
Discovery, Disclosure, and Correction and Prevention of Violations''
(60 Fed. Reg. 66706 (Dec. 22, 1995)). The policy was the result of an
intensive eighteen-month public process designed to identify the best
way to encourage companies to police themselves while preserving fair
and effective enforcement and the public's access to information. EPA's
policy reflects input from State attorneys general and local
prosecutors, State environmental agencies, the regulated community,
public interest organizations, and the Department of Justice. It has
won praise from industry and environmental groups, and from local,
State, and Federal law enforcement officials. Eighteen State attorneys
general and environmental commissioners declared their support because
EPA's policy effectively encourages self-policing while maintaining
safeguards to protect the public and the environment. See Exhibit 1.
How does EPA's self-disclosure policy work? It carefully balances
auditing incentives with protections for law enforcement, human health
and the environment, and community right-to-know. Where violations are
discovered through an environmental audit or compliance management
system and the full conditions of the policy are met, EPA will: (1)
eliminate gravity-based civil penalties (i.e., the penalty amount over
and above the company's economic gain from non-compliance); and (2) not
recommend criminal prosecution so long as there is no high-level
corporate involvement or a prevalent management practice to conceal or
condone violations. In addition, EPA commits not to make requests for
audit reports to initiate civil or criminal investigations.
EPA's conditions for granting these benefits are based on common
sense and sound public policy. For example, companies must promptly
disclose and correct the violation, prevent recurrence of the
violation, remedy any environmental damage, and provide such
information as is necessary and requested by EPA to determine the
applicability of the policy. Exceptions for individual criminal
conduct, repeat violations, violations of consent orders or agreements,
and violations that present an imminent or substantial endangerment or
result in serious harm protect human health and the environment. EPA
retains its discretion to recover economic benefit gained as a result
of noncompliance so that companies will not obtain an economic
advantage over their competitors by delaying their investment in
compliance.
Business has been receptive to the EPA self-disclosure policy and
has come forward, rectified problems, and avoided prolonged and
expensive litigation. To date, more than 225 companies have disclosed
and corrected violations under the policy at more than 700 facilities.
Disclosing companies run the gamut, ranging from large Fortune 500
companies to small businesses, from a wide variety of industrial
sectors. See Exhibit 2.
Earlier this month, the agency and GTE Corporation reached an
agreement under the policy, resolving 600 Emergency Planning and
Community Right to Know Act (EPCRA) and Clean Water Act Spill
Prevention Countermeasure and Control (SPCC) violations at 314 GTE
facilities in 21 States. Correction of these violations will protect
communities and firefighters, police, and others in the event of a
chemical spill or release, and will help to lessen the likelihood that
hazardous chemicals will pollute our waterways. The company will pay a
$52,264 penalty, equal to the amount of money saved during its period
of non-compliance. Because the company voluntarily disclosed and
corrected the violations, EPA waived another $2.38 million in
assessable penalties. After discovering non-compliance at several
facilities, GTE promptly notified EPA of the violations pursuant to
EPA's self-disclosure policy and undertook a company-wide audit at
10,000 sites nationwide. This settlement demonstrates the self-
disclosure policy's broad scope in promoting compliance at facilities
nationwide.
In addition, States including California, Connecticut, Delaware,
Florida, Maryland, North Carolina, Oklahoma, Pennsylvania, Tennessee,
Vermont, and Washington, have designed their own self-disclosure
policies, thereby providing incentives while maintaining enforcement
authority.
B. EPA's Opposition to Audit Legislation
Let me now turn to the topic of audit legislation. As I have stated
on many occasions, EPA strongly opposes audit privilege and immunity
legislation. Audit privilege and immunity laws restrict governments'
ability to obtain injunctive relief and penalties to address violations
affecting human health and the environment, and to obtain evidence
necessary for enforcement. Audit privileges invite secrecy, complicate
criminal and civil discovery and trials, and impede public access to
information. Let me explain.
While EPA supports penalty mitigation as an incentive for voluntary
disclosure and correction of violations, EPA believes that immunizing
violations--including serious violations--discourages companies from
making the investments in pollution control necessary to prevent such
violations. We also oppose immunity because it undermines deterrence
and the rule of law. Strong environmental enforcement provides an
incentive for responsible behavior, not immunizing violations.
EPA opposes audit privileges for a number of reasons. First, such
privileges invite secrecy, instead of the openness needed to build
public and government trust in industry's ability to self-police to
protect human health and the environment. Second, audit privileges
weaken law enforcement necessary to protect human health and the
environment by making relevant information unavailable to government
prosecutors and civil enforcers, and by erecting procedural barriers to
access this information. Audit privileges, particularly when law
enforcers may be legally constrained from using any evidence derived
from the audit report, interfere with the investigation of
environmental crimes. Why should we make it easier for violators and
harder for our local, State, and Federal law enforcement officials?
Third, audit privilege laws impede public access to information
concerning environmental hazards. Such laws undermine one of this
Administration's priorities--public right-to-know. When informed, the
public can actively and intelligently participate in its own
environmental protection.
Fourth, some audit privilege laws penalize employees who report
known or potential environmental concerns to law enforcement
authorities. Such sanctions conflict with Federal laws preserving
employees' rights, have a chilling effect on employee disclosures of
illegal conduct, and hamper enforcement. Why would we want to
discourage the disclosure of illegal activity?
Yet another reason why EPA opposes audit privilege is that it is
simply unnecessary. Environmental auditing has increased to the point
where it is already standard practice for 75 percent of corporations
responding to a 1995 survey by Price Waterhouse, and is growing among
the remaining 25 percent as well. Most companies do not view privilege
as a precondition to conducting auditing--they see good business
reasons for auditing. A privilege is unnecessary.
Businesses also view the types of incentives in EPA's self-
disclosure policy as effective in motivating auditing. Of respondents
to the 1995 Price Waterhouse survey, over 40 percent said that penalty
mitigation for self-identified, reported, and corrected violations
would encourage the company to conduct more auditing. About the same
number viewed a presumption against corporate criminal prosecution as
encouraging auditing. In the same survey, 96 percent of the corporate
respondents who conduct audits said that one of the reasons that they
did so was to find and correct violations before they were found by
government inspectors. Thus, legislation that impairs enforcement, like
audit privilege legislation, may actually decrease the amount of
auditing, as well as decrease the incentives for prompt correction of
violations.
Finally, proponents of audit privilege legislation sometimes
contend that companies need an audit privilege to protect them against
overzealous environmental law enforcement. The reality is that neither
EPA nor the Department of Justice seeks audit reports as a means of
identifying targets for civil or criminal prosecution. Furthermore, I
am not aware of any case in which a voluntary audit has been used to
enforce against a company that discovered a violation on its own,
disclosed, and promptly corrected it.
These are among the many reasons why audit privilege is so
adamantly opposed by a bipartisan coalition of State attorneys general
that includes Republicans like Grant Woods of Arizona and Dennis C.
Vacco of New York, as well as Democrats like Scott Harshbarger of
Massachusetts and Christine O. Gregoire of Washington. No wonder the
Governor of New York has announced his opposition this year to
environmental audit privileges, and the Governor of Idaho has announced
that he will allow that State's privilege and immunity law to expire at
the end of this year. The National District Attorneys Association, the
California District Attorneys Association, and the New York State
District Attorneys Association have long expressed opposition to audit
privilege and immunity legislation. I strongly encourage you to solicit
the views of the broad range of local, State, and Federal law
enforcement and environmental officials who oppose enactment of audit
privilege and immunity legislation. See Exhibit 3.
iii. epa-state dialogue
The Federal environmental statutes recognize the necessity and
importance of the Federal Government's role in ensuring that baseline
national standards established by the environmental laws to protect
human health and the environment are implemented and enforced fairly
and consistently in all States. To reinforce that goal, Federal law
also authorizes citizens to petition EPA to review or withdraw State
programs on the grounds that the States lack the enforcement authority
necessary to meet federally established standards.
EPA's opposition to the enactment of State audit privilege and
immunity laws is based on policy considerations as well as law. On the
policy level, EPA strongly opposes enactment of audit privileges
because they shield evidence of wrongdoing and run counter to the State
and Federal partnership in encouraging the kind of openness that builds
trust between regulators, the regulated community, and the public. EPA
opposes immunizing violations disclosed in audits because they
discourage investment in pollution control and undermine deterrence.
As to the legal issue, EPA must ensure that the enactment of State
audit laws does not impair the State's ability to adequately enforce
its environmental laws and to gather information necessary to monitor
and ensure compliance, and that such laws do not interfere with the
public's access to information. EPA may not approve, delegate, or
authorize any new Federal program unless it determines that such
authorities are adequate.
These requirements are not new, and were not developed just to
oppose audit laws. They have been part of the program approval process
for many years.
Federal statutes and regulations require States and the public to
have access to environmental compliance information. A State must have
the ability to obtain information needed to identify and assess
noncompliance and criminal conduct, and ensure correction of
violations.
Public access to information must be preserved and remain
consistent with the provisions of Federal statutes granting citizens
the ability to participate in permitting and enforcement proceedings to
ensure adequate environmental protection. The State also may not
sanction ``whistle blowers''--employees who divulge information about a
company's noncompliance.
Federal statutes and regulations require that States maintain
authority to obtain injunctive relief and civil and criminal penalties
for any violation of Federal program requirements. As reflected in the
``Statement of Principles,'' which was issued by EPA on February 14,
1997, EPA is particularly concerned with whether a State has the
authority to obtain immediate and complete injunctive relief; to
recover civil penalties for significant economic benefit, repeat
violations and violations of judicial or administrative orders, serious
harm, and activities that may present an imminent and substantial
endangerment; and to obtain fines and sanctions for criminal conduct.
Although EPA strongly believes that environmental audit privilege
and immunity laws can only impair the government's and citizens'
ability to monitor and enforce the laws and to protect communities from
environmental threats, the agency has worked with States to modify
their State audit privilege and immunity statutes to meet the minima
necessary to comply with Federal laws designed to ensure a floor of
enforcement and public access to information. For example, EPA's
discussions with the States of Utah and Texas have resulted in changes
to their laws that were acceptable to those States and that also met
the minimum Federal requirements for enforceability and public access.
We are ready to do the same with other States as well. However, EPA
will continue to oppose enactment of State audit privilege and immunity
laws because of their adverse impacts on State environmental
enforcement and community right-to-know.
iv. new projects evaluating the epa self-disclosure policy and state
audit laws
I am pleased to announce that EPA has initiated two new projects to
evaluate the effectiveness of various State audit laws and policies,
and the EPA self-disclosure policy. The time line for completion of
both projects is one year to eighteen months. These projects should
form a valuable information base from which to evaluate EPA's
experience to date under its self-disclosure program and whether any
Federal legislation is needed.
EPA recently awarded a grant to the National Conference of State
Legislatures (NCSL) to conduct surveys of State officials and facility
owners and operators to obtain objective data on the amount and type of
audit activity being performed in States with audit laws, audit
policies, or neither a law nor a policy.
In addition, EPA will soon begin compiling information to prepare a
report on the effectiveness of the EPA self-disclosure policy. The
report will evaluate the effectiveness of the policy in encouraging
regulated entities to voluntarily discover, disclose, correct, and
prevent violations of Federal environmental requirements.
v. federal audit legislation
I strongly believe that Federal audit legislation will not
strengthen America's environmental programs at this time. As described
above, audit privilege and immunity laws encourage secrecy, impede
environmental law enforcement, and limit public access to environmental
hazard information.
There is no real need for Federal audit legislation of any kind.
Environmental auditing is already widespread and is growing without
Federal audit legislation. Abusive use of audits in enforcement just
does not exist. Finally, as I have suggested throughout my testimony,
EPA's self-disclosure policy reflects the proper balance of incentives
for auditing and protections for human health and the environment. It
is clearly appropriate to analyze each case individually to determine
what type of enforcement action, if any, is appropriate for a given
violation. It is impossible to categorize all the possible factors in
advance through legislation. Attempting to do so will only create
litigation burdens in those enforcement actions brought to protect
human health and the environment.
S. 866, an audit privilege and immunity bill introduced in this
Congress, reflects many of the serious problems with audit privilege
and immunity legislation which I've outlined today and in previous
testimony. If enacted, the bill would weaken law enforcement, promote
secrecy at the expense of the public's right to protect itself,
endanger human health and safety, and erode environmental protection.
Let me explain.
How does S. 866 weaken law enforcement? The bill generally conceals
from law enforcers information placed in an audit report and testimony
about an audit. This privilege would hamstring effective law
enforcement, especially criminal investigations and prosecutions. The
privilege and immunity provisions would apply even to criminal conduct,
and violations causing an imminent and substantial endangerment or
serious actual harm. The bill would also make it harder to prosecute
criminals by requiring the government to prove that the defendant had
the specific intent to violate or disregard the law. Congress has not
required a specific intent standard throughout our existing
environmental laws.
S. 866's repeat violation exception to immunity gives multiple
bites at the compliance apple. A company must violate the same
requirement repeatedly over a three-year period and each time incur an
enforcement action to be excepted from blanket immunity. Given the
speed with which courts operate and the fact that most violations are
resolved without resort to formal enforcement, this is no exception at
all. In addition, under S. 866, regulated entities receive amnesty for
violations that are required to be monitored and reported. This
effectively writes prompt compliance with these provisions out of the
environmental laws, and deprives the State and the public of the
information they need to ensure compliance.
How does S. 866 promote secrecy at the expense of the public's
right to protect itself? The bill fails to protect public access to
information. Citizen plaintiffs seeking to enforce environmental laws
or obtain a remedy for a toxic release will not have access to needed
information. In fact, information will not be available to the public
even if it is the only evidence of the cause of an environmental
problem or the extent of environmental harm (like fish kills,
groundwater contamination, or contaminated soil).
How would S. 866 endanger human health and erode environmental
protection? The bill allows privilege and immunity regardless of the
seriousness of the environmental or human health harm caused by failure
to comply. It grants a privilege and provides immunity from prosecution
even if the violations are not actually corrected. Under the bill,
compliance with applicable environmental requirements is not required,
only initiation and pursuit of efforts to comply. There is not even an
explicit obligation imposed on regulated entities to remedy any
environmental or human harm caused by the underlying violations.
Most significantly, this bill encourages States to lower
environmental standards to compete for business at the expense of human
health and the environment. S. 866 endorses State privilege laws, with
the sole specified exception of making the privilege inapplicable to
violations required to be disclosed. This could mean that many
violations, regardless of whether they've been corrected, caused
environmental harm, were intentional, or went uncorrected for months or
even years, could be kept secret from law enforcers and the public. S.
866 also endorses State immunity laws without specified exception.
States could immunize criminal conduct, ongoing violations, even
environmental catastrophes, and still receive Federal program approval
and Federal dollars. Under S. 866, a company also retains any amount of
economic benefit gained from noncompliance. Adherence to the law is
directly undermined by provisions like these.
Human health is also jeopardized under the bill because the default
provision in S. 866 not only gives immunity for violations causing
serious actual harm, but also gives immunity to all violations--no
matter how egregious--if the government fails to challenge a disclosure
within 60 days.
The bill offers plenty of work for lawyers at the potential expense
of taxpayers. Law enforcement personnel will be forced to litigate
ambiguous definitions and standards for application of privilege and
immunity, delaying or preventing important decisions that impact human
health and the environment.
Let me suggest just a few concrete examples of how S. 866 would
seriously erode our environmental enforcement efforts.
Scenario One: An audit reveals that the plant manager
submitted falsified monitoring reports to an environmental
agency. The company submits a corrected report. Result:
Evidence of past criminal conduct in the audit would be
inadmissible in an action against the plant manager as would
testimony concerning the findings in the audit.
Scenario Two: An audit recommends replacement of aging
equipment. The company fails to act on the recommendation. The
equipment breaks down and releases hazardous waste into the
environment. A neighboring farmer's well is contaminated.
Result: The company's failure to act would not be available as
evidence in an enforcement action to determine the cause of the
problem or the extent of the harm nor would it be available to
the farmer whose groundwater was contaminated by the release.
Citizens would not be allowed to use this evidence to recover
damages, regardless of the harm to them and their families. The
government also could not use the information in an enforcement
action, despite the fact that the company had sufficient
knowledge to prevent the harm, but simply ignored it.
Scenario Three: A criminal investigator receives a tip that
waste is being disposed of illegally. Result: If the
investigator follows up and finds out that the informant
received the information from an environmental audit, the
midnight dumpers may be able to escape prosecution altogether
because of the ``tainted'' evidence or some of the most
damaging evidence could be excluded from the trial. Even if a
company finds a longstanding violation that it could have and
should have avoided using available pollution control
equipment, it can disclose that violation and receive amnesty.
Tragically, some of the concerns about how audit laws would
endanger human health and the environment expressed in the three
scenarios may be found in actual cases. In Arkansas, in a suit brought
by citizens, the El Dorado Chemical Company attempted to use the State
audit privilege law to shield environmental impacts information from
local citizens--including children--who allegedly suffered numerous
respiratory ailments when subjected to repeated contamination from
ammonia, sulfuric acid, and other air pollutants. Similarly, at a
landfill near Amarillo, Texas, Browning-Ferris, Inc. (BFI) succeeded in
persuading a State administrative law judge to prevent disclosure of
two environmental audits that local citizens were seeking in order to
document an alleged imminent and substantial endangerment as a result
of contaminated groundwater.
Such cases must not occur in Federal proceedings due to enactment
of Federal audit legislation.
vi. conclusion
In conclusion, I urge that the current Federal approach to
environmental auditing be allowed to continue. Under the EPA self-
disclosure policy, EPA gives credit to good faith efforts to comply,
without compromising fair and effective enforcement or jeopardizing
government and public access to crucial compliance information. Recent
GTE disclosures illustrate how the policy makes good environmental and
business sense. We support the States' efforts to promote compliance
and innovation, but we also must work to ensure that States maintain
effective enforcement programs which accommodate the interests of all--
businesses; local, State, and Federal regulators; and citizens--and
which ensure a level playing field for law-abiding companies
nationwide.
Thank you again for the opportunity to testify before your
committee. I would be happy to answer any questions.
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Prepared Statement of Barry R. McBee, Chairman, Texas Natural Resource
Conservation Commission
i. introduction
My name is Barry R. McBee and I am the Chairman of the Texas
Natural Resource Conservation Commission (``TNRCC''). The TNRCC is a
multi-media environmental agency covering all air, water, and waste-
related activities. One of the TNRCC's guiding principles is ``To
promote and foster voluntary compliance with environmental laws.'' To
further this goal, we pursue an effective and efficient compliance and
enforcement program that maximizes voluntary compliance, ensures that
potential polluters are informed of their environmental
responsibilities and compels compliance through legal action when
necessary. The TNRCC believes that strong traditional enforcement of
environmental laws is necessary to guarantee that public health and the
environment are protected. To improve the condition of our environment
while our populace and economy thrive, we must have compliance with
governmental requirements enacted by State and Federal legislatures.
This opportunity to provide testimony to the United States Senate
Committee on Environment and Public Works regarding privilege and
immunity provisions of environmental self-audit legislation and the
differences between Federal and State approaches to these issues comes
at a critical time for the future course of the State-Federal
relationship. EPA Administrator Carol Browner has said that she views
the relationship between the Federal and State environmental agencies
much like a marriage. Based on my experience, EPA sees us in the light
of a paternalistic parent-child relationship, a relationship that is
not healthy and that we must both work to change.
In the 1970's State environmental agencies may have been immature,
inexperienced and, dare I say it, ``problem'' children. But we are in
the 1990's now, 30 years into the era of active governmental
environmental protection. The States have matured and proven that they
can and are willing to meet the shared goal of the Federal and State
governments to protect the environment and public health.
It is time for Washington and the EPA to ``cut the cord'' and give
States the independence and flexibility they need to meet each State's
needs. States want, and deserve, as you heard a witness from the
Department of Justice state in her testimony before your committee in
June of this year, to be ``partners'' with the Federal Government,
independent and responsible partners, with a greater role in the
decisions that affect our States, our people, our environments and our
livelihoods.
