[Federal Register Volume 65, Number 70 (Tuesday, April 11, 2000)]
[Notices]
[Pages 19630-19634]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-8955]



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Part VIII





Environmental Protection Agency





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Small Business Compliance Policy; Notice

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

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ENVIRONMENTAL PROTECTION AGENCY

[FRL-6576-4]


Small Business Compliance Policy

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final Policy Statement.

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SUMMARY: The Environmental Protection Agency (EPA) today issues its 
revised final Small Business Compliance Policy to expand the options 
allowed under the Policy for discovering violations and to establish a 
time period for disclosure. This Policy was originally titled the 
Policy on Compliance Incentives for Small Businesses. This Policy is 
intended to promote environmental compliance among small businesses by 
providing incentives for voluntary discovery, prompt disclosure, and 
prompt correction of violations. The Policy accomplishes this in two 
ways: by setting forth guidelines for the Agency to apply in reducing 
or waiving penalties for small businesses that come forward to disclose 
and make good faith efforts to correct violations, and by deferring to 
State, local and Tribal governments that offer these incentives. Major 
revisions released today include lengthening the prompt disclosure 
period from 10 to 21 calendar days and broadening the applicability of 
the Policy to violations uncovered by small businesses through any 
means of voluntary discovery.

DATES: This policy is effective May 11, 2000.

ADDRESSES: Additional documentation relating to the development of this 
policy is contained in the Office of Enforcement and Compliance 
Assurance (OECA) public docket (EC-P-1999-009). An index to the docket 
may be obtained by contacting the Enforcement and Compliance Docket and 
Information Center by telephone at (202) 564-2614 or (202) 564-2119, by 
fax at (202) 564-1011, or by email at [email protected]. Office hours 
are 8:00 a.m. to 4:00 p.m., Monday through Friday, except legal 
holidays. An additional contact is Ginger Gotliffe (202) 564-7072; fax 
(202) 564-009; e-mail: [email protected].

SUPPLEMENTARY INFORMATION:

Introduction

    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 health, safety and the environment. The 
reorganization also improved and enhanced EPA's ability to reach out to 
small businesses with information to help them comply with 
environmental requirements. Five years after the reorganization, EPA 
conducted outreach efforts to obtain feedback on compliance and 
enforcement activities, on ways to further improve public health, 
safety and the environment through compliance efforts, and on actions 
the Agency has taken over the past five years. From these and other 
outreach efforts and from meetings and conference calls with interested 
stakeholder groups, OECA received feedback that improvements were 
needed to both its Audit Policy and to its Small Business Policy. In 
response to that feedback, OECA reviewed ways to improve these 
Policies.

