Environmental Liabilities: Hardrock Mining Cleanup Obligations	 
(14-JUN-06, GAO-06-884T).					 
                                                                 
Key federal environmental statutes, such as the Resource	 
Conservation and Recovery Act (RCRA) and the Comprehensive	 
Environmental Response, Compensation, and Liability Act (CERCLA),
which established the Superfund program, require that parties	 
statutorily responsible for pollution bear the cost of cleaning  
up contaminated sites. In many cases, liable parties meet their  
cleanup responsibilities. However, many parties responsible for  
hardrock mining sites include businesses that no longer exist,	 
having been liquidated through bankruptcy or otherwise dissolved.
Under these circumstances, some hardrock mining companies that	 
have caused environmental contamination have left the problem for
others, typically the government, to address. We were asked to	 
provide a statement for the record on the cleanup of		 
contamination resulting from hardrock mining as it relates to our
August 2005 report, Environmental Liabilities: EPA Should Do More
to Ensure that Liable Parties Meet Their Cleanup Obligations	 
(GAO-05-658). We made nine recommendations in this report aimed  
at reducing the government's financial burden for costly	 
environmental cleanups. The agency generally agreed with many of 
the recommendations, stating its intent to further evaluate some 
of them.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-884T					        
    ACCNO:   A55562						        
  TITLE:     Environmental Liabilities: Hardrock Mining Cleanup       
Obligations							 
     DATE:   06/14/2006 
  SUBJECT:   Accountability					 
	     Contamination					 
	     Environmental cleanups				 
	     Environmental law					 
	     Environmental monitoring				 
	     Hazardous substances				 
	     Land management					 
	     Liability of environmental damages 		 
	     Mining						 
	     Mining industry					 
	     Pollution control					 
	     Risk management					 
	     Financial assurance				 
	     Superfund Program					 

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GAO-06-884T

                 United States Government Accountability Office

Testimony

GAO

       Before the Committee on Environment and Public Works, U.S. Senate

For Release on Delivery   ENVIRONMENTAL LIABILITIES                        
Expected at 9:30 a.m. EDT 
Wednesday, June 14, 2006  
                             Hardrock Mining Cleanup Obligations              
                             Statement for the Record by John B. Stephenson,  
                             Director Natural Resources and Environment       

GAO-06-884T

ENVIRONMENTAL LIABILITIES

Hardrock Mining Cleanup Obligations

  What GAO Found

EPA could better ensure that companies at high risk of incurring
environmental liabilities-including hardrock mining companies-meet their
cleanup obligations by making greater use of existing authorities. Most
significantly, EPA has not implemented a 1980 statutory mandate under
Superfund to require businesses handling hazardous substances to provide
the agency evidence of their ability to pay to clean up contamination that
could result from their operations. Businesses can provide this evidence,
called financial assurance, in several ways, including providing a letter
of credit from a financial institution and establishing a dedicated trust
fund. The 1980 law requires EPA to use a risk-based approach for both (1)
identifying the entities that would be covered and (2) specifying the
financial assurance coverage they would be required to have. The law also
requires EPA to give priority in developing these requirements to those
classes of facilities, owners, and operators that EPA believes present the
highest level of risk of injury. Although implementing the financial
assurance requirement could help avoid the creation of additional
Superfund sites and could provide funds to help pay for cleanups, EPA has
cited competing priorities and lack of funds, among other things, as
reasons for having made no progress in this area for nearly 25 years.
Without the mandated financial assurance regulations, significant gaps in
EPA's environmental financial assurance coverage exist, thereby increasing
the risk that taxpayers will eventually have to assume financial
responsibility for cleanup costs. For example, none of EPA's current
financial assurance regulations require companies or industries that pose
significant risk of environmental contamination to provide assurance that
they can meet cleanup obligations for potential accidents or spills of
hazardous substances or wastes.