On May 23, 1995, Texas enacted the Environmental, Health, and
Safety Audit Privilege Act (the ``Audit Act''). This legislation
provides limited immunity and privilege for the results of
environmental self-audits. A law that promotes a spirit of cooperation
between the regulator and those we regulate in achieving what we all
want--clean air, clean water and safe land--is beneficial to all
citizens of Texas. Providing entities an incentive to do their own
self-analyses, to prevent pollution before it happens, and to promptly
correct any problems they discover is a sound and reasonable approach.
However, not everyone agrees with the fundamental basis of this law--
even though 23 States to date have adopted laws encouraging this type
of partnership. The practical reality is that the field of
environmental regulation has evolved significantly over the past twenty
years, moving consistently away, and rightfully and properly so, from
the ``gotcha'' mentality toward the type of cooperation embodied in
environmental self-audit laws.
Rather than embracing these innovative State approaches and
providing Federal support, however, EPA has been a persistent
antagonist. Delegation to Texas of Federal environmental programs has
been threatened, and ultimately Texas was forced to compromise by
amending its audit law to address some of EPA's concerns in order to
get delegation back on track.
The Audit Act provides a limited privilege for certain information
that is generated through a voluntary environmental audit and that is
properly included in the audit report. It also provides immunity from
administrative and civil penalties. Before its recent amendments, the
Audit Act provided a limited immunity from penalties for a small subset
of criminal violations, while specifically not extending the immunity
to intentional and reckless conduct. It is important to highlight that
the Audit Act never provided immunity from enforcement of environmental
laws, but merely from the end product of that enforcement--the
imposition of penalties. Problems or threats would be corrected through
injunctive relief and similar tools. Among the conditions for penalty
immunity is the requirement that the auditing entity must cooperate in
the agency's investigation of the disclosed violations, and must
initiate and complete corrective actions within a reasonable amount of
time. Thus the Audit Act provides streamlined enforcement approach that
fully addresses violations that might never otherwise come to light.
Normal agency enforcement efforts proceed at full force, unaffected by
these additional disclosures.
There are essentially two underlying facts that make it eminently
sensible for us to promote self-policing by regulated entities. First,
the complexity of modern environmental regulation makes it extremely
difficult for a regulated entity to be in compliance and to know
whether it is fully in compliance. Second, the limitation on State
enforcement resources found throughout the country, coupled with the
immensity of the regulated community, makes it quite possible that,
left to a traditional enforcement schedule, violations will go
undetected and thus uncorrected. By providing a limited privilege and
immunity for voluntary environmental audits, Texas is able to encourage
self-evaluation and compliance while maintaining its diligent
traditional enforcement efforts. Thus, the voluntary disclosures by
entities that conduct audits and promptly correct violations to receive
immunity from penalties enhances the results of our enforcement
activities.
ii. the state-federal relationship under strain
State environmental agencies, not the EPA, conduct the vast
majority of inspections to check for compliance with both Federal and
State environmental laws and are primarily responsible for enforcement
in most instances. Nine out of ten enforcement actions in this country
are brought by State environmental agencies.
States have an adequate and talented pool of environmentally
educated and trained engineers, technicians, lawyers and public policy
experts. In fact, according to former EPA Administrator William
Ruckelshaus, State environmental protection programs have grown to
employ 54,000 men and women, versus 18,000 for the EPA. Where in the
past States may have had to rely on EPA for human resources that were
in short supply, States now have good, sophisticated and knowledgeable
personnel.
As the Texas Legislature was analyzing its pending self-audit bill
in 1995, the Clinton Administration declared that ``the adversarial
approach that has often characterized our environmental system
precludes opportunities for creative solutions that a more
collaborative system might encourage.'' President Clinton and Vice
President Gore, Reinventing Environmental Regulation, Inside EPA Weekly
Report: Special Report, March 16, 1995. The Texas Legislature approved
the Audit Act in May 1995, believing that it had, in line with and
supportive of the President's declaration, provided the regulated
community with a tool to achieve and monitor compliance in cooperation
with the TNRCC, so that they might be enabled to start thinking beyond
compliance in just such a ``collaborative system''.
The EPA did not provide Texas with guidance regarding the potential
impact of the Audit Act on the delegation of Federal environmental
programs until well after the law was passed by the Texas Legislature.
Oregon had passed the first environmental self-audit law in July 1993.
However, EPA did not issue its guidance, ``Statement of Principles:
Effect of State Audit Immunity/Privilege Laws On Enforcement Authority
for Federal Programs,'' until February 1997. Memorandum from Steven A.
Herman, Asst. Administrator, EPA, et al. to EPA Regional Administrators
(Feb. 18, 1997).
The first indication of the potential for Federal objection to the
Audit Act came after the EPA raised issues related to the Idaho
environmental self-audit statute in the context of Idaho's application
for approval of Clean Air Act Title V delegation. A simple memorandum
from EPA Headquarters to the EPA Region X Regional Counsel in April
1996 announced the beginning of the debate. Memorandum from Steven A.
Herman and Mary Nichols, Asst. Administrators, EPA to Jackson Fox, EPA
Regional Counsel, Region X (April 5, 1996) (``Effect of Audit Immunity/
Privilege Laws on States' Ability to Enforce Title V Requirements'').
This occurred almost one full year after the Texas law was enacted.
Shortly after the April 1996 memorandum, EPA raised similar issues in
the context of Texas' application for approval of its Title V program.
The debate escalated shortly thereafter as the Environmental
Defense Fund of Texas (EDF) petitioned EPA to withdraw delegation to
the State of Texas of the Underground Injection Control program, based
in part on the opposition to environmental self-audit laws that EPA had
expressed in the April 1996 Title V memorandum. The EDF petition is
still pending.
The Texas Senate Natural Resources Committee held hearings in
September 1996 on the implementation of the Act. It found that the
majority of concerns about the Audit Act focused on the potential for
withholding of delegation, not about lack of protection for our
citizens. Texas Senate Natural Resources Committee, Interim Report to
the 75th Legislature, Effectiveness of the Environmental Audit
Legislation (Sept. 1996).
As Texas struggled for clear guidance from EPA regarding which
specific provisions of the Audit Act EPA considered in conflict with
regulations controlling delegation, some States, such as Utah, received
specific recommendations from EPA on statutory changes that would pass
EPA muster.
In November 1996, 15 State environmental commissioners officially
requested a meeting with EPA Administrator Carol Browner to seek a way
to cooperatively address this issue. The request went unanswered until
Administrator Browner finally agreed to a meeting in early March of
this year, shortly before the National Governors' Association was to
meet in Washington. At that time, a coalition of more than ten States
met with Administrator Browner and her staff and presented what was
thought to be a reasonable compromise that the EPA would grant a 2-year
evaluation period of State environmental self-audit laws to States
whose attorney general had certified that the State had the necessary
regulatory authority to carry out any new or existing program.
Administrator Browner rejected the proposal outright, telling States
``there would be no moratorium'' and the only way to resolve
differences would be for each State individually to enter into a
``negotiation'' with EPA officials in which they would be told what
changes would be necessary for their State's law to be deemed
acceptable by EPA for purposes of retaining or achieving delegated
programs.
Shortly after that meeting, EPA Assistant Administrator for
Enforcement and Compliance Assistance, Steve Herman and former EPA
Region VI Regional Administrator Jane Saginaw, in a meeting with
Governor George W. Bush, assured Texas that there were only a few
changes needed to the Audit Act, that the negotiations would be quick,
and that if successful, the Audit Act would no longer be a barrier to
delegation. In that meeting the Governor made it abundantly clear,
having been involved in similar negotiations with another Federal
agency over welfare reform and State flexibility, an initiative that
was derailed by the Clinton Administration, that he had grown tired of
the State negotiating against itself. He made it clear that if we took
steps in Texas to address this issue to EPA's satisfaction, he expected
no more issues to be raised, for petitions challenging our existing
program delegation to be dismissed, and for programs that we desire to
have delegated to us to be delegated.
Texas came to the table with proposed revisions addressing the
specific concerns EPA had voiced, such as removing the privilege from
criminal proceedings, and which we agreed would improve our law. On the
eve of the legislative filing deadline for the Texas Legislature in
March 1997, high level negotiations between EPA and Texas officials
resulted in a compromise being reached, and specific legislative
changes were drafted. These changes were passed into law and became
effective on September 1, 1997. Tex. Rev. Civ. Stat. Ann. art. 4447cc
(Vernon's) (as amended by House Bill 3459, 75th Legislature).
Although these high level negotiations ultimately proved fruitful,
a closer look at the delegation debate shows how the EPA has stretched
the common and clear meaning of the words of its regulations to impose
its philosophies and policies on the States. EPA's opposition to the
Audit Act focused on the requirement in Federal delegation regulations
that State civil penalties must be ``appropriate'' to the violation.
See, e.g., 40 C.F.R. Sec. 145.13. EPA took the position that the State
must consider certain criteria, the same criteria contained in EPA's
Audit Policy, before arriving at ``appropriate'' penalties. For
example, EPA maintains that a State must recoup the economic benefit of
non-compliance as specified in EPA's environmental audit policy. This
is a new interpretation of the Federal regulations and one that
conflicts with EPA's expressed interpretation at the time it
promulgated those regulations. EPA is in essence applying its own
recently developed audit policy as a new minimum requirement for
``appropriate'' penalties under 40 C.F.R. Sec. 145.13(c).
This approach has been described as blackmailing the States into
adopting EPA's Federal policy on environmental auditing. Timothy A.
Wilkins and Cynthia A.M. Stroman, Washington Legal Foundation, Working
Paper Series No. 69, Delegation Blackmail: EPA's Misguided War on State
Audit Privilege Laws (August 1996). At the very least, this approach is
an improper form of informal rulemaking not intended by Congress.
EPA has also actively pursued its opposition to the Audit Act
outside the delegation context. In December 1996 and January 1997, five
Texas companies that had taken advantage of the Audit Act and
voluntarily disclosed violations to the TNRCC were confronted with
threatening EPA letters of inquiry regarding those same violations.
These companies today remain under EPA investigation, although they
have cooperated with TNRCC in addressing the disclosed violations. This
interference by EPA in the Texas self-audit program was intentional and
without warning to the State. Companies that had relied in good faith
on the provisions of State law are experiencing first hand the problems
associated with a conflicting philosophy at the State and Federal
level.
iii. the texas audit act
A. The Texas Audit Privilege
The Texas audit privilege attaches automatically to a report
generated pursuant to a voluntary environmental audit. The scope of the
privilege is broad and extends to all materials created in the course
of an environmental self-evaluation and properly included in the audit
report. However, there are three major caveats to this protection from
discovery: (1) the privilege does not extend to any information
required to be collected, developed, maintained, or reported under
State or Federal law; (2) the privilege does not extend to any
observation of the actual physical events of violations; and (3) the
privilege may be overcome in an administrative, civil or criminal
context where a tribunal determines that the privilege has been
asserted for a fraudulent purpose or that appropriate efforts to
achieve compliance were not promptly initiated and pursued with
reasonable diligence after discovery of the violation. Therefore, the
Texas privilege is appropriately qualified and limited. A regulatory
agency or a third party has potential access to the broad range of
information that would normally be available without this legislation.
Whereas the privilege under the original Audit Act extended to
criminal proceedings, the amended Audit Act provides for a privilege
only in civil and administrative contexts. The original Audit Act
included the safeguard that where there was evidence of criminal
conduct, an audit report could be reviewed in camera.
EPA's fundamental objection to the audit privilege is difficult to
reconcile with the privilege's potential to stretch Federal and State
resources and to enlist the regulated community in a cooperative
enforcement effort, a ``creative solution'' in a more ``collaborative
system'', to again use President Clinton's words. It is interesting to
note that the concept of a self-audit privilege is not foreign to the
Federal Government. The Economic Growth and Regulatory Paperwork
Reduction Act of 1996 amended the Equal Credit Opportunity Act and the
Fair Housing Act to provide a limited privilege for information
generated in a self-test conducted to determine compliance. This
legislation recognizes the wisdom of enlisting the regulated community
in the effort to achieve greater compliance. Where compliance is a
matter that affects the public health and environment, the need to
optimize cooperation is even greater.
B. The Texas Self-Disclosure Immunity
``Immunity'' under the Texas Audit Act provides for relief from any
punitive sanction, but not from all enforcement action--essentially it
is a limited penalty mitigation. As a precondition to immunity, the
disclosing entity must cooperate in the agency's investigation of the
violation and must demonstrate correction of the violations within a
reasonable time. When injunctive corrective provisions are deemed
appropriate by the agency, a self-disclosed violation may be pursued
through an enforcement order or civil proceeding.
As a further condition to immunity, a disclosing entity must
provide to the agency a written disclosure as well as pre-audit
notification, both of which are publicly available. Thus the immunity
provision of Texas law competes in some measure with the privilege
gained, and the public's right to information is protected.
Furthermore, voluntarily disclosed violations must be recorded in an
entity's compliance history maintained by the agency.
Despite EPA's opposition to the Texas Audit Act, the scope of the
immunity provision has always been appropriately limited, particularly
in the criminal context. Only a narrow range of criminal violations
were eligible for immunity under the original law. Violations that
resulted from reckless, intentional, or knowing conduct were never
eligible for immunity. As a result of the compromise with the EPA,
criminal violations are no longer eligible for immunity, without regard
to their significance.
The Audit Act contains several additional limitations on the
availability of immunity from penalties. For example, violations that
result in substantial harm to persons, property, or the environment
have always been ineligible for penalty immunity. As a result of the
compromise with the EPA, immunity has been further restricted such that
violations that result in risk of injury and violations that result in
a significant economic benefit that results in an economic advantage
are no longer eligible.
C. Texas' Experience
Texas now has almost 2\1/2\ years of very positive experience
implementing the Audit Act. TNRCC enforcement (data demonstrate that
despite the existence of audit privilege legislation, TNRCC has
maintained its rigorous enforcement standards. The audit privilege has
shifted part of the burden to the regulated community to fund their own
compliance rather than keeping it on the State to fund more
inspections. As the following figures demonstrate, the TNRCC has
maintained a strong inspection/enforcement presence to police the
regulated community and to provide a disincentive to fraudulent misuse
of the audit legislation.
----------------------------------------------------------------------------------------------------------------
Fiscal year 1995
Fiscal year 1994 \1\ Fiscal year 1996 Fiscal year 1997
----------------------------------------------------------------------------------------------------------------
Total Inspections \2\............... 42,611 34,305 39,031 41,803
Notices of Violation Issued \3\..... 5,297 13,412 13,433 12,129
Formal Enforcement Actions Initiated 711 618 621 907
Orders Issued....................... 346 795 666 664
Monetary Penalties Due.............. $5.03 million $5.03 million $6.87 million $4.05 million
Audit Disclosures................... NA 1 44 53
----------------------------------------------------------------------------------------------------------------
\1\ The TNRCC Fiscal Year runs through August. The Audit Act was enacted May 23, 1995.
\2\ Includes regularly scheduled facility inspections as well as complaint investigations.
\3\ Fiscal year 1994 figure includes only notices of violation issued by the central office. The other figures
include notices issued by TNRCC field offices.
Although the number of disclosures is not large relative to the
number of traditional enforcement actions, it is a positive number,
reflecting improved environmental conditions, improved compliance
status, and heightened managerial environmental responsibility. And
this number has been achieved despite the unnecessary cloud of
uncertainty created by EPA's position regarding self-audit legislation.
As of this date, the TNRCC has received approximately 650
notifications of intent to conduct a voluntary environmental audit.
Participants include: municipalities; universities; navigational
districts; the United States Air Force; newspapers; filling stations;
food and food products companies; barge and ship cleaning operations;
the United States Department of Energy; paper and paper products
manufacturers; automobile manufacturers; computer and computer parts
manufacturers; electric utility services; cement manufacturers; metal
manufacturers; waste disposal companies; petroleum refineries;
petrochemical plants; and chemical manufacturers. These entities range
from small businesses to billion dollar corporations.
A majority of the notices indicate that the audits will be multi-
media covering all environmental regulations and permits. Therefore,
through use of the environmental audit tool, multi-media evaluations,
which are encouraged by EPA and the TNRCC; but which we have limited
resources to conduct through inspections, are significantly enhanced.
Approximately 100 of these audits have resulted in voluntary
disclosures of discovered violations. A total of 430 individual
violations have been disclosed, and these either have been or are in
the process of being diligently corrected. The majority of violations
are air violations, ranging from record-keeping problems to exceedences
that necessitate permit amendments or reevaluation of grandfathered
exemptions. Several companies have reported inadequacies with air
emissions inventories and toxic release inventories. Others have
reported inadequacies with spill prevention and countermeasure
containment plans, contingency plans, and personnel training programs.
In one case a company reacted quickly to the discovery of falsified
operating log entries by firing the responsible employee and retraining
the other employees involved in data entry.
Simply put, many of these violations would not have been detected
in a routine compliance inspection. Voluntary stack tests and other
expensive sampling protocols which go above and beyond the regulatory
requirements are the foundation for many of these disclosures.
Erroneous log or other data entry problems are difficult to detect
through any means other than a self-audit. In addition, a number of the
audits investigated historical compliance for periods extending more
than a decade. Although not hindered by a statute of limitations, the
TNRCC and other Texas agencies would not normally review records of
this vintage when conducting inspections.
All of these disclosures have occurred without disruption of the
normal enforcement process. We have conducted our inspections as
scheduled; brought enforcement actions where appropriate using required
reports and our own information; and diligently scrutinized the
regulated community as our statutes and delegation authority require.
Yet, without regard for our real-life results and Texas' general
enforcement record, EPA threatened withholding of delegation of Federal
regulatory authority, claiming that the Texas Audit Act results in
inadequate enforcement authority.
iv. conclusion: the need for federal legislation
The lack of Federal cooperation in the implementation of State
self-audit laws has created needless tension and uncertainty that
hampers State efforts to experiment with innovative enforcement tools
and deters regulated entities from utilizing them. Federal legislation
expressly allowing States authority to pursue such innovations would be
a welcome development.
EPA's policy on environmental auditing states, ``As always states
are encouraged to experiment with different approaches that do not
jeopardize the fundamental national interest in assuring that
violations of Federal law do not threaten the public health or the
environment, or make it profitable not to comply.'' 60 Fed. Reg. 66706,
66710 (Dec. 22, 1995). The Audit Act has always satisfied these
conditions.
It appears that Federal legislation is necessary to restore the
States' ability to pursue innovative enforcement that differs from
EPA's preferred policies. United States Senate Bill 866 explicitly
preserves the rights of the States to enact audit privilege and
immunity laws and does not preempt State law in State actions brought
under Federal laws for which the State has been delegated primary
enforcement authority. Furthermore, S. 866 contains several admonitions
to Federal agencies to preserve the intent of State audit laws.
Next week, EPA's Office of the Inspector General will be visiting
the TNRCC to begin an investigation of our implementation of the Texas
Audit Act. We hope the visit is used as an opportunity to understand
the benefits Texas has derived from the use of this enforcement tool,
to finally recognize its merits, and to prepare for implementation of
the Federal environmental audit privilege and immunity legislation that
we hope will be enacted during this congressional session.
______
Prepared Statement of Patricia S. Bangert, Director of Legal Policy,
Attorney General's Office, State of Colorado
My name is Patricia Bangert. I am the Director of Legal Policy for
the Attorney General's Office in Colorado. I am submitting this
testimony on behalf of Gale Norton, the Attorney General of the State
of Colorado. We appreciate the opportunity to address the important
subject of State voluntary audit laws.
introduction
We want to accomplish three things in this testimony. First, we
want to clear up some misconceptions about our State voluntary audit
law. Second, we want to tell you about some problems we've been having
in fully implementing the law. Third, we want to urge you to take
legislative action.
Colorado had one of the first voluntary audit laws in the country.
Under the audit law, businesses, individuals, and other regulated
entities may claim a privilege from disclosure in civil, administrative
and criminal matters for voluntary self-evaluations if violations found
in the evaluation are corrected. A ``voluntary self-evaluation'' is a
self-initiated assessment, audit or review, not otherwise expressly
required by law, performed for a company or person to determine whether
the entity or individual is in compliance with environmental laws.
The Colorado law was also the first to grant a limited immunity
from fines for disclosures of violations discovered in audits.
