[Federal Register Volume 64, Number 145 (Thursday, July 29, 1999)]
[Notices]
[Pages 41116-41119]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19437]


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ENVIRONMENTAL PROTECTION AGENCY

[FRL-6409-8]


Proposed Modifications to the Policy on Compliance Incentives for 
Small Businesses and Request for Public Comment

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice; request for public comment on proposed revisions.

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SUMMARY: The Environmental Protection Agency (EPA) is proposing to 
modify the Policy on Compliance Incentives for Small Businesses to 
expand the options allowed under the Policy for discovering violations 
and to establish a time period for disclosure. This Policy is intended 
to promote environmental compliance among small businesses by providing 
incentives for voluntary discovery, disclosure, and prompt correction 
of violations. The Policy accomplishes this in two ways: by setting 
forth guidelines for the Agency to reduce or waive penalties for small 
businesses that come forward to disclose and make good faith efforts to 
correct violations, and by deferring to States, Tribes, and local 
governments that offer these incentives.

DATES: Comments must be received on or before September 27, 1999.

ADDRESSES: Mail written comments to the Enforcement and Compliance 
Docket and Information Center (2201A), Docket Number EC-P-1999-009, 
Office of Enforcement and Compliance Assurance, U.S. Environmental 
Protection Agency, 401 M Street SW, Washington, DC 20460. In person, 
deliver comments to Enforcement and Compliance Docket Information 
Center, U.S. Environmental Protection Agency, Rm. 4033, Ariel Rios 
Bldg., 1200 Pennsylvania Ave., NW, Washington, DC. Copies of the 
existing Policy and Fact sheet are available at that location as well. 
Persons interested in reviewing these materials must make advance 
arrangements to do so by calling 202-564-2614. Comments may also be 
faxed to 202-501-1011 or submitted electronically to: 
[email protected].

FOR FURTHER INFORMATION CONTACT: Ginger Gotliffe, Office of Compliance, 
telephone 202-564-7072; fax (202) 564-0009; e-mail: 
[email protected].

SUPPLEMENTARY INFORMATION: Five years ago, EPA reorganized its 
compliance programs. This reorganization was undertaken by 
Administrator Browner with a goal of making EPA's enforcement and 
compliance programs more effective in protecting public

[[Page 41117]]

