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HEARING
BEFORE THE
SUBCOMMITTEE ON ADMINISTRATIVE OVERSIGHT
AND THE COURTS
OF THE
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED FOURTH CONGRESS
SECOND SESSION
ON
S. 582
A BILL TO AMEND TITLE 28, UNITED STATES CODE, TO PROVIDE THAT
CERTAIN VOLUNTARY DISCLOSURES OF VIOLATIONS OF FEDERAL
LAWS MADE PURSUANT TO ANdSMpaONMENTAL AUDIT SHALL NOT
BE SUBJECT TO DISCOVERY AKf^BSffiS^ INTO EVIDENCE DURING
A FEDERAL JUDICIAL OR AlWtCNj^CgBjl^^ AND FOR
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Serial'
Printed for the use of the Committee on the Judiciary
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1997
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Superintendent of DocumenLs, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-055091-2
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HEARING
BEFORE THE
SUBCOMMITTEE ON ADMINISTMTIVE OVERSIGHT
AND THE COURTS
OF THE
COMMITTEE ON THE JUDICIAKY
UNITED STATES SENATE
ONE HUNDRED FOURTH CONGRESS
SECOND SESSION
ON
S. 582
A BILL TO AMEND TITLE 28, UNITED STATES CODE, TO PROVIDE THAT
CERTAIN VOLUNTARY DISCLOSURES OF VIOLATIONS OF FEDERAL
LAWS MADE PURSUANT TO ANdSMpM^ENTAL AUDIT SHALL NOT
BE SUBJECT TO DISCOVERY O^J^imjao, INTO EVIDENCE DURING
A FEDERAL JUDICIAL OR iy!5{{sBJ|^g©{lJ®^R0CEEDI^^ AND FOR
OTHER PURPOSES
Serial'
Printed for the use of the Committee on the Judiciary
U.S. GOVERNMENT PRINTING OFFICE
40-017 WASHINGTON : 1997
For sale by the U.S. Government Printing Office
Supenntendent of DocumenLs, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-055091-2
it'-^ii- ■ A
COMMITTEE ON THE JUDICIARY
ORRIN G. HATCH, Utah, Chairman
STROM THURMOND, South CaroUna JOSEPH R. BIDEN, Jr., Delaware
ALAN K. SIMPSON, Wyoming EDWARD M. KENNEDY, Massachusetts
CHARLES E. GRASSLEY, Iowa PATRICK J. LEAHY, Vermont
ARLEN SPECTER, Pennsylvania HOWELL HEFLIN, Alabama
HANK BROWN, Colorado PAUL SIMON, IlUnois
FRED THOMPSON, Tennessee HERBERT KOHL, Wisconsin
JON KYL, Arizona DIANNE FEINSTEIN, California
MIKE DeWINE, Ohio RUSSELL D. FEINGOLD, Wisconsin
SPENCER ABRAHAM, Michigan
Mark R. Disler, Chief Counsel
Manus Cooney, Staff Director and Senior Counsel
Cynthia C. Hogan, Minority Chief Counsel
Karen A. Robb, Minority Staff Director
Subcommittee on ADMiNiSTFtATivE Oversight and the Courts
CHARLES E. CRASS'LEY; Iowa, Chairman
STROM THURMOND, South CeuroUha- ^ - "ilOWl^LL HEFLIN, Alabama
HANK BROWN, Colorado HERBERT KOHL, Wisconsin
MIKE DeWINE, Ohio ; - -.,- *. ■♦' RUSSELL D. FEINGOLD, Wisconsin
koLAN Davis, Chief Counsel
Winston Lett, Minority Chief Counsel
CONTENTS
STATEMENTS OF COMMITTEE MEMBERS
Page
Grassley, Hon. Charles E., U.S. Senator from the State of Iowa 1
Kohl, Hon. Herbert, U.S. Senator from the State of Wisconsin 2
Thurmond, Hon. Strom, U.S. Senator from the State of South Carolina 3
Brown, Hon. Hank, U.S. Senator from the State of Colorado 8
CHRONOLOGICAL LIST OF WITNESSES
Hon. Mark O. Hatfield, a U.S. Senator from the State of Oregon 4
Panel consisting of Steven A. Herman, Assistant Administrator, Office of
Enforcement and CompUance Assiu-ance, U.S. Environmental Protection
Agency, Washington, DC; and Veronica Coleman, U.S. attorney, Western
District of Tennessee, Memphis, TN, accompanied by Lois Schiffer, Assist-
ant Attorney General, Environment and Natural Resources Division, U.S.
Department of Justice, Washington, DC 11
Panel consisting of Thomas P. Gehl, director of environmental engineering,
safety, industrial hygiene and the Chemical and Metallurgical Laboratory,
Kohler, Co., Kohler, WI, on behalf of the Corporate Environmental Enforce-
ment Council; John Aloysius Riley, director. Litigation Support Division,
Texas Natural Resoxirce Conservation Commission, Austin, TX; Victor S.
Johnson, district attorney general, 20th Judicial District of Tennessee, and
vice president. National District Attorney's Association, Nashville, TN; and
Patricia S. Bangert, senior deputy solicitor general, Colorado Department
of Law, Denver, CO 40
Panel consisting of Mark Woodall, chair. Audit Privilege Task Force, Sierra
Club, Woodland, GA; Jerry O. Richartz, corporate manager for energy and
environment, Oregon Steel Mills, Inc., Portland, OR, on behalf of the Steel
Manufacturers of America and the National Association of Manufacturers;
and Don Ament, Colorado State senator, Denver, CO, on behalf of the
American Legislative Exchange Council 72
ALPHABETICAL LIST AND MATERIALS SUBMITTED
Ament, Don:
Testimony 81
Prepared statement 83
Bangert, Patricia S.:
Testimony 56
Prepared statement 57
Letter to Roy Romer, Governor, State of Colorado from Jack W.
McGraw, acting Regional Administrator, U.S. EPA, dated Apr. 29,
1994 60
Memorandum to Jackson Fox, regional counsel, Region X, from Ste-
ven A. Herman, assistant administrator, OECA; and Mary Nichols,
assistant administrator, OAR, dated Apr. 5, 1995 61
Letter to Thomas Looby, director. Office of Environment, Colorado
Department of Public Health and Environment from Kerrigan G.
Clough, assistant regional administrator. Office of Pollution Pre-
vention, State, and Tribal Assistance, dated Mar. 5, 1996 65
Comments regarding the draft letters addressing Senate Bill
94-139 65
(III)
IV
Page
Coleman, Veronica:
Testimony 18
Prepared statement 19
Gehl, Thomas P.:
Testimony 40
Prepared statement 42
Hatfield, Mark O.:
Testimony 4
Prepared statement 7
Herman, Steven A.:
Testimony 11
Prepared statement 14
Johnson, Victor S.:
Testimony 53
Resolution from the National District Attorney's Association 55
Richartz, Jerry O.:
Testimony 75
Prepared statement 77
Letter to Valdas V. Adamkus, Regional Administrator, U.S. EPA
from Donald R. Schregardus, director. State of Ohio EPA, dated
Apr. 30, 1996 79
Riley, John Aloysius:
Testimony 48
Prepared statement 50
Schiffer, Lois: Prepared statement 19
Woodall, Mark:
Testimony 72
Prepared statement 73
APPENDIX
Proposed Legislation
S. 582, a bill to amend title 28, United States Code, to provide certain
voluntary disclosures of violations of Federal laws made pvu-suant to an
environmental audit shall not be subject to discovery or admitted into
evidence during a Federal judicial or administrative proceeding, and for
other purposes 92
Questions and Answers
Responses of Don Ament to questions from Senators:
Grassley 103
Thurmond 105
Responses of Patricia S. Bangert to questions from Senators:
Grassley 105
Thxirmond 108
Unidentified 109
Responses of the U.S. Environmental Protection Agency to questions from
Senators:
Kohl 110
Thurmond Ill
Grassley 112
Feingold 114
Responses of Thomas P. Gehl to questions from Senators:
Grassley 115
Thurmond 118
Kohl 119
Responses of Victor Johnson, III to questions from Senators:
Grassley 119
Thurmond 121
Responses of Jerry Richartz to questions from Senators:
Grassley 122
Kohl 124
Thxirmond 125
Responses of Jeriy Richartz to questions from Senators — Continued
Thurmond — Continued
Report to the Ranking Minority Member, Committee on Govern-
mental Affairs, U.S. Senate entitled "Environmental Auditing —
A Useful Tool That can Improve Environmental Performance and
Reduce Costs" from the U.S. General Accounting Office, dated
April 1995 127
Responses of John A. Riley to questions from Senators:
Kohl 135
Thurmond 135
Grassley 136
Responses of Lois Schiffer and Veronica Coleman to questions from Senators:
Thurmond 136
Grassley 137
Responses of Mark Woodall to questions from Senators:
Thurmond 141
Grassley 141
Additional Submissions for the Record
Letter to Senator Grassley from Timothv F. Bums, vice president, Federal
Government relations, Cfhemical Manufacturers Association, dated May 31,
1996 143
Prepared statement of David F. ZoU, vice president and general counsel,
Chemical Manufacturers Association 144
Letter to Hon. Bill Schuck, Ohio House of Representatives from Bertram
Frey, Deputy Regional Counsel, U.S. EPA 145
Prepared statement of the Colorado Association of Commerce and Industry .... 145
State of Colorado Senate Bill 94-139 152
Letter to Peter W. Sclimidt, director. Department of Environmental Qual-
ity, Commonwealth of Virginia from Steven A. Herman, Assistant Ad-
ministrator, U.S. EPA, dated Feb. 3, 1995 160
Letter to Steven A. Herman from Peter W. Schmidt, dated Feb. 4, 1995 ... 162
Letter to Peter W. Schmidt from Steven A. Herman, dated Feb. 13,
1995 163
Letter to Stephen Merrill, Governor, State of New Hampshire from John
P. DeVillars, Regional Administrator, U.S. EPA, Region I, dated Feb.
27, 1996 164
Letter to John P. DeVillars from Governor Stephen Merrill, dated Mar.
15, 1996 167
Letter to Hon. Albert Gore, Vice President of the United States from
various Members of the U.S. House of Representatives, dated May
16, 1996 170
Letter to Senator Grassley from Scott B. Smitii, director. Environmental,
Health, and Safety Policy, Coors Brewing Co., dated June 10, 1996 173
Letter to Steven A. Herman, U.S. EPA from Carl A. Mattia, Corporate Envi-
ronmental Enforcement Council, Inc. (CEEC) chairman of the board, vice
president. Environment, Health and Safety Management Systems, The BF
Goodrich Co., dated Jan. 30, 1996 174
Statement of Corporate Environmental Enforcement Council for the July
27 and July 28, 1994, Public Meeting of the U.S. Environmental Protec-
tion Agency on Environmental Auditing Policy and Related Issues 177
Prepared statement of the Golf Course Superintendents Association of
America 208
Letter to Senator Grassley from James R. Moore and Nancy W. Newkirk,
counsel for the CompUance Management and Policy Group, Perkins Coie,
dated June 4, 1996 208
Prepared statement of the Compliance Management and Policy Group 209
Prepared statement of Harry H. Kelso, director of enforcement and policy,
Virginia Department of Environmental Quality 216
Prepared statement of Pam Kautter, Western Colosado Congress 218
Article from the Denver Post entitled, "Grand jury investigating
Summitville chief," dated May 15, 1996 222
VOLUNTARY ENVIRONMENTAL AUDIT
PROTECTION ACT
TUESDAY, MAY 21, 1996
U.S. Senate,
Subcommittee on Administrative Oversight
AND the Courts,
Committee on the Judiciary,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:03 p.m., in room
SD-226, Dirksen Senate Office Building, Hon. Charles E. Grassley
(chairman of the subcommittee) presiding.
Also present: Senators Brown and Kohl.
OPENING STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S.
SENATOR FROM THE STATE OF IOWA
Senator Grassley. It is my privilege to call the hearing to order
and to say good afternoon to everybody, including members who
are here on this very important subject. So I thank everybody for
going out of their way to help make the legislative process work,
particularly on this bill, S. 582, which is the Voluntary Environ-
mental Audit Protection Act, and, of com-se, the issues that it in-
volves of providing incentives, including immunity privilege and
penalty mitigation for environmental audits and voluntary disclo-
sure.
Before we start this hearing, I would like to say a few words
about the bill. The bill was originally introduced March 21, 1995,
by Senators Hatfield and Brown, and it is basically the product of
two different versions of a privilege, first enacted by Colorado £ind
Oregon, protecting company-implemented environmental audits
and voluntary disclosures of violations found during those audits.
Currently, 17 States have adopted some version of this environ-
mental audit privilege. The privilege is £in effort to codify a self-
evaluation privilege, which recognizes that companies should be en-
couraged to evaluate themselves and not be fearful that the results
of their self-evaluations will be used against them. States have ei-
ther enacted a privilege to keep audit information confidential
where a company acts in good faith, or a privilege that protects a
company from penalties when it has discovered violations during a
self-audit, but voluntarily discloses noncompliance and promptly
undertakes corrective action.
Some States have enacted legislation which adopts both privilege
and disclosure immunity protections. Although I haven't yet taken
a position on S. 582, the idea behind the privilege/immunity con-
cept appears to be a creative way to maximize enforcement dollars,
(1)
encourage self-policing, and make compliance more effective. Suc-
cessful environmental audit programs are the result of a shared
goal by industry and the regulator in improving environmental
quality. I will be interested in hearing more on the policy argu-
ments behind the bill, as well as how both industry and the regu-
lator believe is the best way to promote what appears to be a com-
mon goal.
However, S. 582 as drafted raises a number of questions that I
would like to discuss. They regard what may be subject to privilege
and when immunity may be invoked by companies. One of the is-
sues I am particularly concerned with is that the bill as currently
drafted could possibly provide immunity in cases where companies
or individuals have intentionally or willfully violated environ-
mental regulations, or have recklessly endangered public health
and the environment.
Another issue that I have questions about is the extent to which
documentation and communications associated with environmental
audits are entitled to protection. I am sure the sponsors agree that
these problems in the bill will have to be addressed.
Additionally, the Environmental Protection Agency, which is here
before us today, has recently promulgated its final environmental
audit disclosure policy. This final policy has also recognized the le-
gitimacy of qualified protection for audit reports and voluntary dis-
closures. I am interested in hearing from EPA and the Justice De-
partment about how their policy of limited penalty mitigation has
been working and whether it has been successful in getting busi-
nesses to self-audit, voluntarily disclose noncompliance, and also
promptly correct violations.
I am also interested in what EPA's position has been regarding
the adoption by individual States of environmental audit privileges
and immunity policies and to what extent that has affected EPA's
approval of State programs to enforce Federal environmental laws.
Last, I think that we are all here to recognize that the States
have sent us a very strong message that they want to help compa-
nies become better corporate citizens through the adoption of statu-
torily defined incentives, such as those set forth in S. 582. We now
need to determine the best course to achieve our environmental
goals and that is why this hearing is being held.
Senator Kohl.
STATEMENT OF HON. HERBERT KOHL, A U.S. SENATOR FROM
THE STATE OF WISCONSIN
Senator Kohl. Thank you very much. Chairman Grassley. We
should do all we can to encourage business to consider the environ-
ment, and environmental audits are part of that. These audits are
sound business practice. With them, companies can monitor their
compliance with often comphcated Federal environmental regula-
tions and after the audit they can correct the problem.
This is good corporate citizenship, and we all recognize that re-
sponsible American corporations do genuinely want to comply with
the laws. The only question is how we can better encourage this
kind of auditing. When Senators Brown and Hatfield introduce leg-
islation with that goal in mind, we have to pay close attention to
what they propose. But before we move this measure forward, we
still need to answer several questions.
First, is there a real need for this legislation, especially in light
of current efforts by the EPA to encourage audits? Second, does the
proposed legislation go too far in search of a solution? In other
words, does it, in fact, strike the proper balance?
Finally, many States have already begun to experiment with this
kind of legislation, but they have only just begun and we cannot
yet tell which approach, if any, will work best. In contrast with
these State efforts, the Federal legislation that we are considering
gives companies guarantees, privileges, and immunities that go far
beyond what any State has done. So while we want to protect com-
panies from excessive penalties for performing environmental au-
dits, we may not be quite ready to know what the proper balance
should be.
We look forward to hearing from our witnesses today. Tom Gehl
is here from Kohler, WI, and Kohler is one of our State's most re-
spected businesses. Kohler also developed Black Wolf Run, one of
our country's top 10 public golf courses today, and I mean to get
there this summer.
Lois Schiffer of the Department of Justice is an esteemed envi-
ronmental lawyer who has the added virtue of having a sister who
lives in Milwaukee, so we welcome you, too. We look forward to
working with all of you on this issue.
Thank you, Mr. Chairman.
Senator Grassley. Thank you. We have a statement from Sen-
ator Thurmond which we will insert in the record at this point.
[The prepared statement of Senator Thurmond follows:]
Prepared Statement of Hon. Strom Thurmond, a U.S. Senator From the
State of South Carolina
Mr. Chairman, thank you for holding this hearing on "S. 582 and Voluntary Envi-
ronmental Audits" to address this important issue. It is hard to imagine that any
reasonable person would oppose providing incentives in the law for companies to
voluntarily take actions that they otherwise would not take in order to protect and
improve the environment. All of us wish to preserve and enhance the environment,
although there may be differences in the methods proposed.
The challenge of course is to work through the details to ensure that S.582 or
similar legislation achieves that goal. Fortunately, we have precedent to follow
which has been established by a number of States. Seventeen States have enacted
legislation on this issue. The relevant Federal agencies seem to be taking the pater-
nalistic view that they know what is best for the States. However, I look forward
to hearing today from States that have practical experience with legislation to en-
courage companies to voluntarily audit their operations, report to the government,
and most importantly, promptly correct any problems. We must remember that the
ultimate goal is not to point fingers and assign blame when people are doing every-
thing they reasonably can, but to achieve a cleaner and healthier environment for
our children and grandchildren.
I look forward to working with the proponents of this legislation, to ensure that
its laudable goals are achieved.
Thank you.
Senator Grassley. I think we will start now, even though Sen-
ator Brown isn't here. Senator Hatfield is here. Senator Brown and
Senator Hatfield are the initiators of this legislation, and they also
have the experience of their own individual States being in the
forefront of the passage of such legislation. Certain aspects of
S. 582 mirror what has been done in their respective States.
So, Senator Hatfield, I welcome you and thank you for your in-
terest in improving this situation, and we will listen to your testi-
mony.
STATEMENT OF HON. MARK O. HATFIELD, A U.S. SENATOR
FROM THE STATE OF OREGON
Senator Hatfield. Thank you, Mr. Chairman. Mr. Chairman,
you have outlined the background of this legislation. I might just
briefly highlight again the fact that in 1993 — I would ask that my
full statement be put in the record and I will just highlight it.
Senator Grassley. Your entire statement will be placed in the
record.
Senator Hatfield. In 1993, the State of Oregon, really building
on the experience of OSHA, saw fit to adopt a self-audit plan and
put it into effect. This was under the administration of Governor
Barbara Roberts and Ted Kulingasky, who was the attorney gen-
eral, and Fred Hansen, who was the director of the Department of
Environmental Quality. Fred Hansen is today the deputy adminis-
trator of the department here in Washington headed up by Carol
Browner, EPA.
So these three, under Democratic administrations, supported by
Republicans and Democrats in the legislature, so it was a biparti-
san effort — the Oregon Association of Industries, which is predomi-
nantly Republican — put together this particular proposal in 1993.
Colorado followed a year later, in 1994, and in 1995 I introduced
the first bill here in the Senate to imitate the Oregon plan.
I would only just as a side remark say that all of the great Fed-
eral legislation that deals with regulation and other objectives real-
ly was initiated by the States on an experimental basis, certainly
in the spirit of the true concept of federalism. Social Security, un-
emplo3anent compensation, industrial accident, women's rights,
children's rights, and many other pieces of legislation were tested
by the States, and this is another example that was tested in this
case by my State of Oregon and Colorado, Senator Brown's State.
I referred to OSHA from the standpoint that when OSHA was
adopted, I happened to be in the Senate at the time. We put into
an adversarial relationship with the very objectives and goals it
was seeking to achieve and to be implemented through private in-
dustry. In other words, it was a regulatory fine concept. We are
going to regulate and we are going to, in effect — when we make our
inspections, it is going to be a fine because any kind of an inspec-
tion that was conducted or was requested by a business to make
certain they were in compliance with the regulations of OSHA
called for an immediate fine.
We in the Congress decided that was not seeking and achieving
the objectives we had intended to achieve under OSHA, so we put
it back into a cooperative, collaborative rather than an adversarial
relationship between the regulator and the industry. I might say
that Oregon was the first State in the field of industrial accident
to say that it is not an exclusive responsibility of management, and
that was nationally the whole concept. That was a management
issue.
We created the idea that it was management and labor and the
public working collaboratively to make a safer workplace, and we
achieved the highest safety records in the Nation out of that con-
cept of collaboration and cooperation, rather than adversarial,
reaching to a fine or some kind of a punishment.
So with that background, Oregon felt it was the time to adopt a
collaborative, cooperative approach between, in this case, the regu-
lators relating to environmental standards and quality — and
Oregon, I think, has taken no back seat to any of the States — none
of the 49 States, other than Oregon, in being a leader, a
trailmarker on environmental legislation, starting in 1911 in my
State.
So, consequently, we were able to achieve the results of this at
the State level with a good record of that. Now, as you indicate, 16
other States, a total of 17, have adopted some form of this kind of
self-audit, and it is pending in 25 other States that that will be
taken up during this legislation session year or the next legislative
session of those States.
I want to say that as we seek to regulate, we always find expan-
sion and experience to the point where it leads more to confusion
and oftentimes to overlapping, duplicating, et cetera, rather than
to the objectives of a better environment, in this case of regula-
tions. Do you realize today that the regulations involving environ-
mental protection and regulations in environment in general are
larger than the Tax Code of the United States? So, consequently,
it has expanded and grown, and complexities are just extremely
confusing today.
I want to make it very clear that this is a very complex issue,
Mr. Chairman. The environmental self-analysis is a very complex
venture, and I would not come here today and say to you that it
is a simple matter at all. This committee has a tough job ahead.
I don't think this bill is the final version. In fact, I know it isn't.
I would be concerned if you accepted it as a final version. There
are many questions. You have posed a few, but there are many
more questions that have to be considered and supplemented or in
place of certain language of the bill.
Let me tell you basically that this kind of environmental audit
that we have experienced in my State of Oregon — if there is any
indication of fraudulent assessment in terms of escaping the regu-
lation, that totally negates the client relationship that we have es-
tablished between doctor and patient and lawyer and client, et
cetera, that we express here between a self-audit and what can
happen with it.
It cannot be used to prosecute in a court later on. It is privileged
between the company that is doing it and the regulators. But this
is only at the State level, and therefore it is only half a loaf at this
point and I think it is important, then, for the Federal Government
to consider it, especially with the growing complexity of our Federal
regulators and their rules.
I think improvement has to be made to this bill. I don't think
there should be any kind of indication that we are giving less at-
tention or that we are giving more leeway to pollute or to harm the
environment. That is not the purpose of the bill. It is very clearly
a bill to expedite the regulatory process into full implementation
through the collaborative process rather than through the adver-
sarial complex that we now find ourselves in. It is an increasingly
onerous burden to the regulators as well.
I want to indicate that, as I say, Fred Hansen, who is the Deputy
Administrator of EPA today, was a party to and had, probably
more than any other person, direct involvement in drafting the
Oregon bill. Yet, at the same time, we are learning in the State
through this experience, as I am sure any of these other States will
learn as well. I would like to see you get the record of all the States
that have some form of this and to distill that experience, much
like I would have preferred to see 50 States go out on a complex
health program, and encourage and subsidize those States that
were not able to do so immediately — my State of Oregon has adopt-
ed one of the most progressive of all comprehensive health care
programs — and let the States experiment with these systems and
these various concepts, and then distill that experience to find out
what the Federal role should be.
So these are the parallels that I want to draw because we have
not found the ability to draw yet a comprehensive health program
that is going to be implemented in this country. I frankly feel that
if we have the foresight, we would encourage those States Uke my
State and many other States to get that kind of experience behind
us. I would hope you would base any of your considerations on the
composite of experiences of those States that have this in effect.
I think also I might speak as an appropriator. We have been
through a process of the 1996 fiscal year that has not been one that
any of us has enjoyed. I hope we can avert it in the 1997 cycle that
we are embarking upon now with the budget resolution process.
But I want to say that one of the problems we had with the White
House and one of the problems we had with the House and the
Senate in conference was funding the EPA at a level at which it
could perform its duties and its mission, and I do not see that those
funds are going to be more. In fact, we are fighting at the moment
this current resolution on the floor of the Senate that came out of
the Budget Committee which put us about $7 billion under the ap-
propriated level of 1996 that took us 7 months in order to achieve
resolution on.
Therefore, at this point in time, this is an unrealistic budget res-
olution on the floor. I will do ever3rthing I can to defeat it because
I am not going to be forced into the position as the chsiirman of the
Appropriations Committee to go through that long process because
the same issues that held us up 7 months into the 1996 fiscal year
are present in this current budget resolution.
I am happy to say that working with Senator Domenici and his
staff, they recognize this problem and we have already been able
to cut that gap in half and are working to try to keep the level of
funding for 1997 at the appropriated level, not the resolution level
of 1996, but the appropriated level of 1996, in order to avoid the
EPA issue and the education issue and many of the others that
held us up over this time.
So I merely want to say that with this increasing burden upon
EPA, it is going to have to have a broader base of implementation
than what it has had in the resources to implement those rules and
regulations at this time, and I believe it can be done with the kind
of collaboration with the States and with industry.
I would like to close by just saying that there are differences as
between the State of Oregon and the State of Colorado. We have
incorporated the two here, but again I want to make certain that
there is no desire to pollute with impunity. There is no desire on
my part in this bill to try to lower the standards. There is no effort
on this to make it more elusive to enforce the requirements or the
standards, but only to enhance those rules and regulations and the
ability to see them adopted sooner than later. I think that can be
done much better with a lure than with a club, and I think the in-
centive and the collaborative effort can achieve that much faster.
I have highUghted my statement and I am happy to respond to
your questions.
[The prepared statement of Senator Hatfield follows:!
Prepared Statement of Hon. Mark O. Hatfield
Mr./Madam Chairman: Thank you for scheduling this important hearing and for
allowing me to testify before you today.
Over a year ago, Senator Brown and I introduced legislation to provide incentives
for companies to conduct environmental audits and take action to address any prob-
lems they find in the process. I want to thank Senator Brown for his partnership
with me on this thought-provoking matter.
As is true for so many significant policy debates in this covmtry, we have Oregon
innovation to thank for the origination of this idea. In 1993, Oregon became the first
state to enact an environmental audit privilege. Since that time, a number of states
have followed suit with audit protection legislation of some kind.
Colorado is one of the states that also has a law to encourage and protect environ-
mental auditing. Colorado's law goes further than Oregon's by allowing a company
to voluntarily disclose the contents of its environmental audit and avoid penalties,
if certain conditions Eire met. In cooperation with Senator Brown, I have included
these provisions in the legislative proposal now pending before this Committee in
Senate bill 582.
Mr. Chairman, encouraging environmental self-analysis is a complex policy ven-
tvu'e. We will need the full resources of this Committee and the Administration to
unravel all the difficult issues presented by this subject. Many improvements are
in order to the pending legislation.
It is difficult to have a conversation these days with a business leader or a local
government official without the topic turning to the increasingly onerous burden of
federal regulations — particularly code of environmental regulations which now takes
up more space and is more complex than the tax code. It is now clear that many
of our laws and regulations designed to ensure a safer environment are now having
the unfortunate effect of discouraging sound environmental practices.
I believe environmental regulators should encourage responsible actions by busi-
nesses with incentives and flexibility, rather than through threats and penalties. As
one who is famiUar with federal financial realities, I can report that the resources
available for environmental enforcement and monitoring are limited and not likely
to increase. It is vital that companies self-police and be willing partners in imple-
menting our national environmental programs.
1 want to take a moment to compliment EPA on its initiative in this area. On
this issue, EPA has engaged in its own form of audit — an audit of the legal, regu-
latory, public, and political environment. The agency has developed a record and a
course of action. I have reviewed the recent EPA policy and believe it is an impor-
tant step. This is a difficvilt question for those regulators accustomed to a particular
approach to environmental compliance.
We are to here to struggle with the question of how much encouragement is nec-
essary. Some will say that current law, enhanced by EPA's new policy, is sufficient.
Many are not convinced that it does enough. Oregon and other states have deter-
mined that a statutory privilege is necessary, with the State of Colorado and others
believing protections from voluntary disclosures are needed to sufficiently entice
companies to audit. I am vitally aware that we face a danger in providing too much
protection for environmental audits. It is not my intention to provide loopholes for
companies that seek to pollute with impunity. So we are in search of the elusive
balance sought in so many environmental issues today.
Thank you again, Mr. Chairman, for providing this forum for an issue. I look for-
ward to working with the Committee as it considers this legislation.
8
Senator Grassley. Senator Brown, do you want us to ask ques-
tions of Senator Hatfield or have you testify?
Senator Brown. Well, my hope is you will give Senator Hatfield
the third degree in some depth. [Laughter.]
If it be permissible, Mr. Chairman, I might make just a few
quick comments to add to it.
Senator Grassley. Go ahead.
STATEMENT OF HON. HANK BROWN, A U.S. SENATOR FROM
THE STATE OF COLORADO
Senator Brown. I am not sure that I can add to the eloquent
statement that has been made before you, but I wanted to empha-
size a couple of thoughts. One was this. There has been some dis-
cussion of an element that environmental issues might polarize
Americans. The truth is we all have an enormous amount to gain
from strong and full enforcement of our environmental laws; that
we all have an enormous amount to gain, whether it is a company
producing a product or a citizen enjoying our marvelous environ-
ment, that comes from seeing that these laws are fulfilled and that
indeed we go further than what the laws involve; that we engage
in as many positive acts as we can to improve our environment.
What this bill is about is trying to find ways to encourage greater
compliance with our environmental statutes and engender positive
thinking about additional things we can do. What I wanted to sim-
ply emphasize for the committee — I know the members are familiar
with it, but there are three things that need to be emphasized.
One is that the protections of S. 582 are not intended to apply
to environmental bad actors. The discovery of evidence under the
exclusions of S. 582 are not applicable to entities asserting such
disclosure protections for fraudulent purposes. So if they have been
involved in fraud or they are a bad actor, these protections don't
apply.
The audit report disclosure protections against admissibility
don't apply to information required to be collected, maintained or
reported by a regulated company to the appropriate Government
agency pursuant to our laws. Disclosures and evidentiary protec-
tions applicable to an environmental audit performed in good faith
with all the other conditions of S. 582 will not shield — let me re-
peat — will not shield those documents or information already avail-
able from independent sources or observations, sampling or mon-
itoring of the appropriate Government agency.
An understanding of those factors, I think, is fundamental for
understanding this bill because this bill is not about stopping the
enforcement of environmental laws. It is about enhancing the en-
forcement of environmental laws, and bad actors are simply out in
the cold. This bill offers them no relief at all. What this bill does
is try and encoiirage people to take the extra step to comply, and
to comply promptly.
My sense is that, tragically, there are a number of violations of
our environmental statutes that don't get reported, that don't get
addressed, where prompt action isn't taken, and I think this bill
can be of help in those areas to ensure much prompter action and
much fuller action.
Thank you, Mr. Chairman.
Senator Grassley. Thank you. I have a letter that was sent by
16 House members, all Democrats, to Vice President Gore in sup-
port of the proposition that we ought to be working toward audit
protections. I only say this because you are both Republicans who
are on the first panel, and I think that this letter indicates biparti-
san support.
I am going to ask you to comment on a statement because it ap-
pears that the administration and others are trying to make this
a political issue. Later on in the hearing, we are going to have one
witness who is going to testify that the legislation would actually
attract bad actors and allow critical evidence to be buried, and that
this is really not an environmental bill, but it is really a "judicial
bill." Additionally, opponents say that the privilege immunity pro-
vided in the bill would not allow the Grovemment to act to protect
the environment in emergency situations.
So it is those two things. If you could respond to them, I would
appreciate it.