Specifically, the law grants businesses, individuals, and other
regulated entities immunity from fines for civil, administrative and
negligent criminal violations when a violation is discovered in a self-
audit and corrected. Colorado legislators were careful to craft
exceptions to both privilege and immunity provisions so that the
provisions could not be misused. I will explain some of those
exceptions below.
myths and realities
We think that our law is a positive step forward in protecting the
environment of Colorado. Others, however, oppose our statute and the
voluntary audit laws of other States. We think that much of this
opposition is based upon some basic misunderstandings of the language
and effects of the statutes. We want to mention here three basic
misunderstandings and attempt to correct them. These myths and the
realities are as follows:
1. Myth: The audit law allows companies to hide information from
regulators. Reality: Audit laws do not in any way affect the ability of
regulators to get information necessary to determine compliance with
the laws. In fact, audit law encourages the creation of information and
the undertaking of analyses that would not otherwise be available to a
company or regulator.
The Colorado voluntary audit law applies to voluntary self-
examinations. The statute does not allow companies to hide information
that is required to be reported to regulatory agencies. The law does
not allow companies to shield factual information necessary to
determine compliance with the environmental regulations. Federal and
State environmental regulators have no less authority to inspect and
monitor facilities under the audit law than they did before its
passage.
What the audit law does, in reality, is to encourage companies and
other regulated entities to develop information that neither they nor
the regulators had before the law was passed, specifically, to
encourage companies to voluntarily examine their own environmental
compliance and to correct any deficiencies. This is especially
important for small businesses. Large companies can protect audits
through the privilege accorded attorney-client communications. Small
companies often cannot afford to hire attorneys, and, thus, need the
ability to voluntarily evaluate their compliance with environmental
laws without providing regulators a blueprint for enforcement action.
This is accomplished in the audit law through the privilege provisions.
The immunity provisions of the audit law encourage both large and small
businesses to report violations discovered and work with the State
Department of Public Health and Environment to correct them.
2. Myth: The audit law would result in greater environmental
degradation by allowing companies to commit violations of the
environmental laws and then hide the violations. Reality: The audit law
represents a positive environmental gain because it results in
violations being discovered and corrected, violations that probably
would not have been found absent an audit.
The Colorado audit law applies only if violations discovered in a
voluntary self-audit are corrected. The privilege does not apply if a
company finds a violation and that violation is not corrected. In
addition, immunity will not be granted if the violation reported is not
corrected. In short, there is a positive environmental gain from the
voluntary audit law. Self-examinations that would not otherwise be done
are being done; violations that would not have been discovered are
being discovered and corrected.
3. Myth: The audit laws away the authority of regulators to prevent
harm to the public and the environment. Reality: Regulators have ample
authority under the audit law to prevent abuses or harm to the public
and to the environment.
A court or administrative law judge can order the disclosure of an
audit if any person can show: (1) that the person or entity seeking the
privilege is not acting to correct violations found in the audit; (2)
that compelling circumstances require the audit to be disclosed; (3)
that the privilege is being asserted for a fraudulent purpose or that
the audit was done to prevent disclosure in an ongoing or imminent
investigation; or (4) that information in the audit shows a clear,
present and impending danger to the public health or environment
outside of the facility. Further, the privilege from disclosure granted
in the audit law does not apply to any information or documents
required to be maintained, reported or available to regulators under
any law or regulation; information acquired independently by
regulators; or documents prepared before or after the audit.
In addition, disclosure immunity may not be granted for violations
not corrected, or for disclosures required to be made under an entity's
permit; or to entities with a history of violations. Finally and most
important, disclosure immunity goes only to fines for civil,
administrative and negligent criminal penalties. The regulators retain
full authority to issue compliance orders, to get injunctive relief, to
secure any remedy other than fines, and to prosecute criminally those
who blatantly violate the environmental laws.
the colorado experience
From the passage of the Colorado audit law to this date, 25
entities have made 28 disclosures and requests for immunity under the
law. (Some companies made more than one disclosure and request for
immunity.) The Department of Public Health and Environment granted 17
of these requests in whole, 1 request in part, and denied 5 requests.
Five requests are still pending. The violations involved the following
programs: water (5 disclosures), air (15 disclosures), and waste (8
disclosures).
Of the disclosures made, many have led to actions that will provide
long-term environmental benefits and will enhance compliance. These
benefits include: conducting staff training in environmental
procedures; modifying company practices that result in violations; and
discontinuing certain emissions entirely. In addition, disclosures were
received from at least nine companies or emission sources that were not
known to the State's regulators because they were operating without
certain permits, and were not likely to have been discovered
independently by State inspectors. These self-identified companies are
now ``in the system'' and their compliance can be tracked by
regulators. In fact, many of the violations reported would not have
been found by regulators under the State's present regulatory scheme,
or by company officials, absent a self-evaluation.
Colorado's voluntary audit law, then, has resulted in positive
environmental gains. More could be done, however. There are thousands
of permitted facilities in Colorado. Twenty-eight voluntary disclosures
constitute a very low percentage of regulated entities. We believe that
more persons and entities would utilize the provisions of the audit law
if not for independent action and threats of action by the
Environmental Protection Agency against companies utilizing the audit
laws.
epa interference and the potentially failed experiment
Another aspect many people fail to understand about the Colorado
voluntary audit law is that it is an experiment. Many years ago,
Justice Holmes described the States as the ``laboratories for
democracy.'' The audit laws are perfect examples of States
experimenting with a concept that may potentially result in significant
environmental gains. The ``command and control'' method of
environmental regulation has proven to be less than totally effective
in promoting compliance with environmental laws. For one thing, we
simply do not have the resources to do all the inspections and
monitoring that would be needed to get 100-percent compliance. Everyone
now agrees that something more is needed to encourage companies to
voluntarily look at their own compliance and correct deficiencies. Many
States are experimenting with audit laws to determine whether those
laws may be part of that ``something more.''
Colorado's voluntary audit law applies only to audits, and, thus,
to disclosures arising from those audits performed before June 30,
1999. Our lawmakers gave the audit experiment five years to prove
itself or fail. Because of interference by a Federal agency, that
experiment may never be fully completed. Specifically, the
Environmental Protection Agency appears to be doing its best to ensure
the failure of the audit experiment.
We would point to two principal ways in which EPA is thwarting
State initiatives in the voluntary audit area:
1. Requiring States to change their audit laws by utilizing the
power to revoke State delegations under the environmental statutes; and
2. Threatening or taking actions against companies who utilize
audit laws under the Agency authority to overfile and request
information.
The Environmental Protection Agency has made no secret of its
dislike for State audit laws. We have no doubt that the Agency truly
believes that its position on those laws is the correct one. The
problem this presents for the States, however, is that the Agency is
utilizing its various authorities under the environmental laws to
compel States to change their audit statutes and to discourage
companies from utilizing those laws.
First, EPA has successfully intimidated several States into
amending their audit laws. As you know, EPA has the authority to
delegate, and the authority to revoke delegations of authority to carry
out many of the environmental laws to the States. For several years,
EPA has threatened to revoke delegations under the Clean Water Act, the
Clean Air Act and RCRA in States with audit laws.
Of late, the Agency has embarked upon a course of negotiating
individually with States to address issues with delegated programs. The
results of the negotiations, not surprisingly, have been that the
States are required to change their laws so that their provisions are
satisfactory to the Federal agency. Also not surprisingly, the new
State statutes look very much like EPA's own audit policy. For example,
in Texas, the EPA required the State, among other changes, to eliminate
the application of immunity and privilege provisions to criminal
actions and to eliminate immunity where a violation results in a
serious threat to health or the environment or where the violator has
obtained a substantial economic benefit from the violation. What is
left in the Texas statute--a privilege in civil actions and immunity
from the gravity component of civil and administrative fines--looks
very much like the EPA Final Policy on Environmental Audits. In short,
EPA has embarked upon a campaign to make State audit policy's mirror
images of its own. It is truly a sad state of affairs when a Federal
agency can dictate the contents of legislation to a sovereign state.
Several months ago, EPA began negotiations with Colorado State
officials regarding our audit law. The Agency required negotiations
after receiving a petition from a citizen group requesting the Agency
to revoke the State's delegation under the Clean Water Act. Those
negotiations are ongoing and we would be happy to keep you informed
about their progress.
The second way in which EPA is thwarting State initiatives in the
audit area is by discouraging companies from utilizing audit laws. The
Agency has successfully done this by taking actions, or threatening
action, which appears to retaliate against companies that do not use
the provisions of the audit law. These actions include overfilings and
burdensome requests for information. Our experience in Colorado has
been that EPA has dramatically increased actual and threatened
overfilings. From October 1995 through September 1996, EPA overfiled in
only two cases in the entire United States. In the first 4 months of
this year, EPA overfiled in three cases in Colorado alone and has
threatened to overfile in at least 10 more. In each instance in which
EPA has overfiled, violations were corrected and there was no
continuing harm to the public or the environment. The EPA brought its
case solely because it disagreed as a policy matter with the amount
assessed in fines by the State against the violator. Following are the
companies against which EPA overfiled and the fines sought by the State
and by EPA:
------------------------------------------------------------------------
Company State Fine EPA Fine
------------------------------------------------------------------------
Denver Radiation.............................. $160,000 $466,000
Conoco........................................ 33,000 666,771
Platte Chemical............................... 400,000 1,200,000
------------------------------------------------------------------------
In addition, EPA has specifically threatened to overfile against
three entities regarding disclosures made under Colorado's audit law:
the Denver Water Board, Total Petroleum, and Western Mobile. Perhaps as
a prelude to an overfile, the Agency has burdensome requests for
information to at least one of these entities.
The Denver Water Board, a quasi-governmental entity supplying water
to Denver residents, voluntarily audited its environmental compliance
in 1995. During the course of that audit, it found several violations
of the Colorado Water Quality Control Act and hazardous waste
requirements for small quantity generators. Immediately following its
discovery of the violations, the Water Board began to take corrective
action. All violations were corrected to the satisfaction of the State
Department of Public Health and Environment and the Board requested
immunity from fines. That request is presently under consideration by
the Health Department. In all probability, none of the violations
discovered in the Board's audit would have been found by regulators or
the Board absent the voluntary self-evaluation.
The EPA rewarded the Water Board for its initiative by requesting
hundreds of pages of documents from the Board regarding the violations.
Nothing can be more intimidating to companies wanting to use the audit
law than the EPA actions.
Under the State's audit law, information disclosed by a business or
person seeking immunity from fines becomes public upon disclosure. This
information may then become a blueprint for enforcement actions by EPA
if it wishes to overfile or seek further information. Potential Federal
action, then, discourages the use of the audit law. In fact, I have
personally spoken to several attorneys representing Colorado companies
and they have indicated that they would not advise their clients to
utilize the audit law because of the threat of Federal action. These
companies--specifically those large enough to hire experienced
environmental counsel--will simply protect audits under attorney-client
privilege.
What is lost under the present state of the laws is the means and
incentive for small companies to do audits and for all companies to
voluntarily disclose and correct violations. This brings us to the
subject of Federal legislation.
the need for federal legislation
We believe that some type of Federal legislation is required in
order to fully carry out the audit experiment. As you know, there have
been numerous bills introduced in the past several sessions of
Congress, ranging from a Federal audit privilege and disclosure
immunity bill to legislation simply prohibiting Federal action against
an entity utilizing a State disclosure immunity provision. We do not
comment here on which type of bill might be preferable. Because of the
real and perceived threat of Federal action against companies and
persons utilizing audit laws, we would urge you to consider at least
some legislation protecting entities who disclose violations to State
regulators.
The Department of Justice and EPA have argued that EPA's Final
Policy Statement on Environmental Audits is sufficient to provide
businesses and individuals with the protection they need under Federal
law. But EPA's policy is just that--a policy that can be changed at
will, and on a case-by-case basis, by the Agency. The Final Statement
says:
The policy is not final agency action, and is intended as
guidance. It does not create any rights, duties, obligations,
or defenses, implied or otherwise, in any parties.
In light of that disclaimer, the promises contained in the Policy
do not carry a lot of weight. The EPA Policy, then, is insufficient to
provide the type of protection that is needed to make the State audit
experiment successful. Unfortunately, the EPA will not voluntarily stop
its aggressive war on State audit programs. Federal legislative action,
then, is needed to bring about a cease-fire.
in conclusion
On behalf of Gale Norton and myself, we again thank you for this
opportunity to testify regarding State audit laws. We would be happy to
offer any help that we can provide in securing legislative solutions to
the problems outlined here.
______
Prepared Statement of Paul G. Wallach, Esq., Senior Partner, Hale and
Dorr, LLP; on behalf of the National Association of Manufacturers (NAM)
and the Corporate Environmental Enforcement Counsel (CEEC)
Mr. Chairman and members of the Committee, my name is Paul Wallach.
I have practiced environmental law for some 20 years and am a senior
partner in the Washington, DC, office of the law firm of Hale and Dorr,
LLP. I have prepared a longer written statement and respectfully
request that it be entered into the record.
I am here today on behalf of the National Association of
Manufacturers (NAM) and the Corporate Environmental Enforcement
Council, Inc. (CEEC). NAM is the Nation's oldest and largest broad-
based industrial trade association. Its more than 14,000 member
companies and subsidiaries, including approximately 10,000 small
manufacturers, are in every State and produce about 85 percent of U.S.
manufactured goods. Through its member companies and affiliated
associations, the NAM represents every industrial sector and more than
18 million employees.
CEEC is an organization of 22 diverse major companies with a strong
commitment to the environment and environmental compliance programs.
CEEC is comprised of senior environmental managers and corporate
counsel from a wide range of industrial sectors. It focuses exclusively
on civil and criminal environmental enforcement public policy issues,
and the overall need to ensure that environmental enforcement serves
the goal of environmental protection. I have also brought with me a
copy of CEEC's recently issued Platform for Effective Environmental
Compliance and Enforcement which includes a review of the importance of
and the need to eliminate obstacles to auditing, and respectfully
request that it also be entered into the record on behalf of CEEC.
NAM and CEEC appreciate the opportunity to testify today. Both
organizations have carefully considered the issues relating to auditing
and voluntary disclosure. Without question, the failure to have in
place adequate and certain protections for voluntary audits has created
strong disincentives and obstacles to auditing. In the face of these
obstacles many regulated entities have chosen to audit, but the current
lack of protection for these audits has a very real chilling effect,
which often limits the utility, intensity and scope of audits that are
undertaken. These obstacles impede our ability to achieve the
overriding goals set by Congress in enacting our environmental laws--
the protection of human health and the environment.
Those environmental goals will not be realized, however, unless the
environmental regulatory system is structured to promote voluntary
compliance. Members of the regulated community must be able to fully
implement voluntary programs to candidly assess, prevent, detect, and
correct violations of a regulatory requirement, as well as situations
which have the potential to threaten the environment or public health
and safety. Yet, the system in place creates obstacles and
disincentives for such programs, and for auditing in particular. Thus,
we believe that properly-crafted Federal legislation is long overdue
and urgently needed. It is about moving into the future, or as some may
say the bridge into the 21st century of environmental protection.
Mr. Chairman, let me pose the policy issue another way. A
manufacturer, university, governmental entity, hospital, or any other
responsible regulated entity that aggressively audits--as well as their
management and environmental personnel--should not be placing
themselves in a position of greater potential liability than those who
do not. Yet, that is exactly what is happening today under our current
system. Documents and information developed through voluntary self-
evaluations can be and are used against regulated entities in a variety
of contexts, including enforcement actions, citizen suits or third-
party tort actions. The concerns are heightened by the massive
potential civil penalties and the very real possibility of criminal
convictions of regulated entities and individuals for inadvertent
conduct. Indeed, overcriminalization of our environmental laws in a
fashion not intended by Congress presents substantial policy issues
which we believe Congress should separately consider.
Over the past decade we have witnessed tremendously proactive and
environmentally positive actions by the regulated community, including
the development and use of sophisticated voluntary environmental
auditing programs and compliance management systems. This has resulted
in substantially higher rates of compliance and improved environmental
performance. In a bipartisan fashion Congress itself recognized the
``substantial benefits'' of voluntary auditing, for example, when it
strongly encouraged the practice in the Conference Report for the Clean
Air Act Amendments in 1990. Yet, because of the extraordinary potential
liabilities, many regulated entities remain reluctant to proceed with
aggressive auditing programs, and those who do take steps to protect
themselves--ranging from not putting specific findings in writing, to
utilizing the attorney-client privilege--which greatly reduce the
utility and benefits of audits that are undertaken.
NAM and CEEC support Federal legislation because they see a very
important opportunity for the environment. We are here today with the
hope that this opportunity is not lost in a cloud of rhetoric and
skepticism. The regulated community wants to voluntarily audit their
facilities, correct noncompliance and improve their operations.
However, it is not fair, much less good policy, to expose those who do
so to enhanced potential liability. Thus, it is important to consider
carefully and parse the rhetoric of those who oppose even thoughtfully
crafted legislation. Perhaps most puzzling is the position of EPA.
Although the Agency has repeatedly emphasized that it ``never'' seeks
to obtain audit reports, it claims that the failure to allow it to
obtain these reports will create secrecy and impede its ability to
enforce the environmental laws. EPA cannot have it both ways.
And upon analysis, it can be seen that the ``parade of horribles''
that opponents of Federal legislation have identified cannot be
substantiated, unless one exaggerates both the nature and scope of
responsible Federal audit legislation. There would not be ``blanket
immunity.'' Nor would intentionally ``bad actors'' receive any
protections for criminal violations. Nor will environmental protection
suffer. To the contrary, aggressive auditing will uncover previously
unknown deficiencies which must then be quickly corrected. Nor would an
audit law result in secrecy. Much of the underlying information
contained in an audit is available elsewhere in the broad range of
information that is required to be collected and disclosed under
environmental laws. Information that would otherwise not have been
known would be made routinely available as a result of the disclosure
requirements.
Looked at from another perspective, EPA should be asked how
legitimate a case is if the Agency can only pursue it because a
regulated entity voluntarily reported a violation and promptly
corrected it. What purpose does enforcement serve in that situation?
Isn't the public policy issue of compliance better served by
encouraging self-assessment and timely correction than by gratuitous
enforcement? And, more importantly, isn't the environment better served
by encouraging early detection of problems and immediate correction?
In a resounding recognition of the many benefits, 23 States have
enacted legislation offering qualified protections for audit reports
and/or voluntary disclosures, or both. Oregon enacted the first such
statute in 1993. Rhode Island enacted its law in 1997.
While EPA has also repeatedly recognized the benefits of and need
to remove obstacles to auditing and voluntary disclosure, it has to
date not been willing to support the legislative actions at the Federal
or State level necessary to do so. In fact, the Agency has vigorously
opposed Federal legislation and brought extreme pressure to bear on
those States that have adopted or considered it--by threatening
withdrawal of delegated programs, as well as by extraordinary scrutiny
of regulated entities that have utilized State laws. This EPA conduct
is especially troubling because it so directly impedes the ability of
these State laws to achieve their goals and because EPA has not pointed
to an actual case where the legislation inhibited State enforcement in
any fashion.
EPA did issue a Policy in December 1995, entitled ``Incentives for
Self-Policing; Discovery, Disclosure, Correction and Prevention of
Violation'' (``Policy''). EPA should be commended for this very
positive step. The Policy, however, is only a long overdue penalty
mitigation policy for voluntary disclosures. It does not eliminate the
various disincentives and obstacles to auditing and voluntary
disclosure that we previously discussed. Indeed, even if the Policy
were perfect, EPA simply does not have the authority to eliminate the
key obstacles and disincentives to auditing. Rather, only Congress has
that power, and, thus, there is a need for Federal legislation.
i. auditing is critical to the achievement of the next level of
environmental protection
In recent years the use of environmental audits has grown both in
terms of comprehensiveness and sophistication. Although there are many
different types of ``environmental audits,'' EPA has defined
environmental auditing as the systematic, documented, periodic and
objective reviews by regulated entities of facility operations and
practices related to meeting environmental requirements.