Hardrock mining can cause significant environmental problems; these sites
are typically large, complex, and costly to clean up. For example, in
2004, the EPA Inspector General estimated that cleaning up 63 mining sites
on the Superfund's National Priorities List would cost up to $7.8 billion.
In applying the Superfund law's risk-based approach for developing
financial assurance requirements, EPA may want to consider hardrock
mining-for example, gold, copper, and iron ore mining-a high priority
because it presents taxpayers with an especially serious risk of having to
pay cleanup costs for thousands of abandoned, inactive, and operating
mines in the United States. Some mine owners have defaulted on multiple
occasions on environmental liabilities associated with their mines, and
the cleanup costs for these sites are being, or are expected to be, borne
largely by taxpayers. As a result, EPA may wish to give priority in
developing financial assurance requirements to facility owners whose prior
actions indicate that they may pose a high risk of default on their
environmental obligations. Finally, financial assurances for businesses at
risk for environmental contamination can help mitigate the fact that
businesses can legally organize or restructure in ways that can limit
their future expenditures for cleanups by, for example, separating their
assets from their liabilities using subsidiaries to protect their assets.

                 United States Government Accountability Office

Mr. Chairman and Members of the Committee:

We are pleased to have the opportunity to comment on the cleanup of
contamination resulting from hardrock mining as it relates to our work on
environmental liability issues. Key federal environmental statutes, such
as the Resource Conservation and Recovery Act (RCRA) and the Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA),1 which
established the Superfund program, require that parties statutorily
responsible for pollution bear the cost of cleaning up contaminated
sites.2 In many cases, liable parties have met their cleanup
responsibilities. However, many parties responsible for hardrock mining
sites include businesses that no longer exist, having been liquidated
through bankruptcy or otherwise dissolved. Under these circumstances, some
hardrock mining companies that have caused environmental contamination
have left the problem for others, typically the government, to address.

As the Committee considers legislation that would waive certain cleanup
requirements for such parties as industry partners and nonprofit
organizations who agree to clean up contaminated hardrock mining sites
abandoned by their owners, it is also appropriate to consider other
actions the government can take to better ensure that companies with a
high risk for incurring environmental liabilities-including hardrock
mining companies-meet their cleanup obligations. As detailed in our 2005
report on environmental liabilities, the Environmental Protection Agency
(EPA) could better ensure that bankrupt and other financially distressed
businesses carry out their cleanup responsibilities by making greater use
of EPA's existing authorities and enforcement tools.3

Most significantly, EPA has not implemented a 1980 statutory mandate under
Superfund to require businesses handling hazardous substances to provide
the agency evidence of their ability to pay to clean up potential spills
or other environmental contamination that could result from their

1

For simplicity in this testimony, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 will generally be
referred to as the Superfund law.

2

The Superfund law generally applies to cleanups of contaminated sites that
are no longer in use. RCRA generally applies to operating businesses that
treat, store, or dispose of hazardous wastes.

3Environmental Liabilities: EPA Should Do More to Ensure that Liable
Parties Meet Their Cleanup Obligations, GAO-05-658, Aug. 17. 2005.

                               Page 1 GAO-06-884T

operations. Businesses can provide this evidence, called financial
assurance, in several ways, including providing a letter of credit from a
financial institution and establishing a dedicated trust fund. The 1980
law requires EPA to use a risk-based approach for both (1) identifying the
entities that would be covered and (2) specifying the financial assurance
coverage they would be required to have. The law also requires EPA to give
priority in developing these requirements to those classes of facilities,
owners, and operators that EPA believes present the highest level of risk
of injury. Although implementing the financial assurance requirement could
help avoid the creation of additional Superfund sites and could provide
funds to help pay for cleanups, EPA has cited competing priorities and
lack of funds, among other things, as reasons for having made no progress
in this area for nearly 25 years.

As we noted in our 2005 report, in applying the Superfund law's risk-based
approach for developing financial assurance requirements, EPA may want to
consider hardrock mining-for example, gold, copper, and iron ore mining-a
high priority because history tells us that it presents taxpayers with an
especially serious risk of having to pay cleanup costs for thousands of
abandoned, inactive, and operating mines in the United States. As detailed
in a 2004 report by EPA's Office of Inspector General, hardrock mining can
cause significant environmental problems, and these sites are typically
large, complex, and costly to clean up.4 According to the EPA IG report,
63 hardrock mining sites were on the Superfund's National Priority List
(NPL) and another 93 sites had the potential to be added to the list. At
least 19 of the 63 NPL mining sites had estimated cleanup costs of $50
million or more. In total, the 63 sites were estimated to cost up to $7.8
billion to clean up, $2.4 billion of which was expected to be borne by
taxpayers rather than the parties responsible for the contamination. The
IG report also highlighted the fact that the projected operation and
maintenance period for cleanup remedies ranges from 40 years to "in
perpetuity." Thus, the costs to taxpayers would increase if the liable