Senator HATFIELD. What was the first, other than the emer-
gency?
Senator Grassley. The first one deals with the fact that, you
know, if you really had some bad actors, they could take advantage
of this legislation and allow evidence to be buried. So they would
say that this really isn't an environmental bill to promote good
environmentalism or good ecology; it is to promote protection for
bad actors.
Senator Hatfield. Well, I want to repeat, as I indicated, that
there is no way that we have in any way tried to draft a bill that
would provide a loophole for bad actors or for continued pollution,
but even settle on a fine. I can remember those arguments were
argued out 20, 30 years ago on the matter of taxing polluters. But
in the idea of taxing the polluters, you are implying that you have
a right to pollute as long as you pay a tax, and we rejected that
in my State. We said we want these regulations implemented and
we want them enforced.
So my point is we are going after the pollution and there is no
change in that objective in this bill. Now, if it can be tightened up
with language — I am not a lawyer, but nevertheless if we can put
stronger language or rephrase the language to make that point
clear and unassailable, I support that kind of improvement. I indi-
cated to you I think this bill does need, as it is now introduced, cer-
tainly to be reviewed for all of these questions that are legitimate
questions.
I think, second, the emergency situation — we always ought to
have some kind of an emergency effort to recognize we can't predict
every situation that is going to come along. If we could, we would
write perfect laws, but we don't write perfect laws. So if there is
something here that should include an emergency exemption or an
emergency trap door or steam valve, or whatever it is, I would sup-
port that.
I want to also say that you have referred to the letter from the
Democrats in the House. Let me indicate, too, the EPA now has an
administrative procedure that is doing self-auditing in their own
area, their own environment, the regulatory, the legal, the public
and the political environment. So they are assessing this situation,
10
I think, which indicates again a flexibility factor that the agency
is adopting, reahzing it has to get a broader base of people working
together to achieve these goals because they will never achieve
them themselves dealing with the numerical number of industries
and organizations they have to oversee or they have to enforce.
Senator Grassley. Senator Kohl.
Senator Kohl. The only question I have relates to what I think
both of you are talking about, and that is do you think that there
is enough information now available with respect to the legislation
that occurs now in about 16 States, as you have suggested, in the
very recent past on this whole process — do you think there is
enough experience available. Senator Hatfield and Senator Brown,
for us to enact Federal legislation at this time, or wouldn't we be
better off considering what is happening in the States and allowing
several other States to enact their own legislation and then coming
together in a year or two or three from now to see what really
works before we attempt to enact Federal legislation?
I think you have indicated yourself. Senator Hatfield, that the
legislation that we are looking at right now is not the legislation
that is likely to ever pass, and I think what I read into your com-
ment is that you have some questions in your mind about what
Federal legislation should look like at this time in view of the lim-
ited experience that we have had at the State level.
Senator Hatfield. I would say that unlike the health situation —
because we didn't have in place a number of State health programs
to draw experience out of, that became a national issue that has
been pretty well excluded to national regulation and roles through
HCFA and other Federal agencies. Oregon wanted to go out on its
own and test a health plan. We had to get waivers from the Fed-
eral Government in order to do that.
We now have States, like Oregon and Colorado, that have a col-
lective of about 6 years of experience, ours starting in 1993, Colo-
rado in 1994. I think what we need, though, is to strengthen those
States already out there, even with the limited experience, because
a State program alone is not going to give them the full oppor-
tunity to implement the flexibility and enforcement than if we had
a Federal — and I am not asking for waivers, as we might do if we
wanted that, but to have a Federal complementary role as it re-
lates to the EPA working with the DEQ's, Department of Environ-
mental Quality that we call it in our State.
I think you can't separate pollution today. We found that in the
acid rain that came down from Canada and covered many States.
So no one State can really deal with the environmental issues
today of the Columbia River that goes through four States and
Canada or these other things that relate to pollution of today.
Ocean pollution covers all the Pacific States and Alaska. These are
things that have not let themselves be restricted to a State action
because it demands Federal and many times international action.
So I think we have a pretty good outline here. What I am sa3dng
is it can be improved upon, and I think you can improve upon it
by reviewing those States that have enacted it and how they differ,
say, from Oregon and Colorado that led the trail. But I do think
with the pollution issues we are dealing with now, we can't restrict
11
them to a single State, no matter how desirous that State is to deal
with the issue.
Senator Brown. Mr. Chairman, if I might also follow up?
Senator Grassley. Go ahead.
Senator Brown. My own sense is that this bill is so carefully
written that I think it will prove to be a very positive experience
because it will generate new information for us in terms of enforc-
ing the environment that we simply don't have right now.
For those who have concerns, I hope they would read the exclu-
sions under paragraph 2. Basically, it is "any document, commu-
nication, data, report, or other information required to be collected,
developed, maintained, or reported to a regulatory agency pursuant
to a covered Federal law." It also exempts from the exclusion infor-
mation obtained by observation, sampling, or monitoring by any
regulatory, or information obtained from a source independent of
an environmental audit. In other words, basically, information that
is capable of being admitted now and used is still avaiilable.
This is a heads the environment wins, tails the antienvironment
groups lose kind of law. This is a plus/plus kind of law because
what it does is generate new information to help enforce our envi-
ronmental concerns without jeopardizing any of the evidence that
now can be used to enforce the law.
Senator Grassley. I thank you. Senator Hatfield.
Senator Hatfield. Thank you.
Senator Grassley. We will go now to the second panel. There is
Steve Herman, Assistant Administrator of the U.S. Environmental
Protection Agency, specifically from the Office of Enforcement and
Compliance Assurance. Then our second witness on the second
panel is Veronica Coleman, U.S. attorney for the western district
of Tennessee. I welcome you to this hearing, and I know that you
have been informed by staff" of a 5-minute time Umit.
Also, I want to assure this panel, as well as every panel, that
written statements will be put in the record, unless you don't want
it put in, but we will just assume you do want it put in. So you
don't have to ask for permission to do that, and so then summarize
accordingly.
Mr. Herman, we will start with you.
PANEL CONSISTING OF STEVEN A. HERMAN, ASSISTANT AD-
MINISTRATOR, OFFICE OF ENFORCEMENT AND COMPLI-
ANCE ASSURANCE, U.S. ENVIRONMENTAL PROTECTION
AGENCY, WASHINGTON, DC; AND VERONICA COLEMAN, U.S.
ATTORNEY, WESTERN DISTRICT OF TENNESSEE, MEMPHIS,
TN, ACCOMPANIED BY LOIS SCHIFFER, ASSISTANT ATTOR-
NEY GENERAL, ENVIRONMENT AND NATURAL RESOURCES
DIVISION, U.S. DEPARTMENT OF JUSTICE, WASHINGTON, DC
STATEMENT OF STEVEN A, HERMAN
Mr. Herman. Thank you very much, Mr. Chairman. I would just
say by way of introduction that I bring you greetings from my
uncle in Maquoketa, lA, who has been there for a long, long time.
Senator Grassley. I assume you go back there now and then.
Mr. Herman. Yes, we visit.
Senator Grassley. A beautiful part of my State.
12
Mr. Herman. Yes.
Thank you, Mr. Chairman, for the opportunity to testify about
how we can encourage volvmtary compliance without compromising
environmental enforcement. I would like to make three points in
my oral statement.
First, EPA already has a policy that is working to encourage
companies to audit, disclose, and correct violations, and that does
not rely on secrecy or blanket immunity.
Broad amnesty and privilege laws as provided under S. 582
would reduce deterrence and make it difficult, and sometimes im-
possible to investigate both civil and criminal violations.
Finally, compliance with environmental law is a duty, not an act
of charity. I think the public expects the regulated industry to as-
sume that responsibility. If we give in to endless pleas for special
treatment, we will invite public cynicism instead of the trust need-
ed to make compliance incentives work.
Let me begin with EPA's self-disclosure policy. We have already
substantially reduced or eliminated penalties for companies that
audit, disclose and correct violations. We have also made clear that
we will not prosecute companies in these circumstances absent out-
rageous conduct on the part of their management.
That policy was developed after close consultation with State offi-
cials, public interest groups, and industry. It has won praise from
the Chemical Manufacturers Association, the Sierra Club, and a bi-
partisan group of 19 State attorneys general and environmental
commissioners who said in a letter of support:
The policy is a carefully constructed compromise that balances the legitimate in-
terests of the public, regulated entities, and Federal and State enforcement agen-
cies. The consiiltative model used in developing the policy provides an excellent ex-
ample of how EPA and the States work in harmony to encourage both voluntary
compliance and effective law enforcement.
The policy, I might add, is more than an abstract idea. It is a
real program that is actually working. We have had over 65 compa-
nies disclose violations since the policy took effect. We have already
settled 15 and we are moving on many others. We have established
a steering group to review disclosure cases and will publish the de-
cisions we reach to provide the industry with guidance and cer-
tainty. With our policy in place, responsible companies have no rea-
son to hide from the public or the Government.
We oppose S. 582 because, despite the very laudable intentions
of its sponsors. Senator Brown and Senator Hatfield, it would crip-
ple environmental law enforcement and the public's right to know.
The broad and extremely vague evidentiary privilege it would es-
tablish would force us to spend precious resources fighting in court
over access to evidence. In one way, we will be increasing litigation
rather than decreasing it.
Litigation costs, however, are not our only concern. Most of our
criminal investigations begin with tips from confidential inform-
ants. With a privilege in place, we face a Hobson's choice: Act on
the information and hope that it and all succeeding evidence, the
fruit of this information, won't be thrown out later, or go to court
to find out if the evidence can be used, which means notifying the
target and possibly blowing the informant's cover. In other cases,
we wouldn't be able to get or use evidence showing that a defend-
13
ant had knowledge of requirements, was negligent in failing to pre-
vent a violation, or contributed to a Superfund site.
No wonder the privilege is so adamantly opposed by a bipartisan
coalition of State attorneys general that includes Republicans like
Grant Woods of Arizona, Deborah Poritz of New Jersey, Dennis
Vacco of New York, as well as Democrats such as Hubert Hum-
phrey of Minnesota, Scott Harshbarger of Massachusetts, James
Doyle of Wisconsin, and Tom Udall of New Mexico, currently the
head of the National Association of Attorneys General. No wonder
the courts have rejected efforts to expand the narrow privileges rec-
ognized in law today, finding that privileges are, in the Supreme
Court's words, "in derogation of the search for the truth."
We have also opposed and will continue to oppose State legisla-
tion that deprives the State agency and other State officials of the
ability to carry out Federal requirements. Our review is limited to
ensuring that such legislation meets minimum standards that we
are required by law to maintain so that protection under Federal
law does not depend on where one lives. These include the ability
to bring injunctive actions, adequate criminal authority, and the
ability to recover penalties under the circumstances set forth in our
policy and in the statutes. Perhaps most important, privileges de-
stroy the kind of trust needed to build confidence in industry's abil-
ity to police itself.
Finally, compljdng with environmental laws is no different than
complying with tax, banking, insurance, or any other Federal stat-
ute. It is a requirement of citizenship and it means that, like the
rest of us, companies must ultimately be held accountable for their
actions.
Our self-disclosure policy preserves EPA's right to collect pen-
alties for violations in limited circumstances. They are those that
result in serious harm or risk, that reflect repeated noncompliance,
or allow violators to gain an economic advantage over law-abiding
competitors in the marketplace. In addition, individuals must an-
swer for their own criminal conduct and corporations for any delib-
erate attempts to conceal or turn a blind eye to violations. These
conditions are consistent with our environmental statutes and most
are contained in the penalty guidelines for small business audits in
the new Small Business Regulatory Enforcement Fairness Act.
We believe responsible companies should be expected to live
within these guidelines. To be told that some companies will refuse
to audit unless guaranteed amnesty for their own misconduct or li-
censed to withhold evidence from the Government is a form of
blackmail and should be rejected for the special-interest pleading
that it is.
I would like to close by reflecting on remarks made by one of the
attorneys general at last week's conference in Albuquerque. Grant
Woods of Arizona, who led the fight against the privilege and im-
munity legislation in Arizona, asked.
How can we insist that individuals from impoverished backgrounds accept greater
personal responsibility, stand up for their own behavior and take the consequences,
while legislating new excuses for those who enjoy all the advantages?
I think we need to answer that question, Mr. Chairman. Many
in Congress have argued for significantly narrowing the so-called
exclusionary rule to make it easier, not harder, to obtain evidence
14
of criminal conduct. How can we explain legislation that would
make it harder to get such evidence when the crime is against the
environment or public health and the defendant is a corporate
actor?
We pride ourselves on one standard of justice for all in America.
It is the law in this country that makes us great and it should not
and does not need to be changed in this context.
Thank you very much.
[The prepared Statement of Mr. Herman follows:!
Prepared Statement of Steven A. Herman
I. introduction
Thank you, Mr. Chairman, for the opportunity to testify on how we can provide
incentives for businesses to find, disclose, and correct violations — without com-
promising the enforcement of our environmental laws. I want to start with four
propositions that reflect the environmental enforcement policy of this Administra-
tion:
First, achieving compliance means that both government and industry must ac-
cept certain responsibilities. Government should give credit to good faith efforts to
comply, without compromising its ability enforce regulatory requirements firmly and
fairly. EPA's audit policy substantially reduces or eliminates penalties for violations
that are disclosed and promptly corrected, and is already working to encourage com-
pliance. Legislation that guarantees sweeping amnesty and promotes secrecy will
damage both the creditability and the effectiveness of our enforcement program, and
in the end undermine the integrity of incentives for responsible business.
Second, regulated industries earn the public trust by demonstrating a commit-
ment to stay in compliance, and by being open with both government and the piiblic
at large. Compliance with environmental laws — like tax laws, banking laws, and
other federal statutes — is a binding obligation. It is not an act of charity or some-
thing we do only when it is convenient or inexpensive. While we may disagree about
the wisdom of a particular statute, it is the law until changed, and ought not to
be subverted by m£iking it cheaper to avoid compliance or harder to detect viola-
tions. Responsible companies are willing to meet their obligations forthrightly, and
without constant pleading for special treatment.
Third, the enforcement of federal law — whether carried out by states or EPA —
ought to be subject to some minimal national standards. Otherwise, it is no longer
federal law. If it is cheaper to violate the law in some states, then companies that
operate legally in neighboring jurisdictions will be put at a disadvantage.
And fourth, any effort to develop compliance incentives must reflect common
ground. The Clinton Administration has worked hard to accommodate the regulated
community's legitimate interests in incentives for compliance. But we must reconcile
industry's viewpoints with the concerns of the public and those federal, state, and
local officials who enforce the law. EPA's policy has won praise from the Chemical
Manufactxirers Association, the Environmental Defense Fund, and federal, state,
and local law enforcement officials. In contrast, blanket immunity and privilege leg-
islation has proved divisive and is opposed by law enforcement agencies and public
interest groups.
II. responsibilities of government: incentives for compliance and a credible
ENFORCEMENT PROGRAM
Incentives for compliance
EPA's new policy on Incentives for Self-Policing, announced in December of last
year, clearly distinguishes between those who recogriize their responsibility to stay
in compliance, and those who do not. Under the policy, companies who disclose and
correct violations will not pay any gravity-based (or punitive) penalties. Nor will
they be subjected to any threat of criminal prosecution, so long as the corporation
has not engaged in egregious misconduct. EPA's policy extends to those violations
discovered through compliance management systems, as well as periodic environ-
mental audits, ^^le announced last September, we actually made the policy avail-
able as an interim step last April, so it has been in effect for over a year.
The policy includes some important protections. It does not apply to violations
that reflect repeated noncompliance, result in serious harm or imminent and sub-
stantial endangerment to hvunan health or the environment, or allow a company to
profit from its noncompliance at the expense of its law-abiding competitor. Nor does
15
it excuse individuals for their own criminal conduct, or companies that deliberately
conceal or turn a blind eye to violations. We think these protections are grounded
in both law and common sense, and would strike most people as reasonable. Most
of these criteria are explicitly referenced in the Small Business Regulatory Enforce-
ment Fairness Act, which recognized that legislating total amnesty to encourage au-
diting was neither wise, necessary or fair.
Will these limited exceptions discourage auditing, disclosure and correction by re-
sponsible companies? We don't think so. The Chemical Manufacturers Association,
for example, has said:
"We believe the new policy will substantially promote the use of environmental
auditing and compliance management systems. It should also lead to greater will-
ingness to disclose noncompliance discovered through these activities. The result
will be greater environmental protection through the prevention of noncompliance,
as well as greater public awareness of regulated entities' compliance status and ef-
forts."
We are extremely heartened by the positive response we have had from both
states and the regulated community to our new policy so far. California and other
states have essentially adopted our guidelines for their own use. So far, 65 compa-
nies have taken advantage of our invitation to disclose and correct violations, with
15 cases settled to date. We think the response demonstrates that EPA's policy is
working, and we will be pleased to submit additional documentation for the record.
Under EPA's self-disclosure policy, responsible companies should have nothing to
fear and nothing to hide from government. We believe that policy should be given
a chance to work, and not be preempted by legislation that would increase litigation,
burden the courts, frustrate law enforcement, and make the public even more cyni-
cal and distrustful of both government and industry.
Credible enforcement is impossible when evidence is hidden
It is clear that the public expects us to fairly and vigorously enforce violations of
environmental law. Incentives for compliance do not have to come at the expense
of enforcement, which is just as critical to environmental law as it is to tax, bank-
ing, securities, health and safety laws, and other statutes that protect the public
welfare. The theory of deterrence is well accepted and understood by the public: en-
courage desired behavior with sanctions for undesired conduct.
Providing an evidentiary privilege that would allow companies to throw up new
roadblocks to government investigations, and to conceal evidence of criminal mis-
conduct, will not allow us to fulfill the public's expectation that we enforce environ-
mental laws. We believe our audit policy provides positive incentives to act in the
right way without compromising enforcement.
Audit privileges undermine enforcement and the public's right to know
We oppose S. 582 because, despite the laudable intentions of its sponsors, it woxild
cripple environmental law enforcement and the public's right to know. The broad
and extremely vague evidentiary privilege it would establish would force us to spend
precious resources fighting in court over access to evidence. That will result in a
reduction in our overall enforcement effort.
Litigation costs are not our only concern. Most of our criminal investigations begin
with tips from confidential informants. With a privilege in place, we face a Hobson's
choice:
Act on the information, and hope that it and all related evidence won't be thrown
out later, or
Go to court to find out if the evidence can be used, which means notifying the
target and revealing the nature of the investigation, which could destroy the inform-
ant's cover.
In other cases, we might not be able to get or use evidence showing that a defend-
ant had knowledge of requirements, was negligent in failing to prevent a violation,
or contributed to a Superfiind site.
No wonder the privilege is so admanantly opposed by a bipartisan coalition of
state attorneys general that includes Republicans Uke Grant Woods of Arizona,
Deborah Poritz of New Jersey, and Dennis Vacco of New York, as well as Democrats
such as James Doyle of Wisconsin, Hubert Humphrey of Minnesota, Scott
Harshbarger of Massachusetts, and Tom Udall of New Mexico, currently head of the
National Association of Attorneys General. No wonder the courts have repeatedly
refused to expand the privilege concept beyond the narrow limits in existing law,
finding them to be, as the Supreme Court has said, "in derogation of the search for
truth."
Perhaps most important, privileges destroy the kind of trust needed to build con-
fidence in industry's ability to police itself.
16
III. WHAT ARE industry's RESPONSIBILITIES?
Let us move next to the question of industr^s responsibility to stay in compliance
with the law. Over the past decade, environmental auditing has exploded, to the
point where it is now standard practice for between 75% and 85% of companies, ac-
cording to industry-wide stu-veys by Price-Waterhouse, Price Anderson, and the In-
vestor Research Responsibility Center, Among highly regulated sectors like petro-
leum refining and chemical manufactiuing, environmental auditing is virtually a
uniform practice. This phenomenal growth in environmental auditing has taken
place without a special act of Congress. Why? Because auditing is a sound business
practice, and most companies recognize that it is in their self-interest to find and
correct problems before they are discovered by government inspectors.
With our self-disclosure policy, we have made clear that companies that are audit-
ing for violations and correcting and reporting any found need not fear gravity-
based penalties or criminal prosecution. But we are reserving our right to collect
penalties where violations: result in serious harm or imminent and substantial
endangerment; reflect repeated noncompliance; allowed the violator to gain a sub-
stantial economic benefit from noncompliance; or resulted from an individual's
criminal conduct.
I think the public expects companies to admit their mistakes and pay their pen-
£ilties in these kinds of circumstances. To take just one example, ordinary middle
income taxpayers understand that if they pay their taxes late, they face penalties
and interest. Otherwise, who would have an incentive to pay their taxes on time?
By the same logic, we ask businesses who find they are out of compliance to pay
penalties in order to compensate for any economic advantage they have gained over
their competitors. Why should corporations be held to a lower standard than ordi-
nary taxpayers?
Similarly, we have heard repeatedly that companies need audit privileges so they
can have candid internal discussions about noncompliance. We thiiik companies also
have an obligation to be candid with both the public and the law enforcement offi-
cials who are asked to represent them. A privilege — which throws a shroud of se-
crecy over compUance behavior — promotes distrust instead of openness. Ironically,
the Price-Waterhouse study documents that privilege is a solution in search of a
problem. That survey indicated that companies that do not audit are not primarily
concerned about confidentiality. Among companies that audit already, the kind of
penalty incentives developed through EPA's policy were identified as at least as im-
portant as an audit privilege in encouraging expanded self-policing.
IV. STATE ENFORCEMENT OF FEDERAL LAW SUBJECT TO MINIMUM STANDARDS
EPA is required by law to maintain certsiin minimum standards for the enforce-
ment of federal requirements that are administered by states. No matter where they
reside, American citizens must be able to rely on equal protection under federal law.
Let me emphasize that we intend to carry out our statutory responsibility to main-
tain those minimiun enforcement standards, and that includes evaluating whether
state audit immiuiity or privilege laws deprive the state of adequate authority to
enforce the requirements of federal programs. The requirement that states maintain
such authority is spelled out in our environmental laws and regulations, which re-
quire states to have civil and criminal penalty authority, as well as the ability to
seek injunctive relief.
When it comes to environmental auditing, our position is very clear: states can
offer to waive penalties for environmental auditing, but they should reserve the
right to collect penalties in the few circumstances outlined in our self-disclosure pol-
icy. As noted above, those exceptions include violations that are repeated, that re-
sult in serious harm or imminent and substantial endangerment, that reflect crimi-
nal conduct, or that allow a company to gain an economic advantage over law-abid-
ing competitors. We have also asked that privilege laws not inhibit the state's abil-
ity to prosecute criminal violations and determine that noncompUance has been cor-
rected.
Without this level playing field, states and companies are put in the unhappy po-
sition of having to compete against each other. The same violation could cost $2 inil-
lion in penalties in one state, but costing nothing in a neighboring state.
The General Accounting Office, in a series of reports ending in 1991, hammered
home the need for consistency in the penalties sought by EPA and state agencies
for violations of federal requirements. Here is what the 1991 roport said about the
importance of recovering economic benefit:
As for state penalty practices, we believe that EPA has not only the authority but
also sound reasons for requiring states to have a penalty policy that requires recov-
ery of economic benefit. With states responsible for the large majority of enforce-
17
ment actions, any policies that are set for federal policies alone will have little ef-
fect. As a basis for assessing penalties, economic benefit ensures that regulated fa-
cilities are penalized in the same way regardless of which state they are in or
whether they are regulated by a state or federal agency.
While it is true that eighteen states have enacted legislation to encourage envi-
ronmental auditing, these laws differ in important details and do not represent a
monolithic endorsement of the type of audit privilege and amnesty provisions re-
flected in S. 582. Indeed, two of these state laws (South Dakota and New Jersey)
establish no privilege at all, while in a third the privilege would not apply to govern-
ment. Several state immunity provisions explicitly do not apply to federal programs,
and others offer no amnesty at all for any tjT)e of criminal conduct. The minimum
standards required under federal law leave plenty of room for experimentation.
In defining the "level playing field" for enforcement of federal laws, we think it
is critically important for us to consult with the states. We worked hard to bring
state enforcement officials and environmental commissioners into the very early
stages of developing EPA's self-disclosure policy. We were particularly pleased that
19 state attorneys general and environmental commissioners joined in signing a let-
ter endorsing our poUcy, stating that, "We are particularly appreciative of the close
consultation between your agency and the states that occurred throughout the proc-
ess of developing the policy. Many of our recommendations are clearly reflected in
the final policy. The consultative model used in developing the policy provides an
example of how EPA and the states work in harmony to encourage both voluntary
compliance and effective enforcement."
V. THE CRITICAL IMPORTANCE OF COMMON GROUND
We think that the policy that EPA has adopted reflects the substantial common
ground among state regulators, district attorneys, the regulated industry, federal
enforcement officials, and environmental groups. The policy was developed through
a painstaking public process that included a number of public meetings, and a series
of intensive dialogue sessions sponsored by the American Bar Association and in-
cluding major stakeholders in the debate.
I have already mentioned the words of praise from the Chemical Manufacturers
Association and states. The Environmental Defense Fund has said that, "the final
policy provides responsible companies a break in penalties without letting scoffiaws
off the hook." And the policy has been enthusiastically endorsed by the National
District Attorneys Association, and the New York and California District Attorneys
Associations.
In contrast, environmental audit privileges, as well as blanket immunities, have
been rejected not only by EPA, the Department of Justice and United States attor-
neys, but also by many state and local attorneys general and prosecutors, as well
as every major environmental organization. Let me emphasize that the opposition
to privilege laws at both the federal and state levels is bipartisan. Sponsors of this
legislation which purports to encourage compliance should ask why it is so firmly
opposed by federal, state and local officials charged with enforcing the law.
VI. CONCLUSION
Ultimately, both industry and government will be judged by the public. We think
EPA's poUcy best reflects the public expectation that compUance should be encour-
aged through a mix of incentives and sanctions that reflect an enforcement policy
that is both fair and firm. And we think industry will benefit the most not by argu-
ing for forms of secrecy, but by placing its compliance programs in the fiill light of
day.
Thank you for the opportunity to testify, and 111 be pleased to answer any ques-
tions.
Senator Grassley. For the benefit of the other members, I didn't
introduce Ms. Schiffer. She is not going to testify, but she is avail-
able to answer questions and she is from the Department of Jus-
tice.
Am I right on that, or did you want to make a statement?
Ms. Schiffer. No. Because of the time constraints, Ms. Coleman
is going to speak for the Justice Department.
Senator Grassley. Ms. Coleman.
18
STATEMENT OF VERONICA COLEMAN
Ms. Coleman. Mr. Chairman, members of the subcommittee, I
am pleased to be here today to state my opposition to S. 582. As
a pubUc servant and law enforcement officer, I oppose legislation
that in its simplest terms lets the guilty go free. I am especially
dismayed because it is the public health and safety that will be the
prime victims of these grants of privilege and immunity.
As I looked at this bill, I have asked myself what is the problem
that is being addressed? Industry is already doing audits and self-
compliance. What is broken? Who or what are we trying to protect?
As a prosecutor, when someone talks about non-disclosure and
keeping information from the public, my prosecutorial antennae go
up. I want to know what they have got to hide, and this legislation
raises my antennae.
I am told that this bill is founded upon the notion that the De-
partment initiates a large number of enforcement actions which are
based upon environmental audits. This is simply untrue. We do not
seek audits to initiate enforcement actions and the Department is
aware of any case of abuse of environmental audit reports, and it
is unreasonable to assume that we would treat honest corporate
citizens unfairly. Oiu* canons of ethics and principles of Federal
prosecution insist that we dispense justice fairly and without preju-
dice or favor.
What S. 582 does is promote a culture of secrecy by creating
privileges that may hide the scope and depth of an environmental
disaster. Privileges are disfavored in the law. A privilege under the
law is defined in part as a particular benefit or advantage enjoyed
by a person, company or class beyond the common advantages of
other citizens. It is an exceptional or extraordinary power or ex-
emption. This privilege allows the privileged party to exclude evi-
dence or information from public view regardless of its relevancy
to issues, like who has been hurt, how widespread is the disaster
from the violation, and who knew about it, when.
This proposed legislation will handcufi" law enforcement. Because
the violator hides behind the audit, the definition of which is all-
encompassing, then claims a mistake was made, law enforcement
may never uncover the truth about what the violator knew about
the violation or when he knew it, even though Federal criminal
laws may have been seriously violated.
The ultimate slap to law enforcement occurs when you grant the
wrongdoer immunity from civil or criminal enforcement simply be-
cause he brought the violation to the attention of some State or
Federal official. No one asks the questions, does the violation cre-
ate an immediate threat or danger to persons or property, who has
been hurt by the conduct of the violator. Some of these hazards kill
or injure people. How widespread is the damage? What natural re-
sources have been damaged and who should pay for the resulting
damages? Are the remedies taken by the company sufficient?
This legislation does not even allow the Government to issue
cease and desist orders for violations that may clearly be dan-
gerous. This bill takes the enforcement out of law enforcement and
will harm our abihty to protect the public from even the most egre-
gious violations.
19
Our environmental laws make those most knowledgeable about
their activities accountable for their actions. The public is in no po-
sition to know of the harms being perpetrated by regulated indus-
tries, and the public depends on strong enforcement to deter or pre-
vent violations of the law. Much like our speeding laws, enforce-
ment encourages people to obey the speed limit. This legislation,
which allows violators to go scott free, turns its back on law en-
forcement and will severely harm the deterrent value of our envi-
ronmental laws. No other area of law contains these special privi-
leges and immunities from enforcement in order to encourage com-
pliance.
We can easily imagine what the public reaction would be in the
event of a release of a deadly cyanide compound from a chemical
plant. The operators must report such spills, true. Whether re-
quired or not, we can expect that they should also and will conduct
periodic self-compliance reviews. If such reviews are not available,
how will we ever know whether the spill resulted from an accident
or criminal acts? How can we assiu-e the public that such incidents
will not happen again? This legislation will not only keep the pub-
lic from discovering the contents of their audit reviews, but the
scope and review of damages would be delayed as regulators and
law enforcement engage in wasteful litigation tr3dng to obtain this
information. Worse, while the parties are litigating the issues, the
dsmgers continue, and as the final result of this statute responsible
persons will walk away without punishment because of a legisla-
tive grant of immiuiity previously unknown in law enforcement.
The effect of this legislation on law enforcement can be analo-
gized to another well-regulated area of the law. A bank president
walks into my office and he tells me he is systematically stealing
from a bank. There has been an audit and he has come to me
promptly to disclose that he has been stealing. He also tells me, by
the way, I am initiating a policy today to make certain that I don't
steal again. He says, by the way, under this audit bill I have im-
munity and I don't intend to give you the money back. Here, you
have an unpunished crime and unjust enrichment of proceeds ob-
tained illegally. That is what this bill will do for environmental vio-
lations.
Thank you.
[The prepared statement of Ms. Schiffer and Ms. Coleman fol-
lows:]
Prepared Statement of Lois Schiffer and Veronica Coleman
SUMMARY
The Department of Justice opposes S. 582 in particular and environmental audit
privilege legislation in general. This legislation would give environmental violators,,
including criminals, sweeping immunity from accountability and create a cloak of
secrecy that is against the public interest. S. 582 is detrimental to law enforcement
and to the environment.
The immunity provisions could allow violators, including those engaged in crimi-
nal conduct, to go free regardless of endangerment to the public or serious environ-
mental harm. This would frustrate legitimate enforcement efforts and discourage
companies from taking precautions to avoid violations in the first instance. That a
company could escape prosecution merely by confessing and initiating corrective ac-
tion is unparalleled in any enforcement scheme. S. 582 could be interpreted to im-
munize conduct underlying even legally required disclosures, such as for oil spills
20
and releases of hazardous substances. Consequently, companies electing to comply
with the law will be economically disadvantaged.
The privilege provisions would be a radical departure from current law and would
disrupt the ability of law enforcement to protect the public. The broad definition of
"environmental audit reports" would give rise to privilege claims for a variety of
routine communications, tying up enforcement actions in burdensome litigation and
slowing and even halting criminal investigations. To further complicate enforce-
ment, those who would lie about other aspects of their business could be expected
to falsely label numerous documents as "environmental audit reports." In sum. S.
582 would permit important public health information to be concealed and the
truth-seeking process to be impaired.