Both EPA and the regulated community have long recognized that
environmental auditing leads to significantly higher levels of overall
compliance, improved environmental performance and reduced risk to
human health and the environment.\1\ Auditing can also be used to
review a company's environmental management structure and resources. By
way of example, audits often are used to:
---------------------------------------------------------------------------
\1\ Although Congress has not yet protected environmental audits in
legislation, it considered such protection in the context of the Clean
Air Amendments of 1990. The Statement of Managers contained the
following language:
Voluntarily initiated environmental audits should be encouraged
and, in the course of exercising prosecutorial discretion under the
criminal provisions of subsection 113(c), the Administrator and the
Attorney General of the United States should, as a general matter,
refrain from using information obtained by a person in the course of a
voluntarily initiated environmental audit against such person to prove
the knowledge element of a violation of this Act if--(1) such person
immediately transmitted or caused the transmission of such information
to the Administrator or the State air pollution control authorities, as
appropriate; (2) such person corrected or caused to be corrected such
violation as quickly as possible; and (3) in the case of a violation
that presented an imminent and substantial endangerment to public
health or welfare or the environment, such person immediately
eliminated or caused the elimination of such endangerment to assure
prompt protection of public health or welfare or the environment. 136
Cong. Rec. S16951 (Oct. 27, 1990).
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<bullet> Assess and reduce environmental health and safety risks,
both as required by regulation and on a voluntary basis that goes
beyond compliance.
<bullet> Anticipate upcoming regulatory requirements (which enables
facilities to manage pollution control in a proactive manner).
<bullet> Prioritize pollution prevention activities.
<bullet> Help management understand new regulatory requirements and
establish corporate policies.
<bullet> Assess internal management and control systems.
<bullet> Measure progress toward compliance.
<bullet> Improve expeditious communication regarding environmental
developments to facility personnel and, where appropriate, ensure
effective communication with government agencies and the public.
<bullet> Assure that capable and properly trained personnel are
available at all times to perform emergency and other environmental
functions.
<bullet> Evaluate causes for environmental incidents and determine
procedures to avoid recurrence.
<bullet> Assure sufficient budgeting for environmental concerns.
<bullet> Provide a means for employee training and performance
evaluation.
<bullet> Maximize resources through recycling, waste minimization,
and other pollution prevention measures, including process changes,
that may benefit the environment.
<bullet> Fulfill various other obligations, such as providing
appropriate disclosure to other agencies (e.g., the SEC), and
evaluating the environmental aspects of corporate or real property
transactions.
Industry and other members of the regulated community have been
extremely progressive with respect to auditing and the establishment of
environmental programs. Many commentators have predicted that the next
generation of environmental compliance will rely on regulatory self-
evaluation systems--day-to-day management systems that include audits--
which will lead to enhanced compliance and improved environmental
performance. We believe that voluntary Environmental Management Systems
(EMS) are important for all entities because they establish a
systematic mechanism to analyze environmental impacts of operations,
set goals for improvement, monitor activities and make adjustments for
continued improvement. EMS also provide for integration of
environmental concerns into the daily business operations.
Environmental audits themselves are becoming more sophisticated.
Audits have also been increasingly affected by the needs of
multinational corporations and the desire for consistency among the
environmental standards of different countries. Auditing techniques are
constantly improving as well and are increasingly being included as
part of value-added business programs. Companies are also utilizing
``environmental life-cycle audits'' to determine the totality of impact
that products and services may have on the environment.
ii. the tension between auditing and federal enforcement is growing
In recent years, we have witnessed an unfortunate and unintended,
but very real, tension between enhanced auditing and other innovative
environmental management programs and the significantly enhanced
potential liability for regulated entities and individuals under our
environmental laws. Today, the vast majority of regulated entities are
managing themselves in an environmentally responsible manner, with only
a handful operating ``outside the system.'' Yet, given the unparalleled
complexity and lack of clarity of the unique multi-statute
environmental scheme and the myriad applicable regulations, 100-percent
compliance is extremely difficult, if not impossible. The complexity,
lack of clarity and vastness of the regulatory scheme cries out for
aggressive auditing and the resulting candid discussions and self-
critical analysis within a regulated entity by the very individuals
responsible for environmental compliance. However, the very real
potential that such auditing can lead to enhanced liability in specific
situations has limited its use.
The primary concern with conducting an audit is the enhanced
liability threat. Federal and State enforcement officials, citizens'
groups, and third-party litigants (including plaintiffs in toxic tort
actions) may seek, in the course of litigation, to discover
environmental audits as a means of finding a road map for every
environmental concern the company may have had and may then misuse the
information to create claims against the company. Even this threat has
a substantial chilling effect. It has led to a reluctance to
aggressively audit by many members of the regulated community--
particularly small businesses. For others, we have seen extreme caution
in the scope of audits that are undertaken, frequent use of attorney-
client privilege to protect audits, the writing of non-specific reports
and a variety of other practices that greatly reduce the value of
audits to a company and, more importantly, the benefit to the
environment.
I have seen companies using caution repeatedly in my practice, and
it has been consistently underscored by the many representatives of the
regulated community who spoke to EPA during the Audit Policy dialogue.
It was also confirmed by Price-Waterhouse in a survey--``The Voluntary
Environmental Audit Survey of U.S. Business,'' 28 (March 1995).
According to Price Waterhouse, 75 percent of the corporate respondents
had some sort of environmental auditing program. Yet, the survey also
indicated that ``there is still a perceived reluctance to expand audit
programs, in the face of possible enforcement.'' Price Waterhouse noted
that ``when these companies were asked what factors detract from their
willingness to expand their environmental auditing program, more than
45 percent of the respondents stated that information could be used
against them in citizen's suits, toxic tort litigation, civil
enforcement actions or as a road map to establish knowledge in a
criminal enforcement action.'' In addition, nearly two-thirds of the
companies that perform environmental audits stated that they would
expand their programs if penalties were eliminated for problems that
the companies themselves identified, reported, and corrected.
The Price Waterhouse survey also indicated that 81 percent of the
companies that audit try to protect their audits from disclosure
pursuant to some sort of privilege, usually the attorney-client
privilege. This necessarily increases the cost and complexity of
audits, making them less useful, and often undermining what could have
been a truly constructive effort. It also means that the specific
information obtained by auditing, as well as the attendant learning, is
not making their way through the company, especially to the facility
personnel who have the greatest need for the information, because
widespread dissemination is not consistent with the attorney- client
privilege.
iii. the states should be commended, not criticized, for taking the
initiative
Following careful review of the significant environmental benefits
to be gained from auditing and voluntary disclosure, and with an
understanding of the disincentives and obstacles, various States moved
to enact legislation protective of audit reports or disclosures, or
both. Oregon enacted the first audit protection statute in 1993. Since
then, 22 other States have enacted legislation, including Alaska,
Arkansas, Colorado, Idaho, Illinois, Indiana, Kansas, Kentucky,
Michigan, Minnesota, Mississippi, Montana, Nevada, New Hampshire, Ohio,
Rhode Island, South Carolina, South Dakota, Texas, Utah, Virginia, and
Wyoming. Even in the face of EPA pressure, other State legislatures are
or are expected soon to be considering similar legislation. As you have
heard from other witnesses today, to the extent EPA has allowed them to
function, these laws have had a strong and positive impact. But these
State laws obviously do not reduce the need for action at the Federal
level, as only Federal legislation can:
<bullet> provide a qualified privilege under Federal law;
<bullet> provide limited protections under Federal law for
environmental violations disclosed to EPA and expeditiously corrected;
and
<bullet> prevent voluntarily disclosed information from being used
as a road map for litigation against the disclosing entity in
governmental enforcement actions, citizen suits, or toxic tort
litigation.
NAM and CEEC have been and remain extremely concerned about EPA's
continued critical and threatening position with respect to Federal
enforcement and the delegation of Federal programs in those States
whose legislatures have made the decision to foster environmental
protection and improve compliance by enacting legislation that provides
qualified protection for audits and/or voluntary disclosures. NAM and
CEEC do not believe that EPA should be overriding State laws in this
fashion, nor should EPA be compelling States into revoking or severely
changing their audit laws (or intimidating regulated entities that
chose to utilize these laws). Congress intended that the States take
the lead and be responsible for implementing most of our environmental
laws, and in doing so simply wanted to ensure that the States had
adequate authority to take enforcement actions which they believed were
appropriate. Congress did not--as EPA suggests--restrict the States by
requiring them to impose a penalty every time a violation occurs. Nor
did Congress intend for EPA to use its program approval authority to
coerce State legislatures if they deviated at all from EPA's preferred
approach.
Stated another way, the States are capable of enforcing
environmental laws and applying legal accountability and compliance
assurance in their policies and actions. The States have demonstrated
their commitment to environmental compliance and enforcement and their
innovative legislative programs must be allowed to go forward.
iv. epa's policy is a step in the right direction, but is not
sufficient
``The Policy is not final agency action, but is intended solely as
guidance. It is not intended, nor can it be relied upon, to create any
rights enforceable by any party.'' Office of Enforcement and Compliance
Assurance.
Over the past several years, CEEC has worked closely with senior
personnel from the Office of Enforcement and Compliance Assurance
(OECA) on a number of key enforcement policy issues. We have
appreciated the openness of senior officials in OECA, and especially
Assistant Administrator Steve Herman, and the dialogue that we have
developed on enforcement policies and issues. CEEC and NAM also
recognize and appreciate the willingness of EPA to consider new and
creative approaches to environmental compliance and enforcement,
through its Policy,\2\ as well by other activities such as OECA's
ongoing evaluation of its performance measures.
---------------------------------------------------------------------------
\2\ We note that other Federal agencies and departments have
voluntary disclosure and amnesty programs. For instance, the FAA's
voluntary disclosure policy was instituted in 1990 after the agency
realized that ``air carriers and [others] could do more to monitor
their own regulatory compliance.'' In implementing the policy, FAA
officials emphasized that ``because the air carriers have far greater
resources than the FAA and because the issue of air safety is of
paramount importance * * * they should have in place a procedure
whereby internal compliance audits are performed.'' The policy was
designed to provide incentives for deficiencies to be identified and
corrected by the companies themselves, rather than risk air safety by
awaiting the results of an FAA inspection. FAA officials also
emphasized that:
the enforcement program is not an end, but is rather a means to
achieve compliance with the Federal Aviation Regulations * * * the FAA
believes that aviation safety is best served by incentives * * * to
identify and correct their own instances of noncompliance and invest
more resources in efforts to preclude recurrence, rather than paying
penalties.
Federal Aviation Administration, Compliance and Enforcement
Bulletin No. 90-6, March 29, 1990. In addition, the U.S. Occupational
Safety and Health Administration (``OSHA'') first announced its
Voluntary Protection Programs (``VPP'') in 1982. This program allowed
businesses with exemplary worker protection programs to enjoy a special
regulatory relationship with the agency. The most advanced of the VPPs,
the Star Program is available to companies that meet certain criteria,
which establish management systems for preventing or controlling
hazards, and which have a demonstrated history of compliance. In
exchange for the company assuming primary responsibility for compliance
monitoring at its facility, OSHA agrees to remove it from OSHA
enforcement inspection lists and offer priority in variance requests
and technical compliance assistance.
---------------------------------------------------------------------------
At the same time, NAM and CEEC have believed for several years that
Federal audit protection and voluntary disclosure legislation is
necessary because EPA's Policy cannot, by definition and as a result of
limitations on the Agency's authority, eliminate all of the obstacles
to self-policing. For example, EPA's policy cannot impact prosecutions
by the Department of Justice or other Federal agencies, citizen suits,
toxic tort actions or State prosecutions. Stated another way, the EPA
Policy is not a substitute for Federal legislation.
During the dialogue on the Policy, many in the regulated community
discussed with EPA why the failure to have in place adequate and
certain protections for audit reports and voluntary disclosures created
obstacles to environmental auditing and had a strong chilling effect
which severely reduced the utility of audits that are undertaken. They
emphasized that a responsible regulated entity that audits should not
be in a position of greater liability than an entity that does not
audit. Nor should its management or environmental personnel be put at
greater risk.
In issuing the Policy (60 Fed. Reg. 66706, December 22, 1995), EPA
reiterated that voluntary auditing and disclosure (i.e., self-policing)
by the regulated community were--especially with EPA's limited
resources--critical to achieving environmental protection goals.
Although it is still in need of revision, we commend EPA for improving
and clarifying the availability of penalty mitigation for responsible
entities. Yet, the penalty mitigation of the Policy falls short of the
environmental protections EPA could have achieved through the adoption
of a broader policy. For example:
<bullet> A regulated entity that uncovers through auditing and
promptly discloses and corrects a violation and satisfies all of the
criteria set forth in the policy still faces potentially severe
penalties.
<bullet> The Policy does not apply to individuals, who are left
entirely unprotected and as a result will not be encouraged to
aggressively identify environmental issues.
<bullet> The Policy provides EPA with substantial discretion as to
whether the various applicable prerequisites are satisfied, thereby
failing to provide the certainty necessary to promote candid, self-
critical analyses.
<bullet> The Policy does not protect information provided to EPA
from disclosure to other government agencies or third-parties, nor does
it adopt an alternative approach that would allow such a disclosure but
provide limited protection to those who disclose.
The limited nature of the Policy, coupled with its exclusive focus
on penalty mitigation, only underscores the need for comprehensive
Federal and State legislation if we are to achieve the environmental
benefits that EPA seeks.
v. why federal legislation is important
As discussed above, an EPA policy is not an adequate substitute for
Federal legislation. Similarly, the protections offered by the States
that have adopted audit laws are not enough. Moreover, in light of
EPA's ongoing campaign against these laws, there is an increasing need
for Federal legislation to clarify the rights and roles of States in
developing audit laws without EPA's undue interference, in addition to
establishing a Federal law that goes beyond the necessarily limited
protections State laws offer.
We are not suggesting that Federal legislation should take away the
States' rights to develop their own programs. However, Congress needs
to build on the States' programs--as it has in so many other areas
where the States are the initial proving grounds--to further Federal
policy. Thus, Federal legislation should ensure that State programs are
allowed to develop.
It should also be noted that the elements of the legislation we
support are neither novel nor without precedent. For example, as part
of the budget package passed last year, Congress amended the Equal
Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA) to provide
for a privilege for information developed in audits conducted to
determine compliance with the ECOA and FHA. See 15 U.S.C. Sec. 1691c
and 42 U.S.C. 3614 note. The Federal law governing skilled nursing
facilities clearly prohibits a State or the Federal Government from
requiring disclosure of the records of a quality assessment, which
every nursing home receiving Medicare or Medicare funds is required to
establish. See 42 U.S.C. Sec. 1396r(b)(1)(B). In addition, protections
have long been provided for certain disclosures pursuant to the
Comprehensive Emergency Response, Compensation and Liability Act (42
U.S.C. Sec. 104(e)(7)(E)) and the Clean Water Act (33 U.S.C.
Sec. 1318(b)).
vi. responding to critics of federal legislation
NAM and CEEC recognize that Federal legislation needs to be
carefully crafted, and that it should include safeguards to preclude
abuse of its limited protections. Critics of Federal legislation have
consistently made a series of generalized charges to support their
concerns about the legislation. These charges--while perhaps creating
attractive sound bites--are unsupported, and take aim at hypothesized
dangers and imaginary legislation that does not provide the safeguards
that responsible members of the regulated community so strongly
support. These charges include:
1. Federal legislation would amount to ``blanket immunity.''
Proposed Federal legislation has not provided for ``blanket''
immunity. But it has proposed to provide environmentally responsible
entities with a qualified protection if the entity establishes that the
violation was promptly corrected and disclosed to the appropriate
governmental agency, and the entity provided all further relevant
information requested by the agency. In addition there is no qualified
immunity for repeated violations.
2. The legislation would protect ``bad actors'' and promotes
``secrecy.''
``Bad actors'' who intentionally violate environmental laws do not
typically take the time to conduct voluntary self-audits, much less
undertake the costly steps required to comply with environmental
requirements in a timely fashion. In any event, it was never the
intention of any Federal legislation to protect willful and intentional
violators, and the pending bills do not do that. Nor will that
legislation in any way restrict EPA' s (or the public's) ability to
obtain the broad array of documents, data and other information that is
currently available. To the contrary, following enactment of self-
disclosure legislation, EPA and the public will have more information,
as much of the information identified by an environmental audit may be
disclosed pursuant to one or more of the many disclosure requirements
that are at the heart of our environmental regulatory system. A list of
many of those reporting requirements is attached to this statement.
3. Environmental protection will suffer as a result of the legislation.
No basis for this assertion has been seriously suggested, and once
again the opposite is true. The limited protections offered by the
legislation do not affect the government's ability to issue an order or
obtain any injunctive relief necessary to protect public health or the
environment. Moreover, effective environmental auditing typically is
more probing and thorough than a regulatory compliance inspection, and
therefore is more likely to uncover deficiencies or instances of
environmental noncompliance than a government inspection. In order to
benefit from the voluntary disclosure component of proposed Federal
legislation, an entity must act quickly to correct any non-compliance.
For this reason too, increased environmental auditing will result in
increased compliance with environmental requirements, and ultimately
improved environmental protection.
In addition, we believe that environmental protection will be
enhanced as the regulators will be provided with more extensive
information about regulatory compliance. As regulators are presented
with this increased information about how the regulations do and do not
work in the real world, they will be able to improve upon existing
regulations.
4. The legislation will not impact the behavior of regulated entities.
We do not believe that this is correct. Audit protection/voluntary
disclosure legislation will remove obstacles to the voluntary self-
auditing process in several ways. First, entities and individuals that
already perform voluntary environmental audits will be able to do so
more candidly and thoroughly and thereby auditing will be more useful.
Second, more entities and individuals will be encouraged to perform
voluntary environmental audits, and to do so aggressively. Third, more
companies and individuals will go beyond compliance, undertaking
evaluations that are not required.
5. The legislation protects factual information about environmental
violations from regulators.
This argument ignores the very narrow scope and qualified nature of
the protections. Protection is not extended to any of the information
that is required to be collected under environmental laws. Stated
another way, the qualified privilege does not cover routine sampling or
monitoring data or information obtained from an independent source. Nor
does it restrict the government's ability to use its broad authority to
investigate and obtain information related to the underlying facts.
Moreover, as noted previously, such qualified protection will
encourage and increase the free flow of information, enhancing the
information available to the government and the public. Absent
protection for audit reports and related disclosures, information will
not be internally communicated as openly, nor will it all be available
for release. Indeed, neither regulated entities nor individuals will
not have the incentive to aggressively seek to uncover additional
information in the first place, much less disclose it.
6. Federal legislation would impede the government's ability to bring
environmental enforcement actions.
Because enforcement officials will continue to have access to all
of the information that regulated entities are required to maintain and
disclose and because EPA retains its full inspection and information
gathering authorities, qualified audit protection will not have any
effect on the ability of EPA or any regulatory agency to establish
nonconformance with a regulatory requirement. Enforcement officials
will continue to be able to inspect, sample and monitor an entity's
compliance under existing environmental laws, and entities will still
be required to comply with all existing recordkeeping and reporting
requirements.
conclusion
Removing the obstacles and providing the proper types of incentives
and protections for voluntarily conducted environmental audits and
related disclosures will only serve environmental goals. Administrator
Browner to her credit often cites the need to use a ``Common Sense''
approach to development of effective environmental policy. Providing
incentives and qualified protections for those in the regulated
community that are good citizens and are doing the ``right thing'' by
trying to find, report and fix any actual or potential environmental
problem is ``Common Sense.'' Mr. Chairman, NAM and CEEC look forward to
working with Congress in a bipartisan fashion so Federal audit
legislation that is good for the environment can be enacted.
