[Federal Register Volume 65, Number 70 (Tuesday, April 11, 2000)]
[Notices]
[Pages 19618-19627]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-8954]



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Part VII





Environmental Protection Agency





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Incentives for Self-Policing: Discovery, Disclosure, Correction and 
Prevention of Violations; Notice

  Federal Register / Vol. 65 , No. 70 / Tuesday, April 11, 2000 / 
Notices  

[[Page 19618]]


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ENVIRONMENTAL PROTECTION AGENCY

[FRL-6576-3]


Incentives for Self-Policing: Discovery, Disclosure, Correction 
and Prevention of Violations

AGENCY: Environmental Protection Agency (EPA, or Agency).

ACTION: Final Policy Statement.

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SUMMARY: EPA today issues its revised final policy on ``Incentives for 
Self-Policing: Discovery, Disclosure, Correction and Prevention of 
Violations,'' commonly referred to as the ``Audit Policy.'' The purpose 
of this Policy is to enhance protection of human health and the 
environment by encouraging regulated entities to voluntarily discover, 
promptly disclose and expeditiously correct violations of Federal 
environmental requirements. Incentives that EPA makes available for 
those who meet the terms of the Audit Policy include the elimination or 
substantial reduction of the gravity component of civil penalties and a 
determination not to recommend criminal prosecution of the disclosing 
entity. The Policy also restates EPA's long-standing practice of not 
requesting copies of regulated entities' voluntary audit reports to 
trigger Federal enforcement investigations. Today's revised Audit 
Policy replaces the 1995 Audit Policy (60 FR 66706), which was issued 
on December 22, 1995, and took effect on January 22, 1996. Today's 
revisions maintain the basic structure and terms of the 1995 Audit 
Policy while clarifying some of its language, broadening its 
availability, and conforming the provisions of the Policy to actual 
Agency practice. The revisions being released today lengthen the prompt 
disclosure period to 21 days, clarify that the independent discovery 
condition does not automatically preclude penalty mitigation for multi-
facility entities, and clarify how the prompt disclosure and repeat 
violation conditions apply to newly acquired companies. The revised 
Policy was developed in close consultation with the U.S. Department of 
Justice (DOJ), States, public interest groups and the regulated 
community. The revisions also reflect EPA's experience implementing the 
Policy over the past five years.

DATES: This revised Policy is effective May 11, 2000.

FOR FURTHER INFORMATION CONTACT: Catherine Malinin Dunn (202) 564-2629 
or Leslie Jones (202) 564-5123. Documentation relating to the 
development of this Policy is contained in the environmental auditing 
public docket (#C-94-01). An index to the docket may be obtained by 
contacting the Enforcement and Compliance Docket and Information Center 
(ECDIC) by telephone at (202) 564-2614 or (202) 564-2119, by fax at 
(202) 501-1011, or by email at [email protected]. ECDIC office hours 
are 8:00 am to 4:00 pm Monday through Friday except for Federal 
holidays. An index to the docket is available on the Internet at 
www.epa.gov/oeca/polguid/enfdock.html. Additional guidance regarding 
interpretation and application of the Policy is also available on the 
Internet at www.epa.gov/oeca/ore/apolguid.html.

SUPPLEMENTARY INFORMATION: This Notice is organized as follows:

I. Explanation of Policy

A. Introduction
B. Background and History
C. Purpose
D. Incentives for Self-Policing
    1. Eliminating Gravity-Based Penalties
    2. 75% Reduction of Gravity-Based Penalties
    3. No Recommendations for Criminal Prosecution
    4. No Routine Requests for Audit Reports
E. Conditions
    1. Systematic Discovery of the Violation Through an 
Environmental Audit or a Compliance Management System
    2. Voluntary Discovery
    3. Prompt Disclosure
    4. Discovery and Disclosure Independent of Government or Third-
Party Plaintiff
    5. Correction and Remediation
    6. Prevent Recurrence
    7. No Repeat Violations
    8. Other Violations Excluded
    9. Cooperation
F. Opposition to Audit Privilege and Immunity
G. Effect on States
H. Scope of Policy

I. Implementation of Policy

    1. Civil Violations
    2. Criminal Violations
    3. Release of Information to the Public

II. Statement of Policy--Incentives for Self-Policing: Discovery, 
Disclosure, Correction and Prevention

A. Purpose
B. Definitions
C. Incentives for Self-Policing
    1. No Gravity-Based Penalties
    2. Reduction of Gravity-Based Penalties by 75%
    3. No Recommendation for Criminal Prosecution
    4. No Routine Request for Environmental Audit Reports
D. Conditions
    1. Systematic Discovery
    2. Voluntary Discovery
    3. Prompt Disclosure
    4. Discovery and Disclosure Independent of Government or Third-
Party Plaintiff
    5. Correction and Remediation
    6. Prevent Recurrence
    7. No Repeat Violations
    8. Other Violations Excluded
    9. Cooperation
E. Economic Benefit
F. Effect on State Law, Regulation or Policy
G. Applicability
H. Public Accountability
I. Effective Date

I. Explanation of Policy

A. Introduction

    On December 22, 1995, EPA issued its final policy on ``Incentives 
for Self-Policing: Discovery, Disclosure, Correction and Prevention of 
Violations'' (60 FR 66706) (Audit Policy, or Policy). The purpose of 
the Policy is to enhance protection of human health and the environment 
by encouraging regulated entities to voluntarily discover, disclose, 
correct and prevent violations of Federal environmental law. Benefits 
available to entities that make disclosures under the terms of the 
Policy include reductions in the amount of civil penalties and a 
determination not to recommend criminal prosecution of disclosing 
entities.
    Today, EPA issues revisions to the 1995 Audit Policy. The revised 
Policy reflects EPA's continuing commitment to encouraging voluntary 
self-policing while preserving fair and effective enforcement. It 
lengthens the prompt disclosure period to 21 days, clarifies that the 
independent discovery condition does not automatically preclude Audit 
Policy credit in the multi-facility context, and clarifies how the 
prompt disclosure and repeat violations conditions apply in the 
acquisitions context. The revised final Policy takes effect May 11, 
2000.

