[Federal Register Volume 81, Number 147 (Monday, August 1, 2016)]
[Rules and Regulations]
[Pages 50306-50319]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-17598]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE INTERIOR

Office of Natural Resources Revenue

30 CFR Part 1241

[Docket No. ONRR-2012-0005; DS63644000 DR2PS0000.CH7000 167D0102R2]
RIN 1012-AA05


Amendments to Civil Penalty Regulations

AGENCY: Office of the Secretary, Office of Natural Resources Revenue, 
Interior.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This rule amends the Office of Natural Resources Revenue 
(ONRR) civil penalty regulations by expanding the regulations to all 
Federal mineral leases onshore and on the Outer Continental Shelf 
(OCS), to all Federally-administered mineral leases on Indian Tribal 
and individual Indian mineral owners' lands, and to all easements, 
rights of way, and other agreements on the OCS; incorporating the civil 
penalty inflation adjustments pursuant to the Federal Civil Penalties 
Inflation Adjustment Act Improvements Act of 2015 (the 2015 Act); 
clarifying and simplifying existing regulations for issuing a Notice of 
Noncompliance (NONC), Failure to Correct Civil Penalty Notice (FCCP), 
and Immediate Liability Civil Penalty Notice (ILCP); and providing 
notice that ONRR will post matrices for civil penalty assessments on 
its Web site.

DATES: Effective Date: August 31, 2016.

FOR FURTHER INFORMATION CONTACT: For comments or questions on 
procedural issues, contact Armand Southall, Regulatory Specialist, by 
telephone at (303) 231-3221 or email to [email protected]. For 
questions on technical issues, contact Geary Keeton, ONRR Chief of 
Enforcement, by telephone at (303) 231-3096 or email to 
[email protected].

SUPPLEMENTARY INFORMATION: 

I. Background

    ONRR is amending its civil penalty regulations.
    On May 13, 1999, the Department of the Interior (Department) 
published a final rule (64 FR 26240) in the Federal Register (FR) 
governing Minerals Management Service (MMS) Minerals Revenue Management 
(MRM) issuance of notices of noncompliance and civil penalties.
    On May 19, 2010, the Secretary of the Department (Secretary) 
reassigned MMS's responsibilities to three separate organizations. As 
part of this reorganization, the Secretary renamed MMS's MRM to ONRR 
and transferred it to the Assistant Secretary of Policy, Management and 
Budget. This change required the reorganization of title 30 of the Code 
of Federal Regulations (30 CFR). In response, ONRR published a direct 
final rule on October 4, 2010 (75 FR 61051), to establish a new chapter 
XII in 30 CFR; to remove certain regulations from Chapter II; and to 
recodify these regulations in the new Chapter XII. Therefore, all 
references to ONRR in this rule include its predecessor MRM, and all 
references to 30 CFR part 1241 in this rule include former 30 CFR part 
241.

II. Notice of and Comments on the Proposed Amendments

    On May 20, 2014, ONRR published a Notice of Proposed Rulemaking (79 
FR 28862) to amend ONRR's civil penalty regulations. In the preamble of 
the proposed rule, ONRR invited comments on all aspects of the proposed 
rule, including (1) the amount of the proposed processing fee for a 
hearing request, payment by Electronic Funds Transfer, and the form of 
identification to include with the fee; (2) the effect that the 
proposed processing fee could have on the filing of hearing requests; 
(3) the procedure to allow a motion for summary decision to be filed at 
any time after the case is referred to the Departmental Cases Hearings 
Division (DCHD), including before discovery commences; (4) whether 
industry should have the burden of showing by a preponderance of the 
evidence that it is not liable or that the penalty amount should be 
reduced; (5) whether the accrual of a penalty during the hearing 
process could be stayed; and (6) the definition of the term ``knowingly 
or willfully.''
    The proposed rulemaking provided for a 60-day comment period, which 
ended on July 21, 2014. During the public comment period, ONRR received 
19 written comments: 11 responses from members of industry, 7 responses 
from industry trade groups or associations, and 1 response from the 
Jicarilla Apache Nation.
    ONRR has carefully considered all of the public comments that we 
received during the rulemaking process. We hereby adopt final 
regulations governing the application, assessment, and issuance of and 
request for hearing on a NONC, FCCP, and ILCP. These regulations will 
apply prospectively to a NONC, FCCP or ILCP issued on or after the 
effective date that we specify in the DATES section of this preamble.
    This final rule reflects revisions to the proposed rule. Also, 
consistent with the proposed rule, it amends the current

[[Page 50307]]

ONRR regulations to (1) apply the regulations to all Federal mineral 
leases onshore and on the OCS, to all Federally-administered mineral 
leases on Indian Tribal and individual Indian mineral owners' lands, 
and to all easements, rights of way, and other agreements on the OCS; 
(2) incorporate the civil penalty inflation adjustments made pursuant 
to the 2015 Act; (3) clarify and simplify the existing regulations for 
issuing a NONC, FCCP, and ILCP; and (4) provide notice that ONRR will 
post matrices for civil penalty assessments on its Web site. The 
maximum civil penalty amounts for ONRR penalties under 30 U.S.C. 
1719(a)-(d) were established in 1983 in the Federal Oil and Gas 
Management Act (FOGRMA). The civil penalties were not subsequently 
adjusted for inflation. The proposed rule, published on May 20, 2014 
[79 FR 28862], adjusted the civil penalty amounts by 10 percent 
pursuant to the Federal Civil Penalties Inflation Adjustment Act of 
1990 (Pub. L. 101-410) (Inflation Adjustment Act). However, on November 
2, 2015, the President of the United States signed into law the Federal 
Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Sec. 
701 of Pub. L. 114-74) (the 2015 Act), which further amended the 
Inflation Adjustment Act. The 2015 Act required Federal agencies to 
adjust each civil penalty amount with an initial catch-up adjustment 
through an interim final rulemaking. The 2015 Act also requires Federal 
agencies to make annual inflation adjustments. In accordance with the 
2015 Act, in a separate interim final rule, ONRR replaced the 
established 1983 maximum civil penalty amounts for each of the four 
established civil penalty tiers specified in 30 U.S.C. 1719(a)-(d). 
Therefore, the maximum civil penalty amounts in this final rule are 
greater than the amounts in the proposed rule because this final rule 
incorporates the adjustments made pursuant to the 2015 Act. Also, this 
final rule reflects other non-substantive technical changes and 
additions made to the proposed rule for the purpose of clarity. We 
discuss the revisions and amendments in more detail below.

A. General Comments

    The majority of commenters expressed opposition to the proposed 
rule. The general comments fall into two categories: (1) The proposed 
rule is at odds with the FOGRMA civil penalty hierarchy, and (2) the 
proposed rule denies due process.
1. The Proposed Rule Is at Odds With the FOGRMA Civil Penalty Hierarchy
    Public Comment: Industry contends that the proposed rule expands 
the definitions of statutory terms, establishes too lenient of 
standards for agency notification to industry members, and seeks to 
invent new knowing or willful violations. Industry further contends 
that Congress did not authorize ONRR to impose broad-ranging knowing or 
willful civil penalties entirely at ONRR's discretion. Rather, Congress 
established a purposeful hierarchy of civil penalties.
    ONRR Response: We include language in the preamble of this final 
rule that clarifies ambiguities and simplifies the processes for 
issuing and contesting a NONC, FCCP, and ILCP. We may issue either a 
NONC or ILCP, depending upon the type of violation we discover and 
whether it is knowing or willful. We acknowledge that FOGRMA does not 
expressly define some statutory terms, such as ``knowingly or 
willfully,'' ``submits,'' or ``maintains.'' Therefore, we clarify these 
terms as they relate to royalty and production information, collection, 
and management. We do not believe that the definitions expand on or 
redefine these terms, but rather clarify the terms to minimize 
ambiguity. We do not understand what industry means by a broad-ranging 
knowing or willful civil penalty. Congress authorized the Secretary to 
impose civil penalties for the specific violations identified in 30 
U.S.C. 1719. The burden of proof lies with us to prove, by a 
preponderance of the evidence, the fact of the violation and the basis 
of the amount of the civil penalty.
2. The Proposed Rule Denies Due Process
    Public Comment: Industry asserts that the proposed rule would 
deprive a lessee of due process, including (1) precluding a lessee's 
statutory right to a full hearing on the record before an 
administrative law judge (ALJ), (2) preventing them from obtaining a 
stay of penalty accrual pending appeal of a FCCP or ILCP, and (3) 
unfairly shifting the adjudicatory role from an independent arbiter--an 
ALJ--to the agency that issued the contested civil penalty.
    ONRR Response: We address industry concerns regarding due process 
under Specific Comments on 30 CFR part 1241--Penalties.

B. Specific Comments on 30 CFR Part 1241--Penalties

1. Definitions and Standards
a. The Proposed Definition of the Term ``Maintains'' Is Invalid
    Public Comment: ONRR received 13 comments stating that the 
definition of ``maintains'' in proposed 30 CFR 1241.3 is invalid 
because it imposes liability under 30 U.S.C. 1719(d)(1) for failing to 
ensure the continued accuracy of information after it is provided to 
ONRR for a data system or other official record. Industry's position is 
that the proposed definition of ``maintains'' makes two changes, 
exposing a lessee to potentially limitless liability for a knowing or 
willful violation under 30 U.S.C. 1719(d)(1). First, the proscribed 
conduct of knowingly or willfully maintaining false, inaccurate, or 
misleading information is converted from an affirmative act to the 
passive act or non-action of failing to correct information. Second, 
the duty to maintain is made applicable to external information; in 
other words, information already provided to ONRR. Industry emphasizes 
that the term ``maintains'' applies only to a lessee's internal 
preservation of its own records for agency review or inspection. 
Industry notes that FOGRMA does not define ``maintains'' and that the 
proposed definition would elevate 30 U.S.C. 1719(a) and (b) violations 
to a 30 U.S.C. 1719(d)(1) violation, which is not FOGRMA's intent. 
Industry further contends that, under the proposed definition, a lessee 
who is given prior notice of an inadvertent error will be subject to a 
knowing or willful civil penalty, which is reserved for a violation 
without prior notice.
    Additionally, industry comments that the proposed 30 CFR 1241.3 and 
the preamble contain undefined ``critical operative terms,'' resulting 
in no guidance for a lessee. For example, industry contends that the 
proposed rule expands the scope of ``maintains'' because ONRR may 
pursue a knowing or willful violation under 30 U.S.C. 1719(d)(1) if a 
lessee receives ``an email, preliminary determination letter, . . . or 
any other written communication'' identifying a violation and fails to 
correct the violation. Industry contends that this would violate a 
lessee's due process rights because a lessee cannot appeal any 
communication that is not an order.
    ONRR Response: Under 30 CFR 1210.30 each reporter/payor must submit 
accurate, complete, and timely information to ONRR according to the 
requirements. If you discover an error in