Background and History

    EPA issued two incentives policies in 1995 and 1996. The 
``Incentives for Self-Policing: Discovery, Disclosure, Correction and 
Prevention of Violations,'' informally known as the ``Audit Policy,'' 
was issued in December 1995. See 60 FR 66706 (Dec. 22, 1995). The 
purpose of the Audit Policy, which is available to entities of any 
size, is to enhance protection of human health, safety and the 
environment by encouraging regulated businesses to voluntarily 
discover, promptly disclose, expeditiously correct and prevent 
violations of federal environmental law. Benefits available to 
businesses that qualify for the Audit Policy include reductions in the 
amount of civil penalties and no recommendation for prosecution of 
potential criminal violations. The Audit Policy has been recently 
modified, and the Final revised Audit Policy is being published today 
in the Federal Register.
    To address the special needs of small businesses EPA issued the 
``Policy on Compliance Incentives for Small Businesses,'' which is 
commonly called the ``Small Business Policy,'' in June 1996. See 61 FR 
27984 June 3, 1996. The Small Business Policy implements section 223 of 
the Small Business Regulatory Enforcement Fairness Act (SBREFA) of 
1996. The term ``small business'' will be used throughout this Policy, 
however this term will also cover entities such as small governments 
and small organizations as defined in SBREFA. Under the existing Small 
Business Policy, EPA will waive or reduce civil penalties whenever a 
small business makes a good faith effort to comply with environmental 
requirements by discovering violations as part of a government 
sponsored compliance assistance program or a voluntary environmental 
audit, promptly disclosing those violations, and correcting them in a 
timely manner. If the small business meets all the criteria in the 
policy, including violation history, correction timeframe, and lack of 
harm, EPA will waive 100% of the gravity component of the civil 
penalty. Moreover, EPA will defer to State, local and Tribal actions 
that are consistent with the criteria set forth in this Policy. The 
Small Business Policy provides penalty reduction as an incentive for 
small businesses, who are less likely than large businesses to have 
sophisticated environmental expertise, to ask for compliance 
assistance. This policy was also simpler for small businesses to use.
    There are several notable differences between the existing Audit 
Policy and Small Business Policy. First, the policies allow penalty 
reduction for violations discovered in different ways. The Audit Policy 
addresses violations discovered through systematic methods such as 
audits as well as through non-systematic methods. The Small Business 
Policy applies only to violations discovered through audits and during 
government sponsored on-site compliance assistance activities. Second, 
the penalty reduction granted by the policies varies. The Audit Policy 
provides 100% reduction of the gravity component of the penalty 
(explained below) for systematic discoveries (i.e., part of a regular 
audit program) and 75% for non-systematic discoveries. The Small 
Business Policy grants provides up to 100% reduction of the gravity 
component of the penalty for violations discovered either through 
regular audits or during government sponsored on-site compliance 
assistance activities. Finally, the period within which violations must 
be corrected is different. Under the Audit Policy, businesses must 
correct a violation within up to 60 days of its discovery of the 
violation to qualify for penalty reduction. Under the Small Business 
Policy, a business must generally correct a violation within 180 days 
of its discovery to qualify for penalty reduction, and within 360 days 
if the correction involves pollution prevention modifications.
    In addition to these notable differences, the Audit Policy 
addresses several issues not covered by the Small Business Policy; 
criminal conduct and multi-facility disclosures. The Small Business 
Policy is inapplicable for criminal violations. Violations that may 
involve criminal conduct can be addressed under the Audit Policy. In 
the unlikely situation where a disclosure involves a multi-facility 
business, the Agency will identify the relevant

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provisions of the Audit and Small Business Policies.

Changes to Policy

    EPA is today making several major changes to the Small Business 
Compliance Policy. All of these changes will make it easier for small 
businesses to take advantage of the Small Business Compliance Policy. 
These changes result from EPA's evaluation of comments received on our 
proposed modification of the Small Business Compliance Policy, which 
was published on July 29, 1999. See 64 FR 41116.
    The following sections discuss the two major changes that we have 
made to the Small Business Compliance Policy: expansion of options for 
discovery of violations and lengthening the disclosure period.

1. Expanded Options for Discovery of Violations

    Comments submitted to EPA suggested that this Policy should be 
expanded to include violations that are discovered by a variety of 
compliance assistance activities, including participation in compliance 
programs or the use of tools that have been developed or sponsored by 
EPA, the States, and local, private and non-profit assistance 
providers. Based on its evaluation of those comments, EPA has decided 
in the revised Small Business Compliance Policy to allow small 
businesses to obtain penalty relief if violations are discovered by any 
voluntary means in addition to discovery as the result of government 
sponsored on-site compliance assistance activities or environmental 
audits. For example, voluntary discovery could result from compliance 
management systems (CMSs), pollution prevention assessments, 
participation in mentoring programs, training classes, use of on-line 
compliance assistance centers, and use of checklists. These programs 
and activities need not be associated with environmental regulatory 
agencies, but may be associated with any public, private, or non-profit 
organization. The Agency wants to encourage participation in those 
programs or activities that could increase compliance, improve 
efficiency, and reduce pollution.
    There are a variety of activities and sources of information that a 
small business can use to learn more about environmental 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 under this policy after receiving 
compliance assistance from a confidential program, the business must 
promptly disclose the violations to the EPA or the State or Tribal 
government agency which is applying a similar policy and comply with 
the other provisions of this Policy.