B. Background and History

    The Audit Policy provides incentives for regulated entities to 
detect, promptly disclose, and expeditiously correct violations of 
Federal environmental requirements. The Policy contains nine 
conditions, and entities that meet all of them are eligible for 100% 
mitigation of any gravity-based penalties that otherwise could be 
assessed. (``Gravity-based'' refers to that portion of the penalty over 
and above the portion that represents the entity's economic gain from 
noncompliance, known as the ``economic benefit.'') Regulated entities 
that do not meet the first condition--systematic discovery of 
violations--but meet the other eight conditions are eligible for 75% 
mitigation of any gravity-based civil penalties. On the criminal side, 
EPA will generally elect not to recommend criminal prosecution

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by DOJ or any other prosecuting authority for a disclosing entity that 
meets at least conditions two through nine--regardless of whether it 
meets the systematic discovery requirement--as long as its self-
policing, discovery and disclosure were conducted in good faith and the 
entity adopts a systematic approach to preventing recurrence of the 
violation.
    The Policy includes important safeguards to deter violations and 
protect public health and the environment. For example, the Policy 
requires entities to act to prevent recurrence of violations and to 
remedy any environmental harm that may have occurred. Repeat 
violations, those that result in actual harm to the environment, and 
those that may present an imminent and substantial endangerment are not 
eligible for relief under this Policy. Companies will not be allowed to 
gain an economic advantage over their competitors by delaying their 
investment in compliance. And entities remain criminally liable for 
violations that result from conscious disregard of or willful blindness 
to their obligations under the law, and individuals remain liable for 
their criminal misconduct.
    When EPA issued the 1995 Audit Policy, the Agency committed to 
evaluate the Policy after three years. The Agency initiated this 
evaluation in the Spring of 1998 and published its preliminary results 
in the Federal Register on May 17, 1999 (64 FR 26745). The evaluation 
consisted of the following components:
     An internal survey of EPA staff who process disclosures 
and handle enforcement cases under the 1995 Audit Policy;
     A survey of regulated entities that used the 1995 Policy 
to disclose violations;
     A series of meetings and conference calls with 
representatives from industry, environmental organizations, and States;
     Focused stakeholder discussions on the Audit Policy at two 
public conferences co-sponsored by EPA's Office of Enforcement and 
Compliance Assurance (OECA) and the Vice President's National 
Partnership for Reinventing Government, entitled ``Protecting Public 
Health and the Environment through Innovative Approaches to 
Compliance'';
     A Federal Register notice on March 2, 1999, soliciting 
comments on how EPA can further protect and improve public health and 
the environment through new compliance and enforcement approaches (64 
FR 10144); and
     An analysis of data on Audit Policy usage to date and 
discussions amongst EPA officials who handle Audit Policy disclosures.
    The same May 17, 1999, Federal Register notice that published the 
evaluation's preliminary results also proposed revisions to the 1995 
Policy and requested public comment. During the 60-day public comment 
period, the Agency received 29 comment letters, copies of which are 
available through the Enforcement and Compliance Docket and Information 
Center. (See contact information at the beginning of this notice.) 
Analysis of these comment letters together with additional data on 
Audit Policy usage has constituted the final stage of the Audit Policy 
evaluation. EPA has prepared a detailed response to the comments 
received; a copy of that document will also be available through the 
Docket and Information Center as well on the Internet at www.epa.gov/oeca/ore/apolguid.html.
    Overall, the Audit Policy evaluation revealed very positive 
results. The Policy has encouraged voluntary self-policing while 
preserving fair and effective enforcement. Thus, the revisions issued 
today do not signal any intention to shift course regarding the 
Agency's position on self-policing and voluntary disclosures but 
instead represent an attempt to fine-tune a Policy that is already 
working well.
    Use of the Audit Policy has been widespread. As of October 1, 1999, 
approximately 670 organizations had disclosed actual or potential 
violations at more than 2700 facilities. The number of disclosures has 
increased each of the four years the Policy has been in effect.
    Results of the Audit Policy User's Survey revealed very high 
satisfaction rates among users, with 88% of respondents stating that 
they would use the Policy again and 84% stating that they would 
recommend the Policy to clients and/or their counterparts. No 
respondents stated an unwillingness to use the Policy again or to 
recommend its use to others.
    The Audit Policy and related documents, including Agency 
interpretive guidance and general interest newsletters, are available 
on the Internet at www.epa.gov/oeca/ore/apolguid. Additional guidance 
for implementing the Policy in the context of criminal violations can 
be found at www.epa.gov/oeca/oceft/audpol2.html.
    In addition to the Audit Policy, the Agency's revised Small 
Business Compliance Policy (``Small Business Policy'') is also 
available for small entities that employ 100 or fewer individuals. The 
Small Business Policy provides penalty mitigation, subject to certain 
conditions, for small businesses that make a good faith effort to 
comply with environmental requirements by discovering, disclosing and 
correcting violations. EPA has revised the Small Business Policy at the 
same time it revised the Audit Policy. The revised Small Business 
Policy will be available on the Internet at www.epa.gov/oeca/smbusi.html.

C. Purpose

    The revised Policy being announced today is designed to encourage 
greater compliance with Federal laws and regulations that protect human 
health and the environment. It promotes a higher standard of self-
policing by waiving gravity-based penalties for violations that are 
promptly disclosed and corrected, and which were discovered 
systematically--that is, through voluntary audits or compliance 
management systems. To provide an incentive for entities to disclose 
and correct violations regardless of how they were detected, the Policy 
reduces gravity-based penalties by 75% for violations that are 
voluntarily discovered and promptly disclosed and corrected, even if 
not discovered systematically.
    EPA's enforcement program provides a strong incentive for 
compliance by imposing stiff sanctions for noncompliance. Enforcement 
has contributed to the dramatic expansion of environmental auditing as 
measured in numerous recent surveys. For example, in a 1995 survey by 
Price Waterhouse LLP, more than 90% of corporate respondents who 
conduct audits identified one of the reasons for doing so as the desire 
to find and correct violations before government inspectors discover 
them. (A copy of the survey is contained in the Docket as document 
VIII-A-76.)
    At the same time, because government resources are limited, 
universal compliance cannot be achieved without active efforts by the 
regulated community to police themselves. More than half of the 
respondents to the same 1995 Price Waterhouse survey said that they 
would expand environmental auditing in exchange for reduced penalties 
for violations discovered and corrected. While many companies already 
audit or have compliance management programs in place, EPA believes 
that the incentives offered in this Policy will improve the frequency 
and quality of these self-policing efforts.