health and the environment. The reorganization also improved and 
enhanced our abilities to reach out to small business sectors with 
information to help them comply. At this five year anniversary, EPA has 
been conducting outreach efforts to obtain feedback on compliance and 
enforcement activities issues, on ways to further improve public health 
and the environment through compliance efforts, and on the actions the 
Agency has taken over the past five years. Recently, EPA held two 
national conferences entitled ``Protecting Public Health and the 
Environment through Innovative Approaches to Compliance.'' As part of 
this effort, the Office of Enforcement and Compliance Assurance (OECA) 
also published a Federal Register document soliciting comments on how 
EPA can further protect and improve public health and the environment 
through new compliance and enforcement approaches (see 64 FR 10144, 
March 2, 1999). Conference summaries and a copy of the Federal Register 
document are available at OECA's website at http://www.epa.gov/oeca/
polguid/oeca5sum.html. From outreach efforts such as the conferences 
held earlier this year and from meetings and conference calls with 
interested stakeholder groups specifically concerning small business 
issues such as the Small Business Policy, OECA received feedback that 
improvements to the Policy could be made. In response to that feedback, 
OECA has been looking at ways to improve the Policy, and is now 
proposing modifications to the Small Business Policy and requesting 
additional comments on the Policy.
    Under the Policy, EPA will waive or mitigate civil penalties 
whenever a small business makes a good faith effort to comply with 
environmental requirements by discovering violations, promptly 
disclosing the violations, and correcting them. Assuming the facility 
meets all the criteria in the policy, including those on violation 
history, corrections period, and lack of harm, EPA will waive 100% of 
the civil penalty. Moreover, EPA will defer to State and Tribal actions 
that are consistent with the criteria set forth in this Policy.
    These proposed changes would modify the Final Policy issued in June 
1996. See 61 FR 27984, June 3, 1996. The Agency would like comments 
from the public on the following proposed changes and on any other 
issues concerning the Policy.
    1. Expand Options for Discovery of Violations. One proposed change 
is to allow small businesses to obtain penalty relief by using any 
means of voluntary discovery as well as on-site compliance assistance 
or environmental audits. Voluntary discovery could include compliance 
management systems (CMS), pollution prevention assessments, 
participation in mentoring programs, training classes, use of on-line 
compliance assistance centers, and use of checklists. The Agency wants 
to encourage participation in those programs or activities that could 
increase compliance, improve efficiency, and reduce pollution. These 
programs and activities need not be associated with environmental 
regulatory agencies, but may be associated with trade associations, 
professional associations, universities, and the like. EPA will 
consider application of this Policy to violations discovered through 
activities required in ``partnership'' programs on a project-by-project 
basis.
    There are a variety of activities and sources of information that a 
small business can use to learn more about the regulatory requirements. 
EPA and the States provide various forms of compliance assistance. Some 
State assistance programs are run as confidential services to the small 
business community. If a small business wishes to obtain a corrections 
period after receiving compliance assistance from a confidential 
program, the business must promptly disclose the violations to the 
appropriate regulatory agency and comply with the other provisions of 
this Policy.
    2. Penalty Reduction. Penalties are made up of two components: 
gravity and economic benefit. The gravity component mitigation 
typically involves the nature of the violations, the duration of the 
violations, the environmental or public health impacts of the 
violations, good faith efforts by the small business to promptly remedy 
the violation, and the facility's overall record of compliance with 
environmental requirements. Under this Policy, the Agency will grant 
100% mitigation of (completely eliminate) the gravity component of the 
penalty for violations found through any method provided all the other 
criteria in the policy are met. The Agency believes the incentive of 
100% gravity mitigation should encourage small businesses to disclose 
violations and correct them within the specified time period.
    The Policy provides that EPA may seek the economic benefit portion 
of the penalty if a small business has obtained a significant economic 
benefit from the violations, for example, if a business significantly 
reduced its expenses by not purchasing and installing an emission 
control device to meet its regulatory requirements. Prompt disclosure 
and correction of violations discovered often results in no economic 
benefit having been accrued. To date, the vast majority of the 
disclosures under the Incentives for Self-Policing: Discovery, 
Disclosure, Correction and Prevention of Violations Policy (Audit 
Policy) and all of the disclosures under the Small Business Policy have 
not necessitated recovery of economic benefit. The Audit Policy is 
another EPA policy that provides penalty mitigation for discovering, 
disclosing, and correcting violations. The main differences between it 
and the Small Business Policy are that the Audit policy may be used by 
businesses of any size, it provides two different levels of penalty 
mitigation based upon how the violation was discovered, and the 
correction period is shorter.
    3. Clarify and Lengthen the Disclosure Period. Another proposed 
change is to require that the business fully disclose a violation 
within 21 calendar days regardless of how the violation was discovered. 
Currently, the Policy requires ``prompt disclosure'' for compliance 
assistance discovery and 10 day disclosure for discoveries made through 
an environmental audit. This modification will clarify the definition 
of discovery period. It is critical for EPA to get timely reporting of 
violations in order that it might have a clear notice of the violations 
and the opportunity to respond if necessary, as well as an accurate 
picture of a given facility's compliance record. Lengthening the 
disclosure period will give small businesses more opportunity to make 
use of the policy and will be consistent with the proposed modification 
to the Audit Policy. That modification was a result of the Audit Policy 
evaluation that showed that the 10-day period was unduly restrictive.
    4. Implementation of the Policy. The Policy has also been modified 
in format and language to provide the information in a more 
understandable manner. To increase the usefulness of the Policy, EPA 
will provide a fact sheet, contacts list, and other information about 
the Policy at the EPA web site (http://www.epa.gov/oeca/polguid), at 
the Compliance Assistance Centers web sites (all 9 Centers available 
through http://www.epa.gov/oeca/mfcac.html), through EPA Headquarters 
and Regional contacts and as part of targeted compliance assistance 
activities and initiatives.
    Enhanced implementation of the Policy also involves improved 
procedures and coordination within EPA. EPA Headquarters and Regional 
staff working on the Audit Policy as