2. Clarify and Lengthen the Disclosure Period

    This revised Small Business Compliance Policy extends the time 
period within which the small business must fully disclose a violation 
from 10 to 21 calendar days. The original Policy required ``prompt 
disclosure'' for compliance assistance discovery and 10 day disclosure 
for discoveries made through an environmental audit. Lengthening the 
disclosure period to 21 calendar days regardless of how the violation 
was discovered will give small businesses more opportunity to make use 
of the Small Business Compliance Policy while allowing EPA to get 
timely reporting of violations. Such timely reporting provides the 
Agency with clear notice of violations that have or may have occurred 
and the opportunity to respond if necessary, as well as an accurate 
picture of a given businesses's compliance record. Lengthening the 
disclosure period to 21 calendar days is also consistent with a similar 
change that EPA made to the Audit Policy.
    EPA received comment that there might be situations where small 
businesses would not able to disclose within the 21 calendar day 
period. Therefore the revised Small Business Compliance Policy 
addresses this issue. Where the 21 calendar day disclosure period has 
not expired and a small business knows that it will be unable to 
disclose within that time period, the small business is advised to 
contact the appropriate EPA Office before the period expires to request 
additional time. For situations in which the 21 calendar day disclosure 
period has already expired, the Agency may accept a late disclosure in 
the exceptional case, such as where there are complex circumstances. In 
such instances, the small business will need to demonstrate that an 
exceptional case exists.
    With the broadening of the options for the discovery of violations, 
there was some concern by one commenter in a follow-up conversation 
about the event that triggers the beginning of the 21 calendar day 
disclosure period. The 21 calendar day disclosure period begins when 
the small business discovers that a violation has, or may have, 
occurred. Discovery occurs when any officer, director, employee or 
agent of the facility becomes aware of any facts that reasonably lead 
him or her to believe that a violation has or may have occurred at the 
facility.

Other Issues Addressed by Public Comment

    There were also issues that the public commented on, either through 
outreach activities or in response to the Agency's proposed 
modifications. These covered reduction of penalties, implementation of 
the policy, and the combination of the Audit Policy and the Small 
Business Compliance Policy.

1. Penalty Reduction

    EPA did not change the Small Business Compliance Policy provisions 
on reducing or eliminating the gravity component of civil penalties 
that it would otherwise seek. Civil penalties are made up of two 
components: a gravity component and an economic benefit component. The 
gravity component typically reflects the nature of the violations, the 
duration of the violations, the environmental, safety or public health 
impacts of the violations, good faith efforts by the business to 
promptly remedy the violation, and the business's overall record of 
compliance with environmental requirements. Under this Policy, the 
Agency will grant 100% reduction of the gravity component of the 
penalty for violations provided all the other criteria in the policy 
are met. The Agency believes the incentive of 100% reduction of the 
gravity component should encourage small businesses to disclose 
violations promptly and correct them within the specified time period.
    The economic benefit component typically reflects any monetary 
advantage a small business has derived from the violations. For 
example, if a small business significantly reduced its expenses by not 
purchasing and installing an emission control device to meet regulatory 
requirements, then that small business has gained an economic benefit 
or advantage over its competitors who have complied with the 
environmental requirements. We received a comment that the possibility 
of being subject to the economic benefit component of a civil penalty 
would keep small businesses from using the policy. However, other 
commenters stated that the economic benefit component should be 
retained to protect law abiding small businesses from being placed at a 
competitive disadvantage to those which do not comply.
    EPA retains discretion to consider and collect economic benefit 
where a significant benefit was gained, although based on its 
experience, the Agency

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does not anticipate the need to exercise this discretion often. To 
date, the vast majority of the disclosures under the Audit Policy and 
all of the disclosures under the Small Business Compliance Policy have 
not necessitated recovery of economic benefit.

2. Implementation of the Policy

    EPA has modified the Small Business Compliance Policy in format and 
language to provide the information in a more understandable manner. 
This in part helps to respond to comments about how we have implemented 
the Policy. In addition, when they become available, EPA will provide a 
fact sheet, contact list, and other information about the Policy at the 
EPA web site (http://www.epa.gov/oeca/smbusi.html) to increase the 
usefulness of the Policy. We will also ensure that other internet sites 
such as EPA's Small Business Ombudsman web site and the Compliance 
Assistance Center's web sites (9 Centers available at http://www.epa.gov/oeca/centers) link to this information about the Policy. 
EPA staff and other compliance assistance activities and initiatives 
will also provide information about the Small Business Compliance 
Policy.
    Enhanced implementation of the Policy also involves improved 
procedures and coordination within EPA. EPA Headquarters and Regional 
staff working on the Audit Policy as well as this Small Business 
Compliance Policy are coordinating on issues and procedures to ensure 
national consistency in its application and to improve the timeliness 
of the Agency's review of each disclosure. In most circumstances, EPA 
will respond to a small business within 60 days of disclosure of a 
violation.