D. Incentives for Self-Policing

    Section C of the Audit Policy identifies the major incentives that 
EPA

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provides to encourage self-policing, self-disclosure, and prompt self-
correction. For entities that meet the conditions of the Policy, the 
available incentives include waiving or reducing gravity-based civil 
penalties, declining to recommend criminal prosecution for regulated 
entities that self-police, and refraining from routine requests for 
audits. (As noted in Section C of the Policy, EPA has refrained from 
making routine requests for audit reports since issuance of its 1986 
policy on environmental auditing.)
1. Eliminating Gravity-Based Penalties
    In general, civil penalties that EPA assesses are comprised of two 
elements: the economic benefit component and the gravity-based 
component. The economic benefit component reflects the economic gain 
derived from a violator's illegal competitive advantage. Gravity-based 
penalties are that portion of the penalty over and above the economic 
benefit. They reflect the egregiousness of the violator's behavior and 
constitute the punitive portion of the penalty. For further discussion 
of these issues, see ``Calculation of the Economic Benefit of 
Noncompliance in EPA's Civil Penalty Enforcement Cases,'' 64 FR 32948 
(June 18, 1999) and ``A Framework for Statute-Specific Approaches to 
Penalty Assessments,'' #GM-22 (1984), U.S. EPA General Enforcement 
Policy Compendium.
    Under the Audit Policy, EPA will not seek gravity-based penalties 
for disclosing entities that meet all nine Policy conditions, including 
systematic discovery. (``Systematic discovery'' means the detection of 
a potential violation through an environmental audit or a compliance 
management system that reflects the entity's due diligence in 
preventing, detecting and correcting violations.) EPA has elected to 
waive gravity-based penalties for violations discovered systematically, 
recognizing that environmental auditing and compliance management 
systems play a critical role in protecting human health and the 
environment by identifying, correcting and ultimately preventing 
violations.
    However, EPA reserves the right to collect any economic benefit 
that may have been realized as a result of noncompliance, even where 
the entity meets all other Policy conditions. Where the Agency 
determines that the economic benefit is insignificant, the Agency also 
may waive this component of the penalty.
    EPA's decision to retain its discretion to recover economic benefit 
is based on two reasons. First, facing the risk that the Agency will 
recoup economic benefit provides an incentive for regulated entities to 
comply on time. Taxpayers whose payments are late expect to pay 
interest or a penalty; the same principle should apply to corporations 
and other regulated entities that have delayed their investment in 
compliance. Second, collecting economic benefit is fair because it 
protects law-abiding companies from being undercut by their 
noncomplying competitors, thereby preserving a level playing field.
2. 75% Reduction of Gravity-based Penalties
    Gravity-based penalties will be reduced by 75% where the disclosing 
entity does not detect the violation through systematic discovery but 
otherwise meets all other Policy conditions. The Policy appropriately 
limits the complete waiver of gravity-based civil penalties to 
companies that conduct environmental auditing or have in place a 
compliance management system. However, to encourage disclosure and 
correction of violations even in the absence of systematic discovery, 
EPA will reduce gravity-based penalties by 75% for entities that meet 
conditions D(2) through D(9) of the Policy. EPA expects that a 
disclosure under this provision will encourage the entity to work with 
the Agency to resolve environmental problems and begin to develop an 
effective auditing program or compliance management system.
3. No Recommendations for Criminal Prosecution
    In accordance with EPA's Investigative Discretion Memo dated 
January 12, 1994, EPA generally does not focus its criminal enforcement 
resources on entities that voluntarily discover, promptly disclose and 
expeditiously correct violations, unless there is potentially culpable 
behavior that merits criminal investigation. When a disclosure that 
meets the terms and conditions of this Policy results in a criminal 
investigation, EPA will generally not recommend criminal prosecution 
for the disclosing entity, although the Agency may recommend 
prosecution for culpable individuals and other entities. The 1994 
Investigative Discretion Memo is available on the Internet at http://www.epa.gov/oeca/ore/ aed/comp/acomp/a11.html.
    The ``no recommendation for criminal prosecution'' incentive is 
available for entities that meet conditions D(2) through D(9) of the 
Policy. Condition D(1) ``systematic discovery'' is not required to be 
eligible for this incentive, although the entity must be acting in good 
faith and must adopt a systematic approach to preventing recurring 
violations. Important limitations to the incentive apply. It will not 
be available, for example, where corporate officials are consciously 
involved in or willfully blind to violations, or conceal or condone 
noncompliance. Since the regulated entity must satisfy conditions D(2) 
through D(9) of the Policy, violations that cause serious harm or which 
may pose imminent and substantial endangerment to human health or the 
environment are not eligible. Finally, EPA reserves the right to 
recommend prosecution for the criminal conduct of any culpable 
individual or subsidiary organization.
    While EPA may decide not to recommend criminal prosecution for 
disclosing entities, ultimate prosecutorial discretion resides with the 
U.S. Department of Justice, which will be guided by its own policy on 
voluntary disclosures (``Factors in Decisions on Criminal Prosecutions 
for Environmental Violations in the Context of Significant Voluntary 
Compliance or Disclosure Efforts by the Violator,'' July 1, 1991) and 
by its 1999 Guidance on Federal Prosecutions of Corporations. In 
addition, where a disclosing entity has met the conditions for avoiding 
a recommendation for criminal prosecution under this Policy, it will 
also be eligible for either 75% or 100% mitigation of gravity-based 
civil penalties, depending on whether the systematic discovery 
condition was met.
4. No Routine Requests for Audit Reports
    EPA reaffirms its Policy, in effect since 1986, to refrain from 
routine requests for audit reports. That is, EPA has not and will not 
routinely request copies of audit reports to trigger enforcement 
investigations. Implementation of the 1995 Policy has produced no 
evidence that the Agency has deviated, or should deviate, from this 
Policy. In general, an audit that results in expeditious correction 
will reduce liability, not expand it. However, if the Agency has 
independent evidence of a violation, it may seek the information it 
needs to establish the extent and nature of the violation and the 
degree of culpability.
    For discussion of the circumstances in which EPA might request an 
audit report to determine Policy eligibility, see the explanatory text 
on cooperation, section I.E.9.