[[Page 50308]]

a previous report, you must file an accurate and complete amended 
report within 30 days of your discovery. The burden falls on us to 
prove that the alleged violator knew that the incorrect information 
existed on our data system--and the incorrect information remained 
uncorrected on our data system--or that the violator acted with 
reckless disregard or deliberate ignorance to the same.
    Industry asserts that FOGRMA uses the term ``maintains'' to refer 
exclusively to industry's internal recordkeeping. We conclude that 
``maintains'' refers to both a party's internal records and to external 
information that the party submitted into our industry-fed 
recordkeeping system. FOGRMA recognizes the importance of accuracy in 
this system, as evidenced by 30 U.S.C 1711, which mandates an accurate 
royalty accounting system. The statutory obligation to ensure the full 
and proper collection of a royalty owed for the production and sale of 
a Federal royalty-bearing resource depends on the accuracy of the 
information that a party reports.
    In Statoil USA E&P, Inc. v. ONRR, 185 IBLA 302 (Apr. 29, 2015) (on 
interlocutory review of summary judgment ruling), the Interior Board of 
Land Appeals (IBLA) affirmed ALJ Harvey C. Sweitzer's conclusion that 
found the term ``maintains'' applies to information regarding royalty 
computation and payment within a party's internal recordkeeping system 
and to such information that a party has reported to us. Id. at 314. 
The IBLA concluded that, when a party has already submitted a report to 
us and later comes to know, whether through a party's own efforts or 
notice from us, that the report is inaccurate and then fails to correct 
the report on time, that party has knowingly or willfully maintained 
inaccurate information and ONRR may assess a civil penalty under 30 
U.S.C. 1719(d)(1). Id. at 315. Moreover, a party's due process rights 
are not violated because they may challenge the ILCP through the 
hearing process.
b. The Proposed Definition of the Term ``Submits'' Is Invalid
    Public Comment: ONRR received 10 comments asserting that the 
definition of ``submits'' in proposed 30 CFR 1241.3 is invalid. 
Industry asserts that ONRR's definition overreaches and directly 
``contradicts the knowing or willful standard within 30 U.S.C. 1719(d) 
and is unlawful'' because it bypasses the lower hierarchy violations 
set out in 30 U.S.C. 1719(a) and (b). Additionally, industry contends 
that proposed 30 CFR 1241.60(b)(2) is unclear. It describes what 
information may be used as evidence of a knowing or willful violation, 
including lessee notification of a violation via a communication that 
is not an appealable order followed by correction of the violation and 
commission of ``substantially the same violation in the future.'' 
Industry contends that the quoted phrase is unclear because ONRR does 
not explicitly define what type of violation is ``substantially the 
same.'' Further, industry argues that ONRR should not be able to invoke 
the knowing or willful standard based on a communication that ``does 
not even rise to the level of an appealable order.''
    ONRR Response: The term ``knowingly or willfully'' is not defined 
in FOGRMA, which is why we are clarifying the term in the regulation. 
Reporting requirements are already defined in 30 CFR part 1210 and 
elsewhere; therefore, we can reasonably expect that information 
submitted to an ONRR system or representative will conform to those 
requirements. A party holding an interest in a Federal or Indian 
property must submit information that is correct, accurate, and not 
misleading. Furthermore, we are not required to prove ``specific 
intent'' to defraud, only that a party submitting false, inaccurate, or 
misleading information did so with actual knowledge, deliberate 
ignorance, or reckless disregard.
    The proposed regulation did not explicitly define what constitutes 
``substantially the same'' violation. For clarity the term 
``substantially'' was removed from the final rule. ONRR will consider, 
on a case-by-case basis, a party's history of noncompliance for the 
purpose of determining the appropriate amount of the civil penalty. 
Although 30 U.S.C. 1719(d)(1), as amended by the 2015 Act, allows for a 
penalty assessment ``of up to $58,871 per violation for each day such 
violation continues,'' we rarely exercise our right to issue a penalty 
of this magnitude. FOGRMA provides that submission violations require 
no prior opportunity to correct before a civil penalty is issued. 
Therefore, industry's argument that we should issue an appealable order 
before issuing the civil penalty is inconsistent with FOGRMA's clear 
language.
c. The Proposed Definition of the Term ``Knowingly or Willfully'' is 
Invalid
    Public Comment: ONRR received six comments from industry stating 
that the definition of the term ``knowingly or willfully'' in proposed 
30 CFR 1241.3 is invalid because ONRR is defining ``knowingly or 
willfully'' to mean gross negligence, which is too low of a standard. 
Industry states that gross negligence requires ONRR to ``show that a 
person has `failed to exercise even that care which a careless person 
would use.''' Industry argues that ``ONRR cites no legal authority for 
equating `knowing or willful' under FOGRMA with `gross negligence.'''
    ONRR Response: In 30 CFR 1241.3 of the final rule, the definition 
of the term ``knowingly or willfully'' includes acting--or failing to 
act, as applicable--in reckless disregard of the facts surrounding the 
event or violation. Industry equates reckless disregard with gross 
negligence. Regardless of whether the terms are equivalent, the 
application of the reckless disregard standard is consistent with a 
recent ruling issued by ALJ Sweitzer in Cabot Oil & Gas Corporation, 
Case No. CP11-016 (DCHD June 5, 2015). ALJ Sweitzer held that the term 
``willfully'' in 30 U.S.C. 1719 includes acts undertaken with reckless 
disregard. Further, ALJ Sweitzer suggested that gross negligence may 
support a finding that the conduct is ``willful.'' Consequently, the 
reckless disregard standard is an appropriate standard to measure a 
knowing or willful violation.
d. The Proposed ``Mens Rea'' Standard Is Insufficient
    Public Comment: ONRR received 12 comments from industry stating 
that the ``mens rea'' standard of gross negligence in the definition of 
the term ``knowingly or willfully'' in proposed 30 CFR 1241.3 is too 
low of a standard for a 30 U.S.C. 1719(d) violation. Conduct that 
violates 30 U.S.C. 1719(d) is also criminally punishable under 30 
U.S.C. 1720. Industry mentions that ``willfully'' can signify two 
different ``mens rea'' depending on whether it is being used in civil 
or criminal law. Industry argues that ONRR is improperly patterning the 
``mens rea'' requirements for 30 U.S.C. 1719(d) on the lower civil 
``mens rea'' requirements of the False Claims Act, despite the fact 
that a 30 U.S.C. 1719(d) violation is also punishable criminally.
    The False Claims Act defines ``knowing'' to include reckless 
disregard. Because FOGRMA makes no mention of reckless disregard, 
industry contends that FOGRMA requires the government to prove criminal 
``mens rea'' to establish liability. ``ONRR's Proposed Rule also fails 
to acknowledge that the ``knowing or willful'' standard in Sec.  
1719(d) is unique and must also warrant criminal liability under Sec.  
1720,'' which would undercut Congress' hierarchy penalty system already

[[Page 50309]]

established in FOGRMA and conflict with established principles of law.
    ONRR Response: The proposed definition of the term ``knowingly or 
willfully'' is consistent with the history and purpose of FOGRMA. 
Congress was concerned by reports from the U.S. General Accounting 
Office (GAO, now the U.S. Government Accountability Office) discussing 
the government's failure to collect royalties for oil and gas leases on 
Federal and Indian lands and the theft of oil and gas from those 
leases. The Secretary appointed the Linowes Commission (Commission) to 
address GAO's claims. The Commission found numerous deficiencies, 
concluding that ``the industry is essentially on an honor system.'' In 
response, Congress passed FOGRMA and empowered the Secretary with the 
authority to impose a civil penalty to guard against a FOGRMA 
violation. When Congress established the tiered system of penalties, 
Congress stated that ``a balance must be struck between the need to 
deter violations of the Act and the need to avoid a situation in which 
exposure to very severe penalty liability for relatively minor or 
inadvertent violations of necessarily complex regulations becomes a 
major disincentive to produce oil or gas from lease sites on Federal or 
Indian lands.''
    Though FOGRMA does not define the term ``knowingly or willfully,'' 
courts generally do not dispute the meaning of the term ``knowingly,'' 
which denotes actual knowledge or intentional blindness. However, the 
term ``willfully'' may signify two different standards depending on 
whether it is being used in criminal or civil law. The IBLA considered 
the meaning of the term ``willful'' in Meridian Oil, Inc., 147 IBLA 211 
(1999), in the context of a civil penalty proceeding. The IBLA 
concluded that the term ``willfulness'' can be demonstrated through 
reckless disregard as to whether a violation is occurring. In Cabot 
Oil, ALJ Sweitzer addressed whether the criminal law mens rea standard 
for the term ``willfully'' should apply to knowing or willful 
violations under 30 U.S.C. 1719. ALJ Sweitzer concluded that ``Congress 
intended the civil mens rea of reckless disregard for the law should be 
applied . . . '' to willful violations under 30 U.S.C. 1719. Thus, the 
final rule's definition of the term ``knowingly or willfully'' is in 
accordance with administrative rulings interpreting the term, and does 
not violate FOGRMA's hierarchical penalty system.
    Industry also commented that our proposed rule would improperly 
create criminal exposure for an individual who does not have the 
requisite ``mens rea'' for criminal conduct. The Supreme Court 
considered a similar argument made in Safeco Insurance Co. of America 
v. Burr, 551 U.S. 47, 56-60 (2007), in which Safeco claimed that the 
word ``willfully'' in the civil provision of the Fair Credit Reporting 
Act (FCRA) cannot include recklessness because the criminal penalty 
provisions of the FCRA are triggered by actions that are engaged in 
knowingly and willfully. The Supreme Court disagreed, stating that `` . 
. . in the criminal law, `willfully' typically narrows the otherwise 
sufficient intent, making the government prove something extra, in 
contrast to its civil-law usage, giving the plaintiff a choice of 
mental states to show in making a case for liability.'' Safeco Ins. 
Co., 551 U.S. at 60. ONRR recognizes the different standards for civil 
and criminal actions and will apply the civil standard for each civil 
penalty brought under 30 U.S.C. 1719.
    The proposed 30 CFR 1241.75 notes that the United States may pursue 
a criminal penalty if a party committed an act for which a civil 
penalty is provided in 30 U.S.C. 1719(d) and 30 CFR 1241.60(b)(2). The 
proposed 30 CFR 1241.75 was intended to clarify and explain the 
application of 30 U.S.C. 1719(d) in a civil context. However, after 
further consideration, we do not believe that it is necessary to 
provide a regulation to discuss criminal prosecution. Therefore, 30 CFR 
1241.75 is removed from the final rule. The removal of 30 CFR 1241.75 
in no way limits our ability to refer a violation for criminal 
prosecution under 30 U.S.C. 1720 or another statute.
e. ``Strict Vicarious Liability'' of a Lessee for the Act and Knowledge 
of Its Employee or Agent Is Untenable
    Public Comment: ONRR received nine comments from industry 
contending that proposed 30 CFR 1241.60(b)(2) untenably imposes 
``strict vicarious liability'' on a lessee for the act and knowledge of 
its employee or agent. The proposed section describes what information 
we may use as evidence of a knowing or willful violation, including 
``the acts and failures to act of [a lessee's] employees and agents.'' 
Industry opposes ``strict vicarious liability'' because ONRR would hold 
a lessee responsible for the knowledge of all its employees, even for a 
matter beyond the scope of the employee's ``employment, experience or 
responsibility.'' Further, industry notes that a ``specific intent 
criminal-type standard'' cannot be imputed to a corporation where an 
employee acts without apparent authority and outside of the scope of 
his or her responsibilities.
    Industry states that ONRR is relying on the ``strict vicarious 
liability'' standards in the False Claims Act which imposes ``strict 
vicarious liability'' on a corporation for the act and knowledge of its 
employee. Industry contends that ONRR cannot apply those standards to 
FOGRMA because they are two entirely different statutes. Industry 
states that ONRR must conduct a case-by-case evaluation of the relevant 
factors and may impute liability to the corporation only if the agent's 
culpable act or knowledge is material to the agent's duties. Industry 
also states that, under FOGRMA, a lessee may designate an agent for a 
royalty related matter and that ONRR recognizes such designation when a 
company fills out and submits an Addressee of Record Designation for 
Service of Official Correspondence (form ONRR-4444). Industry states 
that the proposed regulation would circumvent an otherwise orderly 
system in which liability should only be imputed for an act or 
knowledge of a designated agent. Industry contends that it would be 
unfair to ``strictly and vicariously'' impose a large civil penalty on 
a lessee under proposed 30 CFR 1241.60(b)(2) if a lessee fails to 
comply with any communication that ONRR sends to any company employee. 
Industry likewise contends that it is unfair to impose a civil penalty 
if ONRR fails to send official correspondence to the designated person 
by authorized means.
    ONRR Response: The proposed definition of the term ``knowingly or 
willfully'' includes a situation where a corporation or individual in a 
corporation acts with actual knowledge, as well as a situation where 
the corporation acts with deliberate ignorance or reckless disregard. 
By holding the corporation vicariously liable for the employee's 
actions, the final rule deters management from recklessly disregarding 
or deliberately ignoring the actions of an employee or agent. To avoid 
the possibility of a civil penalty, a company must exercise sufficient 
quality control and management oversight to ensure that it reports and 
pays correctly. The principle that a company can be held liable for the 
conduct of its agent or employee acting under apparent or actual 
authority, regardless of the actual knowledge of corporate management, 
is especially applicable in a civil penalty case brought under FOGRMA. 
A corporation acts through its employee and empowers its employee to 
conduct business on its behalf. In dealing with us, a corporation 
designates an employee as a point of contact using