[[Page 41118]]

well as this Small Business Policy are coordinating on issues and 
procedures to insure national consistency and to improve the timeliness 
of the Agency's review of each disclosure. EPA will commit to 
responding to a small business within 60 days of disclosure of a 
violation.
    To date the Small Business Policy has not been used very much. As 
reported to Congress approximately 150 small entities applied for 
penalty relief under EPA disclosure policies. Many of these small 
entities (which include small businesses as defined under this Policy) 
used the Audit Policy. EPA knows through conversations with State 
officials that there are many small businesses using State disclosure 
policies for violations discovered under State regulations. To increase 
the usage of the Policy once it is finalized, EPA is planning a 
marketing effort for the Policy. Public comments on effective marketing 
techniques for small business sectors are encouraged.
    5. Compliance Incentives Issues and Comments. EPA recently 
announced the results of its evaluation of the effectiveness of the 
Incentives for Self-Policing: Discovery, Disclosure, Correction and 
Prevention of Violations Policy (Audit Policy) of December 1995, and 
solicited public comments on proposed changes (see 64 FR 26745, May 17, 
1999). To the extent that results from that evaluation and comments to 
that Federal Register document address small business issues with 
compliance incentives policies such as the Small Business Policy, the 
Agency will consider that information. Small entities (those businesses 
that meet the definition of small entity under SBREFA) have used the 
Audit Policy, so comments about their usage of a compliance incentive 
policy would be pertinent.
    As part of the Agency's evaluations of the two policies and given 
the similarities between the two Policies, EPA asks for comments in 
this Notice on the advisability of combining the Audit Policy with the 
Small Business Policy. In particular, the Agency is interested in 
whether small businesses would be more likely to audit and self-
disclose violations (or seek compliance assistance) if the two policies 
were merged. EPA is particularly interested in hearing the comments of 
small businesses on this point.

    Dated: July 20, 1999.
Elaine Stanley,
Director, Office of Compliance, Office of Enforcement and Compliance 
Assurance.

Policy on Compliance Incentives for Small Businesses

A. Introduction and Purpose

    The Policy on Compliance Incentives for Small Businesses is 
intended to promote environmental compliance among small businesses by 
providing incentives for them to make use of compliance assistance 
programs, environmental audits, compliance management systems (CMS), or 
to participate in any activities that may increase the business's 
understanding of the environmental requirements with which they must 
comply. The Policy accomplishes this in two ways: by waiving or 
mitigating civil penalties, and by deferring to States and local 
governments who offer these incentives consistent with the criteria 
established in this Policy.
    EPA will waive or mitigate civil penalties, whenever a small 
business makes a good faith effort to comply with environmental 
requirements by:
    (1) Discovering a violation,
    (2) Disclosing the violation, and
    (3) Correcting the violation within the proper timeframe.
    To use the Policy, the facility must meet criteria on violation 
history, corrections period, lack of harm, and criminal conduct.

B. Background

    This Policy implements section 223 of the Small Business Regulatory 
Enforcement Fairness Act of 1996, signed into law by the President on 
March 29, 1996.

C. Applicability

    This Policy applies to facilities owned by small businesses as 
defined here. A small business is a person, corporation, partnership, 
or other entity who employs 100 or fewer individuals (across all 
facilities and operations owned by the entity).1 Facilities 
that are operated by municipalities or other local governments may be 
covered under the Small Communities Policy (see http://es.epa.gov/oeca/
polguid/polguid1.html).
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    \1\ The number of employees should be considered as full-time 
equivalents on an annual basis, including contract employees. Full-
time equivalents means 2,000 hours per year of employment. For 
example, see 40 CFR 372.3.
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    This Policy supersedes the previous version of the policy which 
became effective on June 10, 1996. To the extent that this Policy may 
differ from the terms of applicable enforcement response policies 
(including penalty policies) under media-specific programs, this 
document supersedes those policies.