3. Combining Both Compliance Incentives Policies

    As part of the Agency's evaluations of the Audit and Small Business 
Policies and given the similarities between the two Policies, EPA asked 
for comments on the advisability of combining them. In particular, the 
Agency was interested in whether small businesses would be more likely 
to audit (or seek compliance assistance) and self-disclose violations 
if the two policies were merged. EPA received a range of comments 
supportive of combining the two policies if doing so would simplify the 
process for small businesses. After a careful review, EPA decided that 
it is preferable for small businesses to have a separate policy 
tailored specifically for them. The Small Business Compliance Policy: 
(1) Is shorter and simpler, (2) contains additional benefits for small 
businesses such as a longer correction period and 100% penalty 
reduction of the gravity component for all covered violations, and (3) 
can be more easily distributed with compliance assistance materials 
developed just for small businesses.
    We expect these changes to enable more small businesses to use the 
policy and thereby promote environmental compliance.

Small Business Compliance Policy

A. Introduction and Purpose

    The Small Business Compliance Policy is intended to promote 
environmental compliance among small businesses by providing incentives 
for them to make use of compliance assistance programs, environmental 
audits, or compliance management systems (CMS), or to participate in 
any activities that may increase small businesses' understanding of the 
environmental requirements with which they must comply. The Policy 
accomplishes this in two ways: by waiving or reducing civil penalties 
to which a small business might otherwise be subject, and by deferring 
to States and local governments or tribal authorities that offer these 
incentives consistent with the criteria established in this Policy.
    EPA will waive or reduce the gravity component of civil penalties 
whenever a small business makes a good faith effort to comply with 
environmental requirements by:
    (1) Voluntarily discovering a violation,
    (2) Promptly disclosing the violation within the required time 
period, and
    (3) Expeditiously correcting the violation within the proper 
timeframe.
    To obtain the benefits of the Policy, the facility must also meet 
criteria on violation history, lack of harm, and criminal conduct.

B. Background

    This Policy implements section 223 of the Small Business Regulatory 
Enforcement Fairness Act (SBREFA) of 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 that employs 100 or fewer individuals (across all 
facilities and operations owned by the small business).\1\ Entities, as 
defined under SBREFA, also include small governments and small 
organizations. Facilities that are operated by municipalities or other 
local governments may be covered under the Small Communities Policy 
(see http://www.epa.gov/oeca/scpolcy.html). Facilities that are 
disclosing violations involving multiple facilities should refer to the 
sections on multiple facilities in the Policy on Incentives for Self-
Policing: Discovery, Disclosure, Correction and Prevention of 
Violations ( the Audit Policy) of April 11, 2000.
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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 was 
called the Policy on Compliance Incentives for Small Businesses and 
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 Reduction

    EPA will eliminate or reduce the gravity component of civil 
penalties against small businesses based on the following criteria:
1. Discovery is Voluntary
    The small business discovers a violation on its own before an EPA 
or State inspection. For example, a small business may discover 
violations after receiving compliance assistance, conducting an 
environmental audit or participating in mentoring programs. Other 
activities that may be useful in discovering violations include 
establishing 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 
monitoring or sampling requirement prescribed by statute, regulation, 
permit, judicial or administrative order, or consent agreement. For 
example, emissions violations discovered through a continuous emissions 
monitor (or alternative monitor established in a permit), violations of 
National Pollutant Discharge Elimination System (NPDES) discharge 
limits discovered through required sampling or monitoring, and 
violations discovered through a compliance audit required to be 
performed by terms of a consent order or settlement order are not 
eligible for penalty reduction under the policy.