E. Conditions

    Section D describes the nine conditions that a regulated entity 
must

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meet in order for the Agency to decline to seek (or to reduce) gravity-
based penalties under the Policy. As explained in section I.D.1 above, 
regulated entities that meet all nine conditions will not face gravity-
based civil penalties. If the regulated entity meets all of the 
conditions except for D(1)--systematic discovery--EPA will reduce 
gravity-based penalties by 75%. In general, EPA will not recommend 
criminal prosecution for disclosing entities that meet at least 
conditions D(2) through D(9).
1. Systematic Discovery of the Violation Through an Environmental Audit 
or a Compliance Management System
    Under Section D(1), the violation must have been discovered through 
either (a) an environmental audit, or (b) a compliance management 
system that reflects due diligence in preventing, detecting and 
correcting violations. Both ``environmental audit'' and ``compliance 
management system'' are defined in Section B of the Policy.
    The revised Policy uses the term ``compliance management system'' 
instead of ``due diligence,'' which was used in the 1995 Policy. This 
change in nomenclature is intended solely to conform the Policy 
language to terminology more commonly in use by industry and by 
regulators to refer to a systematic management plan or systematic 
efforts to achieve and maintain compliance. No substantive difference 
is intended by substituting the term ``compliance management system'' 
for ``due diligence,'' as the Policy clearly indicates that the 
compliance management system must reflect the regulated entity's due 
diligence in preventing, detecting and correcting violations.
    Compliance management programs that train and motivate employees to 
prevent, detect and correct violations on a daily basis are a valuable 
complement to periodic auditing. Where the violation is discovered 
through a compliance management system and not through an audit, the 
disclosing entity should be prepared to document how its program 
reflects the due diligence criteria defined in Section B of the Policy 
statement. These criteria, which are adapted from existing codes of 
practice--such as Chapter Eight of the U.S. Sentencing Guidelines for 
organizational defendants, effective since 1991--are flexible enough to 
accommodate different types and sizes of businesses and other regulated 
entities. The Agency recognizes that a variety of compliance management 
programs are feasible, and it will determine whether basic due 
diligence criteria have been met in deciding whether to grant Audit 
Policy credit.
    As a condition of penalty mitigation, EPA may require that a 
description of the regulated entity's compliance management system be 
made publicly available. The Agency believes that the availability of 
such information will allow the public to judge the adequacy of 
compliance management systems, lead to enhanced compliance, and foster 
greater public trust in the integrity of compliance management systems.
2. Voluntary Discovery
    Under Section D(2), the violation must have been identified 
voluntarily, and not through a monitoring, sampling, or auditing 
procedure that is required by statute, regulation, permit, judicial or 
administrative order, or consent agreement. The Policy provides three 
specific examples of discovery that would not be voluntary, and 
therefore would not be eligible for penalty mitigation: emissions 
violations detected through a required continuous emissions monitor, 
violations of NPDES discharge limits found through prescribed 
monitoring, and violations discovered through a compliance audit 
required to be performed by the terms of a consent order or settlement 
agreement. The exclusion does not apply to violations that are 
discovered pursuant to audits that are conducted as part of a 
comprehensive environmental management system (EMS) required under a 
settlement agreement. In general, EPA supports the implementation of 
EMSs that promote compliance, prevent pollution and improve overall 
environmental performance. Precluding the availability of the Audit 
Policy for discoveries made through a comprehensive EMS that has been 
implemented pursuant to a settlement agreement might discourage 
entities from agreeing to implement such a system.
    In some instances, certain Clean Air Act violations discovered, 
disclosed and corrected by a company prior to issuance of a Title V 
permit are eligible for penalty mitigation under the Policy. For 
further guidance in this area, see ``Reduced Penalties for Disclosures 
of Certain Clean Air Act Violations,'' Memorandum from Eric Schaeffer, 
Director of the EPA Office of Regulatory Enforcement, dated September 
30, 1999. This document is available on the Internet at www.epa.gov/oeca/ore/apolguid.html.
    The voluntary requirement applies to discovery only, not reporting. 
That is, any violation that is voluntarily discovered is generally 
eligible for Audit Policy credit, regardless of whether reporting of 
the violation was required after it was found.
3. Prompt Disclosure
    Section D(3) requires that the entity disclose the violation in 
writing to EPA within 21 calendar days after discovery. If the 21st day 
after discovery falls on a weekend or Federal holiday, the disclosure 
period will be extended to the first business day following the 21st 
day after discovery. If a statute or regulation requires the entity to 
report the violation in fewer than 21 days, disclosure must be made 
within the time limit established by law. (For example, unpermitted 
releases of hazardous substances must be reported immediately under 42 
U.S.C. 9603.) Disclosures under this Policy should be made to the 
appropriate EPA Regional office or, where multiple Regions are 
involved, to EPA Headquarters. The Agency will work closely with States 
as needed to ensure fair and efficient implementation of the Policy. 
For additional guidance on making disclosures, contact the Audit Policy 
National Coordinator at EPA Headquarters at 202-564-5123.
    The 21-day disclosure period begins when the entity discovers that 
a violation has, or may have, occurred. The trigger for discovery is 
when any officer, director, employee or agent of the facility has an 
objectively reasonable basis for believing that a violation has, or may 
have, occurred. The ``objectively reasonable basis'' standard is 
measured against what a prudent person, having the same information as 
was available to the individual in question, would have believed. It is 
not measured against what the individual in question thought was 
reasonable at the time the situation was encountered. If an entity has 
some doubt as to the existence of a violation, the recommended course 
is for the entity to proceed with the disclosure and allow the 
regulatory authorities to make a definitive determination. Contract 
personnel who provide on-site services at the facility may be treated 
as employees or agents for purposes of the Policy.
    If the 21-day period has not yet expired and an entity suspects 
that it will be unable to meet the deadline, the entity should contact 
the appropriate EPA office in advance to develop disclosure terms 
acceptable to EPA. For situations in which the 21-day period already 
has expired, the Agency may accept a late disclosure in the exceptional 
case, such as where there are complex circumstances, including where 
EPA determines the violation could not be identified and disclosed 
within 21 calendar days after discovery.

[[Page 19622]]

    EPA also may extend the disclosure period when multiple facilities 
or acquisitions are involved.
    In the multi-facility context, EPA will ordinarily extend the 21-
day period to allow reasonable time for completion and review of multi-
facility audits where: (a) EPA and the entity agree on the timing and 
scope of the audits prior to their commencement; and (b) the facilities 
to be audited are identified in advance. In the acquisitions context, 
EPA will consider extending the prompt disclosure period on a case-by-
case basis. The 21-day disclosure period will begin on the date of 
discovery by the acquiring entity, but in no case will the period begin 
earlier than the date of acquisition.
    In summary, Section D(3) recognizes that it is critical for EPA to 
receive timely reporting of violations in order to have clear notice of 
the violations and the opportunity to respond if necessary. Prompt 
disclosure is also evidence of the regulated entity's good faith in 
wanting to achieve or return to compliance as soon as possible. The 
integrity of Federal environmental law depends upon timely and accurate 
reporting. The public relies on timely and accurate reports from the 
regulated community, not only to measure compliance but to evaluate 
health or environmental risk and gauge progress in reducing pollutant 
loadings. EPA expects the Policy to encourage the kind of vigorous 
self-policing that will serve these objectives and does not intend that 
it justify delayed reporting. When violations of reporting requirements 
are voluntarily discovered, they must be promptly reported. When a 
failure to report results in imminent and substantial endangerment or 
serious harm to the environment, Audit Policy credit is precluded under 
condition D(8).
4. Discovery and Disclosure Independent of Government or Third Party 
Plaintiff
    Under Section D(4), the entity must discover the violation 
independently. That is, the violation must be discovered and identified 
before EPA or another government agency likely would have identified 
the problem either through its own investigative work or from 
information received through a third party. This condition requires 
regulated entities to take the initiative to find violations on their 
own and disclose them promptly instead of waiting for an indication of 
a pending enforcement action or third-party complaint.
    Section D(4)(a) lists the circumstances under which discovery and 
disclosure will not be considered independent. For example, a 
disclosure will not be independent where EPA is already investigating 
the facility in question. However, under subsection (a), where the 
entity does not know that EPA has commenced a civil investigation and 
proceeds in good faith to make a disclosure under the Audit Policy, EPA 
may, in its discretion, provide penalty mitigation under the Audit 
Policy. The subsection (a) exception applies only to civil 
investigations; it does not apply in the criminal context. Other 
examples of situations in which a discovery is not considered 
independent are where a citizens' group has provided notice of its 
intent to sue, where a third party has already filed a complaint, where 
a whistleblower has reported the potential violation to government 
authorities, or where discovery of the violation by the government was 
imminent. Condition D(4)(c)--the filing of a complaint by a third 
party--covers formal judicial and administrative complaints as well as 
informal complaints, such as a letter from a citizens' group alerting 
EPA to a potential environmental violation.
    Regulated entities that own or operate multiple facilities are 
subject to section D(4)(b) in addition to D(4)(a). EPA encourages 
multi-facility auditing and does not intend for the ``independent 
discovery'' condition to preclude availability of the Audit Policy when 
multiple facilities are involved. Thus, if a regulated entity owns or 
operates multiple facilities, the fact that one of its facilities is 
the subject of an investigation, inspection, information request or 
third-party complaint does not automatically preclude the Agency from 
granting Audit Policy credit for disclosures of violations self-
discovered at the other facilities, assuming all other Audit Policy 
conditions are met. However, just as in the single-facility context, 
where a facility is already the subject of a government inspection, 
investigation or information request (including a broad information 
request that covers multiple facilities), it will generally not be 
eligible for Audit Policy credit. The Audit Policy is designed to 
encourage regulated entities to disclose violations before any of their 
facilities are under investigation, not after EPA discovers violations 
at one facility. Nevertheless, the Agency retains its full discretion 
under the Audit Policy to grant penalty waivers or reductions for good-
faith disclosures made in the multi-facility context. EPA has worked 
closely with a number of entities that have received Audit Policy 
credit for multi-facility disclosures, and entities contemplating 
multi-facility auditing are encouraged to contact the Agency with any 
questions concerning Audit Policy availability.
5. Correction and Remediation
    Under Section D(5), the entity must remedy any harm caused by the 
violation and expeditiously certify in writing to appropriate Federal, 
State, and local authorities that it has corrected the violation. 
Correction and remediation in this context include responding to spills 
and carrying out any removal or remedial actions required by law. The 
certification requirement enables EPA to ensure that the regulated 
entity will be publicly accountable for its commitments through binding 
written agreements, orders or consent decrees where necessary.
    Under the Policy, the entity must correct the violation within 60 
calendar days from the date of discovery, or as expeditiously as 
possible. EPA recognizes that some violations can and should be 
corrected immediately, while others may take longer than 60 days to 
correct. For example, more time may be required if capital expenditures 
are involved or if technological issues are a factor. If more than 60 
days will be required, the disclosing entity must so notify the Agency 
in writing prior to the conclusion of the 60-day period. In all cases, 
the regulated entity will be expected to do its utmost to achieve or 
return to compliance as expeditiously as possible.
    If correction of the violation depends upon issuance of a permit 
that has been applied for but not issued by Federal or State 
authorities, the Agency will, where appropriate, make reasonable 
efforts to secure timely review of the permit.
6. Prevent Recurrence
    Under Section D(6), the regulated entity must agree to take steps 
to prevent a recurrence of the violation after it has been disclosed. 
Preventive steps may include, but are not limited to, improvements to 
the entity's environmental auditing efforts or compliance management 
system.
7. No Repeat Violations
    Condition D(7) bars repeat offenders from receiving Audit Policy 
credit. Under the repeat violations exclusion, the same or a closely-
related violation must not have occurred at the same facility within 
the past 3 years. The 3-year period begins to run when the government 
or a third party has given the violator notice of a specific violation, 
without regard to when the original violation cited in the notice