EPA, Office of Inspector General, Nationwide Identification of Hardrock
Mining Sites, 2004-P-00005 (Washington, D.C.: Mar. 31, 2004).

Page 2 GAO-06-884T

parties expected to pay for the cleanup remedies proved to be unable to do
so.5

Further, we reported in 2005 that some mine owners have defaulted on
multiple occasions on environmental liabilities associated with their
mines, and the cleanup costs for these sites are being, or are expected to
be, borne largely by taxpayers. These owners may reasonably be viewed as
at high risk for defaulting on environmental obligations associated with
mines or businesses that they currently own. For example, one individual
is associated with several businesses that have filed for bankruptcy
protection. Like other mine owners with serial bankruptcies involving
contaminated mining sites, this owner continues to operate businesses
having sites with significant contamination whose cleanup may eventually
fall to the Superfund. If EPA developed and implemented the financial
assurance regulations that the Superfund law mandates, EPA could require
such owners to provide financial assurances now for existing and future
cleanups, thereby reducing the amount that taxpayers would otherwise
likely be required to pay.

However, without the mandated financial assurance regulations, significant
gaps in EPA's environmental financial assurance coverage exist, thereby
increasing the risk that taxpayers will eventually have to assume
financial responsibility for cleanup costs. First, none of EPA's current
financial assurance regulations require companies or industries that pose
significant risk of environmental contamination to provide assurance that
they can meet cleanup obligations associated with potential accidents or
spills of hazardous substances or wastes. For example, when EPA reaches
settlement agreements with parties regarding cleaning up existing
Superfund sites, the agency generally requires the businesses to provide
financial assurance demonstrating their ability to pay for the agreed-upon
cleanup activities. Similarly, under RCRA's corrective action program, EPA
typically requires that owners and operators of hazardous waste treatment,
storage, and disposal facilities provide financial

The EPA Inspector General reported that at least one "clearly viable"
party had been identified for 70 percent of the 63 NPL mining sites
(including 11 percent where the viable party was a federal agency, such as
the Department of the Interior). However, the report also emphasized that
EPA should be concerned about the viability of these parties over time
because of the long-term nature of the cleanups liabilities at mines.

Page 3 GAO-06-884T

assurance for cleanups of spills or other existing contamination at
hazardous waste facilities.6

Another significant gap in financial assurance coverage that the Superfund
mandate could address involves types of waste excluded from RCRA coverage.
Some types of wastes associated with mining activities can result in
substantial cleanup costs but are excluded from the definition of
hazardous wastes and therefore are not regulated under RCRA's hazardous
waste provisions. This exclusion has resulted in a significant gap in
financial assurance. In addition, we note that mining activities on
private lands are not covered by the Department of the Interior's Bureau
of Land Management financial assurance requirements for mines on federal
land it manages.7 However, some of these mining facilities handle
hazardous substances as defined under the Superfund law, and, therefore,
financial assurance regulations issued under the Superfund law could apply
to these facilities. The Superfund financial assurance mandate could also
address the significant gap in financial assurance that exists because
generators of hazardous waste (such as metal-plating facilities), which
are regulated under RCRA, are generally not required to maintain any
financial assurances for contamination they have caused.

By its inaction on the Superfund mandate to require businesses to provide
financial assurance, EPA has continued to expose the Superfund program,
and ultimately the U.S. taxpayers, to potentially billions of dollars in
cleanup costs for facilities that currently are not required to have
financial assurances for cleanup costs, such as many gold, lead, and other
hardrock mining sites and metal-plating facilities. By implementing the
financial assurance requirement under Superfund. EPA could help close the
financial assurance gaps discussed above by requiring financial assurances
for cleaning up existing and future contamination at facilities that
handle hazardous substances but are not subject to RCRA's
closure/post-closure or corrective action programs, including many mining
sites and facilities that generate, but do not treat, store, or dispose of
hazardous waste. These financial assurance gaps may be more significant
since the authority for an

6

RCRA's closure and post-closure financial assurances cover normal costs of
closing and conducting post-closure care but do not cover cleanups
stemming from accidental releases.

