New Changes to the U.S. EPA Self-Disclosure Policy

The United States Environmental Protection Agency (U.S. EPA) recently announced a few changes to its audit policy for self-disclosure of environmental violations (Self-Disclosure Policy) in hopes of encouraging even more self-reporting of environmental violations within the regulated community. These policy changes only apply to those violations that are reported to U.S. EPA, such as Emergency Planning and Community Right to Know Act (EPCRA) violations, violations of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and other violations where the U.S. EPA has jurisdiction. Violations that are under state jurisdiction, such as most hazardous waste, air and water violations, should be reported to the appropriate state agency in accordance with that particular state's self-disclosure policy. While Indiana and Illinois have not adopted the changes discussed below, it is possible that they will follow EPA's lead and make similar changes to their policies. By self-reporting under the Self-Disclosure Policy a party can avoid up to 100% of the gravity based civil penalties for the violation and will not recommend criminal action if otherwise appropriate.

The first change concerns a new interim policy applicable to "new owners" that expands the current Self-Disclosure Policy. This interim policy went into effect on August 1, 2008 and loosens some of the requirements under the current Self-Disclosure Policy to encourage new owners to report violations that existed prior to the change in ownership. In order to qualify as a new owner, the party must certify that prior to the transaction it was not responsible for environmental compliance at the facility, did not cause the violations and could not have prevented the occurrence of the violation. Therefore the violation must have originated with the prior owner. Also, neither the buyer nor seller can have held the largest ownership share of the other entity, nor can they have a common corporate parent. A new owner has nine months from the date of acquisition to be considered eligible under the interim policy; any other violations discovered or disclosed after nine months would fall under the current Self-Disclosure Policy. The interim policy will apply provided that the new owner promptly discloses the violation to U.S. EPA, enters into an audit agreement with U.S. EPA and otherwise meets all of the conditions of the Self-Disclosure Policy that are applicable to new owners. In general a new owner will not be assessed a civil penalty for the violations as long as the above conditions are met unless the new owner realizes economic benefit due to the avoidance of operation and maintenance costs after acquisition, in which case the post-closing economic benefit realized will be recovered.

Under the Self-Disclosure Policy, there are nine conditions that every party self-reporting must meet in order to be considered eligible for the protections available. The interim policy has modified some of these conditions specifically as applied to new owners. First, new owners are relieved of the requirement that the violation be discovered via a systematic review (i.e. an audit) so that violations discovered during standard pre-acquisition due diligence can be eligible. Second, even violations that are required to be reported to U.S. EPA under a Title V air permit can be self-reported by new owners and receive protection under the Self-Disclosure Policy. The 21 day time period to report the violations has been expanded for new owners to 45 days after closing for violations discovered pre-closing. For violations discovered post-closing new owners would need to disclose within 45 days of closing or 21 days after discovery, whichever is longer. New owners can also disclose those violations that present an imminent and substantial threat to the environment, so long as there was not a fatality, community evacuation or other seriously injurious or catastrophic event. Not changed from the current Self-Disclosing Policy is the requirement that the discovery be made by the new owner before U.S. EPA or any other governmental agency identifies the problem through its own investigation, the requirement to remediate the problem within 60 days where practicable, and the requirement to take corrective measures to prevent recurrence. These changes are not final, and the U.S. EPA is still accepting comments on the new interim policy as applied to new owners through October 30, 2008.

The U.S. EPA is also now accepting electronic self-reporting notifications for certain violations. Under a pilot program, regulated facilities that are self-disclosing EPCRA or CERCLA violations can report the violations by visiting the U.S. EPA's Central Data Exchange and indicating a self-disclosure is being made pursuant to the agency’s audit policy. By using electronic reporting the EPA will be able to process the disclosure more quickly and this type of reporting ensures consistency in how disclosures are made to the agency. However, it should be noted that a business confidentiality claim cannot be made when using the eDisclosure tool. If a self-disclosure will contain confidential information a written self-disclosure can still be made.

For further information regarding either of these changes, please contact Terri Czajka or Jennifer Andres.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice.  The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.