[[Page 19623]]

actually occurred. Examples of notice include a complaint, consent 
order, notice of violation, receipt of an inspection report, citizen 
suit, or receipt of penalty mitigation through a compliance assistance 
or incentive project.
    When the facility is part of a multi-facility organization, Audit 
Policy relief is not available if the same or a closely-related 
violation occurred as part of a pattern of violations at one or more of 
these facilities within the past 5 years. If a facility has been newly 
acquired, the existence of a violation prior to acquisition does not 
trigger the repeat violations exclusion.
    The term ``violation'' includes any violation subject to a Federal, 
State or local civil judicial or administrative order, consent 
agreement, conviction or plea agreement. Recognizing that minor 
violations sometimes are settled without a formal action in court, the 
term also covers any act or omission for which the regulated entity has 
received a penalty reduction in the past. This condition covers 
situations in which the regulated entity has had clear notice of its 
noncompliance and an opportunity to correct the problem.
    The repeat violation exclusion benefits both the public and law-
abiding entities by ensuring that penalties are not waived for those 
entities that have previously been notified of violations and fail to 
prevent repeat violations. The 3-year and 5-year ``bright lines'' in 
the exclusion are designed to provide regulated entities with clear 
notice about when the Policy will be available.
8. Other Violations Excluded
    Section D(8) provides that Policy benefits are not available for 
certain types of violations. Subsection D(8)(a) excludes violations 
that result in serious actual harm to the environment or which may have 
presented an imminent and substantial endangerment to public health or 
the environment. When events of such a consequential nature occur, 
violators are ineligible for penalty relief and other incentives under 
the Audit Policy. However, this condition does not bar an entity from 
qualifying for Audit Policy relief solely because the violation 
involves release of a pollutant to the environment, as such releases do 
not necessarily result in serious actual harm or an imminent and 
substantial endangerment. To date, EPA has not invoked the serious 
actual harm or the imminent and substantial endangerment clauses to 
deny Audit Policy credit for any disclosure.
    Subsection D(8)(b) excludes violations of the specific terms of any 
order, consent agreement, or plea agreement. Once a consent agreement 
has been negotiated, there is little incentive to comply if there are 
no sanctions for violating its specific requirements. The exclusion in 
this section also applies to violations of the terms of any response, 
removal or remedial action covered by a written agreement.
9. Cooperation
    Under Section D(9), the regulated entity must cooperate as required 
by EPA and provide the Agency with the information it needs to 
determine Policy applicability. The entity must not hide, destroy or 
tamper with possible evidence following discovery of potential 
environmental violations. In order for the Agency to apply the Policy 
fairly, it must have sufficient information to determine whether its 
conditions are satisfied in each individual case. In general, EPA 
requests audit reports to determine the applicability of this Policy 
only where the information contained in the audit report is not readily 
available elsewhere and where EPA decides that the information is 
necessary to determine whether the terms and conditions of the Policy 
have been met. In the rare instance where an EPA Regional office seeks 
to obtain an audit report because it is otherwise unable to determine 
whether Policy conditions have been met, the Regional office will 
notify the Office of Regulatory Enforcement at EPA headquarters.
    Entities that disclose potential criminal violations may expect a 
more thorough review by the Agency. In criminal cases, entities will be 
expected to provide, at a minimum, the following: access to all 
requested documents; access to all employees of the disclosing entity; 
assistance in investigating the violation, any noncompliance problems 
related to the disclosure, and any environmental consequences related 
to the violations; access to all information relevant to the violations 
disclosed, including that portion of the environmental audit report or 
documentation from the compliance management system that revealed the 
violation; and access to the individuals who conducted the audit or 
review.