7

Our report Hardrock Mining: BLM Needs to Better Manage Financial
Assurances to Guarantee Coverage of Reclamation Costs, GAO-05-377 (
Washington, D.D.: June 20, 2005) recommends ways for BLM to better manage
financial assurances it requires of operators to guarantee reclamation
costs if they fail to reclaim BLM-managed lands after operations cease.

                               Page 4 GAO-06-884T

environmental tax on corporations, crude oil, and certain chemicals, that
had largely funded the Superfund program expired in 1995. As a result, the
federal government's general appropriations fund is increasingly being
tapped to fund the cleanups paid for by the Superfund trust fund when
responsible parties do not. For example, for fiscal year 2004, EPA's
appropriation for the Superfund program was from general revenues only.

As we noted in our 2005 report, EPA may wish to give priority in
developing financial assurance requirements to facility owners whose prior
actions indicate that they may pose a high risk of default on their
environmental obligations. Factors EPA may wish to consider in evaluating
owner risk include compliance history-such as a history of noncompliance
with environmental laws, including cleanup obligations, and magnitude of
past, current, and potential environmental liabilities.

Finally, financial assurances for businesses at risk for environmental
contamination can help mitigate the fact that businesses can legally
organize or restructure in ways that can limit their future expenditures
for cleanups by, for example, separating their assets from their
liabilities using subsidiaries. A subsidiary that is engaged in a business
that is at risk of incurring substantial liability, such as mining or
chemical manufacturing, can protect its assets by transferring the most
valuable ones-such as equipment and patents-to a related entity, such as
the parent or other subsidiary engaged in less risky endeavors. The
high-risk subsidiary can continue to use the transferred assets, as
appropriate, by leasing or renting them. It has become common practice for
experts in asset protection to recommend that corporations protect their
assets in this way. A goal is to continually draw down on the subsidiary's
remaining assets, such as cash from the sale of equipment, to pay
operating expenses, including rental and lease payments and salaries. If a
liability arises, the high-risk subsidiary's remaining assets may be
reached-but generally not those of the parent corporation or other
subsidiaries to which assets were transferred.

While these asset protection strategies are generally legal depending on
the circumstances, it is generally unlawful to transfer assets with the
intent to hinder or defraud creditors. Most states have laws that contain
prohibitions on fraudulent transfers. Creditors generally must seek to
invalidate such transfers within 4 years of their occurrence. Perhaps for
these reasons, publications by financial and legal advisors have suggested
that asset transfers be implemented in stages over time to avoid calling
attention to them. The use of such strategies by parties liable for
environmental cleanups presents a significant challenge to EPA in

                               Page 5 GAO-06-884T

obtaining cleanup costs because it is hard for the agency to know about
such transfers, much less obtain sufficient information to successfully
challenge them within the time permitted by law. Further, because
businesses typically are aware of Superfund liabilities for many years
before they actually have to fund the cleanups, they have ample time to
reorganize and structure themselves in ways that can limit the
expenditures they may be required to make in the future.

In closing, these are issues we believe the committee should consider in
evaluating legislation to encourage the cleanup of contaminated hardrock
mining sites. Our report on environmental liabilities identifies several
ways EPA can and should protect its financial interests, including
implementing the mandate in the Superfund law to require businesses at
risk of environmental contamination to provide financial assurance that it
can clean up any spills or contamination that might occur in the future.

  GAO Contact and Staff Acknowledgments
  
For further information on this statement,please contact John Stephenson
at (202) 512-3841 or [email protected]. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this statement. Individuals who contributed to this statement
include Nancy Crothers, Christine Fishkin, Richard P. Johnson, Ches Joy,
and Susan Swearingen.

    (360729)

Page 6 GAO-06-884T

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