This type of legislation is unnecessary. It is largely based upon a misconception
that the Department bases many enforcement actions on environmental audits. This
is wrong. The Department does not seek audits to initiate enforcement actions and
rarely uses audits as evidence. The Department is unaware of any case of abuse of
environmental audit reports bv either federal or state prosecutors. In fact, the De-
partment and the EPA already encovirage self-auditing through policies issued in
1991 and 1995. Industry data shows that more companies are performing audits all
the time and that a principal reason for this trend is strong enforcement.
For these reasons, the Department joins the National District Attorneys Associa-
tion, the California District Attorneys Association, the New York District Attorneys
Association, Attorneys General from at least seventeen states, many state and local
agencies and environmentsd officials, and newspapers across the country in opposing
this kind of legislation.
/. Introduction
Mr. Chairman and members of the Subcommittee: I am Veronica Coleman, United
States Attorney for the Western District of Tennessee. With me here today is Lois
Schiffer, Assistant Attorney General for the Environment & Natural Resources Divi-
sion of the Justice Department. We are pleased to have this opportunity to present
the views of the Attorney General on several issues crucial to law enforcement and
to the ability of the pubhc to protect itself from environmental threats: (1) whether
Congress should immunize self-disclosed environmental violations from criminal or
civil enforcement; (2) whether Congress shovild create a privilege that would conceal
environmental violations from law enforcement officials and from the public; and (3)
whether Congress should create such legislation when there is neither demonstrated
need for it nor empirical evidence that it would improve environmental compliance.
Our testimony today will explain why the Justice Department opposes legislation,
such as S. 582, that would estabUsh a privilege for environment audit reports and
would grant immunity to environmental violators for self-disclosed violations.
We all believe in law enforcement as a way of obtaining compliance with the law.
This bill would create obstacles to enforcement that could be utilized by those who
elect to violate the law. This bill turns its back on law enforcement as a means of
obtaining compliance with the law, and that is simply wrong.
No other area of regulation seeks a special evidentiary privilege and immunity
from enforcement in order to encourage compliance with the law. The Department
cannot support proposed legislation that would unjustifiably Umit the public's right
to know about matters that affect public health and safety, the environment and
the future of our children. In defense of both the environment and those law-abiding
businesses working hard to comply, the Department will oppose a bill that makes
secrets out of violations and gives immunity to lawbreakers.
The Environment & Natural Resources Division of U.S. Attorneys' Offices work
together with our client agencies to bring several hundred civil enforcement actions
each year in which we seek to correct the violations, prevent harm to the environ-
mant, recover any economic benefit of noncompliance, and deter future violation. We
bring a smaller, but significant, number of criminal cases each year in which the
conduct of the violator is so egregious as to warrant criminal prosecution. For those
violators who do not voluntarily comply, a vigorous enforcement program is nec-
essary to remedy violations, punish criminal conduct, and deter violations. A strong
enforcement program also serves to protect those companies who comply voluntarily
from being competitively disadvantaged by those who do not.
A misconception of proponents of this type of legislation is that the Department
bases a large number of enforcement actions on environmental audits. In fact, as
I will discuss in more detail later, audits are not sought to initiate enforcement ac-
tions and are rarely used as evidence in such actions. They can, however, be very
important evidence in those cases in which they are used.
A critical part of environmental protection is voluntary compliance. The Depart-
ment fully supports the use of self-auditing as a means to ensure compliance with
21
environmental laws. The business community also supports self-auditing, which is
already utilized by the vast majority of medium and large companies. Tlie Depart-
ment agrees that self-auditing, self-policing and voluntary disclosure of environ-
mental violations can play a crucial role in promoting environmentally sound busi-
ness practices. That is why, since July, 1991, it has been the express policy of the
Department that these activities are important mitigating factors in the exercise of
criminal prosecutorial discretion. Under the Department's policy, positive steps by
regulated entities to disclose their violations and to bring themselves into compli-
ance with environmental laws are considered at the point when the decision is made
whether to bring a prosecution, and, if so, what charges to bring. ^
In addition to continuing to follow its 1991 policy, the Department generally will
not seek information concerning environmental auditing from a regulated entity
prior to receipt of other information suggesting that the entity has committed viola-
tions of environmental law. We will also view the use of effective programs to pre-
vent and detect violations of law, as well as self-reporting, cooperation and accept-
ance of responsibility, as mitigating factors in the sentencing phase of environ-
mental criminal cases against corporations.
In December of last year, EPA announced a new "Incentives for Self-Policing Pol-
icy," which expands incentives for regulated entities that voluntarily discover,
promptly disclose, and expeditiously correct enviroiunental violations. While Mr.
Herman will discuss the specifics of that policy, let me just say that the approach
taken in EPA's policy succeeds in balancing strong enforcement for wrongdoers and
leniency for good actors in order to ensure continued protection of the American
public and of our Nation's environment. EPA's Incentives for Self-Policing Policy, in
conjunction with the Department's policies and our shared commitment to an ag-
gressive enforcement program, will encourage environmental compliance auditing,
voluntary disclosure, and greater compliance with the environmental laws.
The Department strongly opposes S. 582, which is hopelessly flawed. Our prin-
cipal objection to the bill is that it would impair enforcement. It would shield illegal,
including criminal, misconduct; interfere with law enforcement; conceal information
vital to public health and safety; result in costly litigation and squander limited en-
forcement and judicial resources; create an atmosphere of distrust between regu-
lators and regulated entities; and conflict with public policies of openness and cor-
porate accountability. In sum, this bill rewards those who flout the law and pun-
ishes those who obey it. Therefore, we strongly oppose its enactment.
//. Immunity for self-disclosed violations would directly interfere with fair and effec-
tive enforcement of the law
The Department opposes enactment of both the environmental audit privilege and
the immunity provisions of S. 582. The immunity provisions would allow violators,
including those engaged in criminal violations of environmental statutes, to go free.
The notion that a company can escape prosecution even for criminal conduct merely
by confessing and belatedly taking action to correct its wrongdoing is unparalleled
in any other enforcement scheme of which the Department is aware. It would be
unconscionable to create a statutory immunity for violations of federal statutes de-
signed to protect the health and safety of the American public irrespective of wheth-
er those violations may have endangered the public, damaged the environment, or
resulted in long-term environmental harm. As Massachusetts Attorney General
Scott Harshbarger has aptly noted, "The immunity provision is akin to Congress
passing a law allowing anyone who confesses a crime to escape prosecution, so long
as they apologize and promise to make amends." ^
Providing immunity for violations voluntarily disclosed to the government would
frustrate legitimate enforcement efforts and discoiu-age regulated entities from tak-
ing sufficient precautions to avoid violations in the first instance. Currently, the law
sends a powerful message that those who are in a position to prevent or to remedy
a violation must do so.
An immunity provision sends a different message: there is no need to take a
proactive approach to environmental management because a company can immunize
itself from civil and criminal penalties even afler it has caused serious environ-
mental problems, by conducting an audit, disclosing, and only then initiating action
to correct those problems. The illegal conduct of environmental polluters costs soci-
'U.S. Department of Justice, "Factors in Decisions on Criminal Prosecutions for Environ-
mental Violations in the Context of Significant Voluntary Compliance or Disclosure Efforts by
the Violator" (July 1, 1991).
2 News Release, Office of the Attorney General, The Commonwealth of Massachusetts (Mar.
27, 1995) with reference to the immunity provision in H.R. 1047, the analogue to S. 582 in the
U.S. House of Representatives.
22
ety billions of dollars, causes damage to our nation's natural resources and has
caused serious injury and death. It is no less deserving of criminal punishment than
other types of criminal conduct.
For example, last year, the Department of Justice prosecuted a Florida company
and two individuals for illegal disposal of toluene, a toxic solvent, in the company
dumpster. ^ Two 9-year old boys, from the adjacent residential area, who were play-
ing in the area, climbed inside, were overcome by the fumes, and died. On June 12,
1995, not far from this hearing room, the U.S. Attorney for the District of Columbia
announced the guilty pleas of two individual employees responsible for illegally dis-
Eosing of the same deadly solvent in a dumpster, this time near the Bruce Place
ousing project in Southeast Washington. "* These are not speculative dangers. Yet,
if the Florida company or the individuals had learned of the boys' death before the
government, and had confessed and promised to clean up the dumpster, they may
have been eligible for amnesty from criminal prosecution pursuant to S. 582. This
potential outcome is completely unacceptable.
Although it is not entirely clear, this bill could be interpreted to give immunity
even for legally required disclosures, thus immunizing from penalties those respon-
sible for oil spills, releases of hazardous substances, and other environmental haz-
ards where reporting of the violation is mandated by law. Such immunity can only
result in severe damage to the health and safety of the public and to the environ-
ment.
It does not even appear to be a prerequisite to obtaining immunity that the viola-
tor remedy any environmental harm resulting from the underlying violation. Thus,
if through negligence, recklessness, or perhaps even intentional conduct, a company
were to allow an oil pipeline to leak for years and contaminate the drinking water,
the company need only inform the authorities and agree to repair the pipe to escape
all sanction. Because initiating steps toward future compliance appears to be all
that is required, it would not even be required to clean up the groundwater. Immu-
nizing such conduct will discourage companies from maintaining a high standard of
care.
By favoring violators, the penalty immunity provisions of S. 582 effectively punish
law abiding companies. A company that makes the expenditiu-es necessary to treat
its wastewater should not be a competitive disadvantage to one that ignores the law
for years and decides to confess and obey the law only when the resulting water
pollution is unmistakable.
Consider a situation where the manager of a facility for a large corporation de-
cides 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 so doing gains an advantage over its competitors, and increases its market
share. Sometime later the company's management does an audit, discovers the vio-
lations that were a foreseeable consequence of its lack of expenditures, corrects the
violations and discloses it to the government. If this bill were enacted, the company
would not have to pay any penalty, would retain the million dollar economic benefit
from its violation, and would keep the competitive advantage it gained from its vio-
lations. It is precisely because of this tjqie of scenario that many responsible cor-
porations support the disgorgement of illegally obtained profits from violators.
Another distvu-bing aspect of the bill is its prohibition on the issuance of cease and
desist orders by a federal agency for violations that were voluntarily disclosed. Irre-
spective of the circumstances under which a regulatory agency learns of a violation,
it must retain the authority to order immediate action to prevent further harm. The
bill would directly interfere with EPA's ability to protect the public from environ-
mental catastrophes, such as drinking water contamination or oil spills.
III. An environmental audit privilege would interfere with the truth-seeking process,
impair law enforcement, result in abuse, and conceal information vital to public
health and safety
The provisions of S. 582 that create a new privilege are as flawed as those provid-
ing for immunity. S. 582 would create a discovery and evidentiary privilege for envi-
ronmental audit reports and a testimonial privilege for persons who conduct envi-
ronmental audits. Evidence that is derived from privileged documents could be de-
termined to be inadmissible as well as "fruit of the poisonous tree."
As explained below, an evidentiary privilege for environmental audits would be
a radical and unjustifiable departure from current law. An audit privilege would
have no certain benefits, but would disrupt law enforcement and the ability of the
pubUc to protect itself from environmental harms. Legislative creation of such a
^United States v. William Recht Co., (M.D. Fla).
* United States v. Mary Ellen Bauman and Patrick "Pookie" Hill, (D.D.C.).
23
privilege is not only unnecessary, but unwise, and we strongly oppose any such pro-
vision.
An environmental audit privilege would interfere with the truth-seeking
process
Evidentiary privileges are quite limited in our legal system, and with good reason.
Privileges interfere with the truth-seeking process by limiting access to relevant and
often very persuasive evidence, contravening "the fundamental principle that the
public * * * has a right to every man's evidence." ^
S. 582 would create a special evidentiary privilege for corporations, something
that the Supreme court consistently has been unwilling to do. Unlike individuals,
corporations enjoy no general privilege under the Fifth Amendment against self-in-
crimination. Thus, ordinarily corporations cannot, and should not be able to, with-
hold incriminating information that is responsive to government subpoenas. ^
Environmental law is not the only legal arena involving complex regulations. For
example, tax, securities and governmental contracts involve equally complex regula-
tions, and often self-reporting as well, but there is no evidentiary privilege for au-
dits or internal reviews performed in connection with these subjects. Indeed, since
environmental statutes are designed to protect the public health and safety, there
are especially strong reasons to avoid creating a mechanism for shielding informa-
tion about potential environmental violations. "^
An environmental audit privilege would impair enforcement
The environmental audit privilege that would be created by this bill would em-
broil enforcement in expensive and time consiuning litigation. It would be far broad-
er and more destructive than the few, limited existing privileges in federal law.
For example, S. 582 appears to confer a privilege upon all aspects of an environ-
mental audit report, including facts and data, as well as conclusions and opinions,
luilike existing privileges, which protect communications, not the underlying facts.
Because the privilege is not restricted in its application to detailed, comprehensive
audit reports prepared by outside consultants, it appears that many communications
could be claimed as "audit reports." For example, the legislation might prohibit the
use at trial of internal memoranda prepared by managers to their supervisors ad-
dressing known, ongoing environmental problems. Indeed, the legislation might
even prohibit the use of ordinary oral statements made by one employee to another
concerning enWronmental problems.
The impediments that S. 582 would create for criminal investigation are profound.
It would interfere with routine law enforcement activities. As just one example,
many criminal investigations begin with a tip from a company insider who, dis-
tvu-bed by illegal activities he has observed, notifies authorities, often providing writ-
ten corroboration of the violations. If S. 582 were law, an investigator may be un-
able effectively to pursue that tip because the investigator would not know whether
the corroboration provided by the whistleblower came from an environmental audit
report. Even the whistleblower might not know whether the document could be clas-
sified as a part of an environmental audit report, given the broad definition of that
term in S. 582. If the investigator were to proceed with the investigation and it were
later determined that the corroborative document was privileged, then all subse-
quently obtained evidence could be suppressed as ftiiit of the privileged document,
even if it demonstrated criminal conduct and even if there were no wrongdoing by
the government. Therefore, instead of pursuing leads to determine whether wrong-
doing had occurred, the investigator could be forced into an in camera proceeding,
forcing notification of the investigation to the company and thereby cutting off the
investigative phase of the case prematurely.
It would also interfere with the government's ability to execute search warrants
after having demonstrated probable cause to believe that criminal conduct had oc-
curred. Whereas now the agents executing a criminal search warrant are able to
segregate those documents that appear to involve an attorney and thus might be
subject to the attorney-client privilege, they would have no way of determining
which records to segregate as potentially falling within the environmental audit
privilege. Documents relating in any way to environmental compliance could be
^University of Pa. v. EEOC, 493 U.S. 182, 189 (1990 (quoting United States v. Bryan, 339
U.S. 323, 331 (1950) and Trammel v. United States. 445 U.S. 40, 50-51 (1980)).
^See, e.g., Braswell v. United States, 487 U.S. 99 (1988); Bellis v. United States, 417 U.S. 85
(1974); In re Grand Jury Proceedings, 861 F. Supp. 386, 389-90 (D. Md. 1994).
'' Proponents of an environmental audit privilege cite the so-called "self evaluative" or "self-
critical analysis" privilege as support for their pxDsition. But the self-evaluative privilege has
never been applied where the information in question is sought by a government agency for law
enforcement purposes. See, e.g., FTC v. TRW, Inc. 628 F.2d 207, 210 (D.C. Cir. 1980).
24
deemed privileged and those investigators who read them could be "tainted" and
thus disqualified from further participation on the case.
There are two situations in which operation of the privilege would be particularly
unfair — (1) where the audit whitewashes the environmental record of a company
with a long history of noncompliance and (2) where a company that is fully aware
of its environmental responsibilities as a result of an audit chooses to ignore them
to save money.
In the first scenario, the company could have been engaged in years of dumping
its toxic wastes on its property, contaminating both surface water and groundwater.
The company decides that it should begin disposing of its wastes lawfully and only
when arranges for a compliance audit of its facility and begins to send its wastes
to a landfill authorized to dispose of the waste legally. It does nothing to address
the environmental contamination that its past illegal activity has caused. Under S.
582, the company could claim a privilege for any observations by the auditor as well
as all samples of the waste taken during the audit.
A second situation is presented by a company that, for a number of years, handles
its toxic wastes lawfiiUy, consistent with an internal company audit. Then the com-
pany runs into financial difficulties, and, looking for a way to save money, hires an
unlicensed waste hauler to dispose of the drums of hazardous waste illegally. The
pre-existing audit clearly demonstrates that the company knew the type of wastes
it was generating, its hazardous characteristics, and the lawful method of disposal.
However, the privilege in S. 582 would bar the use of this critically important evi-
dence of knowledge regardless of the harm caused by the compan/s unlawful con-
duct.
The exceptions to the privilege in S. 582 would not address either of these sce-
narios. It is not even clear that the government could obtain access to documents
that are claimed to be privileged for the purpose of proving that one of the excep-
tions applies. Thus, the government may be required to participate in the in camera
hearing without ever having reviewed the documents under consideration by the
court. In sum, the privilege directly hinders environmental enforcement to the det-
riment of public health and safety.
A new evidentiary privilege could result in abuse
An audit privilege would be susceptible to abuse by unscrupulous entities. While
most regulated entities voluntarily comply with environmental laws, there are some
who would take advantage of an evidentiary privilege to shield all kinds of evidence
of wrongdoing from authorities. Many of the defendants in environmental criminal
enforcement actions have defrauded or lied to the government as well as violated
environmental laws. People who would lie about other aspects of their business or
environmental practices could be expected to falsely label documents as "environ-
mental audit reports" as well to claim a privilege.
A privilege statute would conceal from government officials and the public in-
formation directly affecting public health and welfare
An evidentiary privilege would create a legal right to conceal fi"om the public and
from public officials information regarding potential risks to public health and the
environment. The public has a right to know of environmental hazards that may
pose a threat to their community.
Environmental regulation relies on pubUc and governmental scrutiny of informa-
tion relating to the handling of environmental contaminants. Citizens and govern-
ment agencies use such information to make reasoned judgments regarding steps
to protect public health and safety and to fashion appropriate responses to viola-
tions. Openness and accountability have always been and continue to be
foundational in environmental law, and they are values from which we should not
retreat.
Federal environmental statutes generally rely upon one or more systems of rec-
ordkeeping and reporting of compliance data by those subject to the regulatory
scheme. But that system depends upon the accuracy and completeness of the envi-
ronmental information reported. Government officials must have access to informa-
tion to aid them in prosecuting knowing falsifications of such data and otherwise
ensiuing its reliability. Testimony and documents prepared by whistleblowers and
outside consultants, such as environmental auditors, are often important to deter-
mining the reUability of company records. Such information would often be unavail-
able pursuant to the evidentiary and testimonial privileges in S. 582.
Environmental statutes are aJso premised on the notion that the American people
have the right to know about and to protect themselves and their families from en-
vironmental hazards. There is a specific statute designed to inform the public of po-
tential pollution risks. Title III of CERCLA, the Emergency Planning and Commu-
25
nity Right-to-Know Act (EPCRA). 42 U.S.C. 11001-11050. Our experience with stat-
utes such as EPCRA suggests that companies voluntarily reduce the amount of pol-
lution they generate when their actions are subject to public scrutiny.^
Imagine the public outcry if the government were prevented from obtaining audit
information about a violation leading to death or serious bodily injury. Indeed, in
the wake of the Exxon Valdez disaster, Congress amended the immunity provision
contained in the oil reporting requirements of the Clean Water Act to ensure that
the government would not be prevented from utilizing an oil spill notification
against a corporation or responsible parties other than the natural person actually
providing the notice. Corporate secrecy does not serve any environmental goal; it
just protects polluters.
rV. There is no valid justification for passage ofS. 582
Corporations, and the lawyers who represent them, claim that a new federal evi-
dentiary privilege, and the provision of immunity to violators, are needed to encour-
age the use of audits. However, their argument fails to take into account the facts,
the law, the public policy as reflected in the laws enacted by Congress, or the ad-
verse impact on the environment and law enforcement that would flow from the en-
actment of privilege and immunity legislation.
There is no evidence of any abuse of audit information by civil or criminal
prosecutors
Proponents of an environmental audit privilege have tried, but failed, to show a
need for an evidentiary privilege based on prosecutorial abuse. The Department of
Justice has not been able to find any cases involving abuse of audit information by
prosecutors. In the more than 700 environmental criminal cases prosecuted by the
federal government since 1982, only a handful involved the use of an actual environ-
mental audit report for any purpose.^ In most of those cases, the audit was obtained
after an investigation was well underway based on other evidence, and they were
used to provide direct evidence that someone knew of ongoing violations (and some-
times also of the environmental harm likely to result from those violations) and
chose not to correct them. The cases do not reflect abusive enforcement practices
by the government, but instead reflect the proper use of evidence of criminal con-
duct by company officials. A privilege would provide a legal basis for hiding evidence
of crime.
Some proponents of privilege concede that the problem is one of perception, no re-
ality. The answer to that misperception is to create positive new enforcement poli-
cies and publicly to correct misperceptions, as EPA has done, not to pass legislation
that will hide iivformation from law enforcement and the public.
An example will demonstrate how the Department exercises its criminal prosecu-
torial discretion in cases involving self-disclosed violations. In a recent case involv-
ing Potomac Electric Power Company (PEPCO) where the company voluntarily dis-
closed a long history of knowing environmental violations and cooperated fiiUy in
the investigation of those responsible, no criminal prosecution was brought against
the company. Under DOJ's present policy, PEPCO was encouraged to come forward
and cooperate fully, and the individual responsible for the criminal conduct was suc-
cessfully prosecuted.
Environmental auditing is encouraged, not deterred, by strong enforcement
Proponents of a privilege also argue that the threat of enforcement has chilled en-
vironmental audit efforts by the regulated commiuiity. To the contrary, available
data shows that more companies are performing audits all the time, and that com-
panies that conduct audits are continuing to expand and improve those programs. ^'^
The most recent survey of trends in corporate environmental auditing. Price
Waterhouse's Voluntary Environmental Audit Survey of U.S. Business (March
1995), found that 75% of the companies surveyed have existing auditing programs.
8 For example, from the passage of EPCRA in 1988 until 1993, the most recent year for which
statistics are available, reported toxic releases declined nearly 43%. EPA, Environmental News,
p. 1 (Mar. 27, 1995).
^ These involved the use of documents that generally would meet EPA's definition of "environ-
mental auditing," which is "a systematic, documented, periodic and objective review by regulated
entities of facility operations and practices related to meeting environmental requirements." 60
Fed. Reg. 16875, 16876 (April 3, 1995). In contrast, daily factory inspections and other such rou-
tine business practices appear to be potentially privileged "environmental audits" pursuant to
S. 582.
'°Sec, Note, Environmental Criminal Enforcement and Corporate Environmental Auditing:
Time for a Compromise?, 31 Am. Crim. L. Rev. 123 (1993), citing a 1992 Arthur D. Little, Inc.
survey of Fortune 100 compzuiies in which eighty percent of respondents stated that they
planned to expand their corporate environmental auditing programs.
26
and that Vz of these companies without existing auditing programs plan to develop
one.
One of the principal reasons for the increase in auditing in recent years appears
to be the strength of DOJ's and EPA's current environmental enforcement pro-
gram.!^ Companies perform audits and correct violations found in those audits be-
cause they know that if they do not, they will be subject to criminal sanctions, civil
penalties, the cost of remediating environmental harm, tort liability, and litigation
costs. Last year's Price Waterhouse survey of environmental auditing practices of
U.S. companies verified that strong enforcement has the effect of increasing compli-
ance levels and inspiring more companies to undertake audits in order to discover
and correct violations. Specifically, 96% of respondents indicated that one of the rea-
sons why they perform environmental audits is to identify and correct problems be-
fore they are discovered by an agency inspection.
Thus, a disincentive to audit simply does not exist, but passage of S. 582 is almost
certain to impede the current enforcement program, thus eliminating a current in-
centive to audit.
A privilege is unlikely to generate more environmental audits or improve envi-
ronmental compliance
Despite the claims of its proponents, there is little or no reason to believe that
an environmental audit privilege would increase the amount or the quality of envi-
ronmental auditing. Among those companies responding to the Price Waterhouse
survey, the most important reason given by those companies that do not currently
audit for their failure to do so was a belief that their products and processes have
insignificant environmental impacts. A concern that audit information could be used
against them for any purpose was identified by slightly fewer than one in five re-
spondents. For those companies unwilling to expand an existing auditing program,
limited company resources was the principal reason identified, not fear of enforce-
ment. While 49% of respondents expressed an interest in obtaining a federal audit
privilege, almost the same number (45%) expressed an interest in having EPA adopt
a presumption against company criminal prosecution if a comprehensive audit pro-
gram is in place, corrections are made, and violations are reported. EPA's self-polic-
ing policy contains precisely such a presumption. Thus, a federal environmental
audit privilege would not be likely to be any more effective in encouraging audits
than the policy that EPA has already adopted.
Proponents of an audit privilege also argue that better auditing will result from
the creation of an evidentiary privilege for audits. There is no empirical support for
this assertion, but in any case, better auditing is not the principal goal. Better envi-
ronmental protection is the goal. Detailed, thorough audit reports that sit on the
shelf benefit no one. The existence of an audit privilege will diminish the current
incentive to promptly correct violations as well as to identify them before enforce-
ment authorities do so. With the privilege as an obstacle to enforcement, companies
may believe they will be able to conceal from both the regulators and the public the
fact of violations and the environmental harm resulting from the violations.
In addition, public and governmental scrutiny of corporate behavior generally in-
creases the level of responsible behavior, not the reverse. Companies whose environ-
mental record will be scrutinized by enforcement authorities and the public are far
more likely to improve their environmental compliance than those whose actions are
covered by a shroud of secrecy.
V. State and local opposition to audit privilege / immunity bills
Similar privilege and immunity bills have been introduced in many state legisla-
tures. Because audit privilege and immunity bills would block legitimate law en-
forcement and would interfere with the public's access to information about threats
to their health and safety, numerous state and local officials across the country have
strongly opposed these bills. ^^ The National District Attorneys Association, from
whom you will hear this afternoon, the CaUfomia District Attorneys Association, the
New York District Attorneys Association, Attorneys General from at least seventeen
states, and many state and locsil agencies and environmental officials have opposed
these bills. For example, the California Attorney General's office has opposed an en-
vironmental audit privilege because it would "hide the truth [from the] people of
11 The Arthur D. Little, Inc. study referenced in footnote 10 also found that among the pri-
mary reasons for the expansion of audits is the existence of significant penalties for non-compli-
ance.
12 As of our most recent information, the following states had considered but had not enacted
environmental audit privilege and/or penalty immunity bills this legislative session: Alaska, Ari-
zona, Florida, Georgia, Iowa, Maryland, Missouri, Nebraska, Tennessee, Vermont, Washington,
West Virginia.
27
[the] state." ^^ The New Jersey's Assistant Attorney General for Environmental En-
forcement is concerned that a privilege law would "stymie investigations into envi-
ronmental wrongdoing." ^'* On the local level, one county prosecutor explained that
such legislation would "create a shroud of secrecy for the bad actors — an iron cur-
tain that will be virtually impossible to penetrate." ^^
In addition to law enforcement and other governmental entities, scores of citizen's
groups across the country have banded together to oppose these bills, including pub-
lic health groups, religious groups, environmental groups, and unions. Moreover,
some environmentally responsible companies, such as Westvaco and Intel, have in-
dicated that they find such legislation unnecessary. ^^ Finally, many newspapers, in-
cluding the Great Falls Tribune (Montana), The Tampa Tribune, The Herald (South
Carolina), The Virginia Pilot and Ledger-Star, The Denver Post, the Mesa Tribune
(Arizona), The Tennessean, The News & Observer (North Carolina), The St. Louis
Dispatch, and The Atlanta Constitution have strongly opposed these bills as "dan-
gerously ofllarget," "the wrong thing," "a 'get out of jail free' card," "a shield for non-
compliance," "a special privilege of secrecy," and "a noxious chunk of mischief." We
have prepared a list of statements by state and local officials and by newspapers
around the country in opposition to this type of legislation that we would like to
submit for the record.
VI. Conclusion
The Department vigorously opposes any bill that would create a privilege for
audit-related materials or an enforcement immunity for those who disclose environ-
mental violations to the government. The damage to environmental protection from
passage of such a bill, and the real risk to enforcement of the nation's laws, far out-
weigh any speculative gains these proposals might accomplish. DOJ's and EPA's
current audit policies should be allowed to work. They address the concerns made
by proponents of S. 582 and, therefore, make any legislation in this area unneces-
sary.
Opposition to Environmental Audit Privilege and Immunity Legislation
(Quotations)
I. government officials & associations
Grant Woods, Arizona Attorney General
"Like last year's failed environmental audit bill, this bill enacts a broad cloak of
secrecy in Arizona; more damaging than last year's bill, it would enact a form of
criminal immunity." Arizona Republic, 2/7/96.
"If these environmental measures are passed into law this year, the health and
safety of every Arizonan will be in jeopardy * * *. It would virtually eliminate ovu-
ability to prosecute environmental criminals — not just ours, but the county attor-
neys, any local authorities, anybody." The Las Vegas Review-Journal, 2/13/96.
Pat Cunningham, Arizona Assistant Attorney General for Environmental Enforce-
ment
"The privilege is wider than any privilege in Arizona law. It wiU make it much
more difficult for us to prosecute violators." Arizona Republic, 2/7/96.
"It has the broadest privilege in Arizona law, broader than attorney-client privi-
lege." The Associated Press Political Service, 2/7/96.
Marlen Dooley, New Jersey Department of Environmental Protection, assistant com-
missioner
"Although this legislation is intended to encourage companies to act responsibly,
it may also be used by unscrupulous entities to shield themselves from liability for
past and continuing violations." The Star-Ledger, 3/28/95.
13 Letter from Edwin F. Lowry, Deputy Attorney General, to Carol Browner (May 4, 1995).
i'*Tom Johnson, "Pro-business Environmental Bill Draws Criticism," The Star Ledger (Mar.
28, 1995).
15 /d.
i^Francie Noyes, "Pollution bill not necessary, big firms say," Tribune Newspapers, Al, A6
(Mar. 18, 1995) ("Salt River Project, Arizona Public Service Co., and Intel Corp. said they al-
ready work with regulators, making special concessions to cooperate unnecessaiV'); Sammy
Fretwell, "Pollution audits entangle Senate," The State, Bl, B5 (April 17, 1996) ("Eddie Twilley,
a spokesman for Westvaco, said the corporation favors disclosure of its audits and doesn't need
the protections laid out in the environmental-audit legislation.")
Af\^f\A-i an
28
Michael Murphy, Morris County, NJ prosecutor & president of county prosecutors'
association
"It will create a shroud of secrecy for the bad actors — an iron curtain that will
be virtually impossible to penetrate." The Star-Ledger, 3/28/95.
Ed Neafsey, New Jersey Assistant Attorney General for Environmental Enforcement
"This could seriously vmdercut law enforcement officials' efforts to prosecute envi-
ronmental crimes. They could manipulate the privilege (granted under the bill) to
stjonie investigations into environmental wrongdoing." The Star Ledger, 3/28/95.
James Provenza, Los Angeles County, special assistant district attorney
"This [measure], in effect creates a privilege that could be used by a polluter to
shield documents which contain evidence of environmental violations. The bill re-
quires that only documents prepared for the purpose of the audit may be made part
of the audit. However, without the ability to subpoena that audit and related docu-
ments, a prosecutor wovild have no way of knowing whether the audit had been in-
appropriately used to shield access to evidence of criminal or civil liability." San
Francisco Daily Journal, 1/29/96.
Rick Romley, county attorney, Maricopa, Arizona
"Not only does the bill run counter to the trend of public disclosure, but Romley
says it would create " a safe harbor" in which companies would be insulated from
prosecutions. Hiding negative findings of an environmental audit, according to
Romley, is not in the public interest." The Arizona Republic, Staff Editorial, ^19/
95.
Linda Spahr, Suffolk County, NY assistant district attorney
"I accept that the audit privilege will encourage audits, but I do not believe that
the people pushing them are representative of small and medium-sized businesses
* * *. The assumption about what the impact on law enforcement might be is
grounded in hypothetical prosecution. There couldn't be a prosecution like those that
have been posed, based on just an audit report, done in the past. Every criminal
prosecution I've ever seen relates to a discharge into the air, water or land, or to
fraud. All our investigations relate to current activities." Pesticide & Toxic Chemical
News, 1/25/95.