F. Opposition to Audit Privilege and Immunity

    The Agency believes that the Audit Policy provides effective 
incentives for self-policing without impairing law enforcement, putting 
the environment at risk or hiding environmental compliance information 
from the public. Although EPA encourages environmental auditing, it 
must do so without compromising the integrity and enforceability of 
environmental laws. It is important to distinguish between EPA's Audit 
Policy and the audit privilege and immunity laws that exist in some 
States. The Agency remains firmly opposed to statutory and regulatory 
audit privileges and immunity. Privilege laws shield evidence of 
wrongdoing and prevent States from investigating even the most serious 
environmental violations. Immunity laws prevent States from obtaining 
penalties that are appropriate to the seriousness of the violation, as 
they are required to do under Federal law. Audit privilege and immunity 
laws are unnecessary, undermine law enforcement, impair protection of 
human health and the environment, and interfere with the public's right 
to know of potential and existing environmental hazards.
    Statutory audit privilege and immunity run counter to encouraging 
the kind of openness that builds trust between regulators, the 
regulated community and the public. For example, privileged information 
on compliance contained in an audit report may include information on 
the cause of violations, the extent of environmental harm, and what is 
necessary to correct the violations and prevent their recurrence. 
Privileged information is unavailable to law enforcers and to members 
of the public who have suffered harm as a result of environmental 
violations. The Agency opposes statutory immunity because it diminishes 
law enforcement's ability to discourage wrongful behavior and 
interferes with a regulator's ability to punish individuals who 
disregard the law and place others in danger. The Agency believes that 
its Audit Policy provides adequate incentives for self-policing but 
without secrecy and without abdicating its discretion to act in cases 
of serious environmental violations.
    Privilege, by definition, invites secrecy, instead of the openness 
needed to build public trust in industry's ability to self-police. 
American law reflects the high value that the public places on fair 
access to the facts. The Supreme Court, for example, has said of 
privileges that, `` [w]hatever their origins, these exceptions to the 
demand for every man's evidence are not lightly created nor expansively 
construed, for they are in derogation of the search for truth.'' United 
States v. Nixon, 418 U.S. 683, 710 (1974). Federal courts have 
unanimously refused to recognize a privilege for environmental audits 
in the context of government investigations. See, e.g., United States 
v. Dexter Corp., 132 F.R.D. 8, 10 (D.Conn. 1990)

[[Page 19624]]

(application of a privilege ``would effectively impede [EPA's] ability 
to enforce the Clean Water Act, and would be contrary to stated public 
policy.'') Cf. In re Grand Jury Proceedings, 861 F. Supp. 386 (D. Md. 
1994) (company must comply with a subpoena under Food, Drug and 
Cosmetics Act for self-evaluative documents).

G. Effect on States

    The revised final Policy reflects EPA's desire to provide fair and 
effective incentives for self-policing that have practical value to 
States. To that end, the Agency has consulted closely with State 
officials in developing this Policy. As a result, EPA believes its 
revised final Policy is grounded in commonsense principles that should 
prove useful in the development and implementation of State programs 
and policies.
    EPA recognizes that States are partners in implementing the 
enforcement and compliance assurance program. When consistent with 
EPA's policies on protecting confidential and sensitive information, 
the Agency will share with State agencies information on disclosures of 
violations of Federally-authorized, approved or delegated programs. In 
addition, for States that have adopted their own audit policies in 
Federally-authorized, approved or delegated programs, EPA will 
generally defer to State penalty mitigation for self-disclosures as 
long as the State policy meets minimum requirements for Federal 
delegation. Whenever a State provides a penalty waiver or mitigation 
for a violation of a requirement contained in a Federally-authorized, 
approved or delegated program to an entity that discloses those 
violations in conformity with a State audit policy, the State should 
notify the EPA Region in which it is located. This notification will 
ensure that Federal and State enforcement responses are coordinated 
properly.
    For further information about minimum delegation requirements and 
the effect of State audit privilege and immunity laws on enforcement 
authority, see ``Statement of Principles: Effect of State Audit/
Immunity Privilege Laws on Enforcement Authority for Federal 
Programs,'' Memorandum from Steven A. Herman et al, dated February 14, 
1997, to be posted on the Internet under www.epa.gov/oeca/oppa.
    As always, States are encouraged to experiment with different 
approaches to assuring compliance as long as such approaches do not 
jeopardize public health or the environment, or make it profitable not 
to comply with Federal environmental requirements. The Agency remains 
opposed to State legislation that does not include these basic 
protections, and reserves its right to bring independent action against 
regulated entities for violations of Federal law that threaten human 
health or the environment, reflect criminal conduct or repeated 
noncompliance, or allow one company to profit at the expense of its 
law-abiding competitors.

H. Scope of Policy

    EPA has developed this Policy to guide settlement actions. It is 
the Agency's practice to make public all compliance agreements reached 
under this Policy in order to provide the regulated community with fair 
notice of decisions and to provide affected communities and the public 
with information regarding Agency action. Some in the regulated 
community have suggested that the Agency should convert the Policy into 
a regulation because they feel doing so would ensure greater 
consistency and predictability. Following its three-year evaluation of 
the Policy, however, the Agency believes that there is ample evidence 
that the Policy has worked well and that there is no need for a formal 
rulemaking. Furthermore, as the Agency seeks to respond to lessons 
learned from its increasing experience handling self-disclosures, a 
policy is much easier to amend than a regulation. Nothing in today's 
release of the revised final Policy is intended to change the status of 
the Policy as guidance.

I. Implementation of Policy

1. Civil Violations
    Pursuant to the Audit Policy, disclosures of civil environmental 
violations should be made to the EPA Region in which the entity or 
facility is located or, where the violations to be disclosed involve 
more than one EPA Region, to EPA Headquarters. The Regional or 
Headquarters offices decide whether application of the Audit Policy in 
a specific case is appropriate. Obviously, once a matter has been 
referred for civil judicial prosecution, DOJ becomes involved as well. 
Where there is evidence of a potential criminal violation, the civil 
offices coordinate with criminal enforcement offices at EPA and DOJ.
    To resolve issues of national significance and ensure that the 
Policy is applied fairly and consistently across EPA Regions and at 
Headquarters, the Agency in 1995 created the Audit Policy Quick 
Response Team (QRT). The QRT is comprised of representatives from the 
Regions, Headquarters, and DOJ. It meets on a regular basis to address 
issues of interpretation and to coordinate self-disclosure initiatives. 
In addition, in 1999 EPA established a National Coordinator position to 
handle Audit Policy issues and implementation. The National Coordinator 
chairs the QRT and, along with the Regional Audit Policy coordinators, 
serves as a point of contact on Audit Policy issues in the civil 
context.
2. Criminal Violations
    Criminal disclosures are handled by the Voluntary Disclosure Board 
(VDB), which was established by EPA in 1997. The VDB ensures consistent 
application of the Audit Policy in the criminal context by centralizing 
Policy interpretation and application within the Agency.
    Disclosures of potential criminal violations may be made directly 
to the VDB, to an EPA regional criminal investigation division or to 
DOJ. In all cases, the VDB coordinates with the investigative team and 
the appropriate prosecuting authority. During the course of the 
investigation, the VDB routinely monitors the progress of the 
investigation as necessary to ensure that sufficient facts have been 
established to determine whether to recommend that relief under the 
Policy be granted.
    At the conclusion of the criminal investigation, the Board makes a 
recommendation to the Director of EPA's Office of Criminal Enforcement, 
Forensics, and Training, who serves as the Deciding Official. Upon 
receiving the Board's recommendation, the Deciding Official makes his 
or her final recommendation to the appropriate United States Attorney's 
Office and/or DOJ. The recommendation of the Deciding Official, 
however, is only that--a recommendation. The United States Attorney's 
Office and/or DOJ retain full authority to exercise prosecutorial 
discretion.
3. Release of Information to the Public
    Upon formal settlement, EPA places copies of settlements in the 
Audit Policy Docket. EPA also makes other documents related to self-
disclosures publicly available, unless the disclosing entity claims 
them as Confidential Business Information (and that claim is validated 
by U.S. EPA), unless another exemption under the Freedom of Information 
Act is asserted and/or applies, or the Privacy Act or any other law 
would preclude such release. Presumptively releasable documents include 
compliance agreements reached under the Policy (see Section H ) and 
descriptions of compliance management systems submitted under Section 
D(1).