______
examples of reporting obligations to federal and state regulatory
agencies
Clean Water Act
Permit Applications
Spill Plans
Discharge Monitoring Reports
Excursion and Release Reports
Resource Conservation and Recovery Act (and State Analogs)
Permits (Part A & B)
Manifests
Quarterly, Annual and Biennial Reports
Exception Reports
Closure Plans
Emergency & Spill Plans
Underground Storage Tank Registration Release Reports
Clean Air Act
Permits
Release Reports
Monitoring Reports
Excursion Reports
Annual Compliance Certification
SIP-Specific Reporting
NSPS Reports
Emergency Planning and Community Right To Know
LEPC/SERC
Material Safety Data Sheet
Emergency and Hazardous Chemical Inventory Forms
Annual Toxic Chemical Release Forms
Release Reports
Superfund Site Plans
Facility Reports
Toxic Substances Control Act
Registration and Notices for Manufacturing, Processing and
Importation of Chemical Substances
Submission of Test Data and Health and Safety Studies
Chemical Information Reporting Requirements
Reporting of Information Relating to Chemicals Posing Substantial
Risks
Safe Drinking Water Act
Certification Reports
Under Ground Injection Permits
Under Ground Injection Reports
Federal Insecticide, Fungicide, & Rodenticide Act
Registration Reports
Compliance Reports
Occupational Health and Safety Act
OSHA 200 Logs
MSDS
Incident Reports
Securities Requirements
10K Environmental Disclosures
10Q Environmental Disclosures
State-Specific Reporting Requirements (Examples)
Massachusetts Toxic Use Reduction Act Reporting
New Jersey Industrial Site Recovery Act Reporting
California Proposition 65 Reporting
______
Corporate Environmental Enforcement Council, Inc.
corporate environmental enforcement council platform for effective
environmental compliance and enforcement
The Corporate Environmental Enforcement Council (``CEEC'') is an
organization of diverse major companies with facilities throughout the
United States and across the globe. Member companies share a strong
commitment to the environment. They are supportive of aggressively set
environmental goals consonant with a modern economy. Our members also
support proactive, contemporary environmental stewardship dedicated to
effective environmental protection and prudent use of resources. We
believe such stewardship encompasses a number of elements beyond the
traditional compliance/enforcement approach, including compliance
education, promotion of voluntary actions beyond compliance, and a
recognition of the importance of the competitive market place for
driving environmental stewardship.
At the same time, CEEC recognizes the need for a strong
environmental compliance program and a strong enforcement program that
identifies and penalizes significant violators who have not availed
themselves of compliance options, as well as those who willfully and
intentionally violate our environmental laws. Unfortunately, in many
respects, the current compliance and enforcement programs are neither
properly balanced nor focused.
When the environmental laws were first being implemented in the
1970's, not everyone moved quickly to adopt their operations and
practices to the new environmental requirements, even those for which
compliance was not difficult. At that juncture, well-publicized
enforcement was often beneficial, sending the message to the regulated
community that compliance with the new environmental legal structure
was mandatory.
Now, however, the vast majority of the regulated community has
demonstrated its strong commitment to operating within the regulatory
structure. Compliance is the rule, not the exception. The tremendous
improvement in the attitude of the regulated community with respect to
environmental protection and compliance practices has been widely
recognized.
EPA's and DOJ's approach to environmental compliance and
enforcement needs to more fully evolve to keep up with these changes.
As we have found better ways to achieve our environmental goals, CEEC
believes that a new construct for environmental compliance and
enforcement is long overdue--one that reflects the current compliance
realities; that ensures that sufficient and proper resources are
devoted to environmental compliance; and, that, while a strong
enforcement presence is maintained, enforcement actions are properly
directed. We also believe that innovative solutions should be
recognized and rewarded and that science, technology and collective
goal-setting should be the tools used to improve environmental
performance. To that end, CEEC has adopted the following set of
principles for an effective environmental compliance and enforcement
program:
ceec principles
<bullet> The States should be the primary focus for implementation
and enforcement of environmental programs.
<bullet> While maintaining a strong and focused enforcement
program, Agency efforts and resources should primarily be devoted to
compliance.
<bullet> Environmental compliance and enforcement efforts must be
directed at achieving desired environmental goals.
<bullet> Environmental enforcement should be prioritized at all
levels based on the seriousness and the nature of the violation.
<bullet> Prosecution of environmental criminal violations should be
based on intentional violations of clearly enunciated standards that
are interpreted and applied in a consistent manner.
<bullet> Self-assessment, as well as a qualified immunity where
appropriate for voluntary disclosures, should be encouraged as the most
effective way of achieving our environmental goals.
<bullet> The States should be the primary focus for implementation
and enforcement of environmental programs.
As an initial matter, CEEC believes it is time for an immediate and
substantive change in the roles of the various government regulatory
agencies.
EPA's Role: EPA should focus on the implementation of environmental
statutes, in particular on the achievement of environmental goals, and
not on the specific method to achieve the goals. With regard to
compliance, EPA's policies should focus on the actual performance
result that is wanted and the environmental performance metrics that
will be used to judge the success of compliance with those goals. EPA
should then coordinate and ensure that its policies are uniformly
understood by the States, thereby providing a national baseline as to
what environmental result is desired. Enforcement should become
principally a State function, with EPA maintaining a strong presence
and the ability to step in if a particular State has demonstrably
failed to enforce the environmental laws. EPA should not reflexively
consider a drop in enforcement cases as a sign of failure or a signal
that there is something wrong with a State program. Rather, EPA needs
to acknowledge that an increase in compliance rates is compatible and
should necessarily result in a downward turn in enforcement.
The Role of the Regions: As EPA's relationship with the States
changes, the role of the EPA regional offices would also need to be
reexamined. In particular, we believe that the regional offices are
best suited to providing compliance and technical assistance. In
essence, the offices should act as technical consultants to States on
how to best achieve environmental performance results. Any regional
policymaking role should be returned to EPA Headquarters. All unused
resources in the Regions should be transferred to the States to bolster
the manpower of the agencies who are actually implementing and
operating the environmental programs. Finally, the Regions should
assist EPA Headquarters in policing overall State efforts.
The States' Role: The States would then have the primary
responsibility for the implementation of the operating programs and the
resulting enforcement programs. The States would have to commit not
only to implementing the programs, but also to actual environmental
results, which results would be consistent across the country. In this
way, CEEC believes that States would be the better arbiters and
implementers of how to achieve the national environmental goals.
DOJ's Role: Finally, DOJ's role, too, needs to be reevaluated. The
application and implementation of all of CEEC's Principles for
Effective Environmental Compliance and Enforcement apply to both EPA
and DOJ, in their respective roles. However, with regard to DOJ's role
in particular, CEEC believes that DOJ's resources need to be redirected
to working with EPA to pursue those regulated entities clearly
operating outside the system. In addition, DOJ's focus with respect to
environmental crimes should be on those criminal cases that reflect
intentional and willful conduct.
While maintaining a strong and focused enforcement program, Agency
efforts and resources should primarily be devoted to compliance
Environmental laws and regulations continue to expand in number and
complexity at a rate which exceeds most other regulatory areas. Agency
interpretations of these rules are often difficult to ascertain and may
vary over the years and throughout EPA's regions. Moreover,
implementation of environmental laws through thousands of pages of
regulations and variable ``guidance,'' interpretations, and ``policy
statements'' makes 100-percent compliance impossible all of the time.
EPA needs to recognize this and work with the regulated community to
help achieve the highest possible level of compliance and better
protection of the environment.
In a mature regulatory program, continually increasing enforcement
suggests that there is something wrong with the system. Enforcement
should be a tool that is employed only when a regulated entity is not
working to come into compliance. EPA and the regulated community should
be proud of the increased compliance rates and take credit for their
respective roles in achieving them. However, EPA needs to work on
increasing compliance and technical assistance to all regulated
entities, not just small businesses. By way of example, CEEC believes
that an expansion of the Small Business Assistance Policy that was put
into place in 1996 would maximize environmental benefits for all.
Environmental compliance and enforcement efforts must be directed at
achieving the desired environmental goals
As an initial matter, CEEC believes that environmental protection
must be the overriding goal of all environmental regulation and
environmental programs. Likewise, the compliance expectations of
agencies should be tailored to the achievement of that goal and to
allow the necessary flexibility to achieve it. Thus, CEEC believes that
ultimately environmental regulations should be recast to focus on the
goal of environmental protection, instead of the current focus on the
process or method to achieve that goal. However, until that time, we
must work incrementally to change the enforcement policies and
procedures that have evolved as a result of an overemphasis on
enforcement.
One method of refocusing EPA's current compliance and enforcement
program would be to adjust the goals and measures of the program to
assure that EPA does not reward the pursuit of enforcement for
enforcement's sake, but instead encourages systematic and creative
compliance with environmental laws in ways that achieve the greatest
environmental benefit. Individual noncompliance problems are less
important to society than achieving the goals of lessened pollution,
lessened exposures and lessened ecological impacts. Thus, the success
of a compliance program should be measured incrementally by the number
of noncompliance problems that an organization detects, corrects and
reports to a government agency. Alternatively, a measurement of the
success of a compliance program could focus on the numbers of training
and outreach person-hours, the extent of private self-auditing, and the
measurable ambient environmental improvements, such as stream water
oxygen levels.
Companies also routinely provide incentives and measure employee
activity for the completion of the more difficult environmental
compliance tasks. Likewise, CEEC believes EPA should measure its
success by the ways in which it encourages its employees to properly
value and take credit for compliance-oriented activities, to pursue the
truly difficult or serious enforcement cases, and not simply to go
after the easy inadvertent violations.
Environmental enforcement should be prioritized at all levels based on
the seriousness and nature of the violation
CEEC members support an effective environmental enforcement program
aimed at identifying and punishing those who lack the commitment to
comply, as well as those who willfully and intentionally violate
environmental laws. At the same time, CEEC believes an enforcement-
first mind-set is counterproductive. EPA and DOJ enforcement must
recognize a distinction between the truly serious and non-serious
violation in terms of whether an enforcement action should be pursued
at all.
Enforcement, whether civil or criminal, should be seen as a last
resort to be used when regulated entities do not make good faith
efforts and fail to manage and control environmental issues. EPA's
enforcement goal should be to take no enforcement actions for minor
``outages'' or ``mistakes,'' in light of outstanding corporate
performance. Playing ``gotcha'' by finding technical violations at a
facility is not productive; enforcement should focus on violations that
actually harm the environment.
EPA and DOJ need to make clear distinctions in terms of the
seriousness of the compliance lapse and its impact on ambient
environmental conditions. This is especially true in the multimedia
enforcement context, where a handful of minor violations can be
packaged into a major enforcement action. EPA should explain the
process by which decisions are made to take enforcement actions, and
ensure that the criteria are consistent with overall environmental
goals. While a company's responsible actions may be taken into account
in the penalty phase (or in the sentencing context in a criminal case),
the drive for enforcement for enforcement's sake often effectively
precludes consideration of those factors as part of the decision to
pursue a case.
At a minimum, EPA's screening methodology should ensure that
enforcement is not the first resort in gray areas: such as where a
regulation is ambiguous, or a member of the regulated community did not
have fair notice of the interpretation that EPA is seeking to enforce.
Unfortunately, punitive enforcement measures have been taken where the
regulations are unclear or where an unpublished agency interpretation
is inconsistent with the meaning of the regulation. These kinds of
enforcement actions have diverted significant compliance and production
resources and negatively impacted our ability to achieve statutory
environmental goals.
Prosecution of environmental criminal violations should be based on
clearly enunciated standards that are interpreted and applied
in a consistent manner
Despite the ever-improving performance of the regulated community,
there has been an increasing overcriminalization of environmental
statutes, as civil cases have been elevated to criminal ones and
misdemeanor cases to felonies. Discovery and prosecution of criminal
activities is in general a laudable goal; however, CEEC believes the
severity of the actions being punished should be commensurate with the
punishment itself. Thus, there should be a clear distinction between a
civil and a criminal environmental violation. Criminal enforcement
should only be used in egregious cases where there is a knowing or
willful intent to violate, such as midnight dumping, intentional or
long-term noncompliance with a permit or standard, or falsification of
records.
CEEC believes that there must be a bright-line standard concerning
the actions or mental state that transforms a civil regulatory
violation into an object of criminal investigation and prosecution--
that is, the use of a specific intent standard. If specific intent is
not a required element of a crime, well-intentioned but misguided or
uninformed persons can be subject to felony sanctions. Application of
the specific intent standard for the initiation of a criminal
environmental case would not diminish the effectiveness of the
government's enforcement efforts. Criminal penalties would be reserved
for those recalcitrant individuals and organizations who flout their
environmental obligations, while EPA's broad civil enforcement powers
would be applied to those individuals and organizations who made other
than acceptable good-faith efforts to comply.
Additionally, the severity of the penalty for an environmental
crime should be closely related to the culpability of the violator, and
mitigating factors (especially compliance programs) should result in
meaningful penalty reduction. CEEC believes that the penalty setting
mechanism of the Federal Sentencing Guidelines, Chapter 8--``Sentencing
of Organizations'' should be expanded to include environmental crimes,
should recognize and accommodate the wide variability of environmental
crimes, and should take into account that small businesses have fewer
compliance resources. Finally, the sentencing guidelines should reflect
the strong societal interest in encouraging regulated entities to
protect the environment--and encourage, not punish, self-policing and
self-correction of environmental deficiencies.
Self-assessment, as well as a qualified immunity where appropriate for
voluntary disclosures, should be encouraged as the most
effective way of achieving our environmental goals
CEEC believes that most of the regulated community is committed to
environmental compliance. One way the regulated community has already
demonstrated its commitment is through self-auditing and detection and
correction of mistakes early on. CEEC believes that self-auditing must
be encouraged and obstacles removed, so that entities are able to
ensure that they are complying to the fullest extent without enhancing
their potential liability.
Moreover, CEEC believes that corporate environmental programs could
be even more successful absent the unintended chilling effects of the
current enforcement program. Instead of being commended for voluntarily
collecting more data and attempting to put it to good use, many
regulated entities have watched their own data--which they voluntarily
collected and analyzed to identify problems and improve performance--
put to use against them in enforcement proceedings. Any enforcement
program must be structured so that those entities who move forward with
these innovative activities--and the individuals who implement them--do
not expose themselves to more liability than those that take no action.
Thus, CEEC supports a three-pronged approach. First, there is a
need for legislative action to encourage self-auditing and self-
correcting by providing a qualified immunity that protects the self-
auditing volunteer from unfair prosecution or civil suits based on the
results, so long as there are good faith efforts to correct the
problems found and the corrected problems are reported promptly.
Second, as EPA does not have the resources to inspect every facility,
or pursue endless enforcement actions, CEEC believes EPA should
encourage the self-policing efforts by the regulated community, and
count with pride the guidance and technical assistance it provides that
allows members of the regulated community to correct and/or avoid
compliance issues. Third, CEEC believes that the States should be
encouraged to experiment with legislation and/or other flexible methods
to provide incentives for self-auditing and self-correction programs
that produce positive compliance efforts among the regulated community.
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Prepared Statement of Mark Woodall, Chair, Sierra Club, Georgia Chapter
i. introduction
Mr. Chairman and members of the committee, thank you for allowing
me to make a statement on behalf of the 550,000 members of the Sierra
Club. My name is Mark Woodall and I serve as the volunteer chair of the
Georgia Chapter's Legislative Committee and as chair of the Sierra
Club's Audit Privilege Task Force. I'm a commercial tree farmer by
occupation. I am also co-submitting this testimony on behalf of the
U.S. Public Interest Research Group (U.S. PIRG).
The Sierra Club and U.S. PIRG, as organizations that have brought
numerous citizen enforcement actions under our national environmental
laws, are committed to preserving the legal tools ordinary citizens
have fought for and need to protect themselves from harmful pollution
practices in their communities. That is why Sierra Club and U.S. PIRG
bitterly oppose the creation of any secrecy privileges or immunity
rights for entities undertaking environmental self-audits, at either
the State or Federal level. In particular, we strongly oppose S. 866,
as well as any bill that would restrict the U.S. Environmental
Protection Agency's (U.S. EPA's) ability to administer its delegated
programs in States with audit privilege and immunity laws.
ii. s. 866 hurts our right to know and undercuts enforcement
The creation of a Federal audit privilege is a radical measure that
would create a vast dumping ground for corporate polluter's dirty
secrets. Allowing polluters to withhold vitally important information
on pollution practices that effect the health and property rights of
their neighbors, and letting environmental law breakers escape
accountability for serious, chronic, and even criminal violations is
bad policy: it would undermine the public's right to know, tie the
hands of law enforcement officials, eviscerate the right of citizens to
protect themselves, and silence whistle blowers. What is more, Sierra
Club and U.S. PIRG are not alone in our opposition to S. 866; last
month 120 environmental, public interest, labor, and business groups,
representing millions of Americans, sent a letter to every U.S. Senator
denouncing S. 866. That letter is attached to my statement as Appendix
II.
iii. state secrecy and immunity laws are having a negative impact, and
a strong epa oversight role must be maintained
Many of the arguments we offer against Federal pollution secrecy
and immunity proposals apply also to similar proposals enacted at the
State level: they hurt our right to know, undercut enforcement,
infringe on citizen enforcement rights, silence whistle blowers, allow
lawbreakers to escape accountability and keep the profits they have
gained from avoiding compliance, and disadvantage regulated entities
that take their environmental responsibilities seriously. For these
reasons, citizen groups in Idaho, Ohio, Colorado, Michigan, and Texas
have petitioned the U.S. EPA to withdraw these States' authority to
enforce Federal environmental laws in light of the obstacles these
audit laws pose to enforcement, right to know, and victim compensation.
Nonetheless, U.S. EPA has entered into agreements with the States
of Texas and Michigan, and is pursuing similar agreements in Ohio and
other States, that have led to improvements in the respective States'
self-audit laws, but, in the end, have given EPA's blessing to the
existence of corporate secrecy rights in a State civil proceeding. In
our view, the Texas and Michigan deals have the alarming result of
allowing those States to continue implementing Federal programs despite
serious constraints on the ability of the State and citizens to enforce
those programs. Grassroots letters to EPA Administrator Carol Browner
and President Bill Clinton outlining concerns with EPA's policy and
recommending additional steps the administration should take are
attached as Appendix III.
Although we are not satisfied with EPA's position regarding these
States' audit laws, we strongly assert that there, is, nevertheless a
critical need to preserve a Federal oversight role for EPA. The ``safe
harbor'' concept that Senator Enzi is proposing would unduly limit
EPA's authority to oversee its programs and would substantially undo
many of the improvements EPA succeeded in obtaining from Michigan and
Texas. Most notably, pursuant to agreements with EPA, Texas and
Michigan have amended or agreed to amend their laws to ensure that
secrecy privileges or immunity are not available with respect to
criminal violations. Under Senator Enzi's approach, the standard for
environmental criminal liability would be compromised, and reckless
environmental violations currently considered criminal would be
potentially subject to audit privilege and immunity protection.
In addition, the Enzi approach is misguided because it ties EPA's
hands. As these new laws are played out in the courts, their impact on
citizen suit rights and law enforcement will become more clear. EPA
needs the flexibility to revisit its agreements regarding State audit
laws into order to ensure the integrity of the programs it administers.
iv. industry wants pollution secrecy and immunity rights in order to
avoid liability, not as an incentive for voluntary compliance
As we observe the 25th anniversary of the Clean Water Act, we
should consider the motivation for its passage and the passage of the
other landmark environmental and health laws. These laws were not
established because industry was doing a great job of voluntarily
finding and eliminating pollution. These laws passed because the
Cuyahoga River burned. The air in Chattanooga was not safe to breathe,
the drinking water of New Orleans was filled with carcinogens and the
people of Love Canal were sickened by toxic waste.
So why is it today that pollution is rarely just dumped untreated
into rivers or unlined pits? After all, it is cheaper in the near term
for a corporation or Federal facility to just dump its effluent and
thereby externalize its disposal costs. We maintain, therefore, that it
is fear of liability, fear of enforcement (Federal, State or citizen)
and fear of adverse publicity that drives corporate behavior in the
area of public health and the environment.
Our understanding of the current incentives which tend to keep
corporations from just dumping it in the river is confirmed by the
words of industry lawyers. An Arthur Anderson survey of corporate
counsel published in the National Law Journal in 1992 states ``the
relatively new threat of jail for corporate executives for
environmental violations is an overwhelming concern for general
counsel.''
Likewise, the advent of environmental pollution secrecy and
immunity rights represents a sophisticated and superficially appealing
new way to evade the threat of enforcement and avoid liability.
Proponents of these new rights claim they provide necessary incentives
to encourage companies to conduct internal audits of their
environmental performance. However, as industry lawyer Roger Marzulla
stated at a recent seminar on environmental crime hosted by the
publication Corporate Crimes Reporter, the (real) purpose of self-audit
laws is to provide ``an obstruction to prosecution.''
A. The Waste Management, Inc. Cincinnati Case
Industry's arguments in favor of corporate pollution secrecy and
immunity rights are all based upon an assumption of corporate good
faith. They ignore the vast potential for abuse inherent under rules
that encourage concealment of information. The story of a small,
Cincinnati, Ohio community group's fight to protect themselves from
toxic gas emissions emanating from a nearby landfill operated by the
corporate giant Waste Management, Inc. presents a compelling example of
the various ways a corporation can and will attempt to use and abuse
the right to withhold self-audit information under an audit privilege
law. That story, as told by two community members who have led the
fight against Waste Management, is attached as Appendix I.
