[Senate Hearing 105-305]
[From the U.S. Government Publishing Office]


                                                        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
                                     



                              



                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
 45-438 cc                 WASHINGTON : 1998
_______________________________________________________________________
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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

                              ----------                              
                                                                   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:
     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.
     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.
     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.
     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).
---------------------------------------------------------------------------
     Assess and reduce environmental health and safety risks, 
both as required by regulation and on a voluntary basis that goes 
beyond compliance.
     Anticipate upcoming regulatory requirements (which enables 
facilities to manage pollution control in a proactive manner).
     Prioritize pollution prevention activities.
     Help management understand new regulatory requirements and 
establish corporate policies.
     Assess internal management and control systems.
     Measure progress toward compliance.
     Improve expeditious communication regarding environmental 
developments to facility personnel and, where appropriate, ensure 
effective communication with government agencies and the public.
     Assure that capable and properly trained personnel are 
available at all times to perform emergency and other environmental 
functions.
     Evaluate causes for environmental incidents and determine 
procedures to avoid recurrence.
     Assure sufficient budgeting for environmental concerns.
     Provide a means for employee training and performance 
evaluation.
     Maximize resources through recycling, waste minimization, 
and other pollution prevention measures, including process changes, 
that may benefit the environment.
     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:
     provide a qualified privilege under Federal law;
     provide limited protections under Federal law for 
environmental violations disclosed to EPA and expeditiously corrected; 
and
     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:
     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.
     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.
     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.
     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
     The States should be the primary focus for implementation 
and enforcement of environmental programs.
     While maintaining a strong and focused enforcement 
program, Agency efforts and resources should primarily be devoted to 
compliance.
     Environmental compliance and enforcement efforts must be 
directed at achieving desired environmental goals.
     Environmental enforcement should be prioritized at all 
levels based on the seriousness and the nature of the violation.
     Prosecution of environmental criminal violations should be 
based on intentional violations of clearly enunciated standards that 
are interpreted and applied in a consistent manner.
     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.
     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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[GRAPHIC] [TIFF OMITTED] T6584.027

[GRAPHIC] [TIFF OMITTED] T6584.028

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:
     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.
     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:
     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.
     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.
     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.
     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.
     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.
     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:
     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.
     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.
     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.
     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.
     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.
     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:
     The seriousness of the offense, extent of 
environmental damage, potential harm to health of the 
community.
     Whether remediation has been completed as planned 
by the company at the time immunity was granted.
     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.
     Whether the company can benefit and is willing to 
participate in government assisted compliance efforts to 
improve overall performance.
     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.
     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.
     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.
     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.
     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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