STATEMENT OF STEVEN A. HERMAN
MARCH 17, 1998
STATEMENT OF STEVEN A. HERMAN
OFFICE OF ENFORCEMENT AND COMPLIANCE ASSURANCE
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
COMMITTEE ON COMMERCE
OVERSIGHT AND INVESTIGATIONS SUBCOMMITTEE
UNITED STATES HOUSE OF REPRESENTATIVES
MARCH 17, 1998
Thank you, Mr. Chairman, for the opportunity to testify today. I am pleased to present the U.S. Environmental Protection Agency's (EPA's) views and to address any questions that the Oversight and Investigations Subcommittee may have.
II. EPA and State Dialogue Concerning State Audit Privilege and Immunity Laws
I would like to emphasize at the outset that EPA and the Clinton Administration strongly support voluntary environmental auditing and other forms of self-policing and self-evaluation. Environmental self-auditing incentives, along with a strong environmental enforcement program, are essential to achieving better environmental compliance and environmental protection. Self-auditing can result in the prompt detection and correction of violations as well as the identification of potential future violations that can be averted through preventative measures.
EPA's 1995 Self-Policing Policy
That is why in 1995, my office issued a policy to encourage companies to perform voluntary self-policing. See "Incentives for Self-Policing: Discovery, Disclosure, and Correction and Prevention of Violations" (60 Fed. Reg. 66706 (Dec. 22, 1995)). Under EPA's policy, companies that voluntarily discover, promptly disclose, and correct violations; prevent their recurrence; and remedy any resulting damage do not face gravity-based penalties (i.e., the penalty amount over and above the company's economic gain from noncompliance). In addition, the policy does not recommend corporate criminal prosecution for companies that meet the terms of the policy. To protect human health and the environment, the policy does not apply to disclosures involving individual criminal conduct, repeat violations, and violations presenting serious harm or imminent and substantial endangerment. The agency specifically retains the discretion to recover significant economic benefit gained from noncompliance from companies conducting self-auditing. Recovery of economic benefit protects law-abiding companies from being competitively disadvantaged by less environmentally responsible competitors. Our policy provides effective incentives for self-policing without impairing law enforcement, putting the environment at risk, or hiding environmental compliance information from the public.
EPA's self-disclosure policy has won praise from industry and environmental groups, and from local, state, and federal law enforcement officials. The agency has aggressively implemented the policy, and it has received a very positive response from industry. Many regulated entities have come forward, corrected problems, and avoided prolonged and expensive litigation. To date, more than 247 companies have disclosed violations under the policy at more than 760 facilities. These include Fortune 500 companies and small businesses, from various industrial sectors. As an example, EPA and the GTE Corporation used the policy last fall to resolve more than 600 violations at 314 GTE facilities in 21 states. Under the agreement, GTE pays a $52,264 penalty--the amount it saved by its previous noncompliance--and EPA waived another $2.38 million in penalties. The GTE settlement protects communities, firefighters, police, and others in case of a chemical spill or release, lowers the risk that hazardous chemicals will pollute our waterways, and ensures a level economic playing field for complying competitors. Current information on EPA's policy is available in the Audit Policy Update (March 1998), which is attached to this statement.
This enthusiastic response to EPA's self-disclosure policy is not surprising. Research has shown that many companies do not view affording secrecy to information discovered through an environmental audit--an audit privilege--as a precondition to conducting auditing. Businesses actually see good business reasons for auditing. Environmental auditing has increased to the point where it is already standard practice for 75% of corporations responding to a 1995 survey by Price Waterhouse. Businesses also view the types of incentives in EPA's self-disclosure policy as effective in motivating auditing. Of respondents to the 1995 Price Waterhouse survey, more than 40% said that penalty mitigation for self-identified, reported, and corrected violations would encourage the company to conduct more auditing. About the same number viewed a presumption against corporate criminal prosecution as encouraging auditing. In the same survey, 96% of the corporate respondents who conduct audits said that one of the reasons that they did so was to find and correct violations before they were found by government inspectors.
Many states have adopted auditing incentives--some through policies and others by legislation. A number of state approaches strike the right balance between giving companies a real incentive to perform audits and protecting enforcement authority and the public's right to know. Unfortunately, some state approaches are less protective. Because these states have adopted laws that provide broad privileges and immunities, the federal government has both policy and legal concerns.