B. Corporations Have Historically Used Attorney-Client and Work Product
Doctrines To Hide Information and Escape Liability
The concept of the environmental audit privilege, then, emerges
from industry think tanks and corporate law firms, not as an innovative
compliance tool, but as a means of hiding the ball--a tactic that
industrial polluters, especially large corporations that can afford
extensive litigation, have pursued for years. Corporations have long
attempted, with little success, to use the doctrines of attorney-client
privilege and attorney client work product as a means of shielding
themselves from accountability for activities harmful to the
environment and public health. However, the courts have placed
limitations on concealment via these doctrines, in order to safeguard
the public's recourse. Now, the trend toward environmental privilege
seems to be designed to open the door to many more environmentally
important documents becoming concealable.
The attorney-client privilege relates to communication made by the
client (or the client's agent) to an attorney, in confidence, for the
purpose of obtaining legal advice. The privilege allows the client
(either individually, or through his attorney) to decline a forced
disclosure. The work-product doctrine protects against forced
disclosure materials prepared specifically in anticipation of
litigation. However, in such a case, the party seeking discovery may
gain access if it can demonstrate a substantial need for them and
inability to obtain the substantial equivalent elsewhere without undue
hardship.
Corporations have often attempted, especially in recent cases, to
stretch these doctrines so as to conceal factual information from those
seeking accountability in enforcement cases and other contexts. The
environmental audit laws represent an opportunity for corporations to
conceal much more information, by characterizing a great many of the
studies they wish to conceal, not as legal advice, but as
``environmental audits.'' There are numerous examples of corporations
attempting to stretch attorney client doctrines to avoid environmental
accountability. A look at just a few examples demonstrates how much is
at stake with environmental audit privilege:
Phelps Dodge Corporation. Phelps Dodge Inc. sold property to the
U.S. Postal Service in Maspeth (Queens), New York, in the mid-1980's
for construction of a postal distribution building. Phelps Dodge agreed
to clean up the former copper refining site, but as the cleanup process
continued it became apparent to Phelps Dodge and its contractors that
heavy metal contaminants onsite--(e.g. arsenic, cadmium and lead) were
more widespread and it would be much more expensive to clean up the
site than anticipated. In response, Phelps Dodge officials--under the
leadership of the company president--apparently employed a strategy of
concealment to attempt to strap the Post Office and the U.S. taxpayers
with the costs of cleanup. One major strategy was to claim attorney-
client privilege for extensive studies conducted by consultants
documents revealing information relevant to the extent of contamination
and costs of cleanup. In 1994 the court reviewed these attorney-client
privilege claims, document by document, and found that about 80 percent
of the documents were ineligible for such treatment. The court issued
an explicit ruling, with a six page long list showing the numerous
studies, letters and evaluations that the company inappropriately
attempted to keep out of government hands.
The lengthy list of documents which the company had attempted to
cover as ``privileged'' included many documents which had merely been
copied to attorneys, and others in which attorneys had no real role.
U.S. Postal Service v. Phelps Dodge Refining Corp. 852 F Supp. 156
(E.D.N.Y. 1994). The court noted that the data were ``generated through
studies and collected through observation of the physical condition of
the Property . . . Such underlying factual data can never be protected
by attorney-client privilege and neither can the resulting opinions and
recommendations.''
In contrast, many of the State environmental audit laws allow
precisely such onsite observations, resulting opinions and
recommendations to be given privileged treatment at great detriment to
public accountability. Had these documents remained out of public view
in the Phelps Dodge matter the government may have been incapacitated
from winning the later court decision, in 1997, finding that Phelps
Dodge had breached its contract with the U.S. Postal Service by
delaying and declining its contractual responsibility to excavate all
of its contamination.'' The court might not have had enough information
before it on the scope of contamination to rescind the contract,
ordering the corporation to take back the tainted property sold to the
Postal Service. U.S. Postal Service v. Phelps Dodge refining
Corporations 950 F Supp. 504 (E.D. NY, 1997).
Summitville Mine. Summitville Consolidated Mining Company filed for
bankruptcy in 1992, leading to an emergency takeover of cleanup of its
cyanide leach gold mine near Del Norte, Colorado by the U.S. EPA. After
the Federal Environmental Protection Agency (EPA) examined the
situation, the site became the State's best known Superfund cleanup
project. According to an article in the Denver Post on May 15, 1997,
some of Summitville's officers filed a lawsuit in Canada to keep about
1,800 documents related to the operation of the Mine from a grand jury,
claiming the cover of attorney-client privilege. The documents sought
include details of discussions with regulators and mine consultants,
records discussing ``drainage, flows, discharges, seeps, spills or
runoff'' as well as finances. At stake is liability for an estimated
$120 million cleanup.
Tobacco Cases. Outside of the environmental field, we can see the
damage that ``audit privilege'' could do in the high profile tobacco
cases. In those matters, attorneys attempted to bring all potentially
damaging internal scientific documents under attorney work product and
attorney-client privilege to avoid discovery. One witness reported that
Brown and Williamson's assistant general counsel routinely marked
scientific research papers ``attorney work product'' even when they had
not been created for use in litigation.
Finally, some other examples of demonstrating the history of
corporate attempts to withhold information regarding environmental
problems include:
<bullet> According to the August 22, 1995, Columbus, Georgia,
Ledger-Enquirer, ``The DuPont Co. was slapped with sanctions totaling
almost $115 million on Monday by U.S. District Judge K. Robert Elliott
of Columbus, who ruled the chemical company systematically lied,
cheated and withheld evidence in efforts to protect itself during
lawsuits over its fungicide Benlate.'' Unfortunately, Judge Elliott was
reversed on appeal and the growers are still fighting to recover.
<bullet> According to the Associated Press on July 15, 1997, ``the
man investigating the Texaco tapes said Monday he found a file--
carefully labeled--containing documents company executives allegedly
withheld from lawyers in a race discrimination case . . . the folder
had a yellow note on it labeled `documents withheld from legal'.''
C. Editorial Boards, District Attorneys, and Others Oppose Secrecy and
Immunity Laws As Industry Campaign To Hide Dirty Secrets
Most people who review this corporate campaign for secrecy and
immunity see it for what it really is. Dozens of editorial writers have
railed against the concept calling it a `Polluter Protection Act',
`Polluters Relief Act', `Dirty Secrets' and the `Bhopal Bill'. A few of
those editorials are included in Appendix IV.
In a June 7, 1996 letter, to Congressman Condit, the Co-Chairs of
the National District Attorneys Association wrote, ``it is our view
that the adoption of a self-audit privilege is an extreme measure far
beyond any remedy necessary. Furthermore, that if the Congress enacts a
self-audit privilege you will be doing a vast disservice to law
enforcement efforts not only in the realm of environmental law, but
across the spectrum of `white collar' crime.''
The Charleston, West Virginia Gazette observed, ``more than 4,000
people were killed in Bhopal, India by a leak at the Union Carbide
plant in 1984. If such a tragedy ever occurred at a Carbide plant in
West Virginia--God forbid--we're sure the company would loved to be
able to hide information about conditions leading up to the accident.''
Stephanie Kessler of the Wyoming outdoor Council said, ``This bill
is about big companies that already do environmental audits to now
legally hide the information they discover from the public . . . They
get the privilege even if they don't do a thing.'' Jack McGraw, acting
EPA Regional Administrator in Denver, ``The Colorado bill is the worst
of the worst. It has all kinds of abuse.''
D. Pollution Secrecy and Immunity Laws Are Completely Unnecessary To
Accomplish Their Purported Goals
Finally, having shown that bad actors can and will abuse
environmental audit privileges and immunity rights, it worth noting in
conclusion that the legitimate purported goals of these audit privilege
proposals--namely to encourage self-audits and voluntary compliance
while providing some measure of protection for those who self-disclose
violations--are already being accomplished by EPA's self-audit/self-
policing policy with notable success. EPA's policy, which was the
developed through a lengthy and exhaustive multi-stakeholder process,
contains NO secrecy privilege, NO immunity for criminal violations, and
NO automatic immunity for civil violations, but does allow for
significant mitigation of civil penalties for self-disclosed violations
in appropriate cases. Under the policy, hundreds of companies have
disclosed violations, and EPA has waived penalties in most cases.
v. conclusion
Thus, the conclusion is clear. Pollution secrecy and immunity laws
are an unnecessary attack on environmental law enforcement and the
public's right to know about pollution. Such proposals present numerous
opportunities for abuse, and law-breaking companies have a demonstrated
track record of using any and every tool available to hide information
and avoid responsibility. Therefore, Sierra Club and U.S. PIRG strongly
urge members of the Senate to oppose S. 866 and any proposal that would
limit EPA's oversight authority with regard to State pollution secrecy
laws.
Thank you for the opportunity to testify today.
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Prepared Statement of Robert C. Bundy, U.S. Attorney, District of
Alaska, and Lois J. Schiffer, Assistant Attorney General, Environment
and Natural Resources Division, U.S. Department of Justice
i. introduction
We are submitting the views of the Department of Justice on audit
and self-disclosure policy issues because of the great importance of
these issues to effective law enforcement. Our statement briefly
outlines the Department's concerns. Although the Department of Justice
was not invited to testify at this hearing, we would welcome the
opportunity to address these issues in greater depth.
Many prosecutors at the local, State and Federal levels--including
United States Attorneys across the Nation--have grave concerns that
laws creating an evidentiary privilege for environmental audits, and
bestowing immunity on violators who ``voluntarily'' disclose their
violations, seriously threaten our ability to protect the public
through the enforcement of the environmental laws. While the Department
of Justice fully supports the use of self-auditing as a means to ensure
compliance with environmental laws, we strongly oppose audit privilege
and disclosure immunity legislation such as S. 866.
ii. audit privilege and disclosure immunity laws are not needed to
encourage environmental auditing and compliance
The Environmental Protection Agency (``EPA'') and the Department of
Justice have adopted and implemented policies designed to encourage
both compliance auditing and candid disclosure of identified
violations. Those policies are working. Neither the Department nor EPA
routinely requests audit reports from a regulated entity until there is
an independent basis for believing that a violation of law has
occurred; and when companies do perform audits, disclose the existence
of violations uncovered by those audits, and correct those violations,
the Department's enforcement record over many years demonstrates our
commitment to give such actions great weight when deciding the
appropriate government response. While proponents of audit privilege
and disclosure immunity law have argued that legislation is needed to
ensure that environmental audits performed by well-meaning companies
are not misused by government agencies and Federal prosecutors, the
fact is that such laws are not only unnecessary; they are bad public
policy that will hinder enforcement of the law and interfere with the
public's right to know about threats to human health and the
environment.
A. Justice Department Policies
In order to encourage audits and compliance, in July 1991 the
Department of Justice issued a guidance memorandum for prosecutors
making decisions involving environmental crimes. In making such
decisions, prosecutors are to consider whether there has been: (1)
prompt and complete disclosure; (2) cooperation; (3) preventative
measures and compliance programs; and (4) correction of the violation.
The basic message of the guidance is that good-faith efforts by a
violator to identify and prevent problems, report them, and promptly
fix them, should be among the factors taken into account in
prosecutorial decisionmaking (the other factors including State of
mind, duration of the violations, human health or environmental
effects, and whether the violations reflected a common attitude within
an organization). Such efforts may even have a mitigating effect
sufficient to convince prosecutors that a case should not be brought
criminally at all.
This Department of Justice policy is yielding positive results.
When the Potomac Electric Power Company (PEPCO) determined that
pollutants had been unlawfully discharged for years from one of its
facilities in Maryland, it disclosed that fact to the Federal
Government and cooperated with authorities. As a result, PEPCO was not
prosecuted criminally, but the person actually responsible for the
violations was charged.
A case from Alaska similarly illustrates the favorable treatment
that a forthright and cooperating company can receive under the
Department's 1991 policy. When Russell Metals, Inc. learned that
managers of recently acquired corporate subsidiaries, the White Pass
Alaska companies, were under investigation for trying to cover up a
large oil spill into the Skagway River, it cooperated with the Alaska
United States Attorney's Office by fully disclosing the circumstances
of the oil spill, the cover-up, and other of the White Pass companies'
environmental violations. The White Pass companies' CEO and a
contractor were prosecuted, as were the White Pass companies. But as a
result of Russell Metals' cooperation and disclosure, Russell Metals
was not prosecuted at all.
Likewise, in a South Dakota case involving a meat-packing plant,
when a parent corporation, Chiquita Brands, learned from an internal
investigation that its subsidiary, the John Morrell Company, was
repeatedly violating the Clean Water Act by dumping slaughterhouse
waste into the Big Sioux River and deliberately submitting falsified
reports to conceal its crimes, Chiquita forced Morrell to disclose the
violation to Federal authorities. Morrell and several employees, who
had known of the violations for years but had done nothing to correct
or stop them, were prosecuted for the violations, but Chiquita was not.
These examples demonstrate the effect that the Justice Department's
policy is having in prosecutions around the country. When companies
work to identify and prevent non-compliance through audits, come
forward promptly when they do discover violations, and quickly correct
the violations, the Department's prosecutors take those actions into
account in making decisions about charging and sentencing. Forthright
and responsible companies receive appropriate consideration from the
government, but prosecutors are not hampered in their ability to go
after the people and entities that need to be pursued.
B. EPA Policies that the Justice Department Applies
In 1995 EPA took another important step toward encouraging
compliance audits when it published its ``Incentives for Self-Policing:
Discovery, Disclosure, Correction and Prevention of Violations,'' which
addresses how the Agency will treat both compliance audits and self-
disclosure of violations. 60 Fed. Reg. 66706 (Dec. 22, 1995).
In that statement EPA explained that, if certain specified
conditions are met, it: will not seek penalties or, under specific
circumstances, will seek only reduced levels of ``gravity-based''
penalties (i.e. penalties based on the seriousness of the violation),
while retaining the ability to recover financial gains that otherwise
would give violators an economic advantage over their law-abiding
competitors; will not refer violations to the Justice Department for
criminal prosecution if the violations did not involve either
managerial concealment of offenses or high level involvement in, or
blindness toward, violations (while reserving the ability to proceed
against responsible individuals); and will not routinely request audit
reports at the onset of its civil or criminal investigations. We concur
with Assistant Administrator Steven Herman that that policy is working.
It provides the appropriate level of incentives for companies to audit
and report the results of audits, without jeopardizing the ability of
the government to protect the public from threats to human health and
the environment, and to ensure that the environmental laws are enforced
effectively around the country.
iii. strong, fair enforcement encourages auditing and compliance
The available evidence demonstrates that what actually encourages
auditing is strong enforcement. As the Federal and State governments
continue to vigorously enforce the environmental laws, more companies
are performing audits all the time, and companies that conduct audits
are expanding and improving those programs.\1\
---------------------------------------------------------------------------
\1\ See, Note, Environmental Criminal Enforcement and Corporate
Environmental Auditing: Time For A Compromise?, 31 Am. Crim. L. Rev.
123 (1993), citing a 1992 Arthur D. Little, Inc. survey for Fortune 100
companies in which 80 percent of respondents stated that they planned
to expand their corporate environmental auditing programs.
---------------------------------------------------------------------------
A survey of trends in corporate environmental auditing, Price
Waterhouse's Voluntary Environmental Audit Survey of U.S. Business
(March 1995), found that 75 percent of the companies surveyed have
existing auditing programs, and that \1/3\ of those companies without
an existing auditing program plan to develop one. And one of the
primary reasons for the increase in auditing in recent years is the
strength of the current environmental enforcement program, a principal
component of which is the civil and criminal prosecution of
environmental violations by the Department.\2\ Companies perform audits
and correct violations found in those audits because they know that if
they do not, they may be subject to civil penalties, criminal
sanctions, the cost of remediation of environmental harm, tort
liability, and litigation costs. If increased environmental auditing is
truly the goal, we should be fostering strong environmental
enforcement, not hamstringing that enforcement by allowing companies to
hide their violations and escape punishment for them.
---------------------------------------------------------------------------
\2\ The Arthur D. Little, Inc. study also found that, among the
primary reasons for the expansion of audits, is the existence of
significant penalties for non-compliance.
---------------------------------------------------------------------------
iv. environmental audit privileges only conceal from citizens and
government officials information vital to human health and the
environment
Indeed, there is little or no reason to believe that environmental
audit privileges increase the amount or the quality of environmental
auditing. Among the companies responding to the Price Waterhouse
survey, the most important reason given by those that do not currently
audit for not doing so was a belief that their products and processes
have insignificant environmental impacts. A concern that audit
information could be used against them for any purpose was identified
by slightly fewer than one in five respondents. For those companies
unwilling to expand an existing auditing program, limited company
resources was the principal reason identified.
Even among companies currently performing audits, audit privileges
only reduce the effectiveness of the audits that are conducted. The
existence of an audit privilege diminishes the incentive to correct
violations promptly, and reduces the urgency to identify violations
before enforcement authorities do. With the veil of secrecy that an
audit privilege provides, unscrupulous companies may believe that they
are be able to conceal from both the regulators and the public both the
violations themselves and the environmental harm resulting from the
violations.
It is simply common sense--not to mention the empirical conclusion
of enforcement and regulatory efforts generally, both in the
environmental context and in such other contexts as securities and food
safety regulation--that public and governmental scrutiny of corporate
behavior increases the level of responsible behavior. Corporate secrecy
does not. And an environmental audit privilege would allow polluters to
hide their activities from the government and the public. This is true
whether the privilege is created by Federal law or State law. While the
States may be excellent laboratories for change in many circumstances,
environmental audits is not one of those circumstances. The problems
are too obvious and the risks are too great. The Federal environmental
laws were established to ensure that all Americans, wherever they live,
will be protected from the threats posed by pollution. The creation of
environmental audit privileges jeopardizes that protection. For the
same reasons, we also oppose legislative proposals that would make
Federal enforcement subject to State audit privilege or disclosure
immunity laws.
Moreover, aside from any direct concerns about enforcement and
compliance, community residents have a right to know about
environmental hazards that may pose a threat to their community. The
entire system of environmental regulation is built on self-reporting
and on government and public scrutiny of information relating to the
handling of environmental contaminants. Citizens and government
agencies use such information to make reasoned judgments regarding
steps to protect human health and the environment and to fashion
appropriate responses to violations. An environmental audit privilege
runs directly counter to this most basic premise of the environmental
regulatory system, and represents the first time that Federal
environmental legislation will have acted to limit the availability of
information to the public, rather than to expand it. That is not the
direction that we should be taking the environmental laws.
Now, some have tried to analogize the privilege created by
environmental audit legislation to the ``self-test'' privilege to be
established by regulation under the Fair Housing and Equal Credit
Opportunity Acts. The analogy does not hold. As an initial matter, as
members of the Department and other prosecutors have frequently stated,
any new evidentiary privilege impedes the truth-finding process so
critical in enforcement of our nation's laws, and allows violations and
violators to go undetected and unpunished. The Attorney General has
enumerated a number of the Department's concerns in regard to audit
privileges in her letter to Administrator Browner, dated April 6, 1995,
which we have attached to this testimony.
When the bill creating a privilege in the lending context was being
considered, the Department likewise opposed creation of a broad
privilege because of the threat such a privilege would have posed to
effective enforcement of the anti-discrimination laws. Indeed, in that
context, the Justice Department supported only a very narrow privilege
centered on matched pair testing, a technique especially suited to fair
housing and fair lending issues--and one that has no real analogue in
almost any other area of law, including environmental law. Matched pair
testing allows a lender to gauge the inclination of its employees to
violate the lending discrimination statutes without running the risk of
depriving an actual applicant of a loan. Thus, matched pair testing
really creates a new opportunity, which would not have existed but for
the matched pair test itself, to examine whether the employees of the
company performing the test are violating the law through
discrimination; yet the performance of the test does not result in a
bona fide borrower being denied a loan application. In contrast, the
privilege that some recent State legislation creates for environmental
audits shields from disclosure past and even ongoing environmental
violations that can pose a real and present risk to human health and
the environment. We cannot support the creation of such a privilege.
v. an environmental audit privilege would impair enforcement and drive
up litigation costs
The impediments that an audit privilege would create for civil and
criminal enforcement are profound. As just one example, many criminal
investigations begin with a tip from a company insider who is disturbed
by illegal activities he or she has observed and notifies authorities,
often providing written corroboration of the violations. In the face of
an environmental audit privilege, an investigator may be unable to
pursue that tip effectively because the investigator would not know
whether the corroboration provided by the whistle blower came from an
environmental audit report. Even the whistle blower might not know
whether the document was originally created as part of an audit.