[[Page 50310]]

form ONRR-4444. See 30 CFR part 1218, subpart H. A corporate employee 
who is designated or in regular contact with us, is an agent with the 
actual or apparent authority to communicate on behalf of, and bind, the 
corporation. And we reasonably and necessarily rely on the agent's 
authority to speak for the corporation. Further, relevant case law 
holds that knowledge of a non-managerial employee is imputed to a 
corporation regardless of the principal's or management's actual 
knowledge. See, for example, United States v. Shackelford, 484 F. Supp. 
2d 669 (E.D. Mich. 2007) (``Shackelford'') (False Claims Act); ASME v. 
Hydrolevel Corp., 456 U.S. at 566-568 (1957) (antitrust); United States 
ex rel. Bryant v. Williams Bldg. Corp., 158 F. Supp. 2d 1001, 1006-1009 
(D. S.D. 2001) (``Bryant'') (False Claims Act); see also United States 
ex rel. Ann Fago v. M&T Mortgage Corp., 518 F. Supp. 2d 108, 124-125 
(D.D.C. 2007) (False Claims Act) (rejecting the principle that a 
corporation is not liable for the acts of a non-managerial employee 
absent knowledge or recklessness by the corporation as going ``against 
the great weight of authority in [False Claims Act] cases''). Indeed, 
in Cabot Oil, ALJ Sweitzer agreed with us that the scienter of an oil 
and gas company's non-managerial employee should be imputed to the 
company--at least when the company designates the employee as its point 
of contact. Therefore, our application of the knowingly or willfully 
standard under this final rule is in accordance with judicial and 
administrative rulings and does not circumvent or undercut FOGRMA's 
intent or authority.
2. Legal Principles
a. The Omnibus Appropriations Act, 2009, P.L. 111-8, Sec. 115, 123 
Stat. 524 (2009 Appropriations Act) and the Department of the Interior, 
Environment, and Related Agencies Appropriations Act, 2010, P.L. 111-
88, Sec. 114, 123 Stat. 2928 (Codified at 30 U.S.C. 1720a) (2010 
Appropriations Act) Authorizing the Application of FOGRMA to Solid 
Mineral Leases
    Public Comment: One commenter expressed concern regarding the 
application of the proposed rule to solid mineral leases. Since FOGRMA 
did not cover solid mineral leases until mandated by the 2009 and 2010 
Appropriations Acts, the commenter believes that solid mineral leases 
were shoehorned into FOGRMA with no consideration of the unique 
provisions of these leases. In addition, this commenter suggested that 
a conflict exists with the Bureau of Land Management (BLM) regulation 
at 43 CFR 3485.1(e), which prescribes a different penalty for 
misreporting on a coal lease.
    ONRR Response: FOGRMA established civil penalties relating to oil 
and gas development on Federal lands and the OCS. The 2009 and 2010 
Appropriations Acts expanded the application of Section 109 of FOGRMA 
to any lease authorizing exploration for or development of coal, any 
other solid mineral, or any geothermal resource on any Federal or 
Indian lands and any lease, easement, right of way, or other agreement, 
regardless of form, for use of the OCS. If BLM issues a violation for 
misreporting on a coal lease, BLM regulation 43 CFR 3485.1(e) and any 
other pertinent BLM regulation will govern the penalty assessment. 
However, if we issue the violation for misreporting on a coal lease, we 
will follow the authority set forth in FOGRMA section 109 and any 
applicable lease terms.
b. ONRR Already Possesses Sufficient Civil Penalty Tools To Address a 
Reporting Error and Failure To Correct
    Public Comment: ONRR received 14 comments stating that ONRR already 
possesses sufficient civil penalty tools to address a reporting error 
and failure to correct. Industry comments that ONRR does not explain 
why it is proposing wholesale changes to the current civil penalty 
regulation, given its existing clear and adequate enforcement path to 
address the conduct that it now seeks to shoehorn under 30 U.S.C. 
1719(c) and (d).
    Industry asserts that, under ONRR's preferred formulation, ONRR 
could sweep any reporting violation into 30 U.S.C. 1719(d), however 
alleged, that is not immediately corrected, thus merging the FOGRMA 
civil penalty provisions and eliminating the various hierarchy of 
violations that FOGRMA clearly established. Industry contends that ONRR 
lacks the authority to erase the graduated, proportionate, and strictly 
defined hierarchy of ascending civil penalties that Congress 
prescribed.
    ONRR Response: We already possess the authority to issue a NONC, 
FCCP, or ILCP. This rule seeks to increase transparency and to clarify 
the purpose of each notice. Therefore, this final rule sets out more 
specific guidelines regarding the types of violations and how these 
violations prescribe the selection and issuance of each type of 
enforcement notice.
    Moreover, in the 2009 and 2010 Appropriations Acts, Congress 
directed the Secretary to apply FOGRMA section 109 (30 U.S.C. 1719) to 
Federal and Indian solid mineral leases, geothermal leases, and 
agreements for OCS energy development under 43 U.S.C. 1337(p). This 
rule is necessary to effectively announce and clarify the authority set 
out in the 2009 and 2010 Appropriations Acts. The new 30 CFR 1241.2 
states that this part will apply to all Federal mineral leases onshore 
and on the OCS, to all Federally-administered mineral leases on Indian 
Tribal and individual Indian mineral owners' lands, and to all 
easements, rights of way, and other agreements on the OCS.
    Title 30 CFR 1241.3 provides definitions for terms that are not 
comprehensively defined or, in most instances, not defined at all in 
the current 30 CFR 1241. For example, we already possess the authority 
to issue a civil penalty for knowing or willful violations under 30 
U.S.C. 1719(c) and (d). This rule simply clarifies what the term 
``knowingly or willfully'' means. Additionally, the definitions in this 
rule clarify broad terms. For instance, ``information'' is a broad term 
that the final rule defines as it pertains to royalty collection and 
management.
    FOGRMA established a tiered system of civil penalties and 
structured liabilities for relatively minor or inadvertent violations 
to major, complex, or severe violations. Congress delegated to the 
Secretary the authority to impose a civil penalty to deter FOGRMA 
violations. We may issue either a NONC or ILCP, depending upon the type 
of violation we discover and whether it is knowing or willful. 30 CFR 
part 1210 provides specific requirements for reporting, including 
discovering errors and submitting corrections. Thus, a party's action 
or inaction dictates the type of 30 U.S.C. violation assessed.
c. ONRR's Application of 30 U.S.C. 1719(d)(1) Is Contrary to Law
    Public Comment: ONRR received five comments asserting that ONRR is 
expanding 30 U.S.C. 1719(d)(1) contrary to law. Industry contends that 
``a plain reading of 30 U.S.C. 1719(d)(1), particularly within its 
statutory context, reveals that it does not apply to mere delays in 
correcting alleged errors not knowingly or willfully made when 
originally submitted.'' Further, industry contends that ONRR ``parses 
out individual statutory terms and separately assigns new definitions 
created out of thin air,'' then uses these definitions to manufacture a 
new violation under 30 U.S.C. 1719(d)(1). The commenters state that the 
proposed rule does not faithfully interpret the