EPA's Policy Concerns With Audit Privilege and Immunity Laws
EPA and the Clinton Administration adamantly oppose federal and state environmental audit privilege and immunity legislation. Environmental audit privilege laws promote secrecy, interfere with law enforcement, impede public right-to-know, and can penalize employees who report illegal activity to law enforcement authorities. They interfere with government's ability to obtain the information it needs to protect human health and the environment. Audit privilege laws cripple law enforcement by concealing evidence relevant to environmental violations, including evidence about the cause of violations, the harm caused by violations, and how the violations can be prevented in the future, and evidence of criminal misconduct. Audit privilege laws set up litigation roadblocks that would impede civil and criminal law enforcement and squander taxpayer dollars. Some privileged information may also be crucial to demonstrating mental state in criminal cases. Audit privilege laws prevent the public from obtaining potentially critical information about environmental hazards that could affect themselves, their families, and their community.
While EPA supports penalty mitigation as an incentive for self-policing, EPA believes that to immunize serious violations--including those where there is criminal conduct, imminent and substantial endangerment, or actual harm--is wrong. Such blanket and indiscriminate immunity laws discourage needed investments in pollution control, lower the standard of care, undermine the rule of law, and endanger the public.
I'd like to offer three examples of how an audit privilege and immunity law can seriously impede environmental protection.
--In the first example, a criminal investigator receives a tip that waste is being disposed of illegally. If the investigator follows up and finds out that the informant received the information from an environmental audit, the polluter may be able to escape prosecution altogether because of the "tainted" evidence, or some of the most damaging evidence could be excluded from the trial.
--In the second example, the manager of a facility for a large corporation decides to forgo improvements necessary to meet environmental requirements so as to save expenses and increase profits. Suppose the company saves a million dollars, and in doing so gains an advantage over its competitors, and increases its market share. When company management later becomes concerned that its violations will be (or have been) discovered, it does an audit, discovers the violations that were a foreseeable consequence of its lack of expenditures, corrects the violations, and discloses them to the government. Under an audit immunity law, the company would not have to pay any penalty, would retain the million dollar economic benefit from its violations, and would keep the competitive advantage it gained from its violations.
--In the third example, an audit recommends replacement of aging equipment. The company fails to act on the recommendation. The equipment breaks down and releases hazardous waste into the environment. A neighboring farmer's well is contaminated. Where there is an audit privilege law, the company's failure to act would not be available as evidence in an enforcement action to determine the cause of the problem or the extent of the harm nor would it be available to the farmer whose groundwater was contaminated by the release. Citizens would not be allowed to use this evidence to recover damages, regardless of the harm to them and their families. The government also could not use the information in an enforcement action, despite the fact that the company had sufficient knowledge to prevent the harm, but simply ignored it. Why should we, as in these examples, make it easier for violators and harder for our local, state, and federal law enforcement officials and citizens?
EPA's Legal Concerns in States With Audit Privilege and Immunity Laws
Federal environmental laws mandate that EPA ensure that authorized, delegated, or approved state environmental programs (authorized programs or states) have and maintain minimum enforcement and information gathering authority. Audit privilege laws also may not interfere with the public's access to certain types of information. These requirements have been part of the federal process of authorizing state environmental programs for many years. Federal law also authorizes citizens to petition EPA to review or withdraw state programs on the ground that the states lack the authority necessary to meet these federally established standards.
Federal statutes and regulations require states administering federally authorized environmental programs and the public to have access to environmental compliance information. A state must have the ability to obtain information needed to identify and assess noncompliance and criminal conduct, and ensure correction of violations. Public access to information must be preserved and remain consistent with the provisions of federal statutes and regulations granting citizens the ability to participate in permitting and enforcement proceedings to ensure adequate environmental protection. The state also may not penalize "whistle blowers"--employees who divulge information about a company's noncompliance.
Federal statutes and regulations require that states maintain authority to obtain injunctive relief and civil and criminal penalties for any violation of federal environmental program requirements. As reflected in its "Statement of Principles," issued on February 14, 1997, EPA believes it to be especially critical that states have the authority to obtain immediate and complete injunctive relief; to recover civil penalties for significant economic benefit, repeat violations and violations of judicial or administrative orders, serious harm, and activities that may present an imminent and substantial endangerment; and to obtain fines and sanctions for criminal conduct.