If the investigation proceeded despite such uncertainty and it was
later determined that the corroborative document was protected under
the audit privilege law, all subsequently obtained evidence could be
suppressed as fruits of the privileged document, even if that evidence
demonstrated criminal conduct. At the very least, important information
which could corroborate the testimony of the whistle blower, whose
credibility would almost inevitably be strongly attacked by the
company's lawyers, would be withheld from the jury.
To prevent such a result, prosecutors will frequently be forced
very early in an investigation to initiate an in camera proceeding
before a court. Aside from taking scarce court time, such a proceeding
will require notification of the company being investigated, and may
thereby cutoff the investigative phase of the case prematurely. The
result could very well be that the investigation will be so hobbled
that charges will not be able to be pursued. Criminal activity would
thus go unpunished and environmental violations unaddressed.
Even after a prosecution is initiated, litigation over audit
privileges diverts scarce judicial and prosecutorial resources from
quickly and efficiently concluding environmental litigation and
remedying threats to human health and the environment. Time must be
spent on litigating in detail, every time the privilege is invoked,
whether such new and legally untested privileges apply, rather than on
trying to resolve the substance of the matter as expeditiously as
possible. And the disputes over the applicability of the privilege will
recur throughout the litigation, always consuming more and more of the
court's time. It would be a poor lawyer, indeed, who could not delay
investigations or trials for weeks or months in litigating the
complicated claims of privilege that inevitably arise under
environmental privilege statutes. This drain on courts' resources and
the associated escalation of government resources and private lawyers'
fees that will have to be spent on environmental cases--not to mention
the delay that will result in addressing environmental threats--simply
is not in the public interest, and cannot be justified.
vi. immunity for self-disclosed violations would directly interfere
with fair and effective enforcement of the law
In addition to the problems created by an audit privilege,
statutory grants of immunity for voluntary disclosures like those
contained in S. 866 raise additional problems. Such immunity provisions
allow violators, including those engaged in criminal violations of
environmental statutes, to go unpunished. In essence, such immunity for
criminal violations is like allowing anyone who confesses to robbing a
bank to escape prosecution, so long as the person apologizes and
promises to give the money back.
Environmental crimes are real crimes, with real impacts on
communities. Imagine the public outcry if, following an environmental
violation that caused death, serious bodily injury, or major
environmental harm, the government were prevented from prosecuting
those responsible because of an immunity law. Indeed, in the wake of
the Exxon Valdez disaster, Congress amended the immunity provision in
the oil spill reporting requirements of the Clean Water Act to ensure
that the government would not be prevented from utilizing an oil spill
notification against a corporation or responsible parties other than
the natural person actually providing the notice.
Providing immunity for violations voluntarily disclosed to the
government frustrates legitimate enforcement efforts and discourages
regulated entities from taking sufficient precautions to avoid
committing violations in the first instance. Currently, the law sends a
powerful message that those who are in a position to prevent or to
remedy a violation must do so, or bear the consequences. An immunity
provision sends a different message: it tells those same people that
there is no need to take a proactive approach to environmental
management because the company employing those people can immunize
itself from civil and criminal penalties even after it has caused
serious environmental problems. All it has to do is conduct an audit,
disclose its violations, and only then, when the harm is already done,
initiate action to correct those problems. The only thing companies
would make sure to do promptly in such a regime is invoke the
protections of the immunity statute.
vii. conclusion
The voluntary disclosure policies of the Department of Justice and
EPA are a fair and balanced approach to handling audits and self-
disclosure, and they are working well. They achieve the results that
proponents of audit privilege and disclosure immunity legislation say
they are trying to achieve, without adversely affecting environmental
enforcement and compliance, or the public's right to have access to
information about threats to their health and their environment. The
Department therefore opposes the enactment of audit privilege or
immunity legislation--at the Federal level and at the State level. Such
legislation is bad for enforcement, bad for the environment, and bad
for human health and the environment.
______
Office of the Attorney General,
Washington, DC, April 6, 1995.
Hon. Carol M. Browner,
Administrator, U.S. Environmental Protection Agency, Washington, DC.
Dear Ms. Browner: At our meeting in December, 1994, we discussed
the issues raised by proposed legislation that would create an
evidentiary privilege for environmental audits, or bestow immunity on
violators. We also discussed our belief in the importance of voluntary
compliance to environmental protection. I appreciate EPA's significant
efforts, working cooperatively with the Department, to re-examine its
policies on environmental audits and voluntary disclosure, especially
the work of Assistant Administrator Steve Herman and his stiff in
gathering a wide range of information and views on this topic.
Having looked closely at this issue, and having heard many views, I
have reached several conclusions. First, as a former prosecutor, I
oppose the creation of a new evidentiary privilege, or an immunity law,
be cause such legislation would reduce our ability to enforce the
environmental laws that protect the public's health and safety and our
precious natural resources. In a recent meeting with State and local
prosecutors we discussed this topic, and I advised them of my views on
this matter. I note that my objection is to the creation of a new
evidentiary privilege for environmental self-evaluations. I am not
addressing existing privileges, such as attorney-client and work
product, to the extent that those privileges may apply to certain
environmental audits. Second, I believe there are positive measures
that can be undertaken to encourage voluntary compliance without
resorting to a problematic statutory solution.
The legislative push for a privilege began with allegations that
the government used environmental audits unfairly to punish those
attempting to comply with the law. EPA's review, and a review of our
own cases, have shown that allegation to be criminal cases and found no
instance where a company voluntarily disclosed environmental violations
discovered by an audit and was subsequently prosecuted as a result of
its disclosure. What has emerged from this review is a picture of sound
enforcement practices that have substantially improved environmental
compliance. In fact, it appears that the effect of our joint
enforcement program has been to inspire more companies to undertake
audits in order to discover and correct violations.
While proponents have failed to demonstrate the need for an audit
privilege, such a privilege would carry a very heavy cost.
Environmental protection has improved under the environmental laws
based on a system of openness and self-reporting. Yet, an evidentiary
privilege statute would be tantamount to an environmental secrecy act,
shielding information about environmental violations and environmental
harm. Moreover, a privilege could serve to confuse the regulated
community about their existing legal obligations to report violations.
An audit privilege would constitute a major step away from corporate
accountability. I would restrict the truth-finding process and limit
our ability to seek relevant evidence on the public's behalf.
In addition, a privilege statute would mire federal enforcement
efforts in a morass of litigation over the applicability and reach of
the privilege and the scope of exemptions. Crucial terms in the various
audit privilege statutes are broad or ill-defined, and there are no
established definitions or standards for environmental audits. This
would allow violators to claim the privilege for a wide range of
internal activities and communications, while agents in the field would
lack clear guidance on how to proceed with their investigations. At
worst, environmental violations would go undetected and environmental
criminals unpunished. At best, the privilege statutes would introduce
new layers of litigation, including pre-indictment and pretrial motions
and in camera hearings.
This added litigation would consume scarce judicial, prosecutorial
and investigative resources, and the resulting delays would sometimes
leave underlying health and environmental problems uncorrected and the
public unprotected. I note that these are among the reasons why all
Federal, State and local prosecutors whose views have been communicated
to the Department, uniformly oppose statutes that would establish an
evidentiary privilege for environmental law violators.
An environmental audit privilege would be especially susceptible to
abuse. Proposed legislation cannot be analyzed solely on the model of
the good environmental citizen, since that person is not likely to be
an enforcement target. We must also consider environmental violators
who are willing to break the law to save money, and who, as recent
prosecutions have demonstrated, will lie to government officials to
conceal their actions. We can expect that a privilege would be raised,
often on frivolous grounds, just to interfere with the enforcement
process. An audit privilege could be used to shield serious continuing
violations and criminal conduct.
Proponents of an audit privilege mistakenly claim that the
privilege would reduce the involvement of lawyers and thereby make
audits more affordable for small businesses. To the contrary, in order
to ensure that statutory privileges cover their actions, businesses
would have to involve lawyers in the audit process at least as much as
they already do, thus diverting funds to lawyers rather than to
environmental compliance.
Some State statutes and proposed Federal legislation provide
immunity under certain circumstances to those who voluntarily disclose
their violations to the government. These unprecedented immunity
provisions have the potential to allow serious environmental criminals
and other violators to escape responsibility for their acts when, after
the fact and when the harm is done, they elect to come forward and
reveal their action. These immunity provisions require enforcement to
focus on a single factor--self-disclosure--and ignore all the other
considerations that should inform prosecutorial decisionmaking, such as
the duration and seriousness of the harm.
For all these reasons, the damage to environmental protection by
such laws would far outweigh any speculative gains they might
accomplish.
I am convinced that we can take additional affirmative steps to
encourage self-audits, self-correction and voluntary disclosures. Among
the steps that the Department would support are the following:
<bullet> Expansion of EPA's program of compliance assistance and
penalty mitigation for small businesses regulated by the clean Air Act
to other environmental statutes. A broader compliance assistance
program might be specially beneficial to small businesses, although
great care must be taken in expanding an amnesty provision to
regulatory programs that are far from new. If budgetary constraints
limit expansion of this assistance program, the Department is willing
to work with EPA to find methods of supplementing the Agency's
resources.
<bullet> Modification of current EPA penalty policies to give
substantial penalty mitigation for efforts at self-evaluation and self-
disclosure. In particular, where a company with a comprehensive
management system in place, discovered, reported and swiftly corrected
the violations, and no harm to the public or the environment resulted
from the violation, EPA could elect to forego the gravity component of
a penalty calculation. However, no company should be able to benefit
financially from breaking the law, thereby gaining an unfair
competitive advantage.
<bullet> Expansion of the Environmental Leadership Program into a
broad-based standardized program for environmental leaders. Such a
program would recognize those companies that demonstrate truly
excellent environmental management.
<bullet> Clarification of EPA's practice of not requesting audits
during routine inspections, and of the Department's practice of not
utilizing audits as a means of initiating cases. We should publicly
adopt these practices as the Department's and EPA's policy, with the
proviso that, once a civil or criminal investigation begins based on
independent information of violations, it is appropriate to obtain all
relevant information, including audits or other self-evaluative
reports.
<bullet> Announcement of the Department's intention to view the use
by organizations of effective programs to prevent and detect violations
of law, as well as self-reporting, cooperation and acceptance of
responsibility as mitigating factors in the sentencing phase of
environmental criminal cases against corporations.
<bullet> Development of an acceptable standard definition of the
term ``environmental audit'' and to crate a generally accepted set of
standards for conducting such audits in conjunction with the efforts of
private standard-setting entities.
These approaches, coupled with our shared commitment to tough yet
fair enforcement against those who seek an unfair advantage by avoiding
the costs of compliance, will encourage environmental compliance
auditing, voluntary disclosure, and greater compliance with the
environmental laws.
In conclusion, I ask you to join me in vigorously opposing Federal
legislation that would create an evidentiary privilege for
environmental audits or bestow immunity on violators. Working together
we can take steps that will encourage compliance without weakening the
enforcement of our Nation's environmental laws.
Sincerely,
Janet Reno.
______
Prepared Statement of Airports Council International-North America and
American Association of Airport Executives
Dear Mr. Chairman and Members of the Committee: The Airports
Council International--North America (ACI-NA) and the American
Association of Airport Executives (AAAE) appreciate the opportunity to
submit written comments for the record of the hearing on liability from
voluntary audits, held on October 30, 1997.
ACI-NA's members are the local, State and regional governmental
entities that own and operate commercial service airports in the United
States and Canada. ACI-NA member airports serve more than 90 percent of
the U.S. domestic scheduled air passenger and cargo traffic and
virtually all U.S. scheduled international travel. AAAE is the
professional organization representing the men and women who manage the
primary, commercial service, reliever and general aviation airports
which enplane 99 percent of the passengers in the United States.
ACI-NA and AAAE appreciate your taking the initiative to provide a
forum for Congress, the Administration, and industry to examine this
issue. In particular, airports support passage of S. 866, the
``Environmental Protection Partnership Act,'' introduced by your
colleague, Senator Kay Bailey Hutchison. The bill would prevent certain
voluntary disclosures of violations from being subject to investigatory
procedure or admitted into evidence during a judicial or administrative
proceeding. As part of general pollution prevention and environmental
planning efforts, airports often employ self audits to ensure that all
activities undertaken on airport property comply with environmental
laws and regulations.
Periodic voluntary audits allow airport management to identify
potential environmental problems, to evaluate current pollution
prevention and control technologies, and to develop more effective
methods for future use. However, airport operators have been
discouraged from continuing or expanding this practice, in the face of
EPA's requirement that they disclose this information as a matter of
public record, subject to enforcement action and penalties.
The airport community believes that self-policing can play a
crucial role in finding, correcting and preventing violations. The
current EPA-imposed policy effectively penalizes airport operators who
attempt to monitor their own activities and activities of their tenants
in an effort to ensure environmental compliance. Ironically, the EPA's
policy requiring full disclosure of self-audit ultimately creates a
disincentive for airports to do everything possible to ensure
compliance with environmental laws and regulations.
On behalf of U.S. airports, thank you for holding today's hearing
on this very important issue.
______
Prepared Statement of the American Farm Bureau Federation
The American Farm Bureau Federation (AFBF) is the largest general
farm organization in the nation. AFBF has affiliated State Farm Bureaus
in all 50 States and Puerto Rico, representing the interests of more
than 4.7 million member families nationwide.
We are pleased to submit this statement for the hearing record on
the issue of environmental audits. The debate on this issue is
extremely important to farmers and ranchers, because the way that the
environmental audit issue is finally resolved will go a long way toward
determining how agricultural compliance with environmental laws is
finally achieved.
The American Farm Bureau Federation believes that the approach
taken in Senator Hutchinson's bill, S. 822, offers the most promise,
and we support its passage. Senator Enzi's bill, S. 1332, which would
provide Federal recognition of the protections provided in State
environmental audit legislation, is also on the right track. We
believe, however, that Federal legislation needs to do more than
recognize State audit laws.
Farmers and ranchers bring a different perspective to this issue
than that presented at the hearing. Most of the testimony at the
hearing focused on environmental auditing by heavy industry or larger
corporations. Farmers and ranchers fit into neither category, yet they
are subject to as many or more environmental regulations. Just trying
to keep up with all the new environmental regulations that impact
agriculture is a full-time job for most farm and ranch operations.
Unlike large corporations, farm and ranch operations do not have
fully staffed environmental departments or divisions. Most farm and
ranch operations do not have the time or manpower to conduct their own
thorough environmental audits, or routinely study all of the
environmental rules and regulations that are promulgated. But that does
not mean that farmers and ranchers do not want to be in compliance with
environmental requirements.
Farmers and ranchers depend on the land for their food, fiber and
livelihoods. They have to take care of that land so it will continue to
produce year after year. An appropriate program of voluntary
environmental auditing would go a long way toward ensuring that farmers
and ranchers are in compliance with the myriad environmental rules and
regulations that now confront them.
The debate on environmental audits strikes to the core of the
purpose for environmental rules and regulations. It requires an answer
to these fundamental questions: Is the goal of environmental laws and
regulations to have people comply with their provisions, or is it to
provide a mechanism to punish those who do not? Is it the role of the
Environmental Protection Agency to bring about compliance with
environmental standards, or to punish those who do not? Are the general
public and the environment best served by people protecting or
enhancing the environment, or by punishing those who do not? Should the
goal of environmental audit legislation be to assist people to comply
with environmental laws and regulations, or to assist the EPA and other
Federal agencies in identifying violations of environmental laws?
We believe that environmental goals can best be attained and the
public better served through compliance rather than convictions. We
should not forget that these statutes were enacted for the purpose of
improving environmental conditions, not as penal statutes. The best way
to accomplish that goal is for as many people as possible to comply
with the standards set forth in those laws and regulations. We promote
the goal of full compliance with applicable environmental provisions in
our members' farm and ranch operations.
Distressingly, the testimony of Steven Herman of EPA at the October
30 hearing indicates that EPA views its primary mission as punishing
those not in compliance with environmental laws, rather than trying to
achieve compliance. The testimony evidenced a clear intent to not let
violations go unpunished, even at the expense of losing potential users
of the voluntary audit program. The fundamental problems with the EPA
view are: (1) focus on punishment rather than compliance does not
improve environmental quality; (2) there are not enough enforcement
personnel to uncover and investigate all of the environmental
violations; (3) to do an adequate job of enforcement will take much
more money and manpower that might be better used to assist people to
improve environmental quality through compliance with the many and
varied environmental laws and regulations; and (4) people who
understand their environmental conditions and what to do about them (as
through results of an environmental audit) and who want to take proper
steps are likely to be more successful in achieving the goals of
environmental laws and regulations than those who are punished for
noncompliance.
The current ``command and control'' system of environmental
compliance is not working. The more enforcement role that EPA and other
regulatory agencies assume, the more inadequate existing enforcement
resources are.
A voluntary environmental audit policy like the one embodied in S.
822 will assist in promoting compliance with environmental rules and
regulations and achieving environmental protection. Given the
inadequate resources for policing environmental compliance, a system
must be devised to encourage people to take steps to assess their own
situations and bring their operations into compliance with
environmental laws.
Most of the agricultural producers who might avail themselves of
the environmental audit procedure do not intentionally violating the
law. Rather, of the violations of environmental laws that producers are
likely to incur, the vast majority of them are either accidental
events, technical violations resulting from regulations that are too
complex, or are violations about which the producer has insufficient
knowledge. Environmental rules and regulations are so technical and
complex that it is not difficult to be in violation of some unknown
regulation. One of the primary uses of environmental audits is to
determine whether an operation is in compliance or in violation in the
first place.
Another primary use of environmental audits is to discover ways
that violations might be corrected and ways that practices can be
modified to prevent future violations. Operations that are not in
compliance can be brought into compliance. The environment is protected
and enhanced, and both the producer and the public benefit.
Everyone interested in protecting and enhancing the environment
should support the concept of environmental audits.
Farmers, ranchers and others would be very reluctant to conduct
environmental audits if the results of an audit could be used to
convict them of environmental violations. This is especially true in
cases where the producer is not sure whether there is any violation,
because in that situation doing an audit becomes ``roll of the dice''
for stakes higher than most individuals are willing to accept. While
this may be attractive to larger corporations, the reduced penalties
embodied in the EPA audit policy offer little or no inducement for
farmers and ranchers to do environmental audits. Asking people to
voluntarily take actions so that the results of those actions might be
used to incriminate them in court is hardly an inducement.
But the government is not the only entity for farmers and ranchers
to worry about. The Clean Air Act, the Clean Water Act, the Endangered
Species Act and most other environmental statutes contain expansive
``citizen suit'' provisions, which allow ``any person'' to bring a
civil action against anyone suspected of violating environmental laws.
Certain entities have very aggressively used these citizen suit
provisions against farmers and ranchers. Opponents of environmental
audit legislation speak about the public's ``right to know''
information on environmental violations. Does that ``right to know''
mean the ability to obtain information such as an environmental audit
to enable them to file citizen suits?
We believe that the approach taken in S. 822 solves this problem.
The bill provides that a voluntary environmental audit report made in
good faith shall not be subject to discovery in any investigative
proceeding, nor shall it be admissible in any judicial or
administrative proceeding. This immunity does not cover information
that is required to be reported, or information that is obtained by an
agency from independent sources.
The immunity does not extend to situations where (1) violations are
intentional, (2) where there is a pattern of violations by the entity,
(3) where disclosure is made with fraudulent intent, or (4) where any
violations are not remedied in a timely manner. The bill also does not
prohibit the use of injunctive relief to remedy significant
environmental or human health and safety concerns that are discovered
in the course of an environmental audit. By these exclusions, the bill
seeks to extend its shield of protection only to those who are serious
about assessing their operation and correcting any problems that might
be found.