[[Page 50311]]

governing statute, but, instead, seeks to re-draft it.
    ONRR Response: Industry comments that we are applying 30 U.S.C. 
1719(d)(1) in matters of ``mere delays in correcting alleged reporting 
errors.'' In fact, we apply 30 U.S.C. 1719(d)(1) after confirming that 
the violator knowingly or willfully maintained incorrect information on 
our financial system and failed to make corrections on our financial 
system within a reasonable period of time. See, also, the discussion 
under Part II.B.1.a., above.
d. ONRR's Application of 30 U.S.C. 1719(c) Is Contrary to Law
    Public Comment: ONRR received three comments requesting that ONRR 
not revise its regulations implementing 30 U.S.C. 1719(c). Industry 
takes issue with proposed 30 CFR 1241.60(b)(1)(ii) setting forth the 
penalty for ``knowingly or willfully fail[ing] to make any royalty 
payment . . .,'' 30 CFR 1241.60(a)(1), or for ``fail[ing] or refus[ing] 
to permit lawful entry, inspection, or audit.'' 30 CFR 1241.60(a)(2). 
Industry objects to the addition of a new sentence in the proposed 30 
CFR 1241.60(b)(1)(ii) that: ``[ONRR] may consider [a party's] failure 
to keep, maintain, or produce documents to be a knowing or willful 
failure or refusal to permit an audit.'' Industry states that ``The 
proposed rule tries to impose a uniform `knowing or willful' definition 
for both [30 U.S.C.] 1719(c) and (d), when the applicable standard for 
[30 U.S.C.] 1719(d) must be considerably more strict.'' Commenters 
state that ONRR ``would convert any internal recordkeeping issue into 
an impediment of a hypothetical audit and thereby trigger greater 
penalties without notice.'' And commenters state that ``as written, 
proposed [30 CFR] 1241.60(b)(1)(ii) potentially could allow knowing or 
willful civil penalties based on an audit not even occurring.'' The 
commenters state that ONRR cannot automatically impute 30 U.S.C. 
1719(c) liability to a company for any alleged impediment of an audit 
by an employee.
    ONRR Response: As stated in the preamble of the proposed rule, we 
issued a Dear Reporter Letter on March 10, 2011, explaining the 
recordkeeping requirements and the consequences of failing or refusing 
to produce requested documents. This letter warns of the penalty 
consequence for the failure to keep, maintain, or provide in a timely 
manner a document for an audit, compliance review, or investigation. 
Additionally, 30 U.S.C. 1713 and 30 CFR part 1212 include recordkeeping 
obligations that require a reporter to establish and maintain a record, 
make a report, provide information needed to implement FOGRMA, 
determine compliance with a regulation or order, and produce a record 
upon request. Moreover, 30 CFR part 1212 states, ``When an audit or 
investigation is underway, records shall be maintained until the record 
holder is released by written notice of the obligation to maintain 
records.'' Therefore, 30 CFR 1241.60(b)(1)(ii) does not deviate from 
existing regulations or practice.
    A company is legally required to have records available and ready 
for inspection. If an audit cannot be performed because of a company's 
failure to produce documents, we are authorized to issue an ILCP for 
failing or refusing to permit an audit.
e. The Proposed Knowing and Willful Provisions Do Not Work With the 
Unbundling Issue
    Public Comment: The Independent Petroleum Association of New Mexico 
(IPANM) contends that the proposed knowing and willful provisions do 
not work with the unbundling issue. IPANM states that unbundling 
requires ``all natural gas producers to use specific formulae for each 
processing plant when calculating royalty payments to the [F]ederal 
government.'' IPANM asserts that ONRR requires the use of an outdated 
unbundling cost allocation (UCA) to estimate a UCA for current and 
future reporting, which later requires replacement with an actual 
value. IPANM contends that this system creates uncertainty and will, 
ultimately, unfairly expose a company to liability for a knowing or 
willful violation.
    ONRR Response: We are not required to provide a UCA, and a party is 
not required to use an ONRR-generated UCA. The use of an ONRR-generated 
UCA does not waive our statutory right to audit reasonable and actual 
costs for transportation and processing deductions. We will not assess 
a civil penalty simply because a party chooses to use an ONRR-generated 
UCA. A civil penalty may be assessed if a party is notified that an 
ONRR-generated UCA has changed and they knowingly or willfully failed 
to update their reporting.
f. ONRR's Proposed Rule Contravenes the Federal Oil and Gas Royalty 
Simplification and Fairness Act (RSFA)
    Public Comment: ONRR received two comments from industry stating 
that ONRR's proposed rule contravenes FOGRMA as amended by RSFA because 
it treats a reporting error as a knowing or willful violation 
punishable under 30 U.S.C. 1719(d). Industry explains that RSFA 
amendments to FOGRMA reflect Congressional intent to establish a 
``fairer and more moderate approach to enforcing accurate royalty 
reporting.'' Industry contends that ``RSFA demonstrated Congress' 
intent that even `chronically submitted erroneous reports,' let alone 
minor reporting errors, do not warrant knowing or willful civil 
penalties under 30 U.S.C. 1719(d).'' Industry continues to explain 
that, under 30 U.S.C. 1724(d)(4)(B), ONRR may issue an order to perform 
restructured accounting (RSO) when ONRR or a delegated State 
determines, during an audit, that a lessee ``has made identified 
underpayments or overpayments . . . based upon repeated, systemic 
reporting errors. . . . '' However, industry notes that ONRR's proposed 
rule would do away with the statutory RSO requirements and, in effect, 
define the failure to comply with an RSO as a knowing or willful 
maintenance of an inaccurate report. Therefore, industry concludes that 
``the RSFA amendments enacted in 1996 collectively demonstrate that 
Congress did not contemplate that reporting errors, even chronic 
reporting errors, were routinely in the scope of 30 U.S.C. 1719(d) 
knowing or willful civil penalties.''
    ONRR Response: As discussed elsewhere in this preamble, FOGRMA 
established a tiered system of civil penalties and structured 
liabilities for relatively minor or inadvertent violations and major, 
complex, or severe violations. Congress delegated to the Secretary the 
authority to impose a civil penalty to sanction and deter FOGRMA 
violations. Industry commented that the proposed rule would impact 
statutory RSO requirements. If ONRR issues a RSO, a party may appeal 
and exhaust all available administrative and judicial remedies. Should 
a party not timely appeal a RSO, or should a final determination be 
made that a RSO is valid, and the company fails to comply with the RSO, 
a civil penalty may be assessed under 30 U.S.C. 1719. Furthermore, 
neither FOGRMA nor its amendments in RSFA define the term ``knowingly 
or willfully,'' leaving the definition to be clarified and established 
by regulations, judicial and administrative decisions, or both.
g. The Proposed Rule Understates Its Economic Impact
    Public Comment: ONRR received three comments in which industry 
argues that ONRR's estimation of the proposed rule's annual financial 
impact is not credible. Commenters elaborate that ``[t]he allowable 
daily civil penalties that could now accrue under ONRR's expanded use 
of [30 U.S.C.] 1719(c) [and] (d) are several times

[[Page 50312]]

greater than penalties properly assessed under [30 U.S.C.] 1719(a) 
[and] (b).'' Moreover, they assert that ``under the Proposed Rule, 
penalty accrual could no longer be stayed and steep penalties could be 
pursued even when the lessor has not been deprived of substantial 
royalty.'' Industry contends that ``since ONRR could accumulate [civil] 
penalties without notice, there would be little to prevent ONRR from 
running up civil penalties before issuing an ILCP.'' Additionally, 
industry states that ``ONRR . . . relies on outdated gas penalty 
assessment data from 2007-2011.'' Further, industry asserts that ONRR 
``seeks to bootstrap its ad hoc `initiative' and apply more severe 
penalties on a widespread basis, even absent to date any final 
Departmental or judicial determination of ONRR's novel interpretation 
of FOGRMA.'' Finally, industry contends that ONRR's proposed rule does 
not accurately depict the economic impact on small businesses and 
Indian Tribes and individual Indian mineral interest owners.
    ONRR Response: As required by the 2009 and 2010 Appropriations 
Acts, we are expanding the application of Section 109 of FOGRMA to any 
lease authorizing exploration for or development of coal, any other 
solid mineral, or any geothermal resource on any Federal or Indian 
lands and any lease, easement, right of way, or other agreement, 
regardless of form, for use of the OCS. Further, we have updated our 
economic analysis of the impact of this rule with data through the end 
of October 2015. See, the discussion under Part III.1.A.-D., below. 
With respect to industry's concern regarding the accrual of a steep 
penalty due to the removal of industry's right to a stay of the accrual 
of a penalty, the final rule leaves intact the right to request a stay. 
Furthermore, ONRR cannot ``run up'' a civil penalty before issuing an 
ILCP. The date on which the ILCP is issued has no effect on the amount 
of the civil penalty because a knowing or willful civil penalty only 
accrues for as many days as the violating party allows it to accrue. A 
party that knowingly or willfully commits a violation can stop the 
accrual of the civil penalty at any time by simply correcting the 
violation.
h. ONRR's Proposed Rule May Have Unintended Consequences
    Public Comment: ONRR received five comments in which industry 
asserts that ONRR's proposed rule may have unintended consequences. 
Industry contends that the rule ``would chill communication with ONRR 
out of fear that any agency feedback or guidance would be construed as 
notice forming the basis for potential knowing or willful civil 
penalties if that informal guidance is not strictly followed.'' 
Additionally, industry argues that ``total royalty collections may 
decrease as ONRR's significant expansion of the most egregious civil 
penalty provision provides a disincentive to lessees, particularly 
smaller entities, from producing on Federal lands, Indian lands, and 
the OCS in the first instance.''
    ONRR Response: We disagree that the final rule will ``chill'' 
communications. Indeed, the final rule will improve communications 
because the language clarifies ambiguity and simplifies the process for 
issuing and contesting a notice. Although industry contends that this 
rule will have unintended consequences, a majority of its provisions 
are already in practice, especially with the changes made between the 
proposed and final rule, as discussed elsewhere in this preamble. 
Further, the final rule will (1) apply the regulations to all Federal 
mineral leases onshore and on the OCS, to all Federally-administered 
mineral leases on Indian Tribal and individual Indian mineral owners' 
lands, and to all easements, rights of way, and other agreements on the 
OCS; (2) incorporate the civil penalty inflation adjustments made 
pursuant to the 2015 Act; (3) clarify and simplify the existing 
regulations for issuing a NONC, FCCP, and ILCP; and (4) provide notice 
that we will post matrices for civil penalty assessments on our Web 
site. These are the dominant consequences of the final rule, all of 
which are intended.
i. ONRR's Royalty and Reporting Obligations Regarding Multiple Lessees 
or Leases
    Public Comment: ONRR received one comment from industry regarding 
complying with ONRR's royalty and reporting obligations in a situation 
where there are multiple lessees or leases. Industry stated that a lack 
of timely action from another surface management agency will result in 
a civil penalty action, specifically BLM's delay in approving a unit 
revision.
    ONRR Response: We appreciate industry's comments; however, the 
action or inaction of another surface management agency is beyond the 
scope of this final rule. Further, we will evaluate each potential 
civil penalty matter on a case-by-case basis.
3. Due Process
a. Un-Reviewable Discretion of the Agency To Issue a Civil Penalty
    Public Comment: ONRR received five comments asserting that the 
proposed rule circumvents the ALJ's authority to review the 
appropriateness of a civil penalty. Further, industry expresses concern 
that civil penalty liability will be based on a communication that is 
not an appealable order. Moreover, industry states that ``[a] lessee 
also would have no means to hold ONRR to its obligation to treat 
similar civil penalty cases in a similar manner; the aggrieved lessee 
would be foreclosed from ever questioning the agency's rationale for 
disparate treatment, and ONRR would have no obligation to provide 
one.''
    ONRR Response: In light of industry comments and upon further 
consideration, the final rule will leave intact the ALJ's discretion 
and authority to review our issuance of a civil penalty. Proposed 30 
CFR 1241.8 is removed from the final rule and replaced with 30 CFR 
1241.8 addressing the ALJ holding a hearing and rendering a decision.
b. Inability of ALJ or Board to Stay the Accrual of a Penalty Pending 
Review
    Public Comment: ONRR received 11 comments asserting that proposed 
30 CFR 1241.12(b) would preclude any stay of the accrual of a penalty 
pending a hearing request before the ALJ or an IBLA appeal. Commenters 
argue that this proposed section prevents the appellant and the 
administrative tribunal from effectuating a stay in circumstances in 
which it is warranted, thereby taking away a lessee's basic appeal 
right. Consequently, proposed 30 CFR 1241.12(b) would force a lessee 
``to either (i) subject itself to additional penalties . . . plus 
accumulating interest . . . or (ii) comply with a directive (possibly 
informal) that the lessee may believe is incorrect. . . .'' 
Additionally, the section ``would needlessly burden the Federal 
Judiciary with otherwise premature Federal Court lawsuits to obtain 
preliminary injunctive relief.''
    ONRR Response: In light of industry comments and upon further 
consideration, the final rule leaves intact the right to request a stay 
of the accrual of a penalty. Thus, proposed 30 CFR 1241.12(b) is 
modified and the hearing requester's opportunity to petition the ALJ to 
stay the accrual of a civil penalty is re-designated to 30 CFR 1241.11.