California District Attorneys Association, Dick Nixon
"The effect of privilege in this area will be to undercut environmental enforcement
efforts * * * . This is an intent to fi-eeze enforcement, to dull it." Pesticide & Toxic
Chemical News, 1/25/95.
California District Attorneys Association, Edwin Lowry
"[The CDAA] has opposed this type of legislation primarily on the grounds that
it will prevent its 58 elected district attorneys and 2,000 member deputies from ef-
fectively enforcing California environmental laws * * *. Our concern is this: if the
state loses its authority to enforce a law, a defendant who is accused of violating
a federal law, like dumping into a river, could claim the state has no authority to
press charges." San Francisco Daily Journal, 5/6/96.
The National District Attorneys Association
The NDAA has called environmental self-audits combined with promises of immu-
nity a "flawed enforcement tool." The Evening News, Harrisburg, 2/2/96.
Trial Lawyers for Public Justice, Jim Hecker
"While seemingly benign in intent, this movement threatens to create a new, mas-
sive, and ill-defined body of corporate secrecy rights * * *. If the company know-
ingly violates environmental laws and hides that fact, it is free from prosecution
even if a whistleblower reveals the truth. The whistleblower, however, can go to jail
* * *. The 'environmental awareness' of chemical companies is not, as proponents
of audit privilege insist, proactive. It is a direct response to the consumer's demand
for information: members of the public demand to know how they, their children,
and their planet are being affected by the actions of their neighbors — Industrial Cor-
porate America." New Jersey Law Journal, 6/5/95.
II. NEWSPAPER EDITORIALS
"Companies and industries shouldn't be above the law just because there's some
vague, good-faith setup that is supposed to encourage them to report and audit their
own pollution mistakes. That's why we have a DEQ and an AG's office — to monitor,
guide, and, when needed, to prosecute. This bill would destroy a valuable bsilance
29
affecting companies, regulators and public safety." The Arizona Daily Star, Staff
Editorial, 2/18/95.
"You may want to ask [the Arizona state senators who support this legislation]
why the threat of criminal prosecution or fears of being held civilly liable for dam-
age to the environment are not sufficient incentives? Or, what makes them so con-
fident that secrecy will breed compliance?" The Arizona Republic, Staff Editorial,
2/19/95.
"As far as can be determined, there is no environmental Gestapo on the loose,
shutting down responsible industries and hauling polluters into court. A survey last
year conducted by the National Association of Attorneys General of all 50 states
found that in only one instance — only one — was information from a voluntary envi-
ronmental audit used in a civil penalty action. In criminal prosecution, there were
only two such cases — hardly an epidemic." The Arizona Republic, Staff Editorial,
2/19/95.
"If an exemption is granted for environmental audits, why not other types of au-
dits as well? The National Association of District Attorneys, writing in strong oppo-
sition to federal audit-privilege legislation, points out that 'a privilege afforded this
segment of corporate America can only trigger demands for comparable protection
by other elements of the business world.' " Atlanta Journal and Constitution, Staff
Editorial, 12/22/95.
"Under the bill, if a company's internal files contained proof that it had known
for years it was creating an environmental nightmare, but did nothing about it, that
information could be kept secret forever * * *. It's odd that such concern should
have to be voiced by the attorney general, while the EPD, the agency whose inter-
ests are most affected, actively supports a bill that would render it even less effec-
tive. That behavior suggests that the problem of enforcing Georgia's environmental
laws goes well beyond poorly written laws." The Atlanta Constitution, Staff Edi-
torial, 3/9/95.
"[Voluntary disclosures] shouldn't enable polluters to get off the hook entirely, any
more than confessions by tax cheats or other lawbreakers would do so." The Denver
Post, Staff Editorial, 8/27/94.
"If you tell on yourself, we won't even slap your hand. And much more in this
vein, all of it guaranteed to produce dirtier air and water in Texas." The Fort Worth
Star-Telegram, Molly Ivins, Staff Writer, 5/4/95.
"The problem is that self-audit reports — although not accident reports — would be
confidential under state law so that companies don't end up getting sued over their
voluntary submissions. This is too broad. Legislators need to knock the confidential-
ity provisions out of this bill." Great Falls Tribune, 3/21/95.
"If the results of internal audits could be kept secret, what would prevent compa-
nies from hiding the results and doing nothing to correct the problem? * * *. An
unscrupulous company with an eye to the bottom line would be difficult to hold ac-
countable without the threat of public scrutiny * * * . The public has a large stake
in clean air and water, and the public shovdd continue to have access to information
about who the polluters are." The Herald, Rock Hill, SC, 3/4/95.
"The problem this measure's sponsors claims it would address — unfair treatment
of industries that fess up to their own environmental shortcomings — simply does not
exist. Companies that turn up pollution violations are not penalized unless they fail
to correct the problems in a reasonable length of time." Mesa Tribune, Staff Edi-
torial, 4/9/95.
"Corporate fears that environmental audits will be used in criminal and civil en-
forcement actions appear overblown * * * . A review of more than 600 environ-
mental cases prosecuted by the Government since 1982 found that only a handful
involved the use of environmental audit reports. In those cases, the audit was ob-
tained only after an investigation was well under way based on other evidence. And
the audit was used to show that someone knew of continuing violations and did not
correct them." New York Times, 10/15/95.
"The "Audit Privilege Bill" keeps the results of environmental audits secret from
the public. More aptly titled the "Pollution Secrecy Bill", it would allow industrial
plants to hide toxic emissions and discharges from their neighbors. Polluters have
always feared bad press more than the meager penalties of regulators. This bill is
their dream come true — and a potential nightmare for citizens." The News & Ob-
server, Raleigh, NC, Daniel Coleman, 4/21/95.
"Loopholes could allow the most egregious polluters to get off the hook, even when
their misdeeds let them reel in tons of money or their conduct hits criminal dimen-
sions." The News & Observer, Raleigh, NC, Staff Editorial, 5/16/95.
"We do not believe the public or the environment is well served if a citizen living
downwind of a dirty smokestack is barred from inqxiiring about what she's breath-
30
ing." St. Louis Post-Dispatch, Staff Editorial quoting David Shorr, Director, MO De-
partment of Natural Resources, 3/13/95.
"Under the guise of protecting the environment, [some of the state's most influen-
tial industry lobbyists and a few of their friends in the Legislature] would shield
those who illegally pollute by making it harder to punish them. They also would
make it all but impossible for the public to find out about the polluters in their
midst." St. Petersburg Times, Staff Editorial, 4/2/96.
"In other words, a chemical company could determine through "self audit" that
it had leeiked thousands of gallons of potentially lethal chemicals into the ground-
water, and the people who own surrounding wells might have no way to find out
* * * . This is what lawmakers commonly call a bailout bill, and it so offends the
rule of law that the attorney general's office and the statewide prosecutor have
joined public and environmental interest groups in fighting it." St. Petersburg
Times, Staff Editorial, 4/4/95.
"[The legislation] does more than give companies cause to be honest. It would
allow businesses to keep secret that pollution which threatens the public. It would
enable corporations to flout environmental laws without consequence. And it would
essentially permit polluters to police themselves, leaving the public at their mercy."
The Tampa Tribune, Staff Editorial, 4/4/95.
"The net effect: communities would be prevented from finding out about possible
environmental problems in their area." The Tennessean, Staff Editorial, 3/8/95.
"Most people are honest — but not everyone. A company might deliberately dump
toxic materials, then 'confess' to an accident * * * . To forgive polluters while deny-
ing other lawbreakers parole is to say the environment doesn't matter. It does." The
Virginian-Pilot and the Ledger-Star, Staff Editorial, 2/3/95.
III. PUBLIC INTEREST GROUPS
Raena Honan, Arizona Sierra Club
"This is an even bigger hog than last year. Basically, it says you break any old
law you want and we don't prosecute because we can't." Arizona Republic, 2/7/96.
"You have to cause actual human harm and widespread environmental damage —
that is the threshold." The Associated Press Political Service, 2/7/96.
Dave Dempsey, Michigan Environmental Council
"I think it's going to turn out to be one of the biggest setbacks we've ever had
on environmental legislation * * * . [The law] breeds mistrust [and the] feeling that
people have something to hide." Grains Detroit Business, 4/1/96.
Thomas Leonard, West Michigan Environmental Action Council
"Here we have a bill that really rewards companies that have not taken a serious
interest in doing audits and maybe have not invested as much in environmental
compliance and pollution control as other companies, and yet are going to be treated
on much the same standard with companies that have really taken a leadership role
in this field." Grand Rapids Business Journal, 3/11/96.
Chris Bedford, Environmental Action Foundation
"The real purpose of these laws is to strip away the rights of government, commu-
nities and pollution monitoring organizations to uncover environmental and public
safety hazards * * * . Gorporations do not need secrecy rights to do what they le-
gally are required to do to protect the environment and public safety." The National
Law Journal, 2/26/96.
Sandy Bahr, Arizona Audubon Council
"Are we going to allow a special class of people in Arizona to violate our laws
without fear of any repercussions, and given them the shield of secrecy for good
measure?" The Arizona RepubUc, Letter to the Editor, 1/23/96.
Senator Grassley. Thank you very much. Before I ask a ques-
tion, I will make a couple of observations. In your testimony, Mr.
Herman, you listed some trade associations, some environmental
groups and corporations that support what your administration has
done, and I think they are all well-respected and well-recognized
and so I don't have any problems with their supporting it, or any
negative comments about that, except to — and I am not an intro-
ducer of the legislation, so they should speak for themselves, but
31
it seems to me that in many areas legislation is introduced because
there is fear of Washington.
I think the groups that you listed would feel very comfortable
with the legislation and with Washington, but with a lot of small
companies and small businesses in America — and, you know, it is
difficult to prove this, but it shows up at your town meetings and
people that don't even have problems with government, but they
come there because they actually fear Washington because they
know some regulator from OSHA or from EPA, or almost any bu-
reaucracy — IRS, for sure — can come in and really put you out of
business.
They know that if they are intimidated, they had better settle be-
cause they probably can't afford to fight it, whereas the big cor-
porations and the big interest groups have the — they understand
how Washington works, they understand what it takes to fight it,
and they have got the resources to fight it.
Whether this is the motive for this legislation or not, I don't
know, but a lot of times we try to find solutions that help people
that don't really understand Washington and fear Washington and
want to really preserve the people that create jobs in the America,
and that tends to be the small business more than big business.
So all I ask you to do as you measure motivations for this legisla-
tion and who maybe supports what you have already done — and
this isn't to bad-mouth what you have done, but just understand
that what you have done may not really respond to that fear that
is out there about Washington.
Mr. Herman. Senator, if I might respond to that because that is
a very important point and something that I have learned in the
3 years since President Clinton appointed me to this position — and
I have met regularly with small business representatives both in
Washington and outside of Washington and from States and they
let me know very early on that they were afraid that if they con-
tacted EPA and asked for help or could you come in — they do not
do that, they said, because they £ire afraid of getting penalized.
As a result of those discussions and partially as a result of legis-
lation which you all enacted a few years ago under the Clean Air
Act which required States to set up small business compliance as-
sistance centers under the Clean Air Act and which required EPA
to promulgate a policy, we promulgated a policy under that which
met with very strong support from small business which basically
took care of mitigating or eliminating penalties for small busi-
nesses that voluntarily came in, asked for assistance, got it, and
then complied.
We voluntarily expanded that policy from air to all of the other
media and we have had an interim policy. I signed the final policy
yesterday or the day before, and basically it incorporates the provi-
sions of the — I don't know which came first; I think we came first —
of SBREFA that was passed, the small business reform legislation
that was passed this year. Basically, except for exceptions where
you have criminal conduct, actual harm, or where somebody has
benefited to the detriment of a competitor, we do away with pen-
alties, and we are trying to address that.
With regard to your specific notion, I would suggest that in our
experience during our process of putting together the audit policy.
32
the major proponents of the legislation have been the larger compa-
nies who I think we all think are Washington — I don't know if it
is good or bad; they are friendly to Washington. They feel com-
fortable in Washington.
Senator Grassley. Yes, they feel comfortable.
Mr. Herman. But we are trying simultaneously, and it is out
there already, to address the very question that you have high-
lighted which I recognized from the very first day I was there was
a very serious problem.
Senator Grassley. I assume we are having 5 minutes for ques-
tions.
I have a question and it is in regard to what some critics have
said, that your final policy benefits will only attach if a number of
conditions are fulfilled. Some have expressed the opinion that your
agency has the sole discretion to decide whether these conditions
have been met and that these are conditions to which reasonable
persons would disagree.
What is your opinion regarding that statement that I just gave?
How do you expect companies to successfully comply with such con-
ditions if the criteria are apparently so discretionary?
Mr. Herman. First, I don't think the criteria are so discretionary.
I think as with any other policy or even statute, there are going
to be interpretations, although I think our policy in terms of the
exceptions and the conditions is pretty clear. What I would point
to is that we have had 65 companies come in. We have resolved 15
where in some cases penalties were completely eliminated and in
some they were reduced substantially.
You know, the challenge here is building up some amount of
trust. It is not one side saying to the other, Just trust me blindly.
I think that through our actions, we are actually working to estab-
lish that and show that the policy can work, that it is common
sense. It was framed with the assistance of people in the business
community and the State attorneys general and the environmental
community. We made changes after the interim policy had been out
for several months, and we think we have come up with something
that is workable. I am bragging somewhat, but it is actually work-
ing now. Companies are coming in.
Senator GRASSLEY. Senator Kohl.
Senator Kohl. Thank you. Senator Grassley.
Mr. Herman, has any company that has filed under this new pol-
icy of yours been criminally prosecuted or fined, any company?
Mr. Herman. I am not aware — let me put it this way. I am not
aware of any case in which a company has come in and then on
the basis of their coming in we have gone after them criminally.
With regard to being fined, I know of at least one case where a
penalty was not completely eliminated, so there was mitigation,
but it was not eliminated.
One of the assertions that we heard when Administrator
Browner asked us to undertake this fairly expansive review of our
policy was — one of the things we looked at was, you know, have
there been cases where the Justice Department or EPA has used
an audit to initiate an investigation, and literally there were none,
zero. We searched through the files.
33
I think if we ask ourselves the question, you know, if you have
a company that is doing what it says it is doing — it is auditing, it
is spotting problems quickly, it is coming in and it is fixing them —
I mean, can you imagine — I would defer to my colleague from Ten-
nessee, Ms. Coleman. Can you imagine a prosecutor going after
that person? My view is that if you really have a good actor, an
audit will provide information that will serve as exculpatory or it
will be mitigating. It will not be aggravating.
Senator Kohl. So why don't you then commit yourself to using
this policy, no matter what?
Mr. Herman. We have. We are using that policy.
Senator Kohl. No matter what?
Mr. Herman. What do you mean, no matter — I don't
Senator KoHL. So that those people who self-audit and come in
and admit a problem know beyond any question that they don't
face any prosecution.
Ms. SCHIFFER. Senator Kohl, perhaps I could address that ques-
tion because the Justice Department, as well, has had a policy
since 1991 that it will look case by case, but certainly it will be a
significant factor in its determination whether to go forward with
a prosecution that a company has indeed come in, disclosed, and
taken prompt steps to correct.
However, it certainly could be the case that a company could go
for years and years polluting in a way that is in clear violation of
the Federal laws and, in effect, in a criminal way violating, and one
day it wakes up, decides to come in and say that indeed it has un-
dertaken an audit and it now wants to correct. Without knowing
the particular facts, if we said that in a blanket way we wouldn't
prosecute that, companies would not now necessarily have an in-
centive to be staying in compliance with the law, protecting public
health, stopping polluting.
What we are looking at, after all, here is compliance with our en-
vironmental laws to protect public health and the environment. Au-
dits are a tool to get there, but they are not an end in themselves,
and if we were to announce now as a matter of statute a blanket
policy that we would not prosecute anyone who came forward,
which is indeed what S. 582 does, we would, in effect, be announc-
ing an amnesty for people who might be very serious polluters and
we think that that is extremely bad public policy.
Mr. Herman. Could I, if I might, just add, because we have a
policy in place that you have referred to? The exceptions — and I
call them protections, actually — I think are quite narrow. In other
words, if there was imminent or substantial endangerment or seri-
ous harm involved, violation of specific terms of a consent order, in-
dividual criminal conduct — in other words, if a corporation comes
and says this has been going on and the company has not had a
practice of covering up or has not been involved in that practice,
the company, we have said, will not be criminally prosecuted. If in-
dividuals did it, then they have to bear responsibility, but the com-
pany won't for doing the good corporate thing of coming in with bad
behavior that they have discovered through an audit.
I don't think anybody would say we should protect criminal be-
havior or where there has been actual harm or repeat violations.
These are the exceptions to the policy, but, in fact, what we are
34
seeing is that a lot of companies are coming in with problems
where in the past they probably would have been fined. We think
this is encouraging disclosure and it is not endangering the public.
Senator Kohl. Thank you.
Senator Brown [presiding]. Thank you. Ms. Schiffer, I was inter-
ested in your comment about the amnesty, and you used the term
serious polluters, I think. Would you call someone who has violated
the law a couple of times in the last few years a serious polluter?
Ms. Schiffer. I would need to know a lot more facts, Senator
Brown. If, for instance, the way they have violated the law a couple
of times was to make major dumps of toxic substances into the
groundwater that served as a drinking water supply, the fact that
they had done it twice would still be a pretty serious injury, I
think, to public health and the environment.
Senator Brown. So if they had done it twice or something of that
kind, they would fit your category of serious polluter?
Ms. Schiffer. That kind of a person, to me, would be a serious
polluter.
Senator Brown. Would you help me? Where in the bill do you
find a blanket amnesty for those people?
Ms. Schiffer. Yes. I would invite your attention to section
3803(c)(2), which I think is on page 7 of the bill as I have it print-
ed. That provides that if somebody comes forward with their infor-
mation, and that would include coming forward with a report that
was required to be filed under our environmental laws, then they
can't be prosecuted on the basis of that information.
Senator Brown. Well, let us take your specific example because
you have told the committee under this law that someone who is
a serious polluter and had conducted several of those events would
have the advantage — I don't see blanket amnesty here. Perhaps my
version doesn't have something yours has. I see the word immu-
nity. Is that what you are referring to?
Ms. Schiffer. Shall be immune is what the >yords are. If you
prefer that to amnesty, that is fine.
Senator Brown. No. You had used the words blanket amnesty.
I was inquiring if those are in the paragraph which you cited.
Ms. Schiffer. Senator Brown, the words of the statute are shall
be immune, and what I believe those words could well mean is that
if a company dumped toxic substances into the groundwater and
then decided it would come forward and tell the prosecutor that,
at that point the prosecutor could not use that information to pros-
ecute those people.
Senator Brown. OK. I am trying to figure out — the words you
used, blanket amnesty, apparently do not appear in the statute. Is
that correct?
Ms. Schiffer. Senator Brown, the words of the statute are shall
be immune and, in my view, that would have the effect of being
an amnesty.
Senator Brown. OK, so you think they mean the same thing?
Ms. Schiffer. I believe the words of the statute would have the
effect of immunizing
Senator Brown. You misrepresented what was in the statute. I
am trjdng to get it clear. Now, either blanket amnesty is in the
statute, as you implied, or it is not.
35
Ms. SCHIFFER. Senator Brown, I am tr5dng to take the words that
are written here and talk about what their effect would be on our
ability to protect the environment and enforce the environmental
laws. The words that are written down are shall be immune. To
me, they would have the effect of providing amnesty.
Senator Brown. OK. Now, looking over at paragraph (b) on the
prior page, are you familiar with that section?
Ms. SCHIFFER. I have read the statute.
Senator Brown. Would someone who had violated a serious envi-
ronmental law several times in the last couple years come under
that provision?
Ms. SCHIFFER. Senator Brown, that provision is limited to cir-
cumstances where a court has found that a person has violated the
law. So that I get the words absolutely accurate, if you would give
me a moment to find them, I will.
What the words are in the statute are if such a person or govern-
ment entity has been found by a Federal or State court to have
committed repeated violations, so that if a person had dumped
toxic wastes over the drinking water supply, but there hadn't been
a court that had found that under this statute, then that person
wouldn't meet this exception and they would still be entitled to the
immunity that is set forth in the following page.
Senator BROWN. Well, am I right in thinking that people who fit
your category of serious polluter would fit under this paragraph?
Ms. SCHIFFER. There are any number of serious polluters who se-
riously pollute for quite some time. Senator Brown, but it takes us
sometimes a while to find them. Therefore, we haven't found them
and had them taken to court and therefore found by a Federal or
State court to have committed repeated violations. So there are any
number of serious polluters who would not fit into the exception in
this statute as it is drafted.
Senator BROWN. I thought I asked a pretty straightforward ques-
tion, and if you don't want to answer it, you don't have to. I am
certainly not going to be a stickler for it, but your statement was
that serious polluters would receive blanket amnesty. Now, we find
blanket amnesty is not in the statute, and we also find this exemp-
tion which makes it clear that serious polluters here would not
have the benefit of that shall be immune language.
Ms. SCHIFFER. Let me give you a
Senator BROWN. Now, if I understand what you are saying, there
are people who are serious polluters who don't come under this ex-
emption.
Ms. SCHIFFER. Let me give you a specific example, Senator
Brown. We had a case in the middle district of Florida where a
company and two people who worked for the company put toluene,
which is a toxic substance, into dumpsters behind the company,
and the next day two children fell into those dumpsters and they
died. They died because they were exposed to that hazardous
waste.
To my knowledge, that company hadn't before been before a Fed-
eral or State court, and so it wouldn't fit into this that a Federal
or State court had found repeat violations. But if that company the
next day, before the Government had a chance to get to it, came
in and said to the Government, we put out these dumpsters, these
36
kids fell in and they died, then under the provisions of this statute
they would have immunity from criminal prosecution. I would cer-
tainly regard that company as a serious polluter, as a serious viola-
tor of our environmental laws that are designed to protect public
health and the environment.
Senator Brown. The purpose of this hearing is to try and help
us draft a law that will be helpful for the environment, and I think
that is all our intention. As near as I can tell with that answer,
you still didn't answer the question that I asked. Now, you have
mischaracterized subparagraph (2). You mischaracterized subpara-
graph (b).
Let me hasten to add that your example, I think, is one that we
wouldn't want to let people off on, that they shouldn't be let off on,
but I think we are going to make a lot of progress on this bill if
you will help us rather than simply try and paint with all colors.
If you will help us on the bill, I think we can make it a better bill.
Mr. Herman, it would be helpful to me if you could spot for us
how areas where this proposed statute would differ from the policy
that you all have adopted. Parts of it seem similar. Apparently,
parts are different. I think it would be helpful to us to understand
that difference.
Mr. Herman. I think the primary difference, and I think a very
important public policy difference, is the provision of a privilege.
There is an assumption behind the statute that, one, industry
needs a privilege to encourage it to do the auditing or set up com-
pliance management systems which we all want to encourage and
which we favor; and, two, that establishing the privilege is worth
what I think we have all found to be the negative
Senator BROWN. I am sorry. My question was a different one.
Mr. Herman. I am sorry.
Senator Brown. That is valuable information, but you have
pointed out and Ms. Coleman has pointed out that you already
have procedures in place that are meant to help elicit information
and help get people to cooperate.
Mr. Herman. Right.
Senator BROWN. And there are times in which you do not use
that information for prosecution and there are times that you do
not necessarily prosecute.
Mr. Herman. That is correct.
Senator Brown. I was hoping that you might walk me through
how this statute would differ from what you do now. In other
words, where would this provide the information not being used for
prosecution where your policy does not now do that?
Mr. Herman. Our policy gives us the option of looking at the in-
formation and making an informed decision. I think this is the big-
gest difference. Under the bill, if information remains privileged,
we don't know. Second, there is — and I think that what Assistant
Attorney General Schiffer has done with her interpretation of the
language is, I think, give you a taste of the kinds of arguments
that lawyers will make with this, that they should be immune or
they shouldn't be immune, or that kind of thing. One of my fears
is that that leads to more rather than less litigation.
If I could approach it just another way, and that is to say that,
one, we agree with you that we want companies to audit; we think
37
it is good. Two, companies are auditing. They are doing it. They
were doing it before we embarked on this process. Price
Waterhouse and others took a survey and there was a tremendous
amount of auditing being done, so I am not so sure that this is so
much for — to the extent that it encourages others, that there is
good, but there are a lot of reasons companies audit. They don't
want to get enforced against and it is good business, and for some
it is good citizenship. They want to be good. We think that our pol-
icy, without some of the, I think, legalistic or legal mine traps, like
a privilege, provides a smoother and easier way to accomplish it.
I would just point out there are only a few privileges. We have,
you know, priest-penitent, lawyer-client
Ms. SCHIFFER. Husband-wife.
Mr. Herman. Yes, husband and wife, and there is a reason we
only have the three. Courts have actually rejected an audit privi-
lege. In all of those areas, you have established institutions, you
know, like a bar association, some kind of church board, or what-
ever, to sort of monitor the integrity of the people in it. We don't
have that yet, certainly, with environmental auditors, which is a
profession that is just exploding now.
I just think that we are getting into an area where we could cre-
ate more complications and more litigation doing it this way, and
that is my main concern about it. You know, I don't anticipate that
we are going to use — and we have said we are not going to use au-
dits to initiate investigations. You know, people say we don't trust
you. I mean, this we have a real long record on, track record, which
is a good one.
Senator BROWN. Your being that the discretion here allows you
to go after egregious cases; that something frozen in statute may
not leave you with that enforcement ability?
Mr. Herman. Well, I think there is another point, and that is
that, you know, as you and Senator Hatfield were discussing ear-
lier, these are all new vehicles that we are using. We have said
that in 3 years we are going to do — I have said publicly when I tes-
tified before Senator Hatfield in Oregon — you know, he asked me
a similar question. You know, how do I know you are going to use
this, you know, because ours isn't set in statute? I said I £ind the
Administrator and others, and the Justice Department, we are
going to use this policy. This is, you know, this is our policy.
In 3 years, we said, we think it should be reviewed. Should it be
fine tuned, should it be chucked out the window, should it be ex-
panded? Should it be put in a regulation, should it be put into stat-
ute? I think this is a stage where I think having some flexibility
makes some sense. Everybody is complaining about the amount of
regulations we have, and statutes, so here we tried to do it a lit-
tle — my other point is that we were able to get this out pretty
promptly, pretty quickly, you know, certainly in interim and then
final, and we were able to do it because we didn't go through a for-
mal rulemaking.
What I am very proud of is that we did go through an exhaus-
tive, expansive public participation process which some of the gen-
tlemen that are sitting here now participated in. Kennan Goldman
from the ABA is here and he lent us his offices, which was, you
know, wonderful and effective, and I think for me it set a model
38
of how to mgike public policy. I intend to use it again on some of
the other difficult questions.
Senator Brown. A couple quick questions. I must say from my
own way of thinking the immunity in subparagraph (2) that Ms.
Schiffer referred to, at least in my mind, raises some real questions
and it is one that I think we want to focus on as we go toward
markup on this. If that portion of the proposed statute were
dropped entirely, but the protections that are somewhat similar to
testifying against yourself in the audit reports were retained,
would that meet most of your concerns?
Mr. Herman. I would have to look at the statute, but I don't
think so. I tell you, I feel very, very strongly, and I think the ad-
ministration feels very strongly about the privilege components of
these statutes. I feel very strongly that having privilege
Senator BROWN. Even though you are not using
Mr. Herman [continuing]. Will undercut
Senator Brown. The option of using them still is an important
leverage?
Mr. Herman. Well, it is not only that. I think that there are sev-
eral things that drive compliance. One is a company's public image.
That is very important in terms of a company wanting to do the
right thing and being proud of doing the right thing, and the public
has to know. I think if the public thinks that a sweetheart deal is
being made — I mean, God knows there is an awful lot of cynicism
in the country today with regard to all of us in this room, probably.
The last thing we want to do is shroud things in secrecy or have
a special privilege dealing with environmental problems. We don't
have it with regard to other things and I think it would be a tragic
mistake to impose it here.
I think we can go very far, and I think that in our policy we have
gone pretty far in encouraging auditing. I mean, we are saying, you
come forward, you did a good job, you will be taken care of, you
have nothing to fear, and I want to be tested on that and the Agen-
cy wants to be tested on that.
Senator Brown. One last question. Obviously, there is a wide va-
riety of violations that come into question here.
Mr. Herman. I am sorry?
Senator Brown. There is a wide variety of violations which you
are charged with responsibility for enforcing and that this new
statute would apply to if it is enacted. The immunity section seems
to be rather broad, at least in my mind, as it applies. Is there in
your mind category or a class of violations that are minor enough
that they would merit different treatment than the more serious
ones? Is there a logical line to draw in that area?
Mr. Herman. I mean, I don't have the particular words in front
of me today, but we make those cuts every day of the week
Senator Brown. In terms of your discretion as to what you — —
Mr. Herman [continuing]. In terms of how we exercise our dis-
cretion, where we target our resources, the penalties or sentences
that our lawyers negotiate and ask for. I mean, we don't have
cases, you know, where somebody submits something and it is a lit-
tle late and we ask for prison, unless it is something very impor-
tant and it was purposeful. You know, we do think that we exercise
our discretion pretty carefully, and that is built in.
39
Senator Brown. The folks in Fort Morgan might have a different
view of you, but
Mr. Herman. Well, the people we have cited for violations, I
would say, almost always have a different view and nobody has
ever said to me — I have never gone to a meeting and said
Senator Brown. I think they offered you the town, didn't they?
Mr. Herman. Last week I was at the Greenbrier talking before
100 or 200 corporate counsel and not one of them, after I spoke,
said, yes, come and get us, you make a lot of sense. [Laughter.]
Ms. SCHIFFER. Senator Brown, if I might add to that, what we
are really looking for here is compliance with the environmental
laws so that the environment gets cleaned up, and I would expect
that that is a common purpose of everybody in this room, frankly.
What we see time after time is one of the things that drives that —
probably one of the most significant things that drives that is an
effective environmental program.
If I were to announce to people right now that if you filed your
tax returns on April 20, let us just say, instead of April 15, we
wouldn't go after you, we don't regard it as becoming serious until,
I don't know, 30 days or something, I think all of us in the room
would say, well, there goes April 15 as the date by which people
file their tax returns, because the truth of it is having a belief that
there will be enforcement is one fails to comply is a very important
part of getting compliance. That is why I think that we certainly
exercise our discretion fairly, as Steve has said.
We have a series of policies related to small businesses, who are
the people who are more in fear of coming forward and complying.
But as a general matter, it is very important for people to think,
and for us to deliver on that thought, that if they aren't complying
with the laws, there is going to be enforcement. This is a law en-
forcement issue, and therefore carving out some category and say-
ing as to that category we are not going to enforce, we are going
to not use the enforcement tools that are available, would be a
problem.
Senator BROWN. No, no. That wasn't my suggestion at all. I think
you are taking it out of context.
I want to thank the panel. We look forward to working with you
as the committee moves forward and we appreciate your input.
Mr. Herman. Thank you very much, Mr. Chairman.
Ms. SCHIFFER. Thank you.
Senator Brown. I will ask the third panel to come forward — Mr.
Tom Gehl, who is the director of health and safety with the Kohler
Co.; Mr. John Riley, who is the director of the litigation support di-
vision of the Texas Natural Resource Conservation Commission,
Victor Johnson is the district attorney general for the 20th judicial
district of Tennessee, and Ms. Pat Bangert is the assistant soHcitor
general, Colorado Department of Law.
Senator Kohl, if I may, I would like to ask you to go out of order,
if we would. I understand that you have another meeting that you
need to get to and votes to cast, and I understand you also have
some questions that you would like to address to the panel. Before
we go ahead with the opening statements, I would like to ask you
to go ahead.
Senator KOHL. No; that is all right.
40
Senator Brown. OK. What we will do is go ahead with state-
ments.
Mr. Gehl.