D. How Small Businesses Can Qualify for Penalty Mitigation

    EPA will eliminate or mitigate civil penalties against small 
businesses based on the following criteria:
1. Discovery Is Voluntary
    The small business discovers a violation on their own before an EPA 
or State inspection. Violations might be discovered after receiving 
compliance assistance, conducting an environmental audit or 
participating in mentoring programs. Other activities that may be 
useful in discovering violations include establishing compliance 
management systems (CMS), using compliance checklists, reading 
materials on complying with environmental requirements, using 
compliance assistance center web sites, and attending training classes.
    The violation must be identified voluntarily, and not through a 
legally mandated monitoring or sampling requirement prescribed by 
statute, regulation, permit, judicial or administrative order, or 
consent agreement. These include emissions violations detected through 
a continuous emissions monitor (or alternative monitor established in a 
permit), violations of National Pollutant Discharge Elimination System 
(NPDES) discharge limits detected through required sampling or 
monitoring; or violations discovered through a compliance audit 
required to be performed by terms of a consent order or settlement 
order.
2. Disclosure Period Is Met
    a. The small business must fully disclose a specific violation in 
writing to EPA or the State within 21 days after it has discovered that 
the violation has occurred, or may have occurred. Prompt disclosure is 
evidence of the regulated entity's good faith in wanting to achieve or 
return to compliance as soon as possible. The time at which discovery 
that a violation may have occurred begins when any officer, director, 
employee or agent of the facility becomes aware of any facts that 
constitute a possible violation. Where there is some doubt about 
whether a violation has occurred, the recommended course is for the 
facility to disclose and allow the regulatory authorities to make a 
definitive determination. This will insure that the

[[Page 41119]]

facility meets the disclosure period requirement.
    b. The disclosure of the violation must occur before the violation 
was otherwise discovered by, or reported to EPA, the appropriate state 
or local regulatory agency. See section F.1 of the Policy below. Good 
faith also requires that a small business cooperate with EPA and 
provide such information requested by EPA to determine applicability of 
this Policy.
    c. If a small business wishes to obtain a corrections period after 
receiving compliance assistance from a confidential assistance program, 
the business must disclose the violations to the appropriate regulatory 
agency within 21 days of discovery.
    3. This is the small business's first violation of this requirement 
in three years. This Policy applies unless the business has:
    a. Previously been subject to a warning letter, notice of 
violation, field citation, citizen suit, or any other enforcement 
action by a government agency for a violation of the same requirement 
within the past three years.
    b. Used this Policy for a violation of the same or a similar 
requirement within the past three years.
    c. Been subject to two or more enforcement actions for violations 
of environmental requirements in the past five years, even if this is 
the first violation of this particular requirement.
    4. The business corrects the violation within the corrections 
period set forth below.
    Small businesses are expected to remedy the violations within the 
shortest practicable period of time. Correcting the violation includes 
remediating any environmental harm associated with the violation, as 
well as implementing procedures to prevent a recurrence of the 
violation.
    a. For any violation that cannot be corrected within 90 days of 
detection, the small business should submit a written schedule, or the 
agency should issue a compliance order with a schedule, as appropriate. 
The corrections are to be completed not more than 180 days following 
the date that the violation was detected.
    b. If the small business intends to correct the violation by 
implementing pollution prevention measures, they may take an additional 
period of 180 days, i.e., up to a period of one year from the date the 
violation is detected, only if necessary.
    5. The Policy does not apply if:
    a. The violation has caused actual serious harm to public health, 
safety, or the environment;
    b. The violation is one that may present an imminent and 
substantial endangerment to public health or the environment; or
    c. The violation involves criminal conduct. Businesses wishing to 
pursue penalty mitigation for a violation that does involve criminal 
conduct should refer to the Incentives for Self-Policing: Discovery, 
Disclosure, Correction and Prevention of Violations Policy of December 
1995 (60 FR 66706, 12/22/95).