[[Page 50313]]

c. ONRR as Sole Gatekeeper to a Hearing on the Record
    Public Comment: ONRR received eight comments asserting that the 
proposed rule makes ONNR the sole gatekeeper to a hearing on the 
record. Industry argues that proposed 30 CFR 1241.5 ``would permit ONRR 
alone to decide whether [the] ALJ jurisdiction has been timely 
triggered to review either a NONC, [FCCP,] or [an ILCP.]'' Proposed 30 
CFR 1241.5 requires the hearing requester to provide certain 
information and a surety instrument or demonstration of financial 
solvency for an unpaid and accrued penalty plus interest within 30 days 
after service of the NONC, FCCP, or ILCP, and provides that, if a 
hearing request is incomplete, ONRR would not consider it to be filed 
and would return it to the lessee. Industry contends that proposed 30 
CFR 1241.5 allows ``unreviewable discretion to determine whether the 
appeal request is satisfactory, and imposes a blanket ban on extensions 
of the original 30-day period to provide that information.'' Thus, the 
proposed rule potentially allows for a ``right to a hearing on the 
record [to be] forever lost.''
    Industry contends that the prerequisites to request a hearing set 
forth in proposed 30 CFR 1241.5 are burdensome and ambiguous. For 
instance, they contend that ONRR does not clearly articulate what is 
necessary for industry to explain its reasons for challenging a NONC, 
FCCP, or ILCP. Industry also contends that ONRR requires the submission 
of a surety instrument based on uncertain dollar amounts due, which is 
similar to using a ``moving target to find the submitted security 
insufficient and deny a hearing on the record.'' Moreover, industry 
disagrees with the requirement in proposed 30 CFR 1241.6 to use Pay.gov 
to pay the hearing request processing fee. Industry asserts that ``ONRR 
must withdraw or revise and re-propose these proposed [hearing request] 
requirements.''
    ONRR Response: The proposed rule invited public comment on new 
requirements pertaining to the filing of a hearing request on a NONC, 
FCCP, or ILCP. In light of industry comments and upon further 
consideration, the final rule does not include the proposed 30 CFR 
1241.5 and 1241.6, which contained these new requirements. Title 30 CFR 
1241.7 describes the method for filing all hearing requests, and 30 CFR 
1241.5 and 1241.6 clarify which enforcement actions are and are not 
subject to a hearing.
    Currently under 30 CFR 1241.54, a recipient of a NONC can request a 
hearing on its liability for the NONC. Under the current 30 CFR 
1241.56, the recipient may request a hearing on only the amount of the 
penalty. Likewise, under the current regulations, a recipient of an 
ILCP can request a hearing on its liability for the ILCP under 30 CFR 
1241.62, or on the amount of the penalty under 30 CFR 1241.64. We 
believe that having four sections to request a hearing that result in 
the same process is confusing and redundant. Therefore, 30 CFR 1241.7 
consolidates all four sections.
    Under the final 30 CFR 1241.7, a party may still request a hearing 
on a NONC, FCCP, or ILCP before an ALJ. A party will have 30 days from 
receipt of a NONC, FCCP, or ILCP to file a hearing request. This 
provision is the same as the current regulations in 30 CFR 1241.54 
(hearing request for a NONC) and 30 CFR 1241.62 (hearing request for 
liability for an ILCP). However, this provision will change current 
regulations at 30 CFR 1241.56(b) (hearing request for a FCCP) and 
1241.64(b) (hearing request on the amount of a civil penalty assessed 
in an ILCP). The current regulations allow only 10 days for a party to 
request a hearing on a civil penalty assessment. Title 30 CFR 1241.7 
extends the period within which to request a hearing to 30 days. Final 
30 CFR 1241.7 also clarifies that the 30-day period may not be 
extended.
d. Motion for Summary Decision
    Public Comment: ONRR received seven comments asserting that 
proposed 30 CFR 1241.8 allows ONRR to move for summary decision based 
on an alleged fact prior to an appellant initiating discovery to 
contravene that fact. Furthermore, they contend that ONRR is seeking to 
``reverse the black-letter rule that on a motion for summary [decision] 
disputed facts should be construed in favor of the non-movant.'' Thus, 
they claim that ONRR is depriving a lessee of its right to a hearing on 
the record.
    ONRR Response: Proposed 30 CFR 1241.8 allowed a motion for summary 
decision to be filed at any time after the case is referred to the 
DCHD, including before discovery commenced. Additionally, proposed 30 
CFR 1241.8 included a new provision indicating that industry had the 
burden of showing by a preponderance of the evidence that it was not 
liable or that the penalty amount should be reduced. Furthermore, 
proposed 30 CFR 1241.9 outlined the requirements and standards for both 
parties to follow when filing a motion for summary decision, response, 
and reply.
    After consideration of industry comments, we removed proposed 30 
CFR 1241.8 and 1241.9 from the final rule. Nevertheless, the option of 
filing a motion for summary decision is available to either party upon 
the commencement of the case, and the burden will remain with the 
movant to demonstrate that there is no issue of material fact and that, 
as a matter of law, judgment is appropriate. The ALJ has the discretion 
to schedule and rule on any motion for summary decision. Additionally, 
even without a regulatory amendment, both parties should adhere to the 
customary standards for a motion for summary decision. Because proposed 
30 CFR 1241.8 and 1241.9 are removed, 30 CFR 1241.8 is replaced with 30 
CFR 1241.8 addressing the ALJ holding a hearing and rendering a 
decision, and proposed 30 CFR 1241.10, addressing the appeal of an 
ALJ's decision, is re-designated as 30 CFR 1241.9.
e. Fixed Period To Correct
    Public Comment: ONRR received five comments asserting that ONRR's 
``absolute barrier'' to providing an extension to correct a violation 
identified in a NONC is ``patently unreasonable.'' See proposed 30 CFR 
1241.50(c). Industry alleges that ``[a] NONC may require the lessee to 
perform a scope of work that is impossible to complete within the 
default 20-day period.'' Industry believes that an extension should be 
considered for a justifiable reason on a case-by-case basis.
    ONRR Response: A company's compliance dictates whether or not we 
will issue a NONC. We are removing the language from 30 CFR 1241.50(c) 
that no extension will be given for a NONC. We provide a minimum of 20 
days to correct a violation identified in a NONC, but hold the right to 
set out a longer cure period for a violation identified after taking 
into account all relevant factors and circumstances to achieve 
compliance.
f. Unreviewable Enforcement Actions
    Public Comment: ONRR received five comments stating that ONRR 
should only base liability for a civil penalty on an appealable 
communication. Furthermore, the appeal clock or civil penalty should 
only run upon ONRR's issuance of an order recognized under 30 CFR part 
1290. Consequently, ``the Proposed Rule creates unreviewable 
enforcement actions exempt from a hearing on the record, which could 
apply even where no opportunity existed to appeal the earlier 
communication.''

[[Page 50314]]