PANEL CONSISTING OF THOMAS P. GEHL, DIRECTOR OF ENVI-
RONMENTAL ENGINEERING, SAFETY, INDUSTRIAL HYGIENE
AND THE CHEMICAL AND METALLURGICAL LABORATORY,
KOHLER CO., KOHLER, WI, ON BEHALF OF THE CORPORATE
ENVIRONMENTAL ENFORCEMENT COUNCIL; JOHN ALOYS-
lUS RILEY, DIRECTOR, LITIGATION SUPPORT DIVISION,
TEXAS NATURAL RESOURCE CONSERVATION COMMISSION,
AUSTIN, TX; VICTOR S. JOHNSON, DISTRICT ATTORNEY GEN-
ERAL, 20TH JUDICIAL DISTRICT OF TENNESSEE, AND VICE
PRESIDENT, NATIONAL DISTRICT ATTORNEY'S ASSOCIA-
TION, NASHVILLE, TN; AND PATRICIA S. BANGERT, SENIOR
DEPUTY SOLICITOR GENERAL, COLORADO DEPARTMENT OF
LAW, DENVER, CO
STATEMENT OF THOMAS P. GEHL
Mr. Gehl. Mr. Chairman and members of the subcommittee, my
name is Tom Gehl. I am the director of Environmental Engineer-
ing, Safety, Industrial Hygiene and Corporate Laboratory for the
Kohler Co. The Kohler Co. is a 122-year-old privately owned com-
pany of 16,000 employees headquartered in Kohler, WI.
I have prepared a longer written statement and would respect-
fully request that that be entered into the record.
I am here today as a member of the board of directors of the Cor-
porate Environmental Enforcement Council, called CEEC, an orga-
nization of 20 diverse companies with a strong commitment to the
environment and environmental compliance programs. At the same
time, I want to acknowledge that there have been many in the
business community who have worked diligently to support envi-
ronmental audit and voluntary disclosure legislation at both the
Federal and State level, and one of the groups that has been a
leader in this effort is the National Association of Manufacturers,
an organization with which I am proud to be associated. I appre-
ciate the opportunity to testify before you today in support of many
of the concepts embodied in S. 582, the Voluntary Environmental
Audit Protection Act.
Mr. Chairman, CEEC members are supportive of strong environ-
mental enforcement programs directed at those who willfully and
intentionally violate our Nation's environmental laws and cause en-
vironmental harm. Yet, we are concerned that environmental en-
forcement often serves its own interests rather than the goals of
environmental protection. When this occurs, enforcement itself cre-
ates serious obstacles to auditing and innovation, especially for
those who want to work with the Government and desire to go be-
yond compliance.
CEEC has carefully considered issues relating to auditing and
voluntary disclosure. Without question, the failure to have in place
adequate and certain protections for voluntary audits and vol-
untary disclosures has created strong disincentives to conduct envi-
ronmental auditing. The current lack of such protections also has
a chilling effect which most often limits the utility and scope of au-
41
dits that are undertaken. The reaHty of this situation is not good
for the environment.
Mr. Chairman, a business, university, municipality, hospital, or
other responsible regulated entities that audit, as well as their
management and environmental personnel, should not be in a posi-
tion of greater potential liability than a regulated entity that does
not audit. This, we respectfully request that this committee take
steps necessary to ensure that responsible members of the regu-
lated community that conduct environmental self-evaluations do
not create or expand their environmental civil or criminal liability
or the liability of any individuals.
Mr. Chairman, the concepts behind the legislation are very
sound, are good for the environment, and we commend you for your
development of the legislation. The regulated community wants to
voluntarily audit their facilities, correct non-compliance, and im-
prove their operation, but doesn't want the audits used to punish
them.
Yet, prosecutors raise generalized concerns that even a qualified
privilege can, in certain situations, make it more difficult to obtain
information. They have also raised the specter of their not be able
to pursue enforcement actions in certain situations. But how legiti-
mate is a case if the only physical evidence of a violation is en-
tombed in the four comers of the audit and the violation has been
reported and corrected? What purpose does enforcement serve at
that time? Isn't the pubUc policy issue of compliance and not en-
forcement better served by encouraging self-assessment and timely
correction than by gratuitous enforcement?
The EPA also believes that its recently issued enforcement poli-
cies sufficiently address the exposure of regulated entities that dis-
close actual or potential violation, but the policy does not bind
EPA, much less the prosecutorial actions of Government agencies,
such as the Department of Justice, nor does it prevent citizen suits
or other third-party actions.
Most observers acknowledge the command and control models
used for the past 30 years have helped us to move to our present
level of environmental compliance. However, it is also recognized
that in order to go to the next level of environmental compliance
and protection, we need to find a new vehicle. For industry, one of
the best methods to go beyond compliance is to conduct detailed en-
vironmental audits.
Senator Brown and Senator Hatfield and their staff are to be
commended for taking a step to address a genuine environmental
opportunity. They have recognized, as have numerous States across
the country that have passed environmental audit laws, that there
need to be assurances that large and small entities that audit their
facihties find problems and correct them and are not increasing the
prospects of increasing their civil and criminal liability.
Mr. Chairman, on behalf of the CEEC members, we believe it is
time to turn the rhetoric down and form a bipartisan standpoint
to work for the development of the environmental audit legislation
which will improve compliance and enhance environmental protec-
tion.
42
Mr. Chairman, I thank you for the opportunity to be here today
and I would be pleased to respond to any questions that you may
have.
Senator Brown. Thank you. We will have questions. We will go
ahead with the other opening statements and then come back to
you.
[The prepared statement of Mr. Gehl follows:]
Prepared Statement of Thomas P. Gehl
Mr. Chairman and members of the Subcommittee, my name is Thomas P. Gehl,
I am Director of Environmental Engineering, Safety, Industrial Hygiene and the
Chemical & Metallurgical Laboratory for the Kohler Company, Kohler, Wisconsin.
The Kohler Company is a 122 year old privately owned Company in Kohler Wiscon-
sin. It is the largest U.S. producer of bathroom fixtures as well as a producer of fine
furniture, small engines, generators and specialty tiles. Kohler Company employs
approximately 16,000 associates world-wide. There are approximately 7,000 employ-
ees in Wisconsin. Kohler was the recipient of the 1994 Wisconsin Business "Friend
of the Environment" award, the 1995 and 1996 award winner for "Wisconsin Gov-
ernor's Award for Environmental Excellence."
I have prepared a longer written statement and would respectfully request that
it be entered into the record of this hearing.
I am here today as a member of the Board of Directors of the Corporate Environ-
mental Enforcement Council, Inc. (CEEC), an organization of 20 diverse companies
with strong commitments to the environment and environmental compliance pro-
grams. CEEC is comprised of senior environmental managers and corporate counsel
from a wide range of industrial sectors and focuses exclusively on civil and criminal
environmental enforcement public policy issues. At the same time, I want to ac-
knowledge that there have been many in the business community who have worked
to support environmental audit and voluntary disclosure legislation at both the fed-
eral and state level and one of the groups that has been a leader in this effort is
the National Association of Manufacturers, an organization with which I am proud
to be associated. I appreciate the opportunity to testify before you today in support
of many of the concepts embodied in S. 582, the "Voluntary Environmental Audit
Protection Act."
Mr. Chairman, CEEC's members are supportive of strong environmental enforce-
ment programs directed at those who willfully and intentionally violate our nation's
environmental laws and cause environmental harm. Yet, we are also concerned that
environmental enforcement often serves its own interests rather than the goal of en-
vironmental protection. When this occurs enforcement itself creates serious obsta-
cles to auditing and innovation for those who want to work with the government,
and desire to go beyond compliance.
CEEC believes that the type of legislation that is being considered today offers
a unique opportunity to eliminate many of these problems. CEEC believes that
properly crafted legislation is long overdue and urgently needed.
CEEC has carefully considered issues relating to auditing and voluntary disclo-
sure. Without question, the failure to have in place adequate and certain protections
for voluntary audits and voluntary disclosures has created strong disincentives to
environmental auditing. The current lack of such protection also has a chilling effect
which, most often limits the utility and intensity of audits that are undertaken.
Mr. Chairman, a business, university, governmental entity or any other respon-
sible regulated entity that audits — as well as their management and environmental
personnel — should not be in a position of greater potential liability than a regulated
entity that does not audit. The overriding goal of the environmental laws, and of
the Environmental Protection Agency is — quite simply — the protection of human
health and the environment. EPA's enforcement policy should further that goal.
Given the acknowledged environmental and compliance benefits of environmental
auditing and voluntary disclosure, CEEC believes that this is the type of federal pol-
icy that Congress shoxild be supporting. We would respectfully request that this
Committee tjike steps necessary to ensiu-e that responsible members of the regu-
lated community that conduct environmental self-evaluation and disclose potential
non-intentional violations do not create or expand their environmental civil or crimi-
nal liability, or the liability of any individual.
Most importantly, I am here because I see a very important opportunity for the
environment that could be lost in a cloud of rhetoric and skepticism, but for the bal-
43
anced approach that you and this Subcommittee are taking with regard to S. 582
and the issue of environmental auditing.
Mr. Chairman the concepts behind this legislation are very sound, are good for
the environment and we commend the development of the legislation.
But the legislation has created a challenging situation. The regulated community
wants to voluntarily audit their facilities, correct noncompliance and improve their
operations but doesn't want the information contained in those audits used to pun-
ish them. Yet, prosecutors raise generalized concerns that even a qualifled privilege
can in certain situations make it more difficult to obtain information. They have
also raised the specter of their not being able to pursue enforcement actions in cer-
tain situations. But how legitimate is a case if the only physical evidence of a viola-
tion is entombed in the four comers of the audit and by definition those problems
have been reported and corrected. What purpose does enforcement serve at that
time? Isn't the public policy issue of compliance and not enforcement better served
by encouraging self assessment and timely correction than by gratuitous enforce-
ment?
Also, EPA has repeatedly acknowledged that it does not have the resources to
audit facilities. Yet the Agency wants industry to voluntarily conduct audits but
wants to make sure they will have complete discretion to punish an entity that au-
dits and reports as well as the individuals involved. The Agency also believes that
its recently issued enforcement policy sufficiently addresses the exposure of regu-
lated entities that disclose actual or potential violations. But the policy does not
bind EPA, much less prosecutorial actions by govermnent agencies such as the De-
partment of Justice nor does it prevent citizen suits and other third party actions.
Most observers acknowledge the command and control models used for the past
30 years have helped to move us to our present level of environmental compliance.
However, it should be recognized that in order to go to the next level of environ-
mental compliance and protection we need to find new vehicles. For industry one
of the best methods to move beyond compliance is to conduct detailed environmental
audits.
The tension is extreme. Emotions and rhetoric boil at the expense of an effort to
obtain the tremendous and acknowledged environmental benefits that can be
achieved from this type of legislation. Congress needs to ensure that these environ-
mental benefits are obtained, that ways to improve environmental compliance are
not lost, that environmental enforcement does not restrict our nation's environ-
mental progress and that the measures of success for environmental protection are
not based purely on enforcement statistics.
Senator Brown and Senator Hatfield are to be commended for taking a step to
address a genuine environmental opportunity. They have recognized, as have 17
states across the country that have passed some form of environmental audit laws,
that there need to be assurances that large and small entities that regularly audit
their facilities, find problems, fix them and report them are not increasing the pros-
pects of increased legal liability.
The realities of the budget situation of our nation require new, flexible and com-
mon sense environmental solutions. Clearly the federal government will not have
the resources to constantly inspect the hundreds of thousands of entities that should
be complying with environmental laws. We must find a better way. We believe the
limited protections offered by an audit privilege and voluntary disclosure law is a
better way.
Mr. Chairman, on behalf of our CEEC members, we believe it is time to turn the
rhetoric down and from a bi-partisan standpoint work to develop environmental
audit legislation will improve compliance, enhance environmental protection and im-
prove our environment.
THE TENSION BETWEEN AUDITING AND ENHANCED ENFORCEMENT
In recent years the use of environmental audits has grown both in terms of their
comprehensiveness and sophistication. Although there are many different types of
"environmental audits" EPA has defined "environmental auditing" as the "system-
atic, documented, periodic and objective reviews by regulated entities of facility op-
erations and practices related to meeting environmental requirements."
Currently, no environmental law requires regulated entities to institute formal
auditing programs, although the Clean Air Act Amendments of 1990 requires that
an owner or operator of a permitted major source certifies the compliance status.
42 U.S.C. §7414(a)(3)(1991). Nevertheless, extensive self-monitoring and reporting
of certain emissions, discharges and hazardous waste practices, among other things,
are required under federal statutes such as the Clean Air Act, the Clean Water Act,
the Emergency Planning and Community Right-to-Know Act of 1986, and the Re-
44
source Conservation and Recovery Act.^ Self-monitoring and reporting are often re-
quired at the state and local levels as well.
Both EPA and the regulated community recognize that environmental auditing
can lead to significantly higher levels of overall compliance, improved environmental
performance and reduced risk to human health and the environment. They can also
be used to review a company's environmental management structure and resources.
By way of example, audits often are used to:
Assess and reduce environmental health and safety risks required by regulation.
Anticipate upcoming regulatory requirements (which enables facilities to manage
pollution control in a proactive manner).
Prioritize pollution prevention activities.
Help management understand new regulatory requirements and establish cor-
porate policies.
Assess internal management and control systems.
Measiu-e progress toward compliance.
Improve expeditious commiuiication regarding environmental developments to fa-
cility personnel and, where appropriate, ensure effective communication with gov-
ernment agencies and the public.
Assure capable and properly trained personnel are available at all times to per-
form emergency and other environmental functions.
Evaluate causes for environmental incidents and determine procedures to avoid
recurrence.
Assure sufficient budgeting for environmental concerns.
Provide a means for employee training and performance evaluation.
Maximize resources through recycling, waste minimization, and other pollution
prevention measures, including process changes, that may benefit the environment.
Fulfill various other obligations, such as providing appropriate disclosvire to their
agencies {e.g., SEC), and evaluating the environmental aspects of corporate or real
property transactions.
Critical review through auditing is only one piece of an environmental manage-
ment system. Other environmental management features often include:
Employee reporting systems to facilitate employee reporting of environmental
problems.
Employee training programs.
Performance incentives. By incorporating bonuses and promotions based on a
manager's history of environmental compliance, a company both provides an essen-
tial incentive for compliance and demonstrates a commitment to compliance efforts.
Voluntary disclosure of environmental violations where disclosure is not otherwise
required by statute or regulation.
Industry and other members of the regulated community have been progressive
with respect to auditing and the establishment of environmental management pro-
grams. Industry representatives have predicted that the next generation of environ-
mental compliance will rely on regulatory self-evaluation systems — day-to-day man-
agement systems that include audits which lead to compliance and improved envi-
ronmental performance.
Environmental audits themselves are becoming increasingly sophisticated. Audits
have also been increasingly affected by the needs of multinational corporations and
the desire for consistency among the environmental standards of different countries.
Auditing techniques are constantly improving as well and are increasingly being in-
cluded as part of value added business programs. Finally, companies are beginning
to evaluate "environmental life-cycle audits" to determine the totality of impact that
products and services may have on the environment.
At the same time, we are witnessing an increased tension between enhanced au-
diting and other innovative environmental management programs and the increased
1 Although Congress has not yet included language protecting audits through legislation, it
considered such protection in the context of the Clean Air Amendments of 1990. The Statement
of Managers contained the following language: "Voluntarily initiated environmental audits
should be encouraged and, in the course of exercising prosecutorial discretion under the criminal
provisions of subsection 113(c), the Administrator and the Attorney General of the United States
should, as a general matter, refrain from using information obtained by a person in the course
of a voluntarily initiated environmental audit against such person to provide the knowledge ele-
ment of a violation of this Act if — (1) such person immediately transmitted or caused the trans-
mission of such information to the Administrator or the State air pollution control authorities,
as appropriate; (2) such person corrected or caused to be corrected of such violation as quickly
as possible; and (3) in the case of a violation that presented an imminent and substantial
endangerment to public health or welfare or the environment, such person immediately eUmi-
nated or caused the elimination of such endangerment to assure prompt protection of pubhc
health or welfare or the environment. 136 Cong. Rec. S16951 (Oct. 27, 1990)."
45
criminalization of our environmental laws. Today, the vast majority of regulated en-
tities are managing themselves in an environmentally responsible manner, with
only a handful operating "outside the system." Therefore, EPA's enforcement re-
sources are increasingly focused on responsible corporate entities and individuals.
Given the complexity of the environmental regulatory scheme and the myriad appli-
cable regulations, 100% compliance is extremely difficult, if not impossible. These
facts underscore the need for identifying new ways to ways to set enforcement objec-
tives and measure enforcement and compliance success.
The primary concern with conducting an audit is the enhanced liability threat.
This threat has led to a reluctance, especially on the part of smaller companies, to
conduct audits, extreme caution in the scope of audits that are undertaken, frequent
use of attorney-client privilege to protect audits, the writing of non-specific reports
and a variety of other practices that greatly reduce the value of audits to a com-
pany.
All of this was confirmed by Price Waterhouse in a survey — ^"The Voluntary Envi-
ronmental Audit Survey of U.S. Business," 28 (March 1995). According to Price
Waterhouse, 75 percent of the corporate respondents had some sort of environ-
mental auditing program. Yet, the survey also indicated that "there is still a per-
ceived reluctance to expand audit programs, in the face of possible enforcement."
Price Waterhouse noted, "when these companies were asked what factors detract
from their willingness to expand their environmental auditing program, more than
45 percent of the respondents stated that information could be used against them
in citizen's suits, toxic tort litigation, civil enforcement actions or as a road map of
knowledge in a criminal enforcement action." In addition, nearly two thirds of the
companies that now perform environmental audits stated that they would expand
their programs if penalties were eliminated for problems that the companies them-
selves identified, reported and corrected.
The Price Waterhouse survey also indicated that 81 percent of the companies that
audit try to protect their audits from disclosure pursuant to some sort of privilege,
usually the attorney-client privilege. This necessarily increases the cost and com-
plexity of audits, making them less useful for small and large businesses often re-
ducing what could have been a constructive efiect on an entire organization.
As there is no certain means of protecting audits or any means of ensuring that
disclosures of inadvertent violations will not result in substantive fines or increased
litigation, measures are often taken to ensure that the audits are circumscribed and
the audit reports carefully written using vague terminology. Without question, this
dramatically reduces the usefulness of audits and audit reports, and, as previously
noted, environmental protection suffers as a result.
THE STATES HAVE TAKEN THE INITIATIVE
The growing concern over the use of envirorunental audit reports in enforcement
proceedings, coupled with well-publicized instances of the imposition of severe pen-
alties for disclosed violations, led various states to enact legislation protective of
audit reports or disclosvu-es, or both. Oregon enacted the first audit protection stat-
ute in 1993. Since then, 16 other states have enacted legislation, including Arkan-
sas, Colorado, Idaho, Illinois, Indiana, Kansas, Kentucky, Michigan, Minnesota, Mis-
sissippi, New Hampshire, South Dakota, Texas, Utah, Virginia and Wyoming. Other
state legislatures are now considering similar legislation. As you have heard from
other witnesses today, these laws are having a strong and positive impact. But these
state laws obviously do not reduce the need for similar actions at the federal level
and that is why legislation like S. 582 is so important.
CEEC also remains concerned about EPA's continued critical and threatening po-
sition with respect to federal enforcement and the delegation of federal programs
in those states whose legislatures have made the decision to foster environmental
protection and improve compliance by enacting legislation which provides qualified
protections for audits and/or voluntary disclosures. CEEC does not believe that EPA
should put itself in the position of overriding state laws. The statements directed
at states who have addressed or who are considering qualified audit protection and
voluntary disclosure legislation assumes that those states are incapable of enforcing
environmental laws and that they have not or will not apply legal accountability
and compliance assurance in their policies and actions. To the contrary, we believe
that these states are committed to environmental compliance and enforcement and
that these innovative programs must be jdlowed to work in the States.
EPA's policy: A step in the right direction
"The Policy is not final agency action, but is intended solely as guidance, it is not
intended, nor can it be relied upon, to create any rights enforceable by any party."
Office of Enforcement and Compliance Assurance.
46
During the past two years CEEC worked closely with senior personnel from the
Office of Enforcement and Compliance Assurance (OECA) on a number of key en-
forcement policy issues. We appreciated the openness of the Agency, particularly the
efforts of senior officials in the OECA, and the dialogue that was developed on en-
forcement issues and poUcies, and the willingness of EPA to consider new and cre-
ative approaches to environmental compliance and enforcement.
At the same time, CEEC believed then and believes now that Federal audit pro-
tection and voluntary disclosure legislation is necessary because an agenc/s policy
cannot, by definition and by limitations imposed on the agency's authority, elimi-
nate all of the obstacles to self-policing. For example, EPA's policy cannot impact
prosecutions by the Department of Justice or other federal agencies, citizen suits,
toxic tort actions or state prosecutions. Moreover, EPA's policy does not offer any
protection for individuals. It is a penalty mitigation policy. The Agency, in limiting
its policy, and, by in fact attacking qualified audit and voluntary disclosure protec-
tions, makes the need for federal legislation even more imperative if protections for
the environment are to be maximized.
During the dialogue on the policy in which our organization was pleased to par-
ticipate, CEEC — relying on the expertise and experience of its members — discussed
with EPA why the failure to have in place adequate and certain protections for
audit reports and voluntary disclosures created obstacles to environmental auditing
and had a strong chilling effect which severely reduced the utility of audits that are
undertaken. As CEEC continues to emphasize, a responsible regulated entity that
audits should not be in a position of greater potential hability than an entity that
does not audit. Nor should its management or environmental personnel be put at
greater risk.
In issuing the Final Policy, EPA emphasized that voluntary auditing and disclo-
sure (i.e., self-policing) by the regulated commvmity were — especially with EPA's
Umited resources — critical to achieving the environmental protection goals. Unfortu-
nately, in the Final Policy (60 F.Reg. 66706, December 22, 1995) EPA chose to con-
tinue the limited penalty mitigation approach to these issues that it had adopted
in the Interim Policy. While CEEC commended EPA for improving and clarifying
penalty mitigation for responsible entities, this approach — which even in terms of
penalty mitigation is in need of further revision — falls far short of the environ-
mental protections EPA could have achieved through the adoption of a broader pol-
icy.
For example: A regulated entity that uncovers through auditing and promptly dis-
closes and corrects a violation and satisfies all of the criteria set forth in the policy
still faces potentially severe penalties; the Final Policy does not apply to individuals
who will be left entirely unprotected; the Final Policy applies only to EPA, and as
a policy it is not even binding on that Agency; and the Policy does not protect infor-
mation provided to EPA from disclosvu-e to other government agencies or third-par-
ties, nor does it adopt an alternative approach that would allow such a disclosure
but provide limited protection to those who disclose.
The very limited nature of the EPA policy, coupled with its exclusive focus on pen-
alty mitigation, only underscores the need for comprehensive federal and state legis-
lation if we are to achieve the environmental benefits that EPA seeks.
Addressing concerns of critics of the legislation
Critics of S. 582 have consistently made a series of generalized charges that rep-
resent their concerns about the legislation. These charges — while perhaps creating
attractive sound bites — clearly misstate the facts and the intent of the legislation.
These charges include:
1. The legislation amounts to "blanket immunity."
The legislation clearly does not provide for "blanket" immunity. But it does pro-
vide environmentally responsible entities with a qualified protection if the entity es-
tablishes that the violation was promptly corrected and disclosed to the appropriate
governmental agency, and the entity provided all fiirther relevant information re-
quested by the agency. In addition there is no immunity for repeated violations.
2. The legislation protects "bad actors."
"Bad-actors" who intentionally violate environmental laws do not typically take
the time to conduct voliuitary self-audits, much less undertake the costly steps re-
quired to comply with environmental requirements in a timely fashion. In any
event, it was never the intention of S. 582 to protect willful and intentional viola-
tions, and the legislation does not do that.
3. Environmental protection will suffer as a result of the legislation.
CEEC believes that the opposite is true. Effective environmental auditing typi-
cally is more probing and thorough than a regulatory compUance inspection, and
therefore is more likely to uncover deficiencies or instances of environmental non-
47
compliance than an inspection. Moreover, in order to benefit from the voluntary dis-
closure component of S. 582 an entity must act quickly to correct any non-compli-
ance. For this reason too, increased environmental auditing will result in increased
compliance with environmental requirements, and ultimately improved environ-
mental protection.
4. The legislation will not impact the behavior of regulated entities.
CEEC does not believe that this is correct. Audit protection/voluntary disclosure
legislation will remove obstacles to the voluntary self-auditing process in several
ways. First, entities that already perform voluntary environmental audits will be
able to do so more candidly and thoroughly and thereby be more useful. Second,
more entities will be encouraged to perform voluntary environmental audits. Third,
more companies will go beyond compliance, undertaking evaluations that are not re-
quired and providing additional information to the government that will enable it
to craft better regulations.
5. The legislation protects factual information about environmental violations
from regulators.
The argument ignores the narrow scope of the protection in S. 582. The bill does
not extend protection to any of the information that is required to be collected under
environmental laws. Stated another way, the qualified privilege does not cover any
routine sampling or monitoring data, or any information obtained from an independ-
ent source. Similarly the public's right to know about all of this information is not
restricted in any fashion.
6. The legislation wiU prevent prosecutors from proving their environmental
cases.
Because enforcement officials will continue to have access to all of the underlying
data because EPA retains its full inspection and information gathering authorities
the qualified audit protection will not have any effect on the ability of EPA or any
regulatory agency to establish nonconformance with a regulatory requirement. En-
forcement officials will continue to be able to inspect, sample and monitor an enti-
ty's compliance under existing environmental laws, and entities will still be required
to comply with existing recordkeeping and reporting requirements.
Conclusion
Removing the obstacles and providing the proper types of incentives for volun-
tarily conducted environmental audits is one of the most important policy actions
that can positively impact our environment. Administrator Browner to her credit
often cites the need to use 'Common Sense' approaches to development of effective
environmental policy. Providing incentives and protection from prosecution for those
in the regulated community that are good citizens and are trying to find, report and
fix their environmental problems is 'Common Sense'. Mr. Chairman, we look for-
ward to working in bi-partisan fashion to more clearly define and refine federal
audit legislation that is good for the environment while at the same time protecting
our employees and those in the regulated community committed to environmental
compliance and protection.
Thomas P. Gehl, Kohler Co.
Director of Environmental Engineering, Safety, Industrial Hygiene and the Chem-
ical & Metallurgical Laboratory for the Kohler Company, Kohler WI.
Tom is Vice-Chair/Chair Elect for the Environmental Law Section of the Wiscon-
sin State Bar; on the Editorial Advisory Board for the Wisconsin Environmental
Law and Regulation Report; is Chairman of the RCRA Task Force and a Member
of the Environmental Quality Leadership Committee for the National Association of
Manufactures; serves on the U.S. Technical Advisory Group 207 for the creation of
the ISO 14001 standard; is a Member of the Warton Risk Management Round table
on ISO 14000; serves on the Wisconsin ISO 14000 Working Group; is a member of
the Corporate Environmental Enforcement Committee in Washington, DC. Mr. Gehl
was also the Editor of the Wisconsin Environmental Newsletter on the Audit Privi-
lege, is Chairman of the Wisconsin Environmental Pro Bono Project and has served
on several Wisconsin Department of Natural Resources committees to review regu-
lations. He is a frequent lecturer on Environmental and Occupational Health issues.
Mr. Gehl has over 18 years of experience on environmental issues. He received
BA from Lawrence University in Appleton Wis., holds a Law Degree from Marquette
University and has completed his course work for MS in the School of Public Health
at the University of Minnesota.
Kohler Company is a 122 year old privately owned company in Kohler Wisconsin.
It is the largest producer of bathroom fixtures as well as producing fine furniture,
48
small engines, generators and specialty tiles. Kohler real estate developments in-
clude the American Club Hotel (the only AAA Five Diamond resort in the midwest)
Black Wolf Run golf course which is ranked #1 in the midwest and in the top 50
courses in the United States. Kohler Company employs approximately 16,000 associ-
ates world wide and had sales of over $1.9 Billion in 1995. There are approximately
7000 employees in Wisconsin.
Kohler was the recipient of the 1994 Wisconsin Business "Friend of the Environ-
ment" award, the 1995 and 1996 award winner for the "Wisconsin Governor's Award
for Environmental Excellence" and was named a finalist for the National Associa-
tion for Environmental Management "Environmental Excellence Award" in 1995.
Corporate Environmental Enforcement Council, Inc.
What Is It? CEEC is an organization comprised of corporate counsel and manage-
ment from a wide range of industrial sectors that focuses exclusively on civil and
criminal environmental enforcement public policy issues.
What Does It Do? CEEC: Provides a forum for the review and discussion of cur-
rent enforcement issues and the development of constructive recommendations on
civil and criminal environmental enforcement policies. CEEC to date has addressed:
appropriate protection for audits and related disclosures; federal sentencing guide-
lines; permit certifications; enforcement language in specific legislative proposals;
development of alternative measures of enforcement success; supplemental environ-
mental projects; federal overfiling; the overcriminalization of environmental laws;
enforcement implications of ISO 14000 and enforcement initiatives; is a sophisti-
cated, cross-industry organization providing comments and serving as a resource to
the Administration and Congress; focuses exclusively on enforcement provisions of
environmental legislation; provides an opportunity for corporate counsel and man-
agement to share experiences and information on programs, policies, and trends, re-
lating to environmental compliance and enforcement; serves as a vehicle for the re-
view of precedent setting environmental enforcement administrative and judicial ac-
tions; and serves as a resource to state and local groups as well as numerous trade
associations on federal and state environmental enforcement issues.
Members: AT&T, The BFGoodrich Company, Caterpillar, Inc., Coors Brewing
Company, DuPont, Elf Atochem, North America, Inc., Eli Lilly and Company, Geor-
gia-Pacific Corporation, Hoechst Celanese Corporation, ITT Industries, Kaiser Alu-
minum & Chemical Corporation, Kohler Company, Lockheed Martin Corporation,
Owens Coming, Pfizer, Inc., Polaroid Corporation, Procter and Gamble, Textron,
Westinghouse Electric Corporation, and Weyerhaeuser Company.
For More Information: Please contact Steve Hellem, Executive Director, CEEC,
1100 New York Avenue, NW, Suite 810, West Tower, Washington, DC, 20005 (202)
289-1365 or CEEC's counsel, Paul Wallach, Hale and Dorr, (202) 942-8429.
Senator Brown. Mr. Riley.
STATEMENT OF JOHN ALOYSIUS RILEY
Mr. RiLEY. Thank you, Mr. Chairman. My name is John Riley
and, as you said, I am the Director of the Texas Natural Resource
Conservation Commission [TNRCC] Litigation Support Division. I
also have filed written testimony and I ask that that be accepted
for the record.
Senator Brown. Without objection, all the statements will be in-
cluded in full in the record.
Mr. Riley. Thank you, Senator.
I do, in my capacity at the TNRCC, administrative, criminal and
civil environmental law enforcement. My division serves as legal
counsel to approximately 835 field operations and enforcement staff
devoted to compliance with environmental laws.
I am here today to express support for Federal environmental
audit privilege and immunity legislation that enhances traditional
enforcement mechanisms. I am also here on behalf of Texas to ex-
press some concerns about what effect the lack of Federal legisla-
tion might have on States that have enacted these laws.
49
Let me begin by just a brief overview of the Texas law. It has
the two components that are also contained in the legislation before
the subcommittee. It contains both a privilege and immunity as-
pect. The privilege is a qualified privilege. It contains provisions
that, in my estimation, guarantee that the privilege will not be
abused in any true sense or in any theoretical sense and prevent
legitimate companies that are auditing — it will not prevent them
from protecting that information and it will not prevent companies
that are not legitimately auditing and legitimately coming into
compliance from insulating information from our discovery.
I would also like to point out that the privilege would only at-
tach, and only attaches under Texas law, to information that is vol-
untarily generated, information that is not otherwise required by
any Federal or State regulation, rule, permit or any other author-
ity. Furthermore, the privilege is additionally qualified by the one
qualification that I think is most significant in this area, and that
is it is lost if compliance is not achieved with reasonable diligence.
The immunity aspect of Texas law competes to some extent with
the privilege aspect, and that is to say that under our immunity
section — I would also point that immunity in Texas law extends
only to punitive sanction. It does not extend to various criminal
mens rea, which I will come to later in my talk. It does not extend
to all violations that might be discovered in this process.
The immunity requires that a company give notice to the agency
in advance of conducting an environmental audit that it intends to
do so, and those notices, I would like to point out, are public infor-
mation. The public is aware of what companies seek immunity
under Texas law and are coming forward and doing environmental
audits.