[[Page 19625]]

Any material claimed to be Confidential Business Information will be 
treated in accordance with EPA regulations at 40 CFR Part 2. In 
determining what documents to release, EPA is guided by the Memorandum 
from Assistant Administrator Steven A. Herman entitled 
``Confidentiality of Information Received Under Agency's Self-
Disclosure Policy,'' available on the Internet at www.epa.gov/oeca/sahmemo.html.

II. Statement of Policy--Incentives for Self-Policing: Discovery, 
Disclosure, Correction and Prevention of Violations

A. Purpose

    This Policy is designed to enhance protection of human health and 
the environment by encouraging regulated entities to voluntarily 
discover, disclose, correct and prevent violations of Federal 
environmental requirements.

B. Definitions

    For purposes of this Policy, the following definitions apply:
    ``Environmental Audit'' is a systematic, documented, periodic and 
objective review by regulated entities of facility operations and 
practices related to meeting environmental requirements.
    ``Compliance Management System'' encompasses the regulated entity's 
documented systematic efforts, appropriate to the size and nature of 
its business, to prevent, detect and correct violations through all of 
the following:
    (a) Compliance policies, standards and procedures that identify how 
employees and agents are to meet the requirements of laws, regulations, 
permits, enforceable agreements and other sources of authority for 
environmental requirements;
    (b) Assignment of overall responsibility for overseeing compliance 
with policies, standards, and procedures, and assignment of specific 
responsibility for assuring compliance at each facility or operation;
    (c) Mechanisms for systematically assuring that compliance 
policies, standards and procedures are being carried out, including 
monitoring and auditing systems reasonably designed to detect and 
correct violations, periodic evaluation of the overall performance of 
the compliance management system, and a means for employees or agents 
to report violations of environmental requirements without fear of 
retaliation;
    (d) Efforts to communicate effectively the regulated entity's 
standards and procedures to all employees and other agents;
    (e) Appropriate incentives to managers and employees to perform in 
accordance with the compliance policies, standards and procedures, 
including consistent enforcement through appropriate disciplinary 
mechanisms; and
    (f) Procedures for the prompt and appropriate correction of any 
violations, and any necessary modifications to the regulated entity's 
compliance management system to prevent future violations.
    ``Environmental audit report'' means the documented analysis, 
conclusions, and recommendations resulting from an environmental audit, 
but does not include data obtained in, or testimonial evidence 
concerning, the environmental audit.
    ``Gravity-based penalties'' are that portion of a penalty over and 
above the economic benefit, i.e., the punitive portion of the penalty, 
rather than that portion representing a defendant's economic gain from 
noncompliance.
    ``Regulated entity'' means any entity, including a Federal, State 
or municipal agency or facility, regulated under Federal environmental 
laws.

C. Incentives for Self-Policing

1. No Gravity-Based Penalties
    If a regulated entity establishes that it satisfies all of the 
conditions of Section D of this Policy, EPA will not seek gravity-based 
penalties for violations of Federal environmental requirements 
discovered and disclosed by the entity.
2. Reduction of Gravity-Based Penalties by 75%
    If a regulated entity establishes that it satisfies all of the 
conditions of Section D of this Policy except for D(1)--systematic 
discovery--EPA will reduce by 75% gravity-based penalties for 
violations of Federal environmental requirements discovered and 
disclosed by the entity.
3. No Recommendation for Criminal Prosecution
    (a) If a regulated entity establishes that it satisfies at least 
conditions D(2) through D(9) of this Policy, EPA will not recommend to 
the U.S. Department of Justice or other prosecuting authority that 
criminal charges be brought against the disclosing entity, as long as 
EPA determines that the violation is not part of a pattern or practice 
that demonstrates or involves:
    (i) A prevalent management philosophy or practice that conceals or 
condones environmental violations; or
    (ii) High-level corporate officials' or managers' conscious 
involvement in, or willful blindness to, violations of Federal 
environmental law;
    (b) Whether or not EPA recommends the regulated entity for criminal 
prosecution under this section, the Agency may recommend for 
prosecution the criminal acts of individual managers or employees under 
existing policies guiding the exercise of enforcement discretion.
4. No Routine Request for Environmental Audit Reports
    EPA will neither request nor use an environmental audit report to 
initiate a civil or criminal investigation of an entity. For example, 
EPA will not request an environmental audit report in routine 
inspections. If the Agency has independent reason to believe that a 
violation has occurred, however, EPA may seek any information relevant 
to identifying violations or determining liability or extent of harm.

D. Conditions

1. Systematic Discovery
    The violation was discovered through:
    (a) An environmental audit; or
    (b) A compliance management system reflecting the regulated 
entity's due diligence in preventing, detecting, and correcting 
violations. The regulated entity must provide accurate and complete 
documentation to the Agency as to how its compliance management system 
meets the criteria for due diligence outlined in Section B and how the 
regulated entity discovered the violation through its compliance 
management system. EPA may require the regulated entity to make 
publicly available a description of its compliance management system.
2. Voluntary Discovery
    The violation was discovered voluntarily and not through a legally 
mandated monitoring or sampling requirement prescribed by statute, 
regulation, permit, judicial or administrative order, or consent 
agreement. For example, the Policy does not apply to:
    (a) Emissions violations detected through a continuous emissions 
monitor (or alternative monitor established in a permit) where any such 
monitoring is required;
    (b) Violations of National Pollutant Discharge Elimination System 
(NPDES) discharge limits detected through required sampling or 
monitoring; or
    (c) Violations discovered through a compliance audit required to be 
performed by the terms of a consent order or settlement agreement, 
unless the audit is a component of agreement terms to implement a 
comprehensive environmental management system.