    ONRR Response: When we issue an order, a company has the 
opportunity to appeal the order under 30 CFR part 1290 and can present 
new information and testimony (in the form of written affidavits) as 
part of that appeal. When we issue a FCCP or ILCP, a company has the 
opportunity to request a hearing. This rule clarifies that, if a party 
receives an ONRR order and does not appeal that order under current 30 
CFR part 1290, that order is the final decision of the Department, and 
the order cannot be changed by subsequently requesting a hearing on a 
NONC, FCCP, or ILCP issued for failing to comply with that order.
g. Inability of the ALJ To Reduce a Civil Penalty Amount
    Public Comment: ONRR received 12 comments requesting that ONRR 
eliminate proposed 30 CFR 1241.8(h)(1) in the final rule. Industry 
contends that the proposed rule is imposing on the ALJ's discretion and 
bars the ALJ from substantially reducing a penalty in circumstances 
where a reduction may be warranted. Additionally, industry alleges that 
ONRR may purposely delay the issuance of an ILCP in order to further 
penalize industry monetarily.
    ONRR Response: The proposed rule would have prohibited the ALJ from 
reducing the penalty below half of the amount assessed, precluded the 
ALJ from reviewing our exercise of discretion to impose a civil 
penalty, and prohibited the ALJ from considering any factors in 
reviewing the amount of the penalty other than those specified in 30 
CFR 1241.70. In light of industry's comments and upon further 
consideration, we dropped these provisions from the final rule.
    We do not purposely delay the issuance of an ILCP in order to 
escalate the amount of a penalty assessment. Indeed, the date on which 
the ILCP is issued has no effect on the amount of the civil penalty 
because a knowing or willful civil penalty only accrues for as many 
days as the violating party allows it to accrue. A party that knowingly 
or willfully commits a violation can stop the accrual of the civil 
penalty at any time by simply correcting the violation, regardless of 
when we issue the ILCP.
h. ONRR's Stacked Deck
    Public Comment: ONRR received two comments stating that the 
incorporation of the combined proposed amendments will stack the deck 
in ONRR's favor. This would result in an ``interference with due 
process and the statutory right to a hearing on the record.''
    ONRR Response: In light of industry comments and upon further 
consideration, we have removed or modified portions of the proposed 
rule so that the final rule addresses industry concerns. Those changes 
are indicated in our responses to industry's comments in this preamble 
under the subheadings 3.a. Unreviewable Discretion of the Agency to 
Issue a Civil Penalty, 3.b. Inability of the ALJ or Board to Stay the 
Accrual of a Penalty Pending Review, 3.c. ONRR as Sole Gatekeeper to a 
Hearing on the Record, 3.d. Motion for Summary Decision, 3.e. Fixed 
Period to Correct, 3.f. Unreviewable Enforcement Actions, and 3.g. 
Inability of the ALJ to Reduce a Civil Penalty Amount.
i. Refusal To Consider Royalty Implication in Determining Whether the 
Civil Penalty Amount Is Arbitrary
    Public Comment: ONRR received four comments stating that the 
proposed amendments to 30 CFR 1241.70(b) explicitly disregards the 
royalty consequence of an underlying violation when ONRR is determining 
the amount of the civil penalty to assess. Industry suggests that a 
paperwork error should not be in the same tier as a royalty 
underpayment because the central purpose and motivation behind the 
enactment of FOGRMA is royalty collection. Industry further suggests 
that ``when enacting FOGRMA, Congress was keenly aware of the need to 
preserve basic principles of proportionality between the amount of the 
penalty and the severity of the underlying offense.'' Industry declares 
that ONRR ``not only ignores [the] basic tenet of proportionality but 
also explicitly calls for the agency to disregard it in imposing civil 
penalties.'' Industry states that this is especially true regarding 
ONRR's new proposed definitions of ``maintains'' and ``submits'' in 
proposed 30 CFR 1241.3. ``ONRR's disregard of the royalty consequences 
of alleged reporting errors ignores Congressional intent to impose 
penalties that will deter violators but not jeopardize future leasing 
and operations.'' Finally, industry purports that ``[s]ome of the 
factors that ONRR states it does intend to consider in setting penalty 
amounts also may result in unjust outcomes under ONRR's Proposed 
Rule.'' Specifically, industry objects to ONRR considering prior 
violations when assessing a future civil penalty assessment. Moreover, 
industry contends that the ```size of [a party's] business' should only 
be a mitigating factor for a small business, and not an arbitrary 
multiplier for larger entities.''
    ONRR Response: FOGRMA does not link the amount of a civil penalty 
to the royalty consequence of an underlying violation, and we will not 
issue a reduced penalty because the violation produced little or no 
royalty consequence. Civil penalties are designed to promote compliance 
with lease terms and royalty statutes and regulations, and to encourage 
accurate and timely reporting. As a result, Congress authorized the 
secretary to impose civil penalties for reporting errors and failing to 
submit data, regardless of the royalty consequence of those violations. 
Indeed, many reporting errors and failures to submit data delay an 
audit or prevent ONRR or a delegated State from performing an audit, 
which can be penalized under FOGRMA. Accurate reporting is paramount to 
our obligation to collect and disburse revenues in a timely manner. 
Regardless of whether a party owes an additional royalty, or if there 
is any royalty consequence to the violation, misreporting can lead to a 
myriad of repercussions that affect not only us, but also surface 
management agencies, States, Indian Tribes, and others that rely on 
that reported data.
    ONRR determines the amount of the civil penalty by considering the 
three factors set forth in 30 CFR 1241.70. Industry is aware of the 
factors considered by ONRR when determining the amount of a civil 
penalty. Additionally, industry is aware of its reporting requirements 
set forth in the regulations. FOGRMA authorizes steep penalties for 30 
U.S.C. 1719 violations, but our assessments are already far below the 
maximum allowable under the law. We determine the amount of the civil 
penalty in accordance with 30 CFR 1241.70 which is consistent with our 
current practice.
j. Inconsistency in ONRR's Communication and Accountability
    Public Comment: ONRR received two comments from industry stating 
that the proposed rule does not account for a situation when ONRR is 
erroneous in its assessment of wrongdoing or misreporting. 
Additionally, industry comments that ONRR's unresponsiveness, 
unwillingness to communicate, or both, is detrimental to the resolution 
of a time-sensitive issue.
    ONRR Response: A party's right to request a hearing before an ALJ, 
and the right to appeal any ALJ decision, provides a party with 
recourse should we err in our assessment of wrongdoing or misreporting. 
Moreover, we evaluate each matter on a case-by-case basis. If we were 
unresponsive or unwilling to communicate, and our actions contributed 
to the delay giving rise to the civil penalty, we may consider this 
when determining whether to issue a civil penalty or as a mitigating 
factor

[[Page 50315]]

when determining the appropriate amount of the civil penalty.
k. A Penalty Will Accrue From the Date When a NONC Is Served
    Public Comment: ONRR received one comment from industry requesting 
clarification regarding the start date of the civil penalty 
calculation.
    ONRR Response: We typically serve a NONC, FCCP, or ILCP as set 
forth in FOGRMA section 109(h) (30 U.S.C. 1719) by registered mail or 
personal service to the addressee of record or alternate as identified 
in 30 CFR 1218.540 and will consider the notice served on the date when 
it was delivered. For an FCCP, the penalty calculation will begin 
running on the day when a party is served with the NONC. The penalty 
calculation for an ILCP will begin running from the day when the 
violation was committed.

III. Procedural Matters

1. Summary Cost and Royalty Impact Data
    This is a technical rule that will (1) apply the regulations to all 
Federal mineral leases onshore and on the OCS, to all Federally-
administered mineral leases on Indian Tribal and individual Indian 
mineral owners' lands, and to all easements, rights of way, and other 
agreements on the OCS; (2) incorporate the civil penalty inflation 
adjustments made pursuant to the 2015 Act; (3) clarify and simplify the 
existing regulations for issuing a NONC, FCCP, and ILCP; and (4) 
announce our practice of publishing our civil penalty assessment 
matrices on our Web site. These changes will have no royalty impacts on 
industry; State and local governments; Indian Tribes; individual Indian 
mineral owners; or the Federal Government. As explained below, industry 
will not incur significant additional administrative costs under this 
final rule. However, industry can realize some increased penalties 
under this final rule. The Federal Government, and any States and 
Tribes that are eligible to share civil penalties under 30 U.S.C. 1736, 
will benefit from penalty amounts that we imposed, for the first time, 
on solid mineral and geothermal lessees. The cost and benefit 
information in item 1 of the Procedural Matters is used as the basis 
for Departmental certifications in items 2 through 10.

A. Industry

    (1) Royalty Impacts. None.
    (2) Administrative Costs--Processing Fee. None.
    (3) Penalties. This final rule may result in some increase in civil 
penalties that lessees must pay. We collected an average of $1,879,264 
in civil penalties annually for fiscal years 2007-2015. We estimated 
the potential increase in civil penalties due to application of part 
1241 to solid mineral and geothermal leases by estimating how many 
lessees, operators, and royalty payors of solid mineral and geothermal 
leases there are in relation to all mineral leases that reported 
production and royalties as of October 2015. That estimate came to 9 
percent of our current mineral reporter universe (135 solids and 
geothermal payors and reporters divided by 1,514 total payors and 
reporters (oil and gas; solids; and geothermal)). Therefore, we 
multiplied the $1,879,264 in average annual civil penalties by 9 
percent (solid mineral and geothermal payors and reporters) to estimate 
an increase in civil penalties that we collect of $169,134.

B. State and Local Governments

    (1) Royalty Impacts. None.
    (2) Administrative Costs. None.
    (3) Penalties. State governments having delegated audit authority 
under 30 U.S.C. 1735 will receive a 50-percent share of civil penalties 
collected as a result of their activities under our delegation of 
authority (30 U.S.C. 1736). However, the amount that a State government 
will receive due to the estimated increase discussed above is purely 
speculative.

C. Indian Tribes and Individual Indian Minerals Owners

    (1) Royalty Impacts. None.
    (2) Administrative Costs. None.
    (3) Penalties. Indian Tribal governments that have cooperative 
agreements with us under 30 U.S.C. 1732 will receive a 50-percent share 
of civil penalties collected as a result of their activities under our 
delegation of authority (30 U.S.C. 1736). However, the amount that a 
Tribal government will receive due to the estimated increase discussed 
above is purely speculative.

D. Federal Government

    (1) Royalty Impacts. None.
    (2) Administrative Costs. The application of FOGRMA penalties to 
solid minerals and geothermal leases will produce a slight increase in 
the enforcement workload, which we likely will absorb using current 
staff.
    (3) Penalties. As discussed above, we estimate that the Federal 
Government can receive $169,134 in increased civil penalties for solid 
and geothermal leases as a result of this rule if no State or Tribe 
shares in these civil penalties.
2. Regulatory Planning and Review (Executive Orders 12866 and 13563)
    Executive Order (E.O.) 12866 provides that the Office of 
Information and Regulatory Affairs (OIRA) of the Office of Management 
and Budget (OMB) will review all significant rules. OIRA has determined 
that this rule is not significant.
    E.O. 13563 reaffirms the principles of E.O. 12866, while calling 
for improvements in the Nation's regulatory system to promote 
predictability, to reduce uncertainty, and to use the best, most 
innovative, and least burdensome tools for achieving regulatory ends. 
The executive order directs agencies to consider regulatory approaches 
that reduce burdens and maintain flexibility and freedom of choice for 
the public, where these approaches are relevant, feasible, and 
consistent with regulatory objectives. E.O. 13563 emphasizes further 
that regulations must be based on the best available science and that 
the rulemaking process must allow for public participation and an open 
exchange of ideas. We developed this rule in a manner consistent with 
these requirements.
3. Regulatory Flexibility Act
    The Department certifies that this rule will not have a significant 
economic effect on a substantial number of small entities under the 
Regulatory Flexibility Act (5 U.S.C. 601 et seq.).
    This rule will affect lessees under Federal mineral leases onshore 
and the OCS and all Federally administered mineral lease on Indian 
Tribal and individual Indian mineral owners' lands. Federal and Indian 
mineral lessees are, generally, companies classified under the North 
American Industry Classification System (NAICS), as follows:
     Code 211111, which includes companies that extract crude 
petroleum and natural gas.
     Code 212111, which includes companies that extract surface 
coal.
     Code 212112, which includes companies that extract 
underground coal.
    For these NAICS code classifications, a small company is one with 
fewer than 500 employees. The Department estimates that 1,855 companies 
that this rule affects are small businesses that submit royalty and 
production reports from Federal and Indian leases to us each month.
    Per our analysis shown in item 1 above, we do not estimate that 
this rule will result in a significant economic effect on a substantial 
number of small entities because this rule will cost