Furthermore, the disclosures that are also made under section 10
in pursuit of immunity are also public information. The violations
that are being disclosed to the agency that much of the discussion
about secrecy has been about are also available to the public. In
the event the disclosure is not specific enough to fully illuminate
what violations are being disclosed, the violations are captured in
the entity's compliance history. It does not go to criminal states of
mind, to knowing, intentional, or significant reckless behavior.
Again, I would point out that the immunity, as with the privileges,
is dependent on reasonable response and due diligence in coming
into compliance.
To date, Texas has some, I think, very positive results to report.
Under our legislation, there are approximately 180 entities that
have given us notice of intent to conduct audits. Of those entities,
approximately 30 have made disclosures to us under the protec-
tions of our immunity provisions. Much of these audits have been
multi-media, and I emphasize that point only because it is an em-
phasis of EPA that multi-media and more multi-media evaluations
and inspections be done.
My concern with the lack of Federal legislation is that I am con-
cerned with recent memos and policies of EPA of the potential for
denial of the approval of State programs, as well as a reconsider-
ation of delegated programs and a potential denial of future dele-
gated programs. I would point out that in my discussions with EPA
it is clear to me that the EPA policy is not a valid source of com-
50
parison in comparing State law to EPA policy. I have been told that
the EPA policy is separate and distinct from the statutory require-
ments under Federal laws, and therefore is irrelevant in terms of
discussions in making comparisons between Texas law and Federal
enforcement policies.
I think that a lot of what has been discussed here today — and I
apologize for running a little over time — really refuses to go to the
next level of analysis that I think is appropriate in this area. The
next level of analysis, in my view, is what is gained by an agency
in these disclosures and in this process, specifically in Texas' expe-
rience.
The agency knowledge is increasing, both the specific knowledge
of any facility as well as the generalized knowledge of an industry.
I believe that a facility's knowledge is also expanding in that same
area both specifically to their own facilities and for larger compa-
nies through other facilities that they may not have audited.
The criminal implications I am well aware of. As a former crimi-
nal prosecutor, I am appreciative of a lot of the remarks here. Sim-
ply stated, Texas law would not have extended any of its immunity
protections to any of the examples that have been put before the
committee this morning. If there is an issue on the fraudulent use
of these privileges, then I suggest that the legislation consider
criminalizing that use and that the fraudulent use be the equiva-
lent of committing the original act.
If we are going to measure effective enforcement in terms of how
many cases, how many dollars we recover, rather than what com-
pliance we have achieved, then I suggest we do a disservice to the
enforcement process and the overriding goal of achieving compli-
ance.
Senator Brown. Thank you; very helpful.
[The prepared statement of Mr. Riley follows:]
Prepared Statement of John Aloysius Riley
summary of testimony
The Texas Natural Resource Conservation Commission's ('TNRCC's") goal is to
pursue an effective and efficient enforcement program that maximizes voluntary
compliance, ensures that potential polluters are informed of their environmental re-
sponsibilities, and compels compliance through legal action when necessary. Re-
source-restricted environmental regulatory agencies are not capable of inspecting
every regulated entity on any regular basis and the TNRCC is meeting its commit-
ment to the people of our state, and the environment, by wisely applying the pre-
cious resources we have devoted to environmental law enforcement. Therefore, as
with any other means or method intelligently applied, the TNRCC welcomes and
supports our state's environmental audit law and other such legislation as addi-
tional, useful and effective tools in increasing compliance with environmental laws.
The Texas real-life results show that significant gedns in the struggle to achieve
greater compliance with environmental laws are available through audit legislation,
particularly at a time when governmental resources are spread thin.
My name is John Aloysius Riley and I am the Director of the Litigation Support
Division at the Texas Natural Resource Conservation Commission CTNRCC"). The
TNRCC is a multi-media environmental agency covering all air, water and waste-
related activities. My division acts as legal counsel to our Executive Director in ad-
ministrative and civil enforcement proceedings. The division's staff attorneys pros-
ecute all environmental administrative enforcement actions in the State of Texas
and provide support to the Texas Attorney General's Office in District Court pro-
ceedings. Additionally, the Special Investigations Unit of my division conducts in-
vestigations into criminal violations of state and federal environmental laws and
provides support in these prosecutions to United States Attorney's Offices in Texas
51
as well as local District and County Attorneys. The head of this Special Investiga-
tions Unit chairs a state and federal multi-agency criminal investigative task force.
The TNRCC's goal is to pursue an effective and efficient enforcement program
that maximizes voluntary compliance, ensures that potential polluters are informed
of their environmental responsibilities and compels compliance through legal action
when necessary. The TNRCC believes that strong traditional enforcement of envi-
ronmental laws is necessary to guarantee that the public health and environment
receives the benefits of the promises embodied in environmental statutes, regula-
tions, and permits. To improve the condition of our environment, we must have com-
pliance with governmental requirements.
In fiscal year 1995, the TNRCC more than doubled its enforcement orders without
increased resources devoted to the effort. In this fiscal year, we are on track to es-
sentially eliminate an enforcement backlog that has persisted for many years, while
not relaxing our high enforcement program standards. Today, our actions are more
current and our per-case enforcement penalties are on the rise. These achievements
are due in large part to a reorganization and consolidation of the enforcement func-
tion at the TNRCC. The increased efficiency and effectiveness results from a sincere
rededication of the agency to the overriding goal of increasing compliance.
The legal staff dedicated to enforcement at the TNRCC includes 25 attorneys,
counting myself and two supervising senior attorneys. My criminal unit consists of
one attorney in Austin and nine full-time criminal investigators located across
Texas. Our primary client division is the Office of Compliance and Enforcement,
comprised of approximately 835 staff members involved in field investigations and
enforcement. Of the 835, 677 are located in 15 regional offices throughout the state.
Meanwhile, the "community^ that we are responsible for regulating numbers in
excess of 200,000 and continues to grow. Unquestionably, the people and resources
dedicated to the enforcement of environmental laws pale in comparison to the size
of the task. I have every reason to expect that other states and the federal govern-
ment are in a similar position.
I have burdened the record of this proceeding with this summary of the TNRCC
enforcement efforts to make two points: resource-restricted environmental regu-
latory agencies are not capable of inspecting every regulated entity on any regular
basis and the TNRCC is meeting its commitment to the people of our state and the
environment by wisely appljdng the precious resources we have devoted to environ-
mental law enforcement. Therefore, as with any other means or method intelligently
applied, the TNRCC welcomes and supports our environmental audit law and other
such legislation as additional, useful and effective tools in increasing compliance
with environmental laws.
The Texas law became effective on May 23, 1995, and while I still consider it pre-
liminsu^, the results are completely positive. A brief analysis of some features of our
law will aid in putting the returns in proper perspective.
The Texas law contains both privilege and immunity provisions. The audit privi-
lege attaches automatically. There is no requirement that a company do more than
conduct an audit to obtain this protection. The scope of the privilege is broad and
extends essentially to all materials created in the course of an environmental self-
evaluation. However, there are three major caveats to this discovery protection: (1)
the privilege does not extend to any materials or reports that are required to be
kept under the authority of federal or state law; (2) the privilege does not extend
to any observation of the actual physical events of violation; and (3) the privilege
may be overcome in an administrative, civil or criminal context where a tribunal
determines that appropriate efforts to achieve compliance were not promptly initi-
ated and pursued with reasonable diligence afler discovery of the violation. There-
fore, the Texas privilege is appropriately qualified and limited.
"Immunity," as it is termed in the Texas law, is a complete relief from any puni-
tive sanction but it is not necessarily relief from all enforcement action. Where in-
junctive corrective provisions are deemed appropriate by the agency, a self-disclosed
violation may be pursued to an enforcement order. The immunity provision of Texas
law competes in some measure with the privilege gained. First, the notice of an enti-
tj^s intent to conduct an audit, a threshold requirement for penalty relief, is public
information. Second, the ultimate disclosure of a violation, if one is detected in the
audit and a company seeks penalty immunity, is also public information and must
be recorded in the company's compliance history.
In less than one year, the TNRCC has received approximately one hundred and
eighty notifications of intent to conduct a voluntary environmental audit. These en-
tities include cities; universities; navigational districts; the United States Air Force;
newspapers; food and food products companies; barge and ship cleaning operations;
paper and paper products manufacturers; automobile manufacturers; computer and
computer parts manufacturers; electric utility services; cement manufacturers;
52
metal manufactures; waste disposal companies; petroleum refineries; petrochemical
plants; and chemical manufactvu-ers. A majority of the notices indicate that the au-
dits will be multi-media, covering all environmental regulations and permits. Of the
over 33,000 different types of inspections conducted per year, the TNRCC is only
able to conduct between 10 and 200 multi-media inspections — the remainder are
single-media inspections. Therefore, through use of the environmental audit tool,
multi-media evaluations encouraged by EPA are significantly enhanced.
Since May of 1995, approximately thirty entities have disclosed violations to the
TNRCC in pursuit of penalty relief. The majority of violations that have been illumi-
nated in this process are air violations, ranging from recordkeeping problems to
exceedances that necessitate permit amendments or re-evaluations of grandfathered
exemptions. Several companies have reported inadequacies with air emissions in-
ventories and toxic release inventories. Others have reported inadequacies with spill
prevention and countermeasures containment plans; contingency plans; and person-
nel training programs. In one case a company reacted quickly to the discovery of
falsified operating log entries by firing the responsible employee and retraining the
other employees involved in data entry.
Simply put, many of these violations would not have been detected in a routine
compliance inspection. Voluntary stack tests and other expensive sampling protocols
which go above and beyond the regulatory requirements are the foundation for
many of these disclosures. Erroneous log or other data entry problems are difficult
to detect through any means other than a self-audit. In addition, a good nimiber
of the audits covered timeframes fi"om more than a decade ago. Although not hin-
dered by a Statute of Limitations, the TNRCC and other Texas agencies would not
normally review records of this vintage when conducting inspections.
All of these disclosures have occurred without disruption of the normal enforce-
ment process. We have conducted our inspections as scheduled; brought enforcement
actions where appropriate using required reports and our own information; and dili-
gently scrutinized the regulated community as our statutes and delegation authority
require. Yet, without regard for o\ir real-life results and Texas' general enforcement
record, EPA has withheld the final approval of our Clean Air Act Title V program
and is questioning delegation of federal regulatory authority on the basis that this
law makes our enforcement authority inadequate in light of federal statutory re-
quirements.
EPA has stated that the statutory requirements for delegation and approval are
unaffected by EPA's own enforcement poUcies. Presumably, even if a state enacted
legislation identical to EPA's self-disclosure policy, a state's enforcement authority
might be viewed as diluted enough to require EPA to withdraw delegated programs.
Thus, the recently promulgated EPA policy provides no relief on the issue of delega-
tion to states with audit privilege and immunity laws. Comparisons of aspects of our
law to the EPA policy, even where the EPA policy provides greater penalty mitiga-
tion, have been dismissed as irrelevant to the statutory enforcement authority re-
quirements. This irony cannot be intended by Congress and this "do as we say, not
as we do" position forces the issue into the legislative arena and calls for a federal
law as the most appropriate solution to this anomaly.
While we remain confident that we can reconcile our law with the federal statu-
tory requirements, that confidence is based on the presumption that every effort will
be made on both sides to do so. Stretched or strained construction of federal and
state laws will frustrate this process endlessly.
Using EPA's April 5, 1996, Title V guidance document as an indicator, it is appar-
ent that some stretching or straining may already be occurring. For example, with
respect to the audit privilege, EPA has raised the audit privilege discovery and evi-
dentiary limitation to the level of substantive law. In essence, EPA is asserting that
a state's environmental enforcement authority must be evaluated by examining the
means available to prove violations. The logical extension of this premise is that all
state procedural laws, evidentiary laws and rules of Court will take on this newly
announced significance and need to be evaluated in comparison to the federal code.
Apparently, this is true even where the evidentiary protection, as in Texas, ex-
tends only to information that is voluntarily created and exceeds that which regu-
latory authorities require be kept. There is a fundamental flaw in any regulatory
enforcement scheme that depends heavily on information that is not required to be
generated and, therefore, may not exist. Furthermore, to condition delegation or ap-
proval of important environmental programs on a state's ability to use this phantom
information is patently unfair. One must wonder whether we are confronting legal
arguments or a basic philosophical disagreement with the concepts of privilege and
penalty immunity.
In the past, companies have attempted to use the attomey-cUent privilege, along
with the attorney work product doctrine, as a method of protecting their environ-
53
mental audits from disclosure. With attorneys guiding and coordinating the environ-
mental audit, some entities have been successful in keeping information about their
compliance with environmental statutes and regulations from other parties. The at-
torney-client privilege is a long-recognized doctrine with the primary purpose of pro-
moting full and open communication between lawyer and client. The need for open
and full communication is no greater anywhere than in the area of environmental
compliance.
The Texas audit privilege is more limited than the attorney-client privilege. The
attorney-client privilege, once established, provides unqualified protection for an
audit conducted within its scope, regardless of what remedial actions follow the dis-
coveries. The Texas law allows a company to retain the audit privilege only if appro-
priate efforts to achieve compliance are made. Thus, a party seeking to retain the
protection of the audit privilege must focus on correcting the problem.
Much has been said about the potential for abuse of these offered protections. The
privilege and immunity provisions seem particularly troublesome to criminal pros-
ecutors. Texas law does not extend the offer of immunity to intentional, knowing
or more significant reckless criminal conduct. Perhaps, these generalized concerns
are misplaced as applied to the Texas statute. It is curious that at least one highly
respected law enforcement official in New York has generally decried privilege and
immunity legislation, although at one time he offered immunity from felony prosecu-
tion and mandatory jail time for a guns-for-cash amnesty program. The benefits to
law enforcement of self-policing and immunity programs have been historically rec-
ognized in institutions from the public library to District Attorney's Offices. For the
most part, abuse in the criminal area is limited by the practical improbability that
a company acting with criminal intent would commit a violation, audit its criminal
act, apply for immunity and return to compliance through remediation of the con-
tamination or situation created in the first place. While these points do not seem
lost on prosecutors, the Department of Justice remains adamantly opposed to privi-
lege or immunity legislation. This objection seems to be based on hypothetical sce-
narios rather than actual examples.
The Texas real-life results show that significant gains in the struggle to achieve
greater compliance with environmental laws are available through audit legislation,
particularly at a time when governmental resources are spread thin. Perhaps the
most important change in the enforcement dynamic that I have experienced as a
result of our audit law is the "getting-on-to-solutions" attitude that inherently ac-
companies each disclosure. The violation is not disputed. No legal posturing is nec-
essary. We begin negotiation at a point that is too often delayed in traditional en-
forcement processes. Protracted arguments about questions of interpretation, the
proper application of relevant factors in penalty calculations, legalistic wording of
enforcement orders with little benefit to either side and, of course, the penalty
amount itself do not delay compliance and remediation. The environment benefits.
Senator Brown. Mr. Johnson.
STATEMENT OF VICTOR S. JOHNSON
Mr. Johnson. Good afternoon. I am Torry Johnson, district attor-
ney general for Metropohtan Nashville and Davidson County, TN.
I have been fortunate to hold this elected office since 1987, and
prior to that I was an assistant prosecutor for approximately 10
years.
Today, I am here representing the National District Attome/s
Association as the chairman of its environmental crime prosecution
committee. I want to thank this subcommittee for the opportunity
to express the opposition of this Nation's local prosecutors to the
creation of a criminal privilege for environmental self-audits. Our
association is vitally interested in this debate, since environmental
crime is really a local issue because the large majority of criminal
prosecutions have been handled by this country's local prosecutors.
At the outset, let me be clear that the National District Attor-
ney's Association is concerned only with those provisions of the pro-
posed legislation that v/ill have the practical effect of handicapping
prosecutors and frustrating legitimate law enforcement activities.
To that end, the bo£ird of directors of the association, representing
54
each State in the Union, has passed a resolution expressly con-
demning a privilege for environmental self-audits. I have it today
and it has been made part of the record.
Our association is opposed to the creation of a privilege that will
only result in these already difficult cases becoming that much
more expensive, complex and time-consuming to prosecutors and
the people of our communities. As a matter of fact, it is vastly more
likely that a business will become involved with regulatory agen-
cies or with civil litigants than it is that they will ever be pros-
ecuted for an environmental crime.
As prosecutors and as citizens, we applaud reasonable efforts to
encourage, not punish, corporate responsibility in identifying and
rectifying environmental problems. However, as prosecutors sworn
to uphold the criminal law, we deplore provisions that go beyond
this goal and that seek to cripple law enforcement. Prosecutors
need to be free to pursue the environmental outlaw, whether it is
the midnight dumper who abandons 55-gallon drums of waste
along roadsides, the unscrupulous business that illegally stores
waste onsite or pumps it into the public sewage or storm water sys-
tem, or the bogus environmental professionals who use fraud and
subterfuge to mislead their own clients or unsuspecting third par-
ties.
These are the businesses and individuals that America's prosecu-
tors need to be able to prosecute without being hobbled by an envi-
ronmental self-audit privilege. This well-intended but misguided
shield that will purportedly defend responsible corporate America
can be quickly turned into a devastating sword in the hands of the
environmental criminal, their lawyers, experts and consultants.
The adverse impact of such a privilege is limited only by the imagi-
nation of those who would seek to thwart a legitimate investigation
into such wrongdoing.
I find it ironic that this same committee is looking at an exclu-
sionary rule reform to permit the use of evidence in criminal pros-
ecutions involving ordinary citizens, while at the same time it is
also looking at the means to restricting availability of evidence of
prosecutions that might involve the business community. The Na-
tional District Attorney's Association supports the efforts of this
Congress and this subcommittee to reform the exclusionary rule for
the same reasons that we oppose the legislation before you today.
Both the exclusionary rule and an environmental self-audit privi-
lege withhold the truth.
If corporate America has a genuine complaint about the way they
are treated by the regulatory community or by the civil justice sys-
tem, then I am certain that appropriate remedies can and will be
fashioned. But we find no validity to the claim that law enforce-
ment is using and abusing environmental self-audits to pillory un-
fairly a responsible corporate citizen.
In fact, I am not aware of any such case where an environmental
self-audit was used to criminally prosecute a company which iden-
tified a problem, disclosed its existence and remedied the con-
sequences. In such a situation, perhaps the company found itself
subject to regulatory action or civil suit, but not to criminal pros-
ecution.
55
Privileges in the criminal law have been infrequently created and
narrowly construed so as to strike a reasonable balance between
the interests of the communications to be guarded and the public's
interest to be protected. As Chief Justice Burger noted in the deci-
sion of United States v. Nixon:
These exceptions to the demand for every man's evidence are not Ughtly created
nor expansively construed, for they are in derogation of the search for truth.
The policy behind the infrequent creation of privileges has been
succinctly described by Chief Justice Burger in that same decision.
The ends of criminal justice would be defeated if judgments were to be founded
on a partial or speculative presentation of the facts. The very integrity of the judi-
cial system and public confidence in the system depend on full disclosure of all facts
within the framework of the rules of evidence.
The very concept of a privilege under criminal law has also a sa-
cred aura in that it restricts the availability of knowledge to those
seeking the truth. Thus, the privilege has been limited to those
personal relationships that we believe are of great import. Tradi-
tionally, these have included the relationship between husband and
wife, the priest and penitent, and the attorney and the client. I
would most strongly suggest that the business records of a corpora-
tion do not rise to this level of importance.
The role of the local prosecutor in America is a unique one. In
order to carry out the serious obligation of the office, the prosecutor
must exercise both judgment and discretion in determining where
time and scarce resources can best be used for the benefit of the
public at large. Egregious violators with no regard for public safety
are the most deserving of criminal sanctions. These are the persons
and businesses that give the well-meaning and conscientious cor-
porate citizen an undeserved black eye.
On behalf of the district attorneys of this country, I appreciate
the invitation to appear and express our position. We stand ready
to protect our precious environment and to see that those who do
it harm are punished to the fullest extent of the law. We respect-
fully urge that this body not enact legislation that will prevent us
from carrying out our sworn responsibility.
Thank you.
Senator Brown. Thank you.
[A resolution from the National District Attorneys Association
submitted by Mr. Johnson follows:]
Resolution
environmental protection committee
Whereas, the Nation's District Attorneys are the primary criminal enforcement
agencies; and
Whereas, criminal enforcement of environmental offenses became necessary since
civil and regulatory enforcement has not sufficiently deterred these offenses; and
Whereas, four states (Colorado, Indiana, Oregon, Kentucky) currently have self
audit legislation that creates an immunity-t3T)e privilege for the information con-
tained in a self audit; and
Whereas, the continued use of self audits coupled with any type of work product
or immunity privilege, confuses the criminal prohibitory laws with the civil regu-
latory laws; and
Whereas, business offenders are able to pass the cost of civil and regulatory en-
forcement efforts on to the consumer as opposed to criminal enforcement which in-
cludes an alternative of incarceration for individuals, including corporate officers,
that cannot be passed along; and
56
Whereas, deterrence of environmental offenses is of primary concern to the citi-
zenry, including other law abiding businesses, who spend the time and money com-
plying with environmental statutes and cannot compete with businesses operating
in an unlawful manner; and
Whereas, environmental self audits coupled with any type of work product or im-
munity privilege are a flawed enforcement tool because they represent the self inter-
ests of a large corporation; and smaller companies and businesses usually do not
have the resoiu-ces to compile self audits and therefore find it difficult to compete
in the market place; and
Whereas, allowing the use of self policing audits coupled with any type of work
product or immunity privilege creates a type of "safe harbor" and helps entities in-
sulate themselves from criminal prosecution; and
Whereas, there are no similar self policing type audits with privileges in any
other area of the criminal law; and
Whereas, the environmental self audit is different from other self policing conduct
(such as tax returns) in that there is a remedy available for other conduct (such as
pa)dng back taxes), but enforcement agencies cannot fully remediate the effects of
most environmental offenses; and
Whereas, self evaluation audits prepared by an individual or company contain cer-
tain potential prosecutorial problems such as attorney work product doctrines, quali-
fied immunity privileges and statutory immunity privileges; and
Whereas, the United States Environmental Protection Agency will be holding pub-
lic hearings to determine its position concerning self audit legislation on a national
level;
Therefore be it resolved, that, the National District Attorneys Association opposes
any regulation or legislation involving environmental self audits which provides for
privileges (statutory or common law), immunity or qualified immunity.
Adopted by the Board of Directors July 23, 1994 (Newport Beach, California).
Senator Brown. Ms. Bangert.
STATEMENT OF PATRICIA S. BANGERT
Ms. Bangert. My name is Trish Bangert. I am the senior deputy
solicitor general in the attorney general's office in Colorado. I ap-
preciate the opportunity to be here to testify regarding S. 582, and
I am testifying on behalf of the attorney general, Gale Norton.
As you well know, Colorado has an audit privilege and immuni-
ties law. That law grants an immunity, a documentary and testi-
monial immunity — I am sorry — privilege, for environmental self-au-
dits in cases where the audits have revealed violations that have
been corrected. It also grants immunity from some criminal pen-
alties, from civil and administrative penalties, where again viola-
tions have been discovered in the course of an audit, they have
been reported and they have been corrected. The law has a great
many features to ensure that the statute is not misused and to pro-
tect the environment, and I will talk about those a little later.
Colorado was the first State to consider immunity privilege legis-
lation in 1989. It was the first State to pass a bill that contained
both provisions in 1994. The Colorado legislation and Oregon legis-
lation were really the beginning of a trend. At this point, 17 States
have some sort of either privilege and/or immunity legislation. Ac-
tually, I was at the same conference that Steve Herman was at last
week, an environmental summit of attorneys general, and my per-
ception of that conference was that there was general agreement
that there have to be some sort of incentives for voluntary compli-
ance and that some sort of an immunity provision is fairly well ac-
cepted among the different States. Even the States that didn't have
statutes on immunity had administrative — or some of the States
had administrative processes whereby limited immunity was grant-
57
ed in certain cases. Those States include, for example, the State of
Minnesota.
I am here today to say that it is time for Federal legislation in
this area, and let me, if I may, give you some reasons for that. I
think that the Colorado program is working pretty well. I think the
Colorado program has been successful, but I think that the full im-
plementation of the program is not going to occur until there is
some Federal legislation, and there are a couple of reasons for that.
Even though we have had a number of companies that have
come forward — we have had, actually, 15 companies come forward
under the Colorado law, disclose violations and correct those viola-
tions — I suspect that companies are not coming forward because of
the threat of EPA over-filing. EPA has quite specifically said in the
case of Colorado, and made threats in the case of other States, that
they will scrutinize enforcement in States with audit privilege and
immunity bills more closely than in States that don't have those
kinds of statutes. EPA, as a matter of fact, in its final policy has
indicated that that scrutiny is going to be more extensive.
I think that the problem with that is that corporations can come
forward under the Colorado and they can disclose and that then be-
comes a matter of public information. They might get immunity
under the Colorado law, but it is actually handing the Federal Gov-
ernment a blueprint for prosecution.
Another problem that we have is the same problem that Texas
mentioned, and that is the threat of yanking of our delegated pro-
grams. Recently, we went to the EPA to ask them for permission,
or for delegation of some water programs. EPA came back and basi-
cally gave us two choices, and that is either to prove that 139, our
privilege and immunities bill, does not interfere with our enforce-
ment authorities or to sign an MOA with EPA agreeing that EPA
can do additional enforcement authorities, has additional enforce-
ment authorities in Colorado and will do additional over-filing. We
tried to explain to EPA that we thought that our enforcement au-
thorities were still there, but they were not convinced by that and
now we are discussing the terms of an MOA.
I guess for those reasons we really believe that some Federal leg-
islation is necessary at this point. We think that S. 582 is a good
start. We have some concerns about it and we would be happy to
work with staff to resolve those concerns. If you have any ques-
tions, I would be happy to answer them.
[The prepared statement of Ms. Bangert follows:!
Prepared Statement of Patricia S. Bangert
SUMMARY
We can all agree that the intended effect of environmental protection statutes
passed over the past three decades is to improve and protect the natural and human
environment. The President's National Performance Review concluded that many of
these laws, however, place a very real cost burden on local governments.
As you may know, Colorado has enacted a statute that sets out incentives for reg-
ulated industries to perform self-audits and to disclose violations found in those
evaluations. Specifically, the statute allows an evidentiary and testimonial privilege
for self-audits that are followed by prompt correction of any environmental viola-
tions found. Further, the law allows immunity from certain civil and criminal pen-
alties for violations reported and corrected.
58
Colorado's environmental audit law is based on the assumption that business will
respond positively to the incentives offered. In the long run, we expect that environ-
mental compliance will improve. This is especially true for small businesses.
Colorado's law has been successful in bringing the regulated industry and regu-
lators together, in encouraging audits and disclosures of violations, in having viola-
tions corrected, and in improving the environment. Two barriers, though, to full and
effective implementation of state privileges and immunities laws are the threat of
federal enforcement action and the threat of federal withdrawal of state delegated
programs.
Only federal legislation providing for parallel privileges and immunities provi-
sions can eliminate the uncertainty for businesses and states. For that reason, we
support legislative efforts such as S. 582. We would be happy to work with staff to
ensure that this or other federal legislation compliments, rather than detracts from,
state authorities and programs.
Congress should enact a law like S. 582. Significant compliance with our environ-
mental laws cannot be achieved through utilization of traditional enforcement meth-
ods, such as command and control alone. We must establish programs that offer
positive reinforcement to businesses if we are to make any gains in environmental
compliance. It is time that environmental laws passed in the 1970s are made work-
able for the realities of the 21st Century.
Mr. Chairman, members of the subcommittee, my name is Trish Bangert, I am
the Senior Deputy Solicitor General at the Colorado Attorney Greneral's Office. Colo-
rado Attorney General Gale Norton asked me to appear before you to discuss S. 582.
We appreciate the opportunity to testify before this subcommittee on this important
piece of legislation.
We can all agree that the intended effect of environmental protection statutes
passed over the past three decades is to improve and protect the natural and human
environment. The President's National Performance Review concluded that many of
these laws, however, place a very real cost burden on local governments. The EPA
estimates that, by the year 2000, local governments will need to spend nearly $44
billion annually to meet existing requirements. In August 1994, the Senate adopted
a "Sense-of-the-Senate", sponsored by Senator Brown, that acknowledged state-
passed environmental audit and self-evaluation privilege laws "as a low-cost oppor-
tunity to increase performance toward the intended effect of environmental protec-
tion statutes to improve and protect the natural and human environment."
In their role as "laboratories of democracy," as President Clinton likes to describe
them, eighteen states have passed a version of the environmental audit legislation.
As you may know, Colorado has enacted a statute that sets out incentives for regu-
lated industries to perform self-audits and to disclose violations found in those eval-
uations. Specifically, the statute allows an evidentiary and testimonial privilege for
self-audits that are followed by prompt correction of any environmental violations
found. Further, the law allows immunity from certain civil and criminal penalties
for violations reported and corrected.
Colorado's environmental privileges and immunities law is based on the assump-
tion that business will respond positively to the incentives offered. In the long run,
we expect that environmental compliance will improve because of the law. This is
especially true for small businesses. For example, those small businesses that are
newly covered by recent Clean Air Act amendments face a daunting choice. On the
one hand, they may wish to comply with the law and undertake an audit to deter-
mine how their practices must be changed to reach compliance. On the other hand,
they may perceive that it is a more logical business decision to blissfully ignore envi-
ronmental responsibilities, hope that regulators will be too busy to notice their small
enterprise, and come into compliance only when forced. They may fear that they are
already violating environmental laws, but are afraid to discover the truth. The Colo-
rado privileges and immunities law is designed to eliminate this dilemma for small
businesses.
COLORADO'S EXPERIENCE
Colorado's privileges and inMnunities law has been successful in bringing compa-
nies together with out Department of Health to solve problems. Approximately fif-
teen companies have come forward to disclose violations of the environmental laws.
These violations have ranged from permit exceedences to unpermitted discharges of
pollution. Many of these violations would not have been discovered by enforcement
personnel. More important, these are violations that have been or are being cor-
rected.
59
One example is a firm that discovered, through an audit, that it was operating
a boiler without the proper permits. The firm notified the Department of Health in
October 1994 about the problem; the company filed the appropriate permit applica-
tions, and the whole matter was resolved by January 1995.
In another case, a company found that it was discharging acetone into a sanitary
sewer. It disclosed this information and discontinued the practice.
In a recent case, a business found that its emissions of certain air pollutants ex-
ceeded permit limitations. The company met with the Department of Health and
agreed to, and did, submit permit modification applications and install more effi-
cient pollution control devices.
In other cases, companies, after disclosure of problems, have agreed to initiate ad-
ditional training programs for their employees, to additional investigations of poten-
tial problems, and to discontinue practices causing environment damage.
These examples illustrate that privilege and immunities laws can result in better
cooperation between industry and regulators, better internal reviews of environ-
mental compliance, and, most importantly, a better environmental.
NEED FOR FEDERAL LEGISLATION
There are, however, two potential barriers to full and effective implementation of
privileges and immunities laws. One barrier is the threat of a federal enforcement
action in cases in which companies have disclosed violations to state authorities.
The other threat is to state delegated programs.
Under Colorado's law, disclosures of violations to the state become public informa-
tion. The practical effect of a disclosure to gain immunity under state law is the
creation of a road map for federal enforcement. The company disclosing the dis-
charge of pollutants into a sanitary sewer may be immune from penalties under
state laws; but by disclosing it, it is handing EPA the evidence necessary to success-
fully prosecute it under federal law. In short, the lack of federal privilege and immu-
nity provisions parallel to those of the states has the potential to effectively cancel
out state laws.
Lest it be argued that federal enforcement is a hollow threat, there is ample evi-
dence to indicate that EPA will overfile in states with privileges and immunities
laws. The agency has consistently taken the position that it opposes privileges and
immunities laws. It has sent letters to many of the states attempting to enact privi-
leges and immunities laws opposing those efforts. Mr. Chairman, at this time, I
would ask that a letter from EPA to Colorado's Governor Romer be entered into the
record with my testimony.