E. Penalty Mitigation Guidelines That EPA Will Follow

    EPA will exercise its enforcement discretion to eliminate or 
mitigate civil penalties as follows.
    1. EPA will waive the civil penalty if a small business satisfies 
all of the criteria in section D. If, however a small business has 
obtained a significant economic benefit from the violation(s), EPA will 
waive 100% of the gravity component of the penalty, but may seek the 
full amount of the significant economic benefit associated with the 
violations.2 EPA anticipates that such a significant 
economic benefit will occur infrequently. However, EPA retains this 
discretion to ensure that small businesses that comply with public 
health protections are not put at a serious marketplace disadvantage by 
those who have not complied.
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    \2\ The ``gravity component'' of the penalty includes everything 
except the economic benefit amount.
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    2. If a small business does not fit within the guideline 
immediately above, this Policy does not provide any special penalty 
mitigation. However, if a small business has otherwise made a good 
faith effort to comply, EPA has discretion, pursuant to its applicable 
enforcement response or penalty policies, to waive or mitigate civil 
penalties.3
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    \3\ For example, in some media specific penalty policies, the 
penalty calculation is reduced to account for good faith efforts to 
comply.
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    3. Further, these policies allow for mitigation of the penalty 
where there is a documented inability to pay all or a portion of the 
penalty, thereby allowing the small business to continue operations and 
to finance compliance. See Guidance on Determining a Violator's Ability 
to Pay a Civil Penalty of December 1986. Penalties also may be 
mitigated pursuant to the Final EPA Supplemental Environmental Projects 
Policy of May 1998 (63 FR 24796, 5/5/98) and Incentives for Self-
Policing: Discovery, Disclosure, Correction and Prevention of 
Violations Policy of December 1995 (60 FR 66706, 12/22/95).
    4. This Policy sets forth how the Agency expects to exercise its 
enforcement discretion in deciding on an appropriate enforcement 
response and determining an appropriate civil penalty for violations by 
small businesses. It states the Agency's views as to the proper 
allocation of enforcement resources. This 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 third 
parties.

F. Enforcement

    To ensure that this Policy enhances and does not compromise public 
health and the environment, the following conditions apply:
    1. Violations detected through inspections, field citations, 
reported to a federal, state or local agency by a member of the public 
or a ``whistleblower'' employee, identified in notices of citizen 
suits, previously reported to an agency, or required to be reported to 
an agency by applicable regulations or permits, remain subject to 
enforcement.
    2. A business is subject to all applicable enforcement response 
policies (which may include discretion whether or not to take formal 
enforcement action) for all violations that were not remedied within 
the corrections period. The penalty in such action may include the time 
period before and during the correction period.

G. Applicability to States and Tribes

    EPA recognizes that states and tribes are partners in enforcement 
and compliance assurance. Therefore, EPA will defer to state and tribal 
actions in delegated or approved programs that are consistent with the 
criteria set forth in this Policy. Whenever a State agency or Tribe 
provides a correction period to a small business pursuant to this 
Policy or a similar policy, the agency should notify the appropriate 
EPA Region. This notification will enable EPA to apply this Policy in 
coordination with similar state policies. Similarly, EPA will notify 
the appropriate State agency whenever EPA applies this policy and 
requests that such States defer to EPA's action under the Policy. 
Regional contacts will be listed at the EPA web page with this Policy.

H. Public Accountability

    Within three years of the effective date of this Policy, EPA will 
compile data on the use of this Policy in promoting compliance among 
small businesses. EPA will make this data available to the public.

[FR Doc. 99-19437 Filed 7-28-99; 8:45 am]
BILLING CODE 6560-50-P