[[Page 50316]]

approximately a collective total of $169,134 per year to affected small 
businesses. Therefore, a Regulatory Flexibility Analysis will not be 
required, and, accordingly, a Small Entity Compliance Guide will not be 
required.
    Your comments are important. The Small Business and Agriculture 
Regulatory Enforcement Ombudsman and ten Regional Fairness Boards 
receive comments from small businesses about Federal agency enforcement 
actions. The Ombudsman annually evaluates the enforcement activities 
and rates each agency's responsiveness to small business. If you wish 
to comment on our actions, call 1-(888) 734-3247. You may comment to 
the Small Business Administration without fear of retaliation. 
Allegations of discrimination, retaliation, or both filed with the 
Small Business Administration will be investigated for appropriate 
action.
4. Small Business Regulatory Enforcement Fairness Act
    This rule is not a major rule under 5 U.S.C. 804(2), the Small 
Business Regulatory Enforcement Fairness Act. This rule:
    a. Does not have an annual effect on the economy of $100 million or 
more. We estimate that the maximum effect on all of industry will be 
$169,134 annually. As shown in item 1 above, the economic impact on 
industry; State and local governments; Indian Tribes and individual 
Indian mineral owners; and the Federal government will be well below 
the $100 million threshold that the Federal government uses to define a 
rule as having a significant impact on the economy.
    b. Will not cause a major increase in costs or prices for 
consumers; individual industries; Federal, State, local government 
agencies; or geographic regions. See item 1 above.
    c. Does not have significant adverse effects on competition, 
employment, investment, productivity, innovation, or the ability of 
United States-based enterprises to compete with foreign-based 
enterprises.
5. Unfunded Mandates Reform Act
    This rule does not impose an unfunded mandate on State, local, or 
Tribal governments or the private sector of more than $100 million per 
year. This rule does not have a significant or unique effect on State, 
local, or Tribal governments or the private sector. Therefore, we are 
not required to provide a statement containing the information that the 
Unfunded Mandates Reform Act (2 U.S.C. 1531 et seq.) requires because 
this rule is not an unfunded mandate. See item 1 above.
6. Takings (E.O. 12630)
    Under the criteria in section 2 of E.O. 12630, this rule does not 
have any significant takings implications. This rule will not impose 
conditions or limitations on the use of any private property. This rule 
will apply to all Federal and Indian leases. Therefore, this rule does 
not require a Takings Implication Assessment.
7. Federalism (E.O. 13132)
    Under the criteria in section 1 of E.O. 13132, this rule does not 
have sufficient Federalism implications to warrant the preparation of a 
Federalism summary impact statement. The management of all Federal and 
Indian leases is the responsibility of the Secretary, and we distribute 
monies that we collect from the leases to States, Tribes, and 
individual Indian mineral owners. This rule does not substantially and 
directly affect the relationship between the Federal and State 
governments. Because this rule does not alter that relationship, this 
rule does not require a Federalism summary impact statement.
8. Civil Justice Reform (E.O. 12988)
    This rule complies with the requirements of E.O. 12988. 
Specifically, this rule:
    a. Meets the criteria of section 3(a), which requires that we 
review all regulations to eliminate errors and ambiguity and to write 
them to minimize litigation.
    b. Meets the criteria of Sec.  3(b)(2), which requires that we 
write all regulations in clear language using clear legal standards.
9. Consultation With Indian Tribal Governments (E.O. 13175)
    The Department strives to strengthen its government-to-government 
relationship with the Indian Tribes through a commitment to 
consultation with the Indian Tribes and recognition of their right to 
self-governance and Tribal sovereignty. Under the Department's 
consultation policy and the criteria in E.O. 13175, we evaluated this 
rule and determined that it will have no substantial effects on 
Federally-recognized Indian Tribes. Likewise, these amendments to 30 
CFR part 1241, subpart B, will not affect Indian Tribes because the 
changes are only technical in nature.
10. Paperwork Reduction Act
    This rule:
    (a) Does not contain any new information collection requirements.
    (b) Does not require a submission to OMB under the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3501 et seq.). See 5 CFR 1320.4(a)(2).
11. National Environmental Policy Act of 1969 (NEPA)
    This rule does not constitute a major Federal action, significantly 
affecting the quality of the human environment. We are not required to 
provide a detailed statement under NEPA because this rule qualifies for 
categorical exclusion under 43 CFR 46.210(i) in that this rule is ``. . 
. of an administrative, financial, legal, technical, or procedural 
nature. . . .'' This rule also qualifies for categorical exclusion 
under the Departmental Manual, part 516, section 15.4.(C)(1) in that 
its impacts are limited to administrative, economic, or technological 
effects. We also have determined that this rule is not involved in any 
of the extraordinary circumstances listed in 43 CFR 46.215 that would 
require further analysis under NEPA. The procedural changes resulting 
from these amendments have no consequences on the physical environment. 
This rule will not alter, in any material way, natural resources 
exploration, production, or transportation.
12. Effects on the Energy Supply (E.O. 13211)
    This rule is not a significant energy action under the definition 
in E.O. 13211; therefore, a Statement of Energy Effects is not 
required.

List of Subjects in 30 CFR Part 1241

    Civil penalties, Notices of noncompliance.

    Dated: June 22, 2016.
Kristen J. Sarri,
Principal Deputy Assistant Secretary for Policy, Management and Budget.

Authority and Issuance

    For the reasons discussed in the preamble, ONRR revises 30 CFR part 
1241 to read as follows:

PART 1241--PENALTIES

Subpart A--General Provisions
Sec.
1241.1 What is the purpose of this part?
1241.2 What leases are subject to this part?
1241.3 What definitions apply to this part?
1241.4 How will ONRR serve a Notice?
1241.5 Which ONRR enforcement actions are subject to a hearing?
1241.6 Which ONRR enforcement actions are not subject to a hearing?
1241.7 How do I request a hearing on the record on a Notice?
1241.8 How will DCHD conduct the hearing on the record?

[[Page 50317]]

1241.9 May I appeal the ALJ's decision?
1241.10 May I seek judicial review of the IBLA decision?
1241.11 Does my hearing request affect a penalty?
Subpart B--Notices of Noncompliance and Civil Penalties

Penalties With a Period To Correct

1241.50 What may ONRR do if I violate a statute, regulation, order, 
or lease term relating to a lease subject to this part?
1241.51 What if I correct the violation identified in a NONC?
1241.52 What if I do not correct the violation identified in a NONC?

Penalties Without a Period To Correct

1241.60 Am I subject to a penalty without prior notice and an 
opportunity to correct?
Subpart C--Penalty Amount, Interest, and Collections
1241.70 How does ONRR decide the amount of the penalty to assess?
1241.71 Do I owe interest on both the penalty amount and any 
underlying underpayment or unpaid debt?
1241.72 When must I pay the penalty?
1241.73 May ONRR reduce my penalty once it is assessed?
1241.74 How may ONRR collect my penalty?

    Authority:  25 U.S.C. 396 et seq., 396a et seq., 2101 et seq.; 
30 U.S.C. 181 et seq., 351 et seq., 1001 et seq., 1701 et seq.; 43 
U.S.C. 1301 et seq., 1331 et seq., 1801 et seq.

Subpart A--General Provisions


Sec.  1241.1  What is the purpose of this part?

    This part explains:
    (a) When you may receive a NONC, FCCP, or ILCP.
    (b) How ONRR assesses a civil penalty.
    (c) How to appeal a NONC, FCCP, or ILCP.


Sec.  1241.2  What leases are subject to this part?

    This part applies to:
    (a) All Federal mineral leases onshore and on the OCS.
    (b) All Federally-administered mineral leases on Indian Tribal and 
individual Indian mineral owners' lands, regardless of the statutory 
authority under which the lease was issued or maintained.
    (c) All easements, rights of way, and other agreements subject to 
43 U.S.C. 1337(p).


Sec.  1241.3  What definitions apply to this part?

    (a) Unless specifically defined in paragraph (b) of this section, 
the terms in this part have the same meaning as in 30 U.S.C. 1702.
    (b) The following definitions apply to this part:
    Agent means any individual or other person with the actual 
authority of, with the apparent authority of, or designated by a person 
subject to FOGRMA who acts or who, with apparent authority, appears to 
act on behalf of the person subject to FOGRMA.
    ALJ means an Administrative Law Judge in the DCHD.
    Assessment means a civil penalty set out in a FCCP or ILCP; it 
includes a dollar amount per violation for each day the violation 
continues. In this part ``assessment'' is used consistent with 30 
U.S.C. 1719(k), but is distinguishable from ``assessment'' as defined 
in 30 U.S.C. 1702(19) and used in 30 U.S.C. 1702(25). Correspondence 
that we send to you to update you on the amount of penalties accrued or 
outstanding under a FCCP or ILCP we previously served on you is not an 
assessment.
    DCHD means the Departmental Cases Hearings Division, Office of 
Hearings and Appeals.
    FCCP means a Failure to Correct Civil Penalty Notice; it assesses a 
civil penalty if you fail to correct a violation identified in a NONC.
    FOGRMA means the Federal Oil and Gas Royalty Management Act.
    IBLA means the Interior Board of Land Appeals, Office of Hearings 
and Appeals.
    ILCP means an Immediate Liability Civil Penalty Notice; it 
identifies a violation and assesses a civil penalty for the violation 
even if you have not been provided prior notice and an opportunity to 
correct the violation.
    Information means any data that you provide to an ONRR data system, 
or otherwise provide to us for our official records, including, but not 
limited to, any report, notice, affidavit, record, data, or document 
that you provide to us, any document that you provide to us in response 
to our request, and any other written information that you provide to 
us.
    Knowingly or willfully includes an act or failure to act committed 
with:
    (i) Actual knowledge;
    (ii) Deliberate ignorance; or
    (iii) Reckless disregard of the facts surrounding the event or 
violation; it requires no proof of specific intent to defraud.
    Maintains false, inaccurate, or misleading information includes 
providing information to an ONRR data system, or otherwise to us for 
our official records, and later learning that the information that you 
provided was false, inaccurate, or misleading, and you do not correct 
that information or other information that you provided to us that you 
know or should know contains the same false, inaccurate, or misleading 
information.
    NONC means a Notice of Noncompliance; it identifies a violation, 
specifies the corrective action that must be taken, and establishes the 
deadline for such action to avoid a civil penalty.
    Notice means a NONC, FCCP, or ILCP, as defined in this section.
    OCS means the Outer Continental Shelf.
    ONRR means the Office of Natural Resources Revenue (also referred 
to in the regulations as ``we,'' ``our,'' and ``us,'' as appropriate).
    RSFA means the Federal Oil and Gas Royalty Simplification and 
Fairness Act of 1996.
    Submits false, inaccurate, or misleading information means that you 
provide false, inaccurate, or misleading information to an ONRR data 
system, or otherwise to us for our official records.
    Violation means any action or failure to take action that is 
inconsistent with the provisions of FOGRMA, RSFA, a regulation 
promulgated under either of those Acts, or a Federal or Indian lease as 
defined by FOGRMA, as amended.
    You (I) means the recipient of a NONC, FCCP, or ILCP.


Sec.  1241.4  How will ONRR serve a Notice?

    (a) We will serve a NONC, FCCP, or ILCP as set out in FOGRMA 
section 109(h) (30 U.S.C. 1719) by registered mail or personal service 
to the addressee of record or alternate, as identified in 30 CFR 
1218.540.
    (b) We will consider the Notice served on the date when it was 
delivered to the addressee of record or alternate, as identified in 30 
CFR 1218.540.


Sec.  1241.5  Which ONRR enforcement actions are subject to a hearing?

    Except as provided by Sec.  1241.6, you may request a hearing on:
    (a) A NONC to contest your liability.
    (b) A FCCP to contest only the civil penalty amount, unless a 
request for hearing was filed under paragraph (a) of this section; in 
which case, the requests for hearing filed under paragraph (a) and this 
paragraph (b) will be combined into a single proceeding.
    (c) An ILCP to contest your liability, civil penalty amount, or 
both. If your hearing request does not state whether you are contesting 
your liability for the ILCP or the penalty amount, or both, you will be 
deemed to have requested a hearing only on the penalty amount.
    (d) You may request a hearing even if you correct the violation 
identified in a Notice.


Sec.  1241.6  Which ONRR enforcement actions are not subject to a 
hearing?