EPA's Work With the States Over State Audit Privilege and Immunity Laws
EPA has always been and remains willing to work with state officials in a spirit of cooperation to resolve issues which state audit privilege and immunity laws may present with regard to maintaining necessary enforcement and information gathering authority and ensuring legally mandated public access to information. Our goal is to ensure that states have at least the minimum authorities required to run federally authorized state environmental enforcement programs.
In light of these legal requirements, EPA has contacted states that have enacted audit privilege and immunity laws to seek to resolve these issues. EPA and the states have used a process under which they identify the legal impediments to federal program authorization (current or pending) from a particular state's audit privilege and immunity law. The impediments are then addressed through tailored statutory amendments, state Attorney General opinions interpreting the law, or a combination of both. We have sought public input on the proposed amendments as well.
Using this process, EPA has worked with several states to modify their audit privilege and immunity laws to conform with federal law. EPA's discussions with Utah, Texas, and Michigan have resulted in changes to their laws that were ultimately acceptable to those states and that also met the minimum federal requirements for enforceability and public access to information. EPA and Wyoming have reached agreement on needed changes to the state's audit privilege and immunity law, which are currently pending before the Governor for signature. Also using this process, the agency has received an interpretation from the Virginia Attorney General that makes its state audit privilege and immunity law inapplicable to federally authorized programs, and thus has concluded that the Commonwealth of Virginia need not modify the law.
We are currently working with other states to ensure that the minimum federal enforcement, information gathering, and public access criteria are satisfied. The state of Colorado is one. Since 1994, EPA has sent Colorado a number of letters concerning issues arising under the state's audit privilege and immunity law (S.B. 94-139) and has met with Colorado officials a number of times to try to work out a solution. In fact, I am flying to Colorado in just six days to meet again with state officials. EPA will continue to make every effort to work with Colorado, as with every other state, to find a resolution that accommodates the interests of the state while meeting minimum federal requirements.
I would also like to clear up any confusion that may exist regarding federal enforcement activities in states with audit privilege and immunity laws. Federal laws provide EPA with oversight authority in states where a federal environmental program is implemented by the state pursuant to federal authorization. Federal oversight assures fair and consistent implementation and enforcement of federal environmental laws across the nation. One purpose of federal oversight is to preserve a level economic playing field for law-abiding companies and to protect states that enforce requirements of federal law from being undercut by states that do not. EPA exercises its oversight authority in states with audit privilege and immunity laws as in all other states.
Oversight includes taking action where EPA believes a state's response is not appropriate in a specific case or a state shows a pattern of inadequate enforcement of environmental laws. In rare cases, EPA oversight may take the form of "overfiling." The agency uses the term "overfiling" to refer to those federal actions that are filed after the conclusion of a formal state enforcement action for the same violations that arose out of the same nucleus of operative facts. There are generally three situations where the agency exercises its overfiling authority. EPA overfiles where the state response to a violator or environmental condition fails to protect human health or the environment, fails to deter future violations by a major repeat violator, or fails to protect law-abiding facilities from competitive disadvantage. These principles ensure that the enforcement action is sufficient to protect human health and the environment, deter recalcitrant behavior, and preserve a level economic playing field.
EPA has not brought, and will not bring, enforcement actions against companies merely because they take advantage of state audit privilege and immunity laws. To the extent violations revealed through an audit and disclosed under a state audit privilege and immunity law continue to be inadequately addressed, however, the agency may legitimately take action.
In conclusion, I believe that in working with the states in the context of state audit privilege and immunity laws, EPA is performing its statutory mission. The agency supports state efforts to promote compliance and innovation, but must at the same time ensure that states retain minimum enforcement and information gathering authority and that the public has access to information as authorized under federal law. These authorities accommodate the interests of all--businesses; citizens; local, state, and federal regulators; and law enforcement officials--and help to ensure a level economic playing field for law-abiding companies nationwide. EPA values its partnership with the states in striving to achieve our mutual goal of protecting human health and the environment, and I believe that EPA is making every effort to work with the states to accommodate their interests while assuring that minimum federal requirements are met.
Thank you again for the opportunity to testify before your Subcommittee. I would be happy to answer any questions.