[[Page 19626]]

3. Prompt Disclosure
    The regulated entity fully discloses the specific violation in 
writing to EPA within 21 days (or within such shorter time as may be 
required by law) after the entity discovered that the violation has, or 
may have, occurred. The time at which the entity discovers that a 
violation has, or may have, occurred begins when any officer, director, 
employee or agent of the facility has an objectively reasonable basis 
for believing that a violation has, or may have, occurred.
4. Discovery and Disclosure Independent of Government or Third-Party 
Plaintiff
    (a) The regulated entity discovers and discloses the potential 
violation to EPA prior to:
    (i) The commencement of a Federal, State or local agency inspection 
or investigation, or the issuance by such agency of an information 
request to the regulated entity (where EPA determines that the facility 
did not know that it was under civil investigation, and EPA determines 
that the entity is otherwise acting in good faith, the Agency may 
exercise its discretion to reduce or waive civil penalties in 
accordance with this Policy);
    (ii) Notice of a citizen suit;
    (iii) The filing of a complaint by a third party;
    (iv) The reporting of the violation to EPA (or other government 
agency) by a ``whistleblower'' employee, rather than by one authorized 
to speak on behalf of the regulated entity; or
    (v) imminent discovery of the violation by a regulatory agency.
    (b) For entities that own or operate multiple facilities, the fact 
that one facility is already the subject of an investigation, 
inspection, information request or third-party complaint does not 
preclude the Agency from exercising its discretion to make the Audit 
Policy available for violations self-discovered at other facilities 
owned or operated by the same regulated entity.
5. Correction and Remediation
    The regulated entity corrects the violation within 60 calendar days 
from the date of discovery, certifies in writing that the violation has 
been corrected, and takes appropriate measures as determined by EPA to 
remedy any environmental or human harm due to the violation. EPA 
retains the authority to order an entity to correct a violation within 
a specific time period shorter than 60 days whenever correction in such 
shorter period of time is feasible and necessary to protect public 
health and the environment adequately. If more than 60 days will be 
needed to correct the violation, the regulated entity must so notify 
EPA in writing before the 60-day period has passed. Where appropriate, 
to satisfy conditions D(5) and D(6), EPA may require a regulated entity 
to enter into a publicly available written agreement, administrative 
consent order or judicial consent decree as a condition of obtaining 
relief under the Audit Policy, particularly where compliance or 
remedial measures are complex or a lengthy schedule for attaining and 
maintaining compliance or remediating harm is required.
6. Prevent Recurrence
    The regulated entity agrees in writing to take steps to prevent a 
recurrence of the violation. Such steps may include improvements to its 
environmental auditing or compliance management system.
7. No Repeat Violations
    The specific violation (or a closely related violation) has not 
occurred previously within the past three years at the same facility, 
and has not occurred within the past five years as part of a pattern at 
multiple facilities owned or operated by the same entity. For the 
purposes of this section, a violation is:
    (a) Any violation of Federal, State or local environmental law 
identified in a judicial or administrative order, consent agreement or 
order, complaint, or notice of violation, conviction or plea agreement; 
or
    (b) Any act or omission for which the regulated entity has 
previously received penalty mitigation from EPA or a State or local 
agency.
8. Other Violations Excluded
    The violation is not one which (a) resulted in serious actual harm, 
or may have presented an imminent and substantial endangerment, to 
human health or the environment, or (b) violates the specific terms of 
any judicial or administrative order, or consent agreement.
9. Cooperation
    The regulated entity cooperates as requested by EPA and provides 
such information as is necessary and requested by EPA to determine 
applicability of this Policy.

E. Economic Benefit

    EPA retains its full discretion to recover any economic benefit 
gained as a result of noncompliance to preserve a ``level playing 
field'' in which violators do not gain a competitive advantage over 
regulated entities that do comply. EPA may forgive the entire penalty 
for violations that meet conditions D(1) through D(9) and, in the 
Agency's opinion, do not merit any penalty due to the insignificant 
amount of any economic benefit.

F. Effect on State Law, Regulation or Policy

    EPA will work closely with States to encourage their adoption and 
implementation of policies that reflect the incentives and conditions 
outlined in this Policy. EPA remains firmly opposed to statutory 
environmental audit privileges that shield evidence of environmental 
violations and undermine the public's right to know, as well as to 
blanket immunities, particularly immunities for violations that reflect 
criminal conduct, present serious threats or actual harm to health and 
the environment, allow noncomplying companies to gain an economic 
advantage over their competitors, or reflect a repeated failure to 
comply with Federal law. EPA will work with States to address any 
provisions of State audit privilege or immunity laws that are 
inconsistent with this Policy and that may prevent a timely and 
appropriate response to significant environmental violations. The 
Agency reserves its right to take necessary actions to protect public 
health or the environment by enforcing against any violations of 
Federal law.

G. Applicability

    (1) This Policy applies to settlement of claims for civil penalties 
for any violations under all of the Federal environmental statutes that 
EPA administers, and supersedes any inconsistent provisions in media-
specific penalty or enforcement policies and EPA's 1995 Policy on 
``Incentives for Self-Policing: Discovery, Disclosure, Correction and 
Prevention of Violations.''
    (2) To the extent that existing EPA enforcement policies are not 
inconsistent, they will continue to apply in conjunction with this 
Policy. However, a regulated entity that has received penalty 
mitigation for satisfying specific conditions under this Policy may not 
receive additional penalty mitigation for satisfying the same or 
similar conditions under other policies for the same violation, nor 
will this Policy apply to any violation that has received penalty 
mitigation under other policies. Where an entity has failed to meet any 
of conditions D(2) through D(9) and is therefore not eligible for 
penalty relief under this Policy, it may still be eligible for penalty

[[Page 19627]]

relief under other EPA media-specific enforcement policies in 
recognition of good faith efforts, even where, for example, the 
violation may have presented an imminent and substantial endangerment 
or resulted in serious actual harm.
    (3) This Policy sets forth factors for consideration that will 
guide the Agency in the exercise of its enforcement discretion. It 
states the Agency's views as to the proper allocation of its 
enforcement resources. The Policy is not final agency action and is 
intended as guidance. This Policy is not intended, nor can it be relied 
upon, to create any rights enforceable by any party in litigation with 
the United States. As with the 1995 Audit Policy, EPA may decide to 
follow guidance provided in this document or to act at variance with it 
based on its analysis of the specific facts presented. This Policy may 
be revised without public notice to reflect changes in EPA's approach 
to providing incentives for self-policing by regulated entities, or to 
clarify and update text.
    (4) This Policy should be used whenever applicable in settlement 
negotiations for both administrative and civil judicial enforcement 
actions. It is not intended for use in pleading, at hearing or at 
trial. The Policy may be applied at EPA's discretion to the settlement 
of administrative and judicial enforcement actions instituted prior to, 
but not yet resolved, as of the effective date of this Policy.
    (5) For purposes of this Policy, violations discovered pursuant to 
an environmental audit or compliance management system may be 
considered voluntary even if required under an Agency ``partnership'' 
program in which the entity participates, such as regulatory 
flexibility pilot projects like Project XL. EPA will consider 
application of the Audit Policy to such partnership program projects on 
a project-by-project basis.
    (6) EPA has issued interpretive guidance addressing several 
applicability issues pertaining to the Audit Policy. Entities 
considering whether to take advantage of the Audit Policy should review 
that guidance to see if it addresses any relevant questions. The 
guidance can be found on the Internet at www.epa.gov/oeca/ore/apolguid.html.

H. Public Accountability

    EPA will make publicly available the terms and conditions of any 
compliance agreement reached under this Policy, including the nature of 
the violation, the remedy, and the schedule for returning to 
compliance.

I. Effective Date

    This revised Policy is effective May 11, 2000.

    Dated: March 30, 2000.
Steven A. Herman,
Assistant Administrator for Enforcement and Compliance Assurance.
[FR Doc. 00-8954 Filed 4-10-00; 8:45 am]
BILLING CODE 6560-50-P