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2. Disclosure Period is Met
    i. The small business must voluntarily disclose a specific 
violation fully and in writing to EPA or the State within 21 calendar 
days after the small business has discovered that the violation has 
occurred, or may have occurred. Prompt disclosure is evidence of the 
small business's good faith in wanting to achieve or return to 
compliance as soon as possible. For purposes of this Policy, the time 
at which a small business discovers that a violation has or may have 
occurred begins when any officer, director, employee, or agent of the 
facility becomes aware of any facts that reasonably lead him or her to 
believe that a violation may exist. If a small business has some doubt 
as to the existence of a violation, EPA recommends that the business 
make a prompt disclosure and allow the regulatory authorities to make a 
definitive determination. This will ensure that the small business 
meets the disclosure period requirement.
    ii. 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 in a 
timely manner provide such information requested by EPA to determine 
applicability of this Policy.
    iii. If a small business wishes to obtain a corrections period 
after receiving compliance assistance from a confidential assistance 
program, the business may still take advantage of the policy by 
disclosing the violation to the appropriate regulatory agency.
3. Violation is Corrected
    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 putting into place procedures to prevent the 
violation from happening again.
    i. For any violation that cannot be corrected within 90 calendar 
days of its discovery, the small business must submit a written 
schedule, or the agency may, at its sole discretion, elect to issue a 
compliance order with a schedule, as appropriate. The small business 
must correct any violations within 180 calendar days after the date 
that they were discovered.
    ii. If the small business intends to correct the violation by 
putting into place pollution prevention measures, the business may take 
an additional period of up to 180 calendar days, i.e., up to a period 
of 360 calendar days from the date the violation is discovered.
4. When the Policy Does Not Apply
    The Policy does not apply if:
    a. The facility has the following noncompliance history:
    i. It has previously received a warning letter, notice of 
violation, or field citation, or been subject to a citizen suit or any 
other enforcement action by a government agency for a violation of the 
same requirement within the past three years.
    ii. It has been granted penalty reduction under this Policy (or a 
similar State or Tribal policy) for a violation of the same or a 
similar requirement within the past three years.
    iii. It has 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.
    b. The violation was discovered through an information request, 
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 through an investigation unless the facility can demonstrate 
that it did not know that the agency had initiated the investigation 
and has disclosed in good faith.
    c. The violation has caused actual serious harm to public health, 
safety, or the environment;
    d. The violation is one that may present an imminent and 
substantial endangerment to public health, safety or the environment; 
or
    e. The violation involves criminal conduct.

E. Penalty Reduction Guidelines That EPA Will Follow

    EPA will exercise its enforcement discretion to eliminate or reduce 
civil penalties as follows.
    1. EPA will waive the gravity component of 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 still 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 its discretion to ensure that small businesses that comply with 
public health protections are not put at a serious competitive 
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 
E.1.immediately above, this Policy does not provide any special penalty 
reduction. 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 reduce civil 
penalties.\3\
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    \3\ For example, in some media specific penalty policies, the 
penalty calculation may be reduced to account for good faith efforts 
to comply.
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    3. Further, the Agency's enforcement response and penalty policies 
may allow for penalty reduction where the small business is able to 
document an inability to pay all or a portion of the penalty. Penalty 
reduction in this situation allows the small business to stay in 
business and to finance compliance. See Guidance on Determining a 
Violator's Ability to Pay a Civil Penalty of December 1986 (see http://www.epa.gov/oeca/ore/aed/comp/acomp/a1.html). Penalties also may be 
reduced pursuant to the Final EPA Supplemental Environmental Projects 
Policy of May 1998 (63 FR 24796, June 5, 1998, available at http://www.epa.gov/oeca/sep/sepfinal.html) and Incentives for Self-Policing: 
Discovery, Disclosure, Correction and Prevention of Violations Policy 
of April 11, 2000.
    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 for Violations Not Promptly Corrected

    To ensure that this Policy enhances and does not compromise public 
health and the environment, a business remains 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

[[Page 19634]]

penalty in such action may include the time period before and during 
the correction period.

G. Applicability to States and Tribes

    Small businesses may take advantage of small business policies that 
many States have developed. EPA recognizes that states and tribes are 
partners in enforcement and compliance assurance and may have adopted 
their own penalty mitigation policies in Federally-authorized, approved 
or delegated programs. Therefore, EPA will generally defer to State and 
Tribal penalty mitigation for self disclosures as long as the State 
policy meets minimum requirements for Federal delegation and is 
generally consistent with the criteria set forth in this Policy. 
Whenever a State agency or Tribe provides a penalty waiver or 
mitigation or a correction period to a small business pursuant to this 
Policy or a similar policy, that State or Tribe should notify the 
appropriate EPA Region to ensure coordination and to request that EPA 
defer to that action. Similarly, EPA will notify the appropriate State 
agency or Tribe whenever EPA applies this policy to ensure coordination 
and request the States defer to EPA's action. Regional contacts, along 
with other materials about the Policy, will be posted at the EPA web 
page (http://www.epa.gov/oeca/smbusi.html) as they become available.

H. Effective Date

    This revised Policy is effective May 11, 2000.

    Dated: April 5, 2000.
Sylvia K. Lowrance,
Acting Assistant Administrator for Enforcement and Compliance 
Assurance.
[FR Doc. 00-8955 Filed 4-10-00; 8:45 am]
BILLING CODE 6560-50-P