S. 822 would not protect major polluters, as its critics claim. Nor
will it allow people to use the protections of S. 822 for dishonest
purposes. Its narrow scope is limited to providing inducement to honest
operators to voluntarily assess their own operations and take
corrective action where problems are discovered. If the goal of
environmental legislation is to have everyone comply with their
provisions, the approach taken in S. 822 is exactly what environmental
audit legislation should accomplish.
We would like to also address the issue of State environmental
audit laws. We support the efforts of States to promote environmental
awareness and protection within their borders by passing legislation to
encourage the use of environmental audits. We also support the
provisions of S. 822 and S. 1332 to federally recognize State
environmental audit laws and the inducements they provide. Farm Bureau
has long advocated that management at the State level is preferable to
Federal legislation in most cases.
In this situation, we believe that affirmative Federal recognition
of environmental audits is necessary, and that Federal legislation
should go beyond the mere recognition of State laws. The heretofore
heavy Federal presence in environmental matter requires Federal
legislation on the issue. Federal uniformity of inducements will also
resolve potential legal issues of which State law applies in cases
where there may be multi-State implications. that is not to say that
States should not enact environmental audit legislation to protect the
environment within their borders. We just believe that the more
complete approach in S. 822 will more likely resolve the issues.
______
Prepared Statement of Elizabeth Glass Geltman
``how a federal audit privilege furthers the new american
environmentality''
Thank you for inviting me to testify today. A few years ago I had
an opportunity to visit Disney World in Orlando, Florida. Much to my
family's chagrin, I didn't tour the magic kingdom. Instead, I toured
the facility co-generation plant, recycling station and composting
operations in order to view the environmental policies and practices of
the Disney enterprise. Disney called their environmental program
``environmentality;'' and they dictated that all employees should be
concerned with environmental compliance matters.
I am here today to talk to you about what I call the ``New American
Environmentality'' and how you as senators have an opportunity to
further this environmentality at no cost to taxpayers, business or our
communities. To the contrary, this low cost market based mechanism of
encouraging environmental auditing saves business' money, makes our
communities cleaner and greener and increases government efficiency. Of
course, I am talking about environmental audits and the bill you are
considering making environmental audit documents privileged under
certain circumstances.
As a people, Americans want environmental compliance. They want
clean air, clean water and green lands. They also want less government
bureaucracy in accomplishing these goals.
Corporate America, working together with State regulators and the
EPA regions, has had incredible success in improving that air and water
quality over the last 20 years. In many cases the air and the water are
cleaner. In other cases, the air and water are no dirtier than it was
20 years ago, notwithstanding the incredible development and population
increase in that time. These are successes to be proud of; but we, as a
nation, need to do more.
We need to improve the New American Environmentality to improve
environmental quality throughout the country. Government cannot do this
alone. We do not have enough regulators to enforce all violations of
all environmental laws. Moreover, we can not regulate all environmental
matters. Many important issues, such as nonpoint source runoff and
fugitive emissions, remain unregulated. We have to work together with
industry and the American people to improve the quality of the American
environment.
Enter environmental audits. Environmental audits are designed to
identify environmental problems that can become either a liability
issue or a regulatory concern. The goal of a well designed
environmental audit is to check a facility and identify potential
problems and correct them. Industry uses audits to keep environmental
costs down as well as to avoid fines.
To date, sixteen (16) States have enacted environmental audit
privilege or immunity laws. The concept of environmental audit
privilege is to encourage industry to conduct audits candidly and
proactively. Privilege allows regulated entities to look for problems
that they are not legally required to check. If the company fixes the
problem identified as problematic in the audit document, then the
document itself (and not the underlying data the document discusses)
will be privileged from discovery by enforcement authorities.
Note that the audit document is privileged if--and only if--the
regulated entity fixes the problems identified in the audit. There is
no privilege absent a correction of the environmental problems
identified in the audit. Hence, contrary to some assertions by U.S. EPA
and the U.S. Department of Justice respecting the privilege of an audit
document, industry cannot hide evidence of negligence. If the problem
is discovered in an audit and not fixed, then not only can a suit lie
for common law negligence (as well as the full panoply of environmental
laws), but the audit document would not be considered privileged
because a critical element necessary to invoke the privilege--
correcting the problem--has not been met.
Which brings me to a second argument often made by U.S. EPA and the
Department of Justice: use of the audit document to prove the scienter
(or knowledge) element in a criminal prosecution. U.S. EPA and the
Department of Justice consistently argue that they will not routinely
ask for audit documents, but reserve the right to do so to prove
scienter. This is bad policy. As I have already said, the must
important aspect of the privilege in most States is that it is
absolutely conditioned on coming into environmental compliance.
If a company does an audit, discovers a problem and corrects it
before there is any harm to the environment, then we as a society have
accomplished the primary goal of environmental laws--to keep society
safe. If a company does an audit after there has been an environmental
disaster and tries to use the audit to deter the effort the Justice
Department, then the document would not be privileged. Moreover, if
there is an environmental disaster there is likely to be a lot of
independent evidence of the environmental crime committed. Simply said,
the audit document itself would not be the only evidence of criminal
conduct.
If on the other hand, an audit is conducted and environmental
disaster is averted, there may be no independent evidence of wrongdoing
without discovering the audit document. But do we really want to spend
valuable enforcement resources prosecuting people who found a problem,
fixed it and averted environmental disaster? Shouldn't we spend our
scarce enforcement resources prosecuting those who cause harm to the
environment or who rountinely thumb their noses at environmental rules
and regulations? In other words, do we really want to criminally
prosecute parties where there is no harm to the environment and there
is no independent evidence of wrongdoing aside from the audit
document--the document which led to fixing the problem? To me, the
answer is clear: where environmental disaster has been averted, we
should be encouraging the efforts of industry--not threatening them
with criminal lawsuits. The goal is environmental compliance, not
prosecution for prosecutions sake.
I like to explain this principle to my law students by analogizing
to my kids. We have rules in our house and my two boys know that they
are supposed to abide by all the rules in the house all of the time.
Sometimes, however, they forget. Or make mistakes. The other day my
sons were throwing a ball in the living room. Both boys know they
weren't supposed to do so, but they were excited about the upcoming
Ravens/Redskins game (we follow both teams). While ``hiking'' the ball,
one boy accidentally knocked over a vase I had been given by a dear
friend for my wedding. My younger son looked at the breakage and
immediately suggested that they hide evidence of the ``crime.'' My
older son (wiser than his years) told my baby that hiding evidence of
the damage was not a wise idea. He said they needed to tell me, but he
was sure ``Mommy would be fair.'' He knew it would be worse to lie by
not telling me of the problem. The boys, thus, ran to me
apologetically, confessed theirs ``sins'' and promised never to do it
again. I admonished them for their errant behavior, but did not ground
them for the next 20 years. Balls haven't been flying in my house
since--although I expect there may be mistakes in the future.
Industry is like children. The job of U.S. EPA and the Department
of Justice is that of a responsible parent. We can not possible police
all industry for all environmental compliance all the time. Even the
best company will have problems and make mistakes. If we punish them
drastically, then they are unlikely to come forward and confess the
problems and work cooperatively with the agency. Instead, they are more
likely to hide the problems and let them fester until they become true
environmental disasters.
Americans want environmental compliance. Environmental audit laws
encourage environmental compliance by conditioning privilege on
correcting problems identified in the audit. Many States have enacted
audit privilege statutes to increase their environmental compliance
efforts. All preliminary data indicate that environmental compliance
(and beyond compliance environmental efforts) have increased in States
with privilege laws. Moreover, no State has indicated that the
existence of an environmental audit privilege law has interfered with
the ability of the agency to prosecute environmental matters any more
than the attorney client privilege hinders prosecution. Nor has the
U.S. Department of Justice been able to point to any case where the
existence of any environmental audit privilege or immunity law has
impaired prosecution beyond the discovery dispute normally occurring
in, for example, the attorney-client privilege context.
For these and many other reasons I have written on in the past, I
believe the passage of a Federal environmental audit privilege law
would be good for the environment, business and the public welfare. I
urge you to carefully consider the legislation before you; and I thank
you for your time.
______
Appendix A
Table of Audit Privilege Laws By Date Enacted
----------------------------------------------------------------------------------------------------------------
Date Enacted 1994 (4) 1995 (5) 1996 (6) 1997 (2)
----------------------------------------------------------------------------------------------------------------
States.......................... Arkansas, Illinois, Michigan; New Idaho (Revised);
Colorado, Idaho, Indiana, Kansas, Hampshire; Ohio; Michigan
Kentucky. Minnesota, South Carolina; (Revised).
Mississippi, New South Dakota;
Jersey, Oregon, Utah.
Texas, Utah,
Virginia, Wyoming.
----------------------------------------------------------------------------------------------------------------
Appendix B
Table of Audit Immunity Laws By Region
----------------------------------------------------------------------------------------------------------------
States with Neither
States with Enacted States with Proposed Proposed Nor Enacted
Region Audit Immunity Laws Audit Immunity Laws Audit Immunity Laws
(16) (24) (10)
----------------------------------------------------------------------------------------------------------------
1................................... New Hampshire.......... Maine, Massachusetts, Connecticut, Vermont.
Rhode Island.
2................................... New Jersey............. New York...............
3................................... Virginia............... Delaware, Maryland,
Pennsylvania, West
Virginia.
4................................... Kentucky, Mississippi, Alabama, Florida,
South Carolina. Georgia, North
Carolina, Tennessee.
5................................... Michigan, Minnesota, None................... Illinois, Indiana,
Ohio. Wisconsin.
6................................... Texas.................. New Mexico, Oklahoma...
7................................... Kansas................. Iowa, Missouri, Arkansas, Louisiana.
Nebraska.
8................................... Colorado, South Dakota, Montana................ North Dakota.
Utah, Wyoming.
9................................... None................... Arizona, California, Nevada.
Hawaii.
10................................... Idaho.................. Alaska, Washington..... Oregon.
----------------------------------------------------------------------------------------------------------------
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New York State,
District Attorneys Association,
Kew Gardens, NY, October 28, 1997.
Hon. John H. Chafee,
Chairman, Environment and Public Works Committee,
U.S. Senate, Washington, DC.
Re: Environment and Public Work Committee Hearings on Voluntary Audits
to be held on October 30, 1997
Dear Senator Chafee: Thank you for the opportunity to
present written testimony to the Environment and Public Works
committee on behalf of the New York State District Attorneys
Association (NYSDAA) and the 62 elected district attorneys whom
it represents.
As President of the Association, I urge that the Committee
carefully consider the unintended consequences of the proposed
Environmental Protection Partnership Act (Senate 866). If
enacted, the Act would, in our judgment, cause serious harm to
those whom it is intended to protect and would intrude upon the
right of our States to enact and enforce their own laws.
Provisions of the Environmental Protection Partnership Act (Senate 866)
The proposed Environmental Protection Partnership Act
(EPPA) has two major components, each of which would shield
criminal activity. Taken together, they would create a haven
for criminal conduct on the part of industry, environmental
service providers and even government employees.
Privilege Provisions
The first component of the proposed Act creates a very
broad privilege for environmental audit reports. In effect, it
creates a corporate fifth amendment privilege in the
environmental arena. where no such Federal or State corporate
privilege exists in other areas. The Act makes audit documents
inadmissible in evidence and exempt from discovery. The
privilege creates a cloak of secrecy around a host of items
which are not protected by any traditional privilege: personal
observations, scientific tests, field analysis, laboratory
results, photographs, graphs, and other empirical data; expert
testimony and opinions; recommendations; and documents which
describe the scope and methodology of the audit. The privilege
also limits testimony by those who participated in an audit.
The privilege cloak keeps government in the dark about an
audit even if the company voluntarily shares that audit with a
lender, buyer, potential business associate, or competitors.
The privilege shield, with very limited exceptions, would
equally thwart efforts of prosecutors, grand juries, government
lawyers, regulatory agencies, citizens' groups and next door
neighbors to learn the truth about an environmental violation.
Immunity Provisions
The proposed Act would grant criminal, civil and
administrative immunity to companies and officers without the
consent of or notification to State or Federal prosecutors. Any
company which makes a ``prompt'' disclosure of a violation to a
State or Federal environmental agency, setting forth plans for
any necessary remediation would receive an automatic
presumption of immunity from prosecution (``disclosure
immunity'').
If the regulatory agency does not dispute the disclosure
immunity within 60 days, the immunity is conclusive. In
considering whether to dispute a disclosure immunity, the
agency has no right to see the audit documents giving rise to
the disclosed violation. Those documents, including the
empirical data, remain privileged and inaccessible except to
the extent a company chooses to share it.
To dispute the immunity, the agency must establish that the
company was repeatedly found guilty of distinct violations
based on the exact same legal requirements, with different
underlying causes, during the three preceding years. Other
criminal acts or different environmental violations are not a
basis for denying immunity.
Assuming a prosecutor learns about a disclosure, and
convinces the agency to dispute the immunity due to an ongoing
criminal investigation, the question of immunity cannot be
resolved until the criminal charges are filed. In the criminal
proceeding, the prosecutor must prove to the court beyond a
reasonable doubt that the defendant was not entitled to
immunity-by showing the same pattern of repeat violations, or
an elevated intent to actually violate the applicable laws. The
audit documents cannot be reviewed by the prosecutor to develop
evidence of the enhanced intent.
Background
In January 1995, the NYSDAA unanimously adopted a
resolution opposing environmental self-audit privilege and
immunity laws. This resolution was adopted after members of our
Environmental Subcommittee had participated in formal working
groups negotiating sessions, debates and public hearings on
voluntary audits and compliance initiatives.
For more than 3 years, we have successfully opposed
privilege and immunity legislation introduced in New York
State. New York State Governor George E. Pataki and its
Attorney General Dennis C. Vacco have also rejected such
legislation. Meetings with our State business community,
professional auditing associations and other privilege
proponents have convinced us that there are more effective ways
to address industry complaints and encourage compliance.
The Focus of the Audit Privilege/Immunity Debate
Testimony favoring audit legislation in previous
congressional hearings has focused on the complex, sometimes
burdensome environmental regulations with which industry must
comply. Proponents have claimed unfair treatment by regulatory
agencies, and suggest that environmental violations in this era
are largely technical in nature. Privilege and immunity laws
would offer companies protection from both government
enforcement actions and private party litigation.
The United States Department of Justice and the National
District Attorneys Association have consistently opposed
enactment of environmental self-audit privilege and immunity
laws. If Senate 866 were enacted it would shroud important
evidence in secrecy and shield from prosecution the most
serious of offenders. These offenders are not ``technical''
violators.
Throughout our State, drums of hazardous waste are dumped
in our woods and streams; stolen tractor trailers full of
hazardous waste from other jurisdictions are abandoned in our
industrial parks; tanker trucks dump waste on our highways and
in our town landfills; generators pay unlicensed truckers cash
to take their waste without manifests; manufacturers
intentionally dump industrial waste into cesspools and storm
drains to leach into our water supplies; and greedy
environmental contractors defraud government of millions of
dollars doing shoddy asbestos and lead abatement in our poorest
neighborhoods and schools.
These intentional violators are the most likely to perform
sham audits, make self-serving disclosures and benefit from
both the privilege and immunity aspects of the law.
The Unintended Consequences of Senate 866
The Impact of Privilege on Public Safety
The privilege is too broad and the exceptions do not allow
government access to audit documents when they are needed to
protect public health, safety and the environment:
<bullet> Emergency responders trying to contain an active
spill or determine a cause of physical injury would be denied
access to documents necessary to limit environmental
depredation or save lives.
<bullet> A grand jury or government agency conducting an
investigation into workplace injuries or fatalities would be
denied access to documents which might reveal management's
knowledge of dangerous conditions. There is no provision in the
Act to balance public safety against rights of private parties,
such as exist in other areas of the law. For example, hospitals
are encouraged to review deaths in their facilities to improve
procedures and prevent similar occurrences. Those reviews are
not accessible to plaintiffs suing for wrongful death, but are
available to government agencies which license doctors and
hospitals and to grand juries investigating whether the death
constituted a homicide. Under the EPPA, evidence necessary for
the government to prevent future threats to public safety would
remain secret.
The Privilege Exceptions are Too Narrow
Circumstances in which audit related documents are relevant
to criminal investigations are not contemplated by the Act.
This legitimate need for information does not satisfy the
narrow privilege exceptions.
<bullet> When an environmental service provider such as a
hazardous waste hauler defrauds an unsuspecting company by
charging for lawful disposal services, and then illegally dumps
the company's waste, audit documents may be necessary to make a
criminal case against the hauler. The privilege exceptions do
not allow the government to obtain those documents to prove the
hauler knew the waste it dumped was hazardous.
<bullet> When a business is investigated for its current
illegal activities, any audit conducted prior to the activities
under investigation would be relevant to prove knowledge and
intent in the current case. The narrow privilege exception
would not give prosecutors access to those previously generated
documents if the illegal acts were discontinued when first
discovered, even if the company consciously resumed illegal
dumping activities for financial motives after receiving
immunity.
<bullet> Audit documents from one company would not be
available under the Act to prove criminal activity of another
company. Where there is hidden ownership or where a shell
corporation operates a facility, audit documents from any
number of companies may establish criminal intent of a
particular individual. The limited privilege exceptions would
prevent government from piercing corporate veils to prove an
ongoing course of criminal environmental violations.
<bullet> The privilege exceptions are applied on a case by
case basis under the Act. Where there is organized criminal
activity, it is necessary to review patterns of activity and
develop circumstantial evidence of intent. The limited
exceptions do not allow a review of a company's ongoing course
of conduct and do not make audit information available to
prosecute crimes which may be peripheral to environmental
performance.
The Immunity is Too Broad
The prosecutor's obligation to balance individual needs
against public safety in resolving criminal cases is nullified
by the automatic immunity provisions of the proposed Act. The
immunity provisions are too broad because they do not take into
account any of the following:
<bullet> The seriousness of the offense, extent of
environmental damage, potential harm to health of the
community.
<bullet> Whether remediation has been completed as planned
by the company at the time immunity was granted.
<bullet> Whether the immunized activity was a major or
minor violation, whether the company violated other
environmental laws in addition to the one for which a
disclosure immunity is claimed, or whether the management has
committed other non-environmental crimes such as perjury or
defrauding the government.
<bullet> Whether the company can benefit and is willing to
participate in government assisted compliance efforts to
improve overall performance.
<bullet> Whether the audit activity giving rise to the
disclosure was appropriate to the size and nature of the
facility, professionally conducted, accurate in its findings
and likely to prevent future violations.
The Combined Impact of Immunity & Privilege Provisions
The sunset provision of the proposed Act suggests that the
impact of EPPA would be scrutinized by Congress before
extending it. However, the secrecy and automatic immunity
provisions would prevent any scrutiny at all.
<bullet> There is no way to measure whether a particular
immunized act or the program itself has actually helped or
harmed public health, safety or the environment. There is no
means of determining whether remediation has been completed or
future violations prevented.
<bullet> There is no penalty for a company that hides
evidence of undisclosed crimes, and no way to revoke immunity
if illegal conduct is resumed subsequent to the grant of
immunity.
<bullet> Crucial evidence would not be available if a grand
jury is investigating a public servant for bribery or other
misconduct in office. There is no way to scrutinize the
activities of regulators who administer the programs created by
the proposed Act. Once immunity is granted to the company even
if the company bribed a regulator not to dispute disclosure
immunity-a grand jury cannot obtain copies of audit documents
to indict, to determine where the process failed or even to
recommend legislative change. This protects from scrutiny the
very employees of regulatory agencies who are charged with
administering environmental programs, even if they are
suspected of unlawfully disclosing proprietary information from
an audit document to a company's competitors.
<bullet> Because there is no review process, there is no
incentive for companies to conduct good audits. In fact, the
promise of immunity may well encourage sham audits by
criminally motivated manufacturers and unqualified or
fraudulent auditors.
The District Attorneys of New York State are attuned to the
needs of businesses in our respective jurisdictions and like
all elected officials we are interested in the economic well-
being and ability of those businesses to survive. We will work
with them--and renew our commitment to work with you--to devise
solutions for some of the very real problems raised by industry
regarding how it is regulated. However, our primary
responsibility as prosecutors is to protect the health and
safety of our citizens. Enactment of environmental self-audit
privilege and immunity laws, where none exist with respect to
other business relationships, will seriously impede our ability
to do so.
Very truly yours,
Richard A. Brown,
President.
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