    You may not request a hearing on:

[[Page 50318]]

    (a) Your liability under an order identified in a NONC, FCCP, or 
ILCP if you did not appeal in a timely manner the order under 30 CFR 
part 1290 or you appealed in a timely manner the order under 30 CFR 
part 1290 but have exhausted your appeal rights.
    (b) Any correspondence that we send to you to update you on the 
amount of penalties accrued or outstanding under a FCCP or ILCP ONRR 
previously served on you.


Sec.  1241.7  How do I request a hearing on the record on a Notice?

    You may request a hearing on the record before an ALJ on a Notice 
by filing a request within 30 days of the date of service of the Notice 
with the DCHD, at the address indicated in your Notice. The 30 day-
period to request a hearing on the record will not be extended for any 
reason.


Sec.  1241.8  How will DCHD conduct the hearing on the record?

    If you request a hearing on the record under Sec.  1241.7, an ALJ 
will conduct the hearing under the provisions of 43 CFR 4.420 through 
4.438, except when the provisions are inconsistent with the provisions 
of this part. We have the burden of proving, by a preponderance of the 
evidence, the fact of the violation and the basis for the amount of the 
civil penalty. Upon completion of the hearing, the ALJ will issue a 
decision according to the evidence presented and the applicable law.


Sec.  1241.9  May I appeal the ALJ's decision?

    If you are adversely affected by the ALJ's decision, you may appeal 
that decision to the IBLA under 43 CFR part 4, subpart E.


Sec.  1241.10  May I seek judicial review of the IBLA decision?

    You may seek judicial review of the IBLA decision under 30 U.S.C. 
1719(j) in Federal District Court. You must file a suit for judicial 
review in Federal District Court within 90 days after the final IBLA 
decision.


Sec.  1241.11  Does my hearing request affect a penalty?

    (a) If you do not correct the violation identified in a Notice, any 
penalty will continue to accrue, even if you request a hearing, except 
as provided in paragraph (b) of this section.
    (b) Standards and procedures for obtaining a stay. If you request 
in a timely manner a hearing on a Notice, you may petition the DCHD to 
stay the assessment or accrual of penalties pending the hearing on the 
record and a decision by the ALJ under Sec.  1241.8.
    (1) You must file your petition for stay within 45 calendar days 
after you receive a Notice.
    (2) You must file your petition for stay under 43 CFR 4.21(b), in 
which event:
    (i) We may file a response to your petition within 30 days after 
service.
    (ii) The 45-day requirement set out in 43 CFR 4.21(b)(4) for the 
ALJ to grant or deny the petition does not apply.
    (3) If the ALJ determines that a stay is warranted, the ALJ will 
issue an order granting your petition, subject to your satisfaction of 
the following condition: within 10 days of your receipt of the order, 
you must post a bond or other surety instrument using the same 
standards and requirements as prescribed in 30 CFR part 1243, subpart 
B; or demonstrate financial solvency using the same standards and 
requirements as prescribed in 30 CFR part 1243, subpart C, for any 
specified, unpaid principal amount that is the subject of the Notice, 
any interest accrued on the principal, and the amount of any penalty 
set out in a Notice accrued up to the date of the ALJ order 
conditionally granting your petition.
    (4)(i) If you satisfy the condition to post a bond or surety 
instrument or demonstrate financial solvency under paragraph (b)(3) of 
this section, the accrual of penalties will be stayed effective on the 
date of the ALJ's order conditionally granting your petition.
    (ii) If you fail to satisfy the condition to post a bond or surety 
instrument or demonstrate financial solvency under paragraph (b)(3) of 
this section, penalties will continue to accrue.
    (5) Notwithstanding paragraphs (b)(1), (2), (3), and (4) of this 
section, if the ALJ determines that your defense to a Notice is 
frivolous, and a civil penalty is owed, you will forfeit the benefit of 
the stay, and penalties will be calculated as if no stay had been 
granted.

Subpart B--Notices of Noncompliance and Civil Penalties

Penalties With a Period To Correct


Sec.  1241.50  What may ONRR do if I violate a statute, regulation, 
order, or lease term relating to a lease subject to this part?

    If we determine that you have not followed any requirement of a 
statute, regulation, order, or a term of a lease subject to this part, 
we may serve you with a NONC explaining:
    (a) What the violation is.
    (b) How to correct the violation to avoid a civil penalty.
    (c) That you have 20 days after the date on which you are served 
the NONC to correct the violation, unless the NONC specifies a longer 
period.


Sec.  1241.51  What if I correct the violation identified in a NONC?

    If you correct all of the violations that we identified in the NONC 
within 20 days after the date on which you are served the NONC, or any 
longer period for correction that the NONC specifies, we will close the 
matter and will not assess a civil penalty. However, we will consider 
these violations as part of your history of noncompliance for future 
penalty assessments under Sec.  1241.70(a)(2).


Sec.  1241.52  What if I do not correct the violation identified in a 
NONC?

    (a) If you do not correct all of the violations that we identified 
in the NONC within 20 days after the date on which you are served the 
NONC, or any longer period that the NONC specifies for correction, then 
we may send you an FCCP.
    (1) The FCCP will state the amount of the penalty that you must 
pay. The penalty will:
    (i) Begin to run on the day on which you were served with the NONC.
    (ii) Continue to accrue for each violation identified in the NONC 
until it is corrected.
    (2) The penalty may be up to $1,177 per day for each violation 
identified in the NONC that you have not corrected.
    (b) If you do not correct all of the violations identified in the 
NONC within 40 days after you are served the NONC, or within 20 days 
following the expiration of any period longer than 20 days that the 
NONC specifies for correction, then we may increase the penalty to a 
maximum of $11,774 per day for each violation identified in the NONC 
that you have not corrected. The increased penalty will:
    (1) Begin to run on the 40th day after the date on which you were 
served the NONC, or on the 20th day after the expiration of any period 
longer than 20 days that the NONC specifies for correction.
    (2) Continue to accrue for each violation identified in the NONC 
until it is corrected.

Penalties Without a Period To Correct


Sec.  1241.60  Am I subject to a penalty without prior notice and an 
opportunity to correct?

    (a) We may assess a penalty for a violation identified in paragraph 
(b) of this section without prior notice or first giving you an 
opportunity to correct the violation. We will inform you of a violation 
without a period to correct by issuing an ILCP explaining:
    (1) What the violation is.
    (2) The amount of the civil penalty. The civil penalty for such a 
violation

[[Page 50319]]

begins running on the day it was committed.
    (b) ONRR may assess a civil penalty of up to:
    (1) $23,548 per day, per violation for each day that the violation 
continues if you:
    (i) Knowingly or willfully fail to make any royalty payment by the 
date specified by statute, regulation, order, or a term of the lease.
    (ii) Fail or refuse to permit lawful entry, inspection, or audit, 
including refusal to keep, maintain, or produce documents.
    (2) $58,871 per day, per violation for each day that the violation 
continues if you knowingly or willfully prepare, maintain, or submit a 
false, inaccurate, or misleading report, notice, affidavit, record, 
data, or any other written information.
    (c) We may use any information as evidence that you knowingly or 
willfully committed a violation, including:
    (1) The act and failure to act of your employee or agent.
    (2) An email indicating your concurrence with an issue.
    (3) An order that you did not appeal or an order, NONC, or ILCP for 
which no further appeal is available.
    (4) Any written or oral communication, identifying a violation 
which:
    (i) You acknowledge as true and fail to correct.
    (ii) You fail to or cannot further appeal and fail to correct.
    (iii) You correct, but you subsequently commit the same violation.

Subpart C--Penalty Amount, Interest, and Collections


Sec.  1241.70  How does ONRR decide the amount of the penalty to 
assess?

    (a) ONRR will determine the amount of the penalty to assess by 
considering:
    (1) The severity of the violation.
    (2) Your history of noncompliance.
    (3) The size of your business. To determine the size of your 
business, we may consider the number of employees in your company, 
parent company or companies, and any subsidiaries and contractors.
    (b) We will not consider the royalty consequence of the underlying 
violation when determining the amount of the civil penalty for a 
violation under Sec.  1241.50 or Sec.  1241.60(b)(1)(ii) or (b)(2).
    (c) We will post the FCCP and ILCP assessment matrices and any 
adjustments to the matrices on our Web site.


Sec.  1241.71  Do I owe interest on both the penalty amount and any 
underlying underpayment or unpaid debt?

    (a) A penalty under this part is in addition to interest that you 
may owe on any underlying underpayment or unpaid debt.
    (b) If you do not pay the penalty amount by the due date in the 
bill accompanying the FCCP or ILCP, you will owe late payment interest 
on the penalty amount under 30 CFR 1218.54 from the date when the civil 
penalty payment became due under Sec.  1241.72 until the date when you 
pay the civil penalty amount.


Sec.  1241.72  When must I pay the penalty?

    (a) If you do not request a hearing on a FCCP or ILCP under this 
part, you must pay the penalty amount by the due date specified in the 
bill accompanying the FCCP or ILCP.
    (b) If you request a hearing on a FCCP or ILCP under this part, the 
ALJ affirms the civil penalty; and
    (1) You do not appeal the ALJ's decision to the IBLA under Sec.  
1241.9, you must pay the civil penalty amount determined by the ALJ 
within 30 days of the ALJ's decision; or
    (2) You appeal the ALJ's decision to the IBLA under Sec.  1241.9, 
and IBLA affirms a civil penalty; and
    (i) You do not seek judicial review of the IBLA's decision under 30 
U.S.C. 1719(j), you must pay the civil penalty amount that IBLA 
determines within 120 days of the IBLA decision; or
    (ii) You seek judicial review of the IBLA decision, and a court of 
competent jurisdiction affirms the penalty, you must pay the penalty 
assessed within 30 days after the court enters a final non-appealable 
judgment.


Sec.  1241.73  May ONRR reduce my penalty once it is assessed?

    ONRR's Director or his or her delegate may compromise or reduce a 
civil penalty assessed under this part.


Sec.  1241.74  How may ONRR collect my penalty?

    (a) If you do not pay a civil penalty amount by the date when 
payment is due under Sec.  1241.72, we may use all available means to 
collect the penalty, including but not limited to:
    (1) Requiring the lease surety, for an amount owed by a lessee, to 
pay the penalty.
    (2) Deducting the amount of the penalty from any sum that the 
United States owes you.
    (3) Referring the debt to the Department of the Treasury for 
collection under 30 CFR part 1218, subpart J.
    (4) Using the judicial process to compel your payment under 30 
U.S.C. 1719(k).
    (b) If ONRR uses the judicial process to compel your payment, or if 
you seek judicial review under 30 U.S.C. 1719(j), and the court upholds 
the assessment of a penalty, the court will have jurisdiction to award 
the penalty amount assessed plus interest from the date of the 
expiration of the 90-day period referred to in 30 U.S.C. 1719(j).

[FR Doc. 2016-17598 Filed 7-29-16; 8:45 am]
 BILLING CODE 4335-30-P