More recently, in the EPA Voluntary Environmental Policing and Self-Disclosure
Policy Statement, EPA states its firm opposition to statutory environmental audit
privileges and to immunity provisions in most state laws. The agency clearly threat-
ens overfiUng with such laws when, in the interim policy at Section I.F., EPA states
"it reserves its right to take necessary actions to protect public health or the envi-
ronment by enforcing against violations of federal law." Even if it never overflies
in a specific case, EPA's threat alone will chill the implementation and use of state
privileges and immunities laws.
Further, the EPA final policy is not an adequate substitute for federal legislation.
While we applaud the agency's extensive efforts to gain public and state input into
its poUcy, and its sincere efforts to enact a policy that provides incentives for self-
evaluation, the policy is just that — a policy. In the end, it is a guidance document
only which, by its own admission, "does not create any rights, duties, obligations,
or defenses, implied or otherwise, in any third parties." In short, the final policy pro-
vides no certainty that enforcement action will not be taken.
In addition to the uncertainty for business caused by the lack of federal privilege
and immunity provisions, there is great uncertainty for state delegated and author-
ized programs. The EPA has made it clear that it will scrutinize delegated programs
in states with privileges and immunities laws to determine whether those states
have the necessary enforcement authorities to maintain those programs.
Recently, EPA has raised the issue of whether Colorado's privileges and immuni-
ties law will prevent the agency from approving the state's application to take over
certain programs under the Clean Water Act. Specifically, EPA has imposed unnec-
essary hurdles to the approval for delegation of the federal facilities, pretreatment
and biosolids programs to the state. Mr. Chairman, at this time I would ask that
a letter from Kerrigan Clugh to Thomas Looby, dated March 5, 1996, be entered
into the record with my testimony.
Of broader application, EPA headquarters has recently released a memorandum
providing guidance to its regions in evaluating the effect of privilege/immunity laws
on state air programs. The memorandum clearly suggests that such state laws may
40-017 97 - 3
60
take away the enforcement authority needed for states to carry out the Title V per-
mit programs. Without going into great detail here, we believe the memorandum is
written in such broad terms that it could potentially result in the withdrawing of
Title V delegation in many states with privilege and immunities laws. Mr. Chair-
man, at this time I would ask that a memorandum from Steven Herman to Jackson
Fox, dated April 5, 1996, be entered into the record with my testimony.
These express and implied threats by EPA to withdraw delegation under the
Clean Water and Clean Air Acts have an additional chilling effect on the implemen-
tation of state privileges and immunities laws. Only legislation setting out a parallel
federal privileges and immunities program can eliminate the uncertainty for busi-
nesses and states.
S. 582
We believe S. 582 is a good start at crafting a federal privileges and immunities
law. We have some concerns about the impacts of the bill on state enforcement au-
thorities. We would be happy to work with staff to resolve issues we might have
with the legislative proposal.
CONCLUSION
As I noted previously, states have traditionally been the laboratories for democ-
racy and the Union prospers when states are allowed to fully exercise this respon-
sibility. Colorado views its audit privilege and disclosure law as an experiment,
based on common sense, from which we can learn valuable lessons. The experiment
ends on June 30, 1999. Colorado will obtain information during the five-year dura-
tion of this venture and determine whether it is beneficial to Colorado's people and
environment. If so, we will continue the policy. If not, we will have learned a valu-
able lesson for ourselves and the other states in our Union. Whatever the eventual
outcome, it makes sense for the federal goverxunent to allow this venture to con-
tinue. The states cannot perform our role as laboratories from which the states and
the nation can learn, if we are not allowed to seek our own path.
Under current federal law, ignorance is rewarded while good faith compliance ef-
forts create risks of punishment. Congress should enact a law like S. 582, which is
designed to encourage small businesses to find out whether they are in compliance
and to take compliance steps sooner rather than later. Significant compliance with
our environmental laws cannot be achieved through utilization of traditional en-
forcement methods, such as command and control alone. We must establish pro-
grams that offer positive reinforcement to businesses if we are to make any gains
in environmental compliance. It is time that environmental laws passed in the
1970s are made workable for the realities of the 21st Century.
U.S. Environmental Protection Agency,
Denver, CO, April 29, 1994.
Hon. Roy Romer,
Governor of Colorado, State Capitol, Denver, CO.
Dear Governor Romer: I am writing to express the U.S. Environmental Protec-
tion Agency's serious concerns regarding proposed Colorado legislation that would
create an evidentiary privilege for "voluntary self-evaluations" of compliance with
environmental laws and penalty immunity for voluntary disclosures of violations
that such evaluations reveal. We believe that the proposed legislation places unwar-
ranted rigidity on the exercise of enforcement discretion. Indeed, we believe that
Colorado's environmental enforcement program would be significantly weaker than
the federal scheme if this legislation is enacted.
I must first emphasize that the Agency is committed to environmental auditing
and strongly encourages the regulated community to invest in auditing as a sound
business practice. Fortunately, there is every indication that environmental auditing
is on the rise in the regulated community — not only because it makes good business
sense as a means of helping regulated entities manage pollution control affirma-
tively over time, instead of reacting to crises, but also because it increasingly is re-
quired by lending institutions and insurance underwriters.
EPA is also aware of the wisdom of according environmental audits some measure
of privacy. We believe that EPA's current policy of environmental auditing strikes
the appropriate balance between respect for the confidential nature of environ-
mental audits and the need for enforcement authorities to retain enforcement dis-
cretion. EPA's July 1986 policy statement on environmental auditing states that "as
a matter of policy, EPA will not routinely request environmental audit reports." In-
stead, the Agency will ordinarily request audit report information only in limited
61
cases where "the Agency determines it is needed to accompHsh a statutory mission,
or where the Government deems it to be material to a criminal investigation." Re-
quests are likely to be made only for specific portions of an audit report, as opposed
to the entire report, and only where the information cannot be obtained from mon-
itoring, reporting or other means. For example, EPA might request audit informa-
tion where auditing is required under a settlement, a facility has raised its manage-
ment practices as a defense, or a defendant's state of mind is at issue (as in a crimi-
nal case). Every example cited by those who have suggested that EPA routinely ig-
nores this policy has turned out to be a case in which an audit privilege such as
Colorado is considering would not apply.
With respect to state enforcement programs, EPA's policy encourages states to
adopt policies similar to EPA's, but admonishes that "[r]egulatory agencies cannot
make promises to forgo or limit enforcement action against a particular facility or
class of facilities in exchange for the use of environmental auditing systems." The
proposed Colorado legislation raises serious concerns in this regard. First, the evi-
dentiary privilege portion of the bill creates numerous definitional issues that are
hkely to be vigorously contested — even in cases where an audit pri'/ilege or immu-
nity does not apply. The resulting delays or derailments of enforcement actions will
seriously impair Colorado's environmental programs. Of even greater concern, how-
ever, is the penalty immunity that the proposed legislation would establish for cer-
tain voluntary disclosures of violations. In efliect, the statute creates an absolute de-
fense for entities that conduct audits and take timely action to correct violations,
allowing violators to reap all of the economic benefit of even the most serious viola-
tions. Although we recognize the value in accounting for auditing in determining ap-
propriate penalties, Colorado's proposed immunity amounts to a significant depar-
ture from and weakening of the federal enforcement scheme. As a result, we antici-
pate a significant increase in the number of actions in which EPA "overflies" a state
enforcement action. More critically, the immunity provision in the proposed bill seri-
ously jeopardizes EPA approval of program delegations, such as the Title V permit
program under the Clean Air Act. EPA regulations implementing Title V require
states to have authority to recover civil penalties in a maximum amount of not less
than $10,000 per day per violation. In addition, states must have the authority to
impose criminal fines.
As EPA implements the reorganization of its headquarters enforcement program,
we will continue to work with industry and other interested groups in developing
innovative ways to promote compliance by encouraging environmental audits. Our
new Office of Compliance will be particularly well-suited to tailoring compliance as-
sistance and promotion to the specific community. This will include examining
whether and where empirical information indicates a need for further EPA and
state efforts to allay fears regarding the use of audit information in enforcement ac-
tions.
I strongly urge Colorado not to constreiin legislatively an area that is better left
to the measured development of executive policy regarding the exercise of prosecu-
torial discretion. I appreciate your consideration of EPA's views on this important
enforcement issue and I look forward to continuing to work with the State of Colo-
rado on effective ways to use enforcement tools to promote environmental compli-
ance.
Sincerely,
Jack W. McGraw,
Acting Regional Administrator.
U.S. Environmental Protection Agency,
Washington, DC, April 5, 1995.
Subject: Effect of Audit Immunity Privilege Laws on State Requirements.
From: Steven A. Herman, Assistant Administrator, OECA; Mary Nichols, Assistant
Administrator, OAR.
To: Jackson Fox, Regional Counsel, Region X.
I. introduction
A. Title V requires States to have adequate enforcement authority
This memorandum responds to your request for guidance as to whether certain
provisions of state audit immunity and privilege laws deprive the state of adequate
authority to enforce the requirements of Title V of the Clean Air Act. The Clean
Air Act (CAA), in Section 502(d), authorizes State to implement operating permit
programs pursuant to Title V of that law. Before a State's program can be approved,
however, the Environmental Protection Agency (EPA) must determine that the
62
State's permit program meets the minimum standards established under the law.
In particular, Section 502(b)(5) of the CAA requires states to have authority to en-
force the terms and conditions of Title V permits. These requirements protect citi-
zens from criminal conduct and violations that threaten public health and the envi-
ronment. They also ensure citizens of the fair application of federal laws, regardless
of whether they are administered by EPA or State agencies.
This memorandum offers gmdelines to assist the Region in determining whether
specific provisions of State audit privilege or immunity laws would in fact deprive
tlxe State of federally required authority to enforce the Title V permits. Because
State laws differ in important details. Regions should review laws of pending bills
closely in applying these guidelines, and consult with both States and headquarters
before making a determination. Where a State privilege or immunity law deprives
the state of adequate enforcement authority, as explained in these guidelines, it
must be amended before final Title V approval can be granted. These guidelines are
limited to enforcement authorities required for Title V approval, and do not address
other substantive program requirements.
Recently, State legislators, state officials, and various environmental groups have
questioned whether proposed immunity and privilege bills would jeopardize a
State's ability to enforce federally delegated programs, including those administered
under the Clean Water and Resource Conservation and Recovery Acts. While these
studies include requirements similar to those of the Clean Air Act concerning ade-
quate authority, they may also impose additional requirements not contemplated
under Title V of the Clean Air Act. For that reason, these guidelines are limited
to Title V, and the Office of Enforcement and Compliance Assurance (OECA) will
work with the Regions to prepare supplementary guidance to address enforcement
requirements of other statutes.
B. EPA support for auditing
EPA supports incentives which encourage responsible companies to audit to pre-
vent noncompliance, and to disclose and correct any violations that do occur.
Through its own policy issued on December 18, 1995, ^ EPA has agreed to reduce
civil penalties and not recommend criminal prosecution for certain types of viola-
tions discovered and corrected through voluntary self-policing. That policy was de-
veloped through an open process that included extensive consultation with States,
leading 16 State attorneys general to conclude:
The consultative process used in developing the policy provides an excellent exam-
ple of how EPA and the states work in harmony to encourage both voluntary compli-
ance and effective law enforcement.^
At the same time, EPA has consistently opposed blanket amnesties which excuse
repeated noncompliance, criminal conduct, or violations that result in serious harm
or risk, as well as audit privileges that shield evidence of violations from regulators
and jeopardize the public s right-to-know about noncompliance.
C. Consultation with States
This document offers general guidelines to assist in the review of State audit
privilege and immunity legislation. It should be noted that these State laws differ
in important details: while some will affect a State's ability to enforce provisions of
Title V permits, others will not. Using the guidelines laid out in this memorandum,
the Agency will need to evaluate the impact of individual State statutes on Title
V enforcement on a case-by-case basis. EPA beUeves that minimum statutory en-
forcement standards for federal programs will not discourage innovation or jeopard-
ize the strong working partnership the Agency is developing with States. The Agen-
cy will make every effort to work cooperatively with States to resolve any problems
that may arise due to conflict between federal and State law.
D. Principles
The following principles should guide EPA's analysis of State audit privilege and/
or immunity legislation with respect to Clean Air Act Title V program approval:
EPA's review should be focused upon those few provisions that conflict with specific
federal requirements for adequate enforcement authority. Some provisions in State
laws may be ambiguous. EPA may accept reasonable opinions from the State Attor-
ney General which interpret the statute as providing the State with the required
authority. EPA will consult closely with States, and provide them with ample oppor-
tunity to correct specific problems. Pursuant to Clean Air Act Section 502(g), EPA
1 "Incentives for Self- Policing: Discovery, Disclosure, Correction and Prevention of Violations,"
60 Federal Register 246 (December 22, 1995), pages 66706-66712.
2 Letter to EPA Administrator Carol M. Browner, dated January 26, 1996. In total, the sig-
natories included 19 state oflicials.
63
has and will generally continue to grant interim approval to States with audit legis-
lation, but will identify whether specific provisions must be changed before final ap-
proval can be granted.
II. SPECIFIC ENFORCEMENT AUTHORITIES REQUIRED FOR TITLE V DELEGATION
A. Emergency orders I injunctive relief
Emergency Orders: The State must have authority to bring suit to restrain re-
sponsible persons where a pollution source or sources is presenting an "imminent
and substantial endangerment" to the public health or welfare or the environment.
The Clean Air Act, at Section 110(a)(2)(G), requires such authority for state imple-
mentation plans, the provisions of which must be incorporated into Title V permits.
The Title V regulations, at 40 C.F.R. 70.11(a)(1) also expressly require States to
have the authority to seek emergency orders. This authority should be clear, and
not constrained by express or implied limitations in State immunity laws.
Injunctive Relief: The State must have clear authority to seek injunctive relief
where needed to stop a violation, correct noncompliance, and prevent its recurrence.
Injunctive authority is essential to the State's ability to assure compliance and en-
force permits under Section 502 of the Clear Air Act. The Title V regulations, at
40 C.F.R. Section 70.11(a)(2), explicitly require States to have such authority, which
should be clear and unfettered by either express or implied limitations in State im-
munity laws.
B. Criminal enforcement authority
Knowing Criminal Conduct: Section 502 of the Clean Air Act requires states to
have authority to recover "appropriate" penalties for criminal conduct, which in the
Title V regulations (40 C.F.R. Section 70.11(a)(3)(ii)) includes "knowing" criminal
conduct. Any legislation that immunizes willful, intentional, or knowing criminal
conduct conflicts with this requirement, and must be amended before final Title V
approval may be granted.^
Burden of Proof: The title V regulations, at 40 C.F.R. Section 70.11(b), prohibit
the burden of proof and degree of knowledge or intent required under State law for
establishing civil or criminal liability to be greater than is required under federal
law. State immunity laws that, for example, require a showing of specific intent or
harm to the environment to establish criminal liability, are inconsistent with this
requirement and must be amended before final Title V approval can be granted.
C. Civil penalty authority
Section 502 of the Clean Air Act requires States to have authority to recover civil
penalties of at least $10,000 per day for violations of Title V permit conditions (see
also 40 C.F.R. 70.11). States must exercise that authority by collecting penalties ap-
propriate to the violation.
Section 113(e) of the Clean Air Act, which addresses "Penalty assessment cri-
teria," mandates that the Administrator or the court "shall take into consideration"
certain factors in assessing penalties. To the extent that state laws provide an im-
munity from civil penalties that does not permit any consideration of these factors,
appropriate civil penalties cannot be assessed; and a State's Title V permit program
should not be approved. Factors that must be considered in determining an appro-
priate penalty pursuant to Section 113(e) of the Clean Air Act include: "the viola-
tor's full compliance history and good faith efforts to comply, the duration of the vio-
lation * * *, payment by the violator of penalties previously assessed for the same
violation, the economic benefit of noncompliance, and the seriousness of the viola-
tion.".
Thus, a State Title V program should not be approved if State law provides immu-
nity from civil penalties for repeat violations, violations of previous court or admin-
istrative orders, violations resulting in serious harm or risk of harm, or violations
resulting in substantial economic benefit to the violator."* These considerations are
also reflected in EPA's poHcy on Incentives for Self-Policing. EPA should approve
3 The Clean Water Act regulations require states to have the authority to seek penjilties for
"gross negligence".
■•The Agency recognizes that there may be different ways to calculate any economic gain that
may have occurred from a violation, and that the use of ziny specific model or assumptions is
not required.
64
state programs which include conditions substantially equivalent to those reflected
in the Clean Air Act and regulations, and adopted in EPA's policies.^
D. Privilege
The regulations governing program approval do not specifically address the scope
of privileges available in State enforcement actions. Minor variations among States
with regard to generally available privileges {e.g., attorney-client communication)
would not affect program approval. However, where a State adopts a very broad
privilege law, specifically directed at evidence related to environmental violations,
that privilege could go so far as to render the overall State enforcement program
inadequate even if other authorities {e.g., injunctive relief and penalties) were nomi-
nally available. An excessively broad privilege could so interfere with the exercise
of these authorities as to render them largely meaningless by depriving the State
of the ability to gather evidence needed to establish a violation.
The point at which a privilege law goes too far is difiicult to define in general
terms, and such laws will have to be evaluated on a case-by-case basis. However,
certain types of provisions are particularly likely to raise this concern and will gen-
erally lead to a finding that the enforcement program is inadequate.
Information Required by Law, Regulation, or Permit: In order to assure compli-
ance effectively, as required by Section 502(b)(5)(A) of the Clean Air Act, the State
must have access to evidence to determine whether violations have, in fact, been
corrected. At a minimum. State law must not limit an Agency's access to informa-
tion that federal or state laws or regulations require to be collected, maintained, re-
ported, or otherwise made available. These include, for example, compliance plans,
emissions or monitoring reports, and compliance certification under Title V, which
are also required to be publicly available.
State Access Needed to Verify Compliance: Where an audit produces evidence of
noncompliance, but State law prevents the enforcing agency from reviewing that
evidence to determine whether the violation will be corrected, the State is unable
to assure compliance. Such provisions must be addressed prior to any final Title V
approval.
Audit Presents Evidence of Criminal Conduct: Similarly, where an audit reveals
evidence of prior criminal conduct on the part of managers or employees, but the
State is barred from using such information, the State lacks the ability to obtain
appropriate criminal penalties as required by Section 502(b)(5)(E) of the Clean Air
Act.
Sanctions for Disclosure of Privileged Information: Another area of concern is laws
that impose special sanctions upon persons who disclose privileged information.
Courts have effectively exercised control over such disclosures in other areas pro-
tected by privileges (such as the attorney-client and doctor-patient privileges)
through inherent powers to exclude evidence and other general sanctions. Special
sanctions in this area are unwarranted and, especially where the potential for liabil-
ity is broad and the privilege is not clearly defined, would have a chilling effect upon
disclosures well beyond the intended reach of the privilege. Confidential informants
are a critical source of leads for EPA's criminal enforcement program, as they are
for enforcement programs throughout Federal and State governments. Indeed, the
Clean Air Act specifically protects "whistle blowers" from retaliation (Section 322)
and also provides awards for persons who furnish information that leads to a crimi-
nal conviction or a civil penalty (Section 113(f)). Therefore, provisions that penalize
those who disclose information related to a possible violation of the Clean Air Act
may be inconsistent with an adequate enforcement program.
This list is not intended to be exhaustive, and other factors may also cause a
privilege law to be excessively broad. For example, laws that define the term "audit"
loosely may shield so much information as to significantly impede enforcement ef-
forts, or may lead to very broad assertions of privilege that consume inordinate time
and resources to resolve.
5 EPA's policies include the eifore-mentioned policy on Incentives for Self-Policing, the interim
policy on Complieince Incentives for Small Biisinesses, and the policy on Flexible State Enforce-
ment Responses to Small Community Violations.
65
U.S. Environmental Protection Agency,
Denver, CO, March 5, 1996.
Re comments on draft response to self-audit law questions.
Thomas Looby,
Director, Office of Environment, Colorado Department of Public Health and Environ-
ment, Denver, CO.
Dear Mr. Looby: As you are aware, we are continuing to work together to assure
that your CPDES program modification application fully addresses the required and
recommended actions provided in the July 12, 1995 letter from Steve A. Burkett,
P.E., Chief NPDES Branch, Water Management Division, EPA Region VIII, to Rob-
ert Shukle, Chief, Permits and Enforcement Section, Water Quality Division, Colo-
rado Department of Health regarding SB 94-139, the Environmental Self-Audit Bill,
enacted in June 1994. The date for EPA's final determination of completeness has
been extended several times for us both to address these actions. The current dead-
line is March 6, 1996, which is twenty-five (25) Federal workdays following the last
deadline of January 30, 1996.
On January 9, 1996, we received a telefax of your draft letter responding to our
request for more information. On January 17, 1996, we received a telefax of the
draft letter to you from Martha Rudolph, Colorado Office of the Attorney General.
This letter, which you intend to attach to your formal response, addresses the im-
pact of SB 94-139 and federal delegation of the NPDES program (including
pretreatment, sludge management, and federal facilities) to Colorado. Enclosed are
our Agency comments regarding your draft letter and the draft letter from Ms. Ru-
dolph.
Please provide your formal response with signed legal opinion from the Office of
the State Attorney General by March 25, 1996. Upon receipt of yovir response we
will make our determination of completeness. The ninety-day review and approval
period referred to in 40 CFR 123.61 will be calculated from the date we receive your
response. If we do not receive a formal response by March 25, 1996, we will assume
you have decided not to provide an official response to our request for more informa-
tion concerning SB 94-139 and will return your application with a determination
that it is incomplete, or we can arrange another extension at your request.
If you have any questions or comments, please contact me at 312-6928 or Janet
LaCombe, of my staff, at 312-6287. Thank you for your attention to this matter.
Sincerely,
Kerrigan G. C lough,
Assistant Regional Administrator,
Office of Pollution Prevention, State, and Tribal Assistance.
Comments Regarding the Draft Letters Addressing Senate Bill 94-139
COMMENTS regarding THE ATTACHMENT TO THE DRAFT LETTER FROM THOMAS LOOBY
(PROPOSED WORDING FOR MOA)
1. EPA agrees to the proposed wording, with some changes, as noted below:
EPA and CDPHE recognize that they are partners in [Federal] environmental en-
forcement and that it is desirable to create a climate in which Colorado can be inno-
vative, while maintaining an enforcement program which meets the requirements
for State-authorized NPDES programs. Likewise, both agencies place a high value
upon compliance promotion as a useful alternative to enforcement in some in-
stances. [It is agreed that] Voluntary evaluations, [evidentiary privileges,] and pen-
alty reductions [or limited immunity] may be useful tools in some cases to achieve
higher compliance rates and environmental benefit.
[At the same time,] EPA is required to establish a certain minimum consistency
in federal enforcement, so that sanctions a business faces for violating federal law
do not depend on where the business is located. Colorado has enacted a state law
providing an evidentiary privilege and statutory immunity from fines and penalties
in certain instances. The state agency believes that EPA should assume a posture
of letting the state environmental law have a chance to work and demonstrate its
environmental benefits.
In accordance with the national agreement between EPA Headquarters and the
Environmental Council of the States, each state and region is free to proceed to de-
velop oversight paradigms in the context of their Environmental Performance Part-
nership Agreements.
Accordingly, to maintain national consistency, EPA is free to provide the type of
oversight developed through the EPA process which may include year-end pro-
66
grammatic reviews on one end of the spectrum and, on the other, scrutiny of en-
forcement more closely in a state where environmental self-audit privileges or pen-
alty immunities may exist. As Colorado has such provisions, increased scrutiny
[may] will apply to enforcement actions where the State's privilege or immunity pro-
visions are being employed under the Colorado Discharge Permit System program,
general permit program, federal facilities program, pretreatment program, and bio-
solids program. EPA may find it necessary to increase federal enforcement where
environmental self-evaluation privileges or penalty immunities prevent the State
from obtaining: 1. information needed to establish criminal liability; 2. facts needed
to establish the nature and extent of a violation; 3. appropriate penalties for immi-
nent and substantial endangerment or serious harm to human health or the envi-
ronment, or from recovering economic benefit; 4. appropriate sanctions or penalties
for criminal conduct and repeat violations; and 5. prompt correction of violations,
and expeditious remediation of those that involve imminent and substantial
endangerment to human health or the environment.
[The Water Quality Control Division will enforce the Colorado Water Quality Con-
trol Act in lieu of EPA enforcement of the Clean Water Act, except maybe as limited
herein. The CDPHE Water Quality Control Division will, likewise, implement the
state provisions pertaining to evidentiary privilege and statutory immunity as
adopted by the Colorado General Assembly.]
2. In the enclosure to its July 12, 1995 letter, EPA indicated that the MOA should
contain a reporting requirement regarding the names of facilities conducting self au-
dits. The requirement is set forth below. In subsequent letters, EPA referred to that
requirement. EPA considers this to be a required item in the MOA, because of its
importance in demonstrating how Colorado is implementing its self-audit legisla-
tion.
Please add an item 15 to Section VI, "Reporting and Transmittal of Information",
as follows: 15. A list of facilities which have notified the State that they will con-
duct, are conducting, or have conducted environmental self-evaluation within five (5)
days of notification.
If providing names of facilities is not acceptable to Colorado, EPA requests that
the Attorney General letter discuss what information relating to its implementation
of the audit legislation that Colorado could provide EPA and under what conditions
the information could be provided. EPA requests that the MOA, item 15 of Section
VI define the information which would be provided and frequency of reporting. Ex-
amples of such information may include: how many self-audit reports and disclo-
sures were provided to the Department; how many of these were determined to be
covered by SB 94-139; how many of these, if any, were reviewed in camera by any
judge and what the results of the in camera review were; what types of violations
were found; how many compliance schedules were developed; what time periods and
other requirements were included in the compliance schedules developed to address
disclosed violations; whether any criminal penalties were waived and, if so, what
violations were involved; and copies of any written guidance to technical staff defin-
ing the process to be used for determining whether self-audit reports and disclosures
are covered by SB 94-139.
COMMENTS REGARDING THE LETTER FROM THE OFFICE OF THE STATE ATTORNEY
GENERAL
1. Exemptions to Statutory Privileges and Immunity. On January 17, 1996, Colo-
rado provided EPA with a drafl; letter, dated August 1, 1995, from Martha Rudolph,
Assistant Attorney General. This letter stated, in part: SB 94-139 will have only
marginal impact on Colorado's Water QuaUty program, the self-evaluation privilege
created in section 1 of SB 94-139 does not apply to any information required to be
av£iilable, reported, or furnished under any law, including the Clean Water Act and
the Colorado Water Quality [Control] Act, and associated regulations. The Division
will still have access to such information consistent with the requirements of the
CWA and the [CWQCA].
The draft letter also stated, on page 6, that "the Division may not be able to as-
sess civil or criminal penalties for some violations of the [Colorado Water Quality
Control Act]. * * *"
EPA requests that the Colorado Attorney General's Statement address what civil
or criminal violations, if any, of any regulation, any order issued by the Division,
any NPDES permit condition, any NPDES filing requirement, or any duty to allow
or carry out inspection, entry, or monitoring, would be covered by the audit privi-
lege, the witness privilege, or the presumption against penalties.
As discussed below and in Ms. Rudolph's drafl letter, it appears that many viola-
tions are not covered by the audit privilege, the witness privilege or the presump-
67
tion against penalties. It is not clear what violations, if any, could be exempt from
enforcement actions by virtue of SB 94—139.
For example, no violation of any discharge permit would appear to be covered by
the audit privilege. Section 6.9.4(16) (5 CCR 1002-2) provides: Permits shall require
that the permittee report all instances of noncompliance at least annually.
Given the requirement for the permittee to report all instances of noncompliance
at least annually, it would appear that any permit violation (and, at least arguably,
any violation by a permittee of any control regulation or other requirement) would
fall within the exception provided by C.R.S. Section 13-25-126. 5(4)(a). This provi-
sion exempts "documents or information required to be developed, maintained, or
reported pursuant to any environmental law or any other law or regulation" from
the self-evaluation privilege.
Another example of a violation that may not be covered by the audit privilege is
discharging without a permit. This is not in itself a permit violation. However, any
person who discharges into waters of the state is required by Section 6.5.1 (5 CCR
1002-2) to submit an application to the Division at least one hundred eighty days
prior to the discharge. Therefore, any person discharging without a permit would
have been under an obligation one hundred eighty days before the discharge to no-
tify the Division. This would appear to bring the violation within the exception to
the audit privilege provided by C.R.S. Section 13-25- 126.5(4Xa).
It is less clear whether an unpermitted discharge would be covered by the pre-
sumption against penalties. Section 6.5.1 (5 CCR 1002-2) Sec. 25-1-114.5(3) pro-
vides that any disclosure required under a specific permit condition or an order
would not be a "voluntary disclosure" for purposes of the presiunption ag£dnst pen-
alties. If no specific permit condition or order requires a discharger to disclose an
unpermitted discharge, then disclosure of an unpermitted discharge woxild possibly
be "volvmtary" and not subject to penalties.
EPA requests that the Attorney General's opinion clarify: What, if any, any dis-
charge permit violations are not required by Colorado law to be reported to the Divi-
sion; whether the requirement of Section 6.9.4(16) to "report all instances of non-
compliance at least annually" covers a permittee's violation of any CDPES regula-
tion, order, or other requirement regardless of whether that requirement is found
in the permit; whether there is any circumstance in which the violation of discharg-
ing without a permit would not be required to be reported to the Division, and
therefore has the potential to be subject to the audit privilege or the witness privi-
lege; whether there is any circumstance in which the disclosure of an impermitted
discharge would be considered a "voluntary disclosure" subject to the presumption
against penalties; whether any violation of any pretreatment standard or require-
ment, including the regulations at 4.3.0 (5 CCR 1002-20), would be subject to the
audit privilege, the witness privilege, or the presumption against penalties; whether
any violation of any sludge regulation at 4.9.0 (5 CCR 1002-19), would be subject
to the audit privilege, the witness privilege, or the presumption against penalties;
and whether the exemptions to the audit privilege in C.R.S. § 13-25-126.5(4) are
sufficiently broad so that Colorado has adequate authority "[t]o inspect, monitor,
enter, and require reports to at least the same extent as required in Section 1318
[Section 308 of the Clean Water Act]." Authorized state NPDES programs are re-
quired to have this authority according to Section 402(b) of the Clean Water Act,
33 U.S.C. Section 1342(b).
2. Injunctive Relief One of the conditions for the presumption of immunity from
penalties in C.R.S. §25-1-114.5 is that the violator correct the noncompliance with-
in two years. This condition raises some question as to whether Colorado can pvirsue
injunctive relief during this two-year period. EPA requests that the Attorney Gen-
eral's Statement clarify whether the State has authority to piu-sue injunctive relief
diuing this two-year period. (Note: The December 18, 1995 draft letter from Thomas
Looby stated that the rebuttable presumption of statutory immunity applies only to
monetary fines and penalties and that "the full range of other enforcement options
remains available," but it did not specifically address this two-year period.)
3. Burden of Proof The August 1, 1995, draft letter from Ms. Ruduloph stated,
"Burden of proof is only addressed by SB 94-139 in the context of disproving the
existence of a privilege, or rebutting the presumption that a disclosure of a violation,
made to obtain immunity from the assessment of penalties, was voluntary."
However, EPA remains concerned that when the only way to prove a violation is
through a self-audit, Colorado must disprove the existence of a privilege in order
to prove the existence of a violation. Similarly, if the only way to prove a violation
is through a disclosure by the violator, Colorado could not obtain any penalty unless
it could rebut the presumption that a disclosure was voluntary. These steps are not
68
required to prove a violation or to obtain penalties ^ under the Clean Water Act.
Therefore, it would appear that Colorado law requires a greater burden of proof
than allowed by 40 C.F.R. Section 123.27(b)(2). EPA requests that the Attorney
General's statement clarify this issue.
Senator Brown. Thank you all. It has been a most helpful panel.
I did have a few questions, and I know we are on a press for time,
but, Ms. Bangert, maybe you would help me with one aspect of
your testimony. You mentioned that Colorado's law provides for im-
munity from some penalties for those folks who both report and
correct the violation. Can you give us a framework of what areas
the immunity applies to and what areas it does not?
Ms. Bangert. The immunity would apply to the situation where
there is a violation that was discovered in an audit and it was dis-
closed and it was corrected. What the immunity grants is immunity
from fines and penalties for civil cases, administrative cases, and
criminal cases where there is negligence involved, not where there
is some knowing violation or willful violation.
Senator Brown. Somewhat similar to what was described for
Texas?
Ms. Bangert. Yes, yes, but also I think an important point to
make about the disclosure immunity is that it is immunity from
fines and penalties. It does not in any way interfere with the
health department's ability to issue cease and desist orders or com-
plismce orders or go in for injunctions to protect the environment
or to stop some bad action.
It also does not apply to disclosures that are required to be made
under permits or orders. Therefore, Ms. Coleman's example of the
bad spill that might be covered up by an audit in Colorado, No. 1,
because that is a disclosure that is required to be made; No. 2, be-
cause it didn't result from an audit. In addition, we have safe-
guards against bad actors utilizing the disclosure immunity provi-
sions.
Senator Brown. As we attempt to do in the draft here.
Mr. Johnson, you were very helpful in your testimony. I wanted
to ask you, other than information submitted in a voluntary audit
that could have probative value in terms of court proceedings,
criminal proceedings, do you see this proposed statute as barring
any other evidence in a criminal proceeding?
Mr. Johnson. Well, Senator, I think that that is what is trou-
bling to prosecutors generally, is that when you seek to create a
privilege and immunity provision that understandably is trying to
draw a balance between the good actor and the bad actor, the dif-
ficulty is tr3Hing to do that in a way that is not going to be abused
by — as I say in my comments, the imagination of criminal defense
attorneys never ceases to amaze me, and I think what concerns us
is the mischief that this can create if used in a proactive sense
from a corporate standpoint.
I couldn't give you what examples I think might happen because,
to be honest with you, it is very difficult. I can imagine compa-
nies — I am not talking about the responsible ones, but the irrespon-
sible ones who are able to use the privilege, much like drug dealers
* Under EPA's self-audit policy, if a violation were voluntarily disclosed, EPA would not seek
the gravity component of a penalty, but it would be able to recover the economic benefit compo-
nent.
69
today, we find, keep attorneys basically on retsdner to take full ad-
vantage of the attorney-client privilege and thwart frequently ongo-
ing, long-term investigations to utilize that privilege. That is a
privilege that we have all agreed to and is part of our law. I am
just saying that to create yet another one in the area of criminal
prosecution raises a whole number of issues that it will take years
for the courts to resolve.
Senator Brown. I am not doing too well, I guess, phrasing ques-
tions. Let me try again. The drafters of this statute tried to draft
it so that anything that was admissible on its own could be admit-
ted in terms of prosecution.
Mr. Johnson. Correct.
Senator Brown. Have we missed anything that is admissible on
its own without the audit in terms of making it clear it is admissi-
ble?
Mr. Johnson. I mean, I think as far as the reports that have to
be made otherwise, are those the things you are referring to?
Senator BROWN. Well, if I understood what you were getting at —
and I may not have so you may want to correct me, but if I under-
stood what you were getting at, you are concerned this could lead
to some game-playing where someone would voluntarily report
something and then somehow think that gave them protection from
that fact being proven in court even though it might be available
from another source.
Mr. Johnson. Well, yes, that is one issue, but also, frequently,
if things come to our attention, the other issue is was this known
beforehand. You know, what steps had the company taken before?
Had they voluntarily complied for years and then decided it was
simply too expensive? Is that kind of information available in their
records that would otherwise typically be discoverable either
through search warrant or subpoena, grand jury, whatever, that
might be protected down the road if they claimed that it fell under
a self-audit privilege?
Senator Brown. I might say I think the interests of the folks
drafting this were to make it crystal clear that an3rthing that was
admissible now to prove a criminal case would continue to be ad-
missible, and they tried to draft very broad language to do that, ex-
cept for something comparable to a self-confession. If, as you review
the language, you find a better way of saying it or way to make
it clear, we would appreciate that because I think that is the intent
here to make it clear that there is no evidence lost that would be
available.
I want you, if you can, for a moment just to switch sides. Pros-
ecutors have been known to do that in their career. Let us say you
are a defense counsel and the defendant says, I want to go to the
prosecutor and tell him everything I know even though it is against
my interest. What would your advice be to them?
Mr. Johnson. Well, I would have to know a lot about the case,
but, honestly, in this situation if a company — switching sides back
to my role which I am far more familiar with as a prosecutor,
if
Senator Brown. I don't want to take you out of your expertise,
but I have a feeling you have some good knowledge on both sides.
70
Mr. Johnson. I did spend time as a defense attorney, and frank-
ly going to the prosecutor, if you are being honest, is a very valu-
able defense tool. If you are not being honest, it can be a real prob-
lem. But what I am suggesting is, from a prosecutor's standpoint,
if a company were to come in and say, we discovered this — now, I
am talking about criminal — I am not talking about regulations,
civil lawsuits or anything like that. But if they came in and said,
we discovered this on our own, we are bringing it to your attention
and this is the action we have taken to rectify it, that is not a ter-
ribly attractive case from a criminal prosecution standpoint if there
is nothing else.
In other words, if they don't have a history of this type of behav-
ior and you can't show that it was somehow a subterfuge or was
a fraudulent effort to avoid prosecution — I mean, if they are, in
good faith, coming forward, it would be an unusual prosecutor, to
say the least, that would find that to be an attractive case to pros-
ecute criminally. Now, again, I am not talking about what other as-
pects there may be of that disclosure, but that is not a case that
prosecutors typically would jump at the chance of taking to a jury
or anjrwhere else.
Senator Brown. I think that is a good observation. Do you think
the existence of this law would result in areas of pollution coming
to Ught that wouldn't come to light without it? Will we know more
about violations and will we have more of them cleaned up if you
have this law than if you don't?
Mr. Johnson. Well, I think what it is safe to say is — all I am
saying is that there are certainly some arguments that can be
made. Now, frankly, I think the EPA policy is something that is
well worth looking at and seeing how that works over time and
whether that encourages additional responses.
I guess my point is if you simply carve out for the purposes of
this statute criminal — just leave criminal off to the side, I think
you are — criminal is a very small fraction. We are not here to say
that — where the rubber meets the road in these issues is dealing
with whether civil litigation or regulatory action. The criminal is
always very rare.
Senator Brown. Normally, the most egregious.
Mr. Johnson. It is a utilization of resources. What you are look-
ing for is what causes the greatest damage and where that person
looks to be the most outrageous in their activity. Those are the peo-
ple that you want — and I say people meaning either individuals or
corporations — those are the people that are deserving of criminal
sanctions and those are the people that we feel that not only would
the Senate want prosecuted, the people want prosecuted and pros-
ecutors want prosecuted. All we are concerned about is something
that would, in essence, cause some potential problems in restricting
our ability to do just that in the deserving case.
Senator Brown. Thank you. Mr. Riley, does the Texas law result
in more of these pollution instances coming to attention and being
corrected than would be without the law, in your view?
Mr. Riley. In my view, it does, primarily in the area of what is
entailed during a routine compliance inspection. Obviously, we are
limited in our resource application, as everyone else is. We are not
capable in most instances of performing a comprehensive review
71
that covers time spans ranging in 10 years in some of the audits
that we have seen already. So, certainly, to that extent, it illumi-
nates or brings forward violations that might otherwise have gone
undetected by traditional enforcement inspection.
We are experiencing those benefits presently. We have seen in
the instances that have come to light under our disclosure law that
companies have detected violations that we would not have de-
tected through our own efforts. So the answer simply is yes.
Senator Brown. Obviously, concerns have been raised by some
that some serious violations would be barred from prosecution, or
strong civil action may be precluded by the existence of these kinds
of statutes. Has that happened in Texas?
Mr. Riley. Enforcement action is not precluded at all. What may
be precluded is imposing a punitive sanction, either a penalty
amount or a criminal sanction. But there is no immunity under
Texas law from enforcement; that is to say that we may still pro-
ceed through the enforcement process in a self-disclosed violation
to an injunctive order. So we are not eliminating enforcement au-
thority or giving complete relief from enforcement authority. We
are simply eliminating the punitive sanctions and the penalties.
Senator Brown. What about criminal prosecutions? Have they
been inhibited?
Mr. Riley. Not in my experience. Part of my division is a crimi-
nal investigative unit called the Special Investigations Unit. The
assistant director of that unit chairs a multiagency State-Federal
criminal investigative task force, and to date we have not experi-
enced any instance where this privilege has been asserted. We
have experienced instances where the attorney-client privilege has
been asserted, and I recall one where essentially a room full of doc-
uments, floor to ceiling, was asserted to be protected by attorney-
client privilege.
Senator BROWN. Ms. Bangert, your thoughts on Colorado. Has
the Colorado statute resulted in the disclosure and correction of
more environmental problems or not made a difference in that
area?
Ms. Bangert. Well, there have been 15 companies and maybe 20
violations that have been disclosed and then corrected, and one
would have to assume that at least some of those would never have
been found independently. Therefore, having even one violation cor-
rected is a positive gain for the environment.
Senator Brown. I appreciate the panel's testimony. It has been
very helpful, and I hope as you all think about this, if you have
suggestions for us as you pore through this, we would very much
appreciate hearing from you. Thank you.
We will ask the fourth panel to come forward. Senator Don
Ament from Sterling, CO, is with the American Legislative Ex-
change Council. Mr. Jerry Richartz is the Corporate Manager of
Environment and Energy at the Oregon Steel Mills, and Mark
Woodall is Chair of the Audit Privilege Task Force of the Sierra
Club.
Mark, we have heard a lot today about privileges. Apparently,
that is your specialty. Will you start us off?
72
PANEL CONSISTING OF MARK WOODALL, CHAIR, AUDIT PRIVI-
LEGE TASK FORCE, SIERRA CLUB, WOODLAND, GA; JERRY O.
RICHARTZ, CORPORATE MANAGER FOR ENERGY AND ENVI-
RONMENT, OREGON STEEL MILLS, INC., PORTLAND, OR, ON
BEHALF OF THE STEEL MANUFACTURERS OF AMERICA AND
THE NATIONAL ASSOCIATION OF MANUFACTURERS; AND
DON AMENT, COLORADO STATE SENATOR, DENVER, CO, ON
BEHALF OF THE AMERICAN LEGISLATIVE EXCHANGE COUN-
CIL
STATEMENT OF MARK WOODALL
Mr. WoODALL. I would be glad to. Thank you, Mr. Chairman. My
name is Mark Woodall and I am the Legislative Chair for our Geor-
gia Chapter, as well as the Chair of the Audit Privilege Task Force.
I do thank you for the opportunity to appear here today on behalf
of our 550,000 members of the Sierra Club.
We as the Sierra Club are very opposed to the creation of any
new privileges or immunities, and therefore we strongly oppose
S. 582 as it is written. I think it is very edifying as we have fol-
lowed this legislation around the country to take a look at some of
the names that have been given to this bill. In Georgia and Florida,
it was known as the Right to Poison People and Property and Keep
it Secret, the Pollution Secrecy Act, the Find It and Hide It Bill,
the Polluter Relief Act. In Arizona, it was dubbed the Bhopal Bill
and the Dirty Secrets Act. I could go on with the names. I think
really it should be called the Obstruction of Justice Act.
Senator Brown. It sounds to me like you may not favor this.
[Laughter.]
Mr. Woodall. Yes, sir, we are opposed to it.
As you have heard today, this bill has been adopted in some form
by 17 or 18 States, but I would point out to you that this year the
bill has been rejected in 12, and I think as of midnight last night
in Alabama, 13 States have rejected this legislation, and for very
good reasons.
The No. 1 reason we have to be so opposed to this bill is the fear
that this will create a vast new dumping ground for any sort of cor-
porate secrets. As we have had touched on by the EPA and the dis-
trict attorneys, privilege is a very rare thing under our judicial sys-
tem. I pulled out the Georgia Code, 24-921. In Georgia, the only
admissions and communications which are privileged are commu-
nications between husband and wife, attorney and client, among
grand jurors, secrets of state, and psychiatrist and patient.
As you have heard described by the district attorneys, they feel,
and the Supreme Court has pointed out, privileges are in deroga-
tion of the search for truth, which is the very basis of our judicial
system. That is why we fear this legislation.
As you alluded to, Colorado passed this bill back in 1994 with
privilege and immunity, and I have the front page of the Denver
paper from last month — "Polluters G«t Off Scott Free," which dis-
cussed the 16 instances where the bill had been used. This only
touched on the voluntary disclosure part of the bill. I believe that
this article misses the point. We have no idea whether it is 100 or
1,000 or 10,000 people that have used the privilege part of the law
to sweep anything they want to under the rug, so to speak, and the
73
only way this is going to show up is when privileged pollution
starts killing somebody. We find this to be unacceptable. This sod;
of pollution — you know, when property is damaged, people should
be able to recover. This sort of a bill would make it impossible for
third parties who are damaged to recover.
Third, the Community Right to Know Act was discussed. You
know, this sort of public pressure is a very powerful force. As we
have heard, public corporations value their reputations, and there
is no mandate to reduce pollution in the right to know laws, but
every year when these release inventories come out, people take
note and there is a lot of community pressure to reduce pollution.
This bill would hide pollution, and we feel like it is 180 degrees
away from the trend the last 10 years of partnership between peo-
ple and communities and corporations to clean up operations.
Fourth, as you have heard, we agree that this bill would increase
litigation. We feel it would so tie the hands of our district attorneys
and enforcement officials at the State and Federal level, it is really
the effective repeal of the 11 environmental laws that you have
listed in this legislation. We feel like if we are going to repeal the
Clean Air Act or the Clean Water Act, we ought to do it straight
up, not by the back door.
We found it highly ironic — I was sitting by the gentleman from
Coors back there — that we have heard in legislatures around the
country this Coors horror story of how they were picked on by the
department of health there in Colorado. I have gotten the record
on that and it appears that this bill wouldn't even affect Coors and
their fine in Colorado and that those admissions were part of the
exclusions in this bill. So it is fascinating that the No. 1 horror
story is not even affected.
We believe that the new EPA audit policy is a very reasonable
and responsible approach. We certainly support audits and self-dis-
closure, but we cannot support the incentive of privileges and im-
munities which would damage the health of our people, and really
it damages our entire judicial system, the creation of a new privi-
lege.
Thank you.
Senator Brown. Thank you.
[The prepared statement of Mr. Woodall follows:]
Prepared Statement of Mark Woodall
Mr. Chairman and Members of the Committee, my name is Mark Woodall. I am
the chair of the Sierra Club's Audit Privilege Task Force as well as the volunteer
chair of our Greorgia Chapter's Legislative Committee. I want to thank the Sub-
committee for allowing me to make a statement on behalf of the 550,000 members
of the Sierra Club. The Sierra Club bitterly opposes the creation of new statutory
privileges and immunities for corporations that violate environmental, health and
safety laws. We therefore strongly oppose S. 582.
Similar legislation in state legislatures around the country has been called the
"Right to Poison People and Property and Keep It Secret", "The Pollution Secrecy
Act", "The Find It and Hide It Bill", "The Polluter Relief Act", "The Bhopal Bill",
and "The Dirty Secrets Act". It could probably most accurately be described as "The
Obstruction of Justice Act".
Sierra Club lobbyists and volunteers have now worked in over forty states to de-
feat audit privilege/immunity legislation since Oregon passed a privilege bill in
1993. According to the latest information I have received, dirty secrets legislation
has been rejected in the 1996 session by Alaska, Arizona, Florida, Georgia, Iowa,
Maryland, Nebraska, Tennessee, Washington, West Virginia and Wisconsin.
74
A Georgia legislator observed, "you could hide criminal acts, you could hide any
number of things." Another state legislator said, "this bill simply attracts bad actors
* * * It gives them a mechanism to avoid civil and criminal prosecution." The spon-
sor of the bill in Oklahoma had a change of heart. He said, "we held two interim
meetings reviewing the bill. I have had staff spend numerous hours looking at it
and asked the Office of the Attorney General to review it. I have determined it is
a bad bill. This is not an environmental bill, it is a judicial bill. I think even some
of the companies which originally supported it are beginning privately to say it is
a bad bill."
The Sierra Club is violently opposed to audit privilege/immunity legislation for
many reasons. This proposal would create a vast dumping ground for corporate dirty
secrets. As the U.S. Supreme Court observed in 1988, "the greater portion of evi-
dence of wrong-doing by an organization or its representatives is usually found in
the official records and documents of that organization. Were the cloak of privilege
to be thrown around these records and documents, effective enforcement of many
federal and state laws would be impossible." Not only would the proposed privilege
make it impossible to enforce the laws of the United States, it would prevent victims
of pollution from being made whole.
If a person is injured or their property is damaged by pollution, then the respon-
sible parties should be held accountable. The public has a right to every man's evi-
dence according to the Supreme Court, but this proposed privilege would allow criti-
cal evidence to be buried in an environmental audit. Potential liability for pollution
is now a powerful motivation for preventing pollution. This bill would actually cre-
ate an incentive to continue polluting as no one could find out that you were pollut-
ing.
We believe that progress in reducing pollution is directly related to publicly avail-
able information. The Community Right-To-Know Act with its annual toxic release
information has been a powerful incentive for pollution reduction even though it
doesn't mandate any reduction. This proposed dirty secrets bill is a giant step back-
ward from the sort of full and open disclosure which has been the trend in environ-
mental law for the last decade. This sort of secrecy can only cause distrust and sus-
picion.
We believe that this bill would actually increase litigation in our crowded court-
rooms as judges will be forced to referee constant fighting over which documents
were discoverable. We are concerned our enforcement agencies and district attor-
neys will find their resources are devoted to piercing inappropriately asserted privi-
leges.
We are convinced that this legislation is a threat to worker health and safety.
This bill appears to be a direct assault on workers' right to information established
by the National Labor Relations Act. Workers represented by a union have the same
rights of discovery as plaintiffs in a lawsuit. These rights were recently upheld by
the National Labor Relations Board's decision June 30, 1995 in Detroit Free Press
vs. The Newspapers Guild Local 22. In what is the most notable attack on worker
safety and health, the Texas audit bill applies to occupational safety and health
statues at all levels of government.
The proponents of this legislation have failed to establish that a problem exists.
The most famous horror story raised to show a need for this legislation is the fine
given the Coors Brewing Company for air emissions violations at its Colorado brew-
ery. Dr. Patricia Nolan and Thomas Looby of the Colorado Department of Health
have stated that Coors' analysis of air emissions was not voluntary.
"Coors was required by law to analyze their emissions, to report them to the de-
partment and to bring the sources into compliance with regulations for volatile or-
ganic compounds (vocs)." As this bill excludes information required to be collected
by a covered federal law, it appears that Coors' voc situation would in no way have
qualified under a voluntary audit law such as S. 582.
We believe that there are far better ways to address the issues that have been
raised. Creating broad privileges and immunities would do terrible damage to the
search for truth which is the basis of our judicial system. As Michael Barnes, presi-
dent of the National District Attorneys Association, wrote to Rep. Jack Reed in re-
gards to H.R. 1047: "We want to reiterate that this is an extreme measure far be-
yond any remedy necessary and that, if you enact a self-audit privilege, you will be
doing a vast disservice to law enforcement efforts not only in the realm of environ-
mental law, but across the spectrum of white-collar."
We believe that the EPA's new audit policy provides a reasonable framework for
encouraging industry self-evaluation, includes appropriate incentives for violators to
report their violations, and rewards self-reporters wdth significant penalty reduc-
tions. The EPA audit policy has been endorsed by the Justice Department, sixteen
state attorneys general, The National District Attorneys Association, numerous
75
state agencies and a raft of public interest groups including the Sierra Club. We be-
lieve this policy should be given a chance to work.
Thank you for this opportunity to testify. We urge you not to enact this dangerous
legislation which would be so damaging to the public interest as well as the health
and safety of our citizens.
Senator Brown. Mr. Richartz.
STATEMENT OF JERRY O. RICHARTZ
Mr. Richartz. Senator Brown, thank you very much for inviting
me. My name is Jerry Richartz and I am corporate manager for
Energy and Environment at Oregon Steel Mills. As an environ-
mental manager with Oregon Steel, I am responsible for our com-
pany's environmental compliance programs. I am also chairman of
the Environment Committee for the Steel Manufacturers Associa-
tion [SMA]. Both Oregon Steel and the SMA are members of the
National Association of Manufacturers [NAM], on whose behalf I
also appear before you today.
At the outset, I want to state that Oregon Steel, SMA and NAM
strongly support the pending Federal legislation, S. 582, for vol-
untary environmental audit protection. This legislation would re-
move the existing disincentives and enforcement risks associated
with conducting voluntary environmental audits.
In today's testimony, I will provide a brief explanation of my role
at Oregon Steel and with the SMA. I will then elaborate on the
need for Federal environmental audit legislation and explain why
EPA's recent policy on environmental audits, though helpful, is in-
adequate. I will conclude with just a few suggestions to help im-
prove the pending Federal legislation, and then I would be happy
to answer any further questions.
As the environmental manager for Oregon Steel, I help our com-
pany manufacture a variety of quality steel products in an environ-
mentally sound manner. Oregon Steel melts scrap metal and elec-
tric arc furnaces to efficiently recycle literally over 5,000 tons of
scrap metal each day. The recycling and manufacturing facilities at
Oregon Steel employ approximately 1,500 employees in Colorado,
700 employees in Oregon, and 500 employees in California.
The pending legislation for Federal voluntary environmental
audit protection would help us implement a consistent and robust
voluntary environmental auditing program across all of these facili-
ties. Without the proposed Federal law for voluntary audits and
disclosure, there is little, if any, incentive to voluntarily selfaudit.
Oregon Steel is also a member of the Steel Manufacturers Asso-
ciation. The SMA represents 115 steel mills geographically dis-
persed across the North American continent. In 1995, SMA mem-
bers recycled scrap metal equivalent to 20 million junked auto-
mobiles, or 42 million tons of scrap metal, and saved 765 trillion
btu's of energy contained in the recycled scrap metal. SMA mem-
bers also represent a dynamic and competitive industry, accounting
for 40 percent of United States steel shipments. Recycling scrap
metal helps prevent the over-burdening of our country's landfills,
and we are proud of the positive contribution we make to the Na-
tion's environment.
As chairman of the Environmental Committee for SMA, I want
to state clearly that SMA members strongly support the kind of
legislative relief offered by the proposed Voluntary Environmental
76
Audit Protection Act, S. 582. This legislation would facilitate our
recycling efforts. SMA also supports this legislation because it pro-
motes a sound environment, a strong economy, and a vigorous in-
dustrial sector that allows the United States steel industry to com-
pete effectively in the world steel market. We believe a voluntary
environmental audit privilege is truly conducive to the goals of the
EPA's common-sense initiative to make environmental regulations
clearer, cheaper and smarter.
There are at least two important reasons why we need a Federal
statute protecting voluntary environmental audits. First, a Federal
statute would eliminate the conflicts with States that have enacted
legitimate voluntary environmental audit protection laws. Second,
a Federal statute will allow consistent implementation of voluntary
environmental audit programs for companies with facilities in more
than one State.
With respect to the first reason, the States are sending a power-
ful message. Seventeen States have enacted voluntary environ-
mental audit protections laws. NAM has member companies in all
17 of these States. SMA member companies have facilities in 11 of
the 17 States, and Oregon Steel has facilities in Oregon and Colo-
rado.
I think it is safe to say that both Oregon and Colorado are
known for their superb records on the environment and boast some
of our country's finest environmental resources. Clearly, the intent
of voluntary environmental audit laws in these States is directed
at allowing good corporate citizens to become better corporate citi-
zens.
At this point, I would like to address EPA's December 1995 final
policy for voluntary environmental self-policing and self-disclosure.
We commend EPA for implementing this policy. We appreciate
EPA's efforts to create incentives for voluntary self-evaluation of
environmental compliance. However, the agency's policy does not
and cannot provide all the necessary incentives to encourage com-
panies to voluntarily self-police and self-disclose.
Moreover, the EPA chose to issue guidance rather than adopting
a binding rulemaking. Because the agency's guidance is not law,
EPA's regions are not bound by the conditions of the policy. There-
fore, companies do not have any enforceable rights under EPA's
policy. Furthermore, EPA does not have the authority to bind other
Federal or State enforcement authorities. This binding authority
must come from rulemaking or legislation. By itself, EPA's policy
simply cannot eliminate the impediments to improved environ-
mental compliance.
In concluding, I wish to thank this subcommittee and Senators
Brown and Hatfield for providing me with the opportunity to ex-
press our views on this important matter. Oregon Steel, SMA, and
NAM strongly support the pending Federal legislation for vol-
untary environmental audit protection. This legislation will help us
apply our limited financial resources to solving environmental is-
sues rather than litigating over violations that would be better
handled as voluntary detections, corrections and disclosures.
On behalf of Oregon Steel, SMA, and NAM, we express our ap-
preciation to Senators Hatfield and Brown for introducing legisla-
tion that will enhance compliance with environmental laws, while
77
also helping to make U.S. industry more efficient and competitive
internationally. I would be glad to answer any questions.
Senator Brown. Thank you.
[The prepared statement of Mr. Richartz follows:]
Prepared STATEME^r^ of Jerry Richartz
On behalf of Oregon Steel Mills, Inc., the Steel Manufacturers Association, and
the National Association of Manufacturers, the attached testimony is submitted in
strong support of the pending federal legislation, S. 582, for voluntary environ-
mental audit protection. This legislation would remove the existing disincentives
and enforcement risks associated with conducting voluntary environmental audits.
There is a strong need for S. 582 because it promotes a sound environment, a strong
economy, and a vigorous industrial sector. EPA's recent policy on environmental au-
dits, though helpful is inadequate. The policy does not, and cannot, provide all the
necessary incentives to encourage companies to voluntarily self-police and self-dis-
close. Therefore, Oregon Steel, the Steel Manufacturers Association, and the Na-
tional Association of Manufacturers express appreciation of Senators Hatfield and
Brown for introducing legislation that will enhance compliance with environmental
laws while also helping to make U.S. industry more efficient and competitive inter-
nationally.
My name is Jerry Richartz and I am Corporate Manager for Energy and Environ-
ment at Oregon Steel Mills, Inc. As an environmental manager with Oregon Steel
I am responsible for our company's environmental compliance programs. I am also
Chairman of the Environment Committee for the Steel Manufacturers Association,
also referred to as "SMA". Both Oregon Steel and SMA are members of the National
Association of Manufacturers or "NAM", on whose behalf I also appear before you
today.
At the outset, I want to state that Oregon Steel, SMA and NAM strongly support
the pending federal legislation, S. 582, for voluntary environmental audit protection.
This legislation would remove the existing disincentives and enforcement risks asso-
ciated with conducting voluntary environmental audits.
In today's testimony I will provide a brief explanation of my role at Oregon Steel
and within SMA. I will then elaborate on the need for federsd environmental audit
legislation and explain why EPA's recent policy on environmental audits, though
helpful, is inadequate. I will conclude with just a few suggestions to help improve
the pending federal legislation. Then I would be happy to answer any questions you
might have.
As the environmental manager for Oregon Steel, I help our company manufacture
a variety of quality steel products in an environmentally sound manner. Oregon
Steel melts scrap metal in electric arc furnaces to efficiently recycle literally over
5000 tons of scrap metal each day. The recycling and manxifacturing facilities at Or-
egon Steel employ approximately 1500 employees in Colorado, 700 employees in Or-
egon, and 500 employees in California. The pending legislation for federal voluntary
environmental audit protection would help us implement a consistent and robust
voluntary environmental auditing program across all of these facilities. Without the
proposed federal law for voluntary audits and disclosures, there is little, if any, in-
centive to voluntarily self-audit.
Oregon Steel is also a member of the Steel Manufacturers Association. SMA rep-
resents 115 steel mills geographically dispersed across the North American Con-
tinent. In 1995, SMA members recycled scrap metal equivalent to 20 million junked
automobiles (or 42 million tons of scrap metal) and saved 765 trillion Btu's of energy
contained in the recycled scrap metal. SMA members also represent a djTiamic and
competitive industry, accounting for 40% of U.S. steel shipments. Recycling scrap
metal helps prevent the overburdening of our country's landfills and we are proud
of the positive contribution we make to the nation's environment. As chairman of
the Environment Committee for SMA, I want to state clearly that SMA members
strongly support the kind of legislative relief offered by the proposed Voluntary En-
vironmental Audit Protection Act, S. 582. This legislation would facilitate our recy-
cling efforts. SMA also supports this legislation because it promotes a sound envi-
ronment, a strong economy, and a vigorous industrial sector that allows the U.S.
steel industry to compete effectively in the world steel market. We believe a vol-
untary environmental audit privilege is truly conducive to the goals of the EPA's
Common Sense Initiative — to make environmental regulations cleaner, cheaper, and
smarter.
There are at least two important reasons why we need a federal statute protecting
voluntary environmental audits. First, a federal statute would eliminate the con-
78
flicts with states that have enacted legitimate voluntary environmental audit protec-
tion laws. Second, a federal statute will allow consistent implementation of vol-
untary environmental audit programs for companies with facilities in more than one
state.
With respect to the first reason, the states are sending a powerful message. Sev-
enteen states have enacted voluntary environmental audit protection laws. NAM
has member companies in all seventeen (17) of these states. SMA member compa-
nies have facilities in eleven (11) of the seventeen (17) states. Oregon Steel has fa-
cilities in two of the states, Oregon and Colorado. I think it is SEtfe to say that both
Oregon and Colorado are known for their superb records on the environment and
boast some of our country's finest environmental resources. Clearly the intent of vol-
untary environmental audit laws in these states are directed at allowing good cor-
porate citizens to become better corporate citizens.
At Oregon Steel, we consider oiu"selves good corporate citizens. We would like to
become better corporate citizens. With the proposed federal legislation, Oregon Steel
can become a better corporate citizen by implementing an enhanced volvmtary envi-
ronmental compUance program without fear of increased legal liabilities in any of
the states where our facilities are located.
However, the U.S. Environmental Protection Agency has recently set up a task
force to monitor the approval of state delegated programs under the Clean Air Act
for states with volvmtary environmental audit statutes. The Agency has indicated
that approval of certain state programs may be delayed or denied because of their
state audit privilege statutes. EPA has used this threat to withhold federal program
delegation in order to influence pending state legislation. For example, EPA's efforts
to influence the State Legislature in Ohio recently prompted a strong response from
Donald Scliregardus, Director of Ohio's Environmental Protection Agency. Mr.
Schregardus agreed with Ohio Congressman William Schuck who described EPA's
approach as improper and legally incorrect. Eliciting this kind of reaction from state
otficials does not promote a healthy federal-state partnership. S. 582 presents an op-
portunity for the U.S. Congress to control these Agency actions. Federal legislation
will allow states the opportiuiity to fully implement their well-reasoned voluntary
environmental audit laws.
The second reason for federal legislation turns on helping a company with facili-
ties in more than one state. Oregon Steel provides a clear example of this problem.
We are currently trying to implement a voluntary environmental compliance pro-
gram across all of our facilities in three different states. Because two states have
voluntary environmental audit protection laws and one state does not, we are de-
terred from having the same program at all of our facilities. Federal legislation
would help us develop a consistent and improved company-wide program in all three
states. Our voluntary compliance plans would be fostered if we had a federal envi-
ronmental audit law. For this reason, we urge the Senate to enact federal voluntary
environmental audit protection legislation.
At this point I would like to address EPA's December 1995 final policy for "Vol-
vmtary Environmental Self-Policing and Self-Disclosure." We commend EPA for im-
plementing this policy. We appreciate EPA's efforts to create incentives for vol-
untary self-evaluation of environmental compliance. However, the Agency's policy
does not, and cannot, provide all the necessary incentives to encourage companies
to voluntarily self-police and self-disclose.
The EPA's pohcy does not provide protection for voluntary environmental audits.
This protection must come from legislation. For example, the policy requires public
disclosure, but provides no protection from the misuse of disclosed information in
non-EPA enforcement actions such as citizen suits, or third-party tort actions. A
1995 Price Waterhouse survey entitled The Voluntary Environmental Audit Survey
of U.S. Business indicated that eighty percent (80%) of the survey respondents stat-
ed that protecting audit information was important to their companies. Close to half
of the survey respondents indicated that expansion of an environmental audit pro-
gram is hindered by this lack of protection. Federal legislative relief is therefore
necessary to adequately support the efforts of companies to develop better voluntary
compliance programs.
Moreover, EPA chose to issue guidance rather than adopting a binding rule-mak-
ing. Because the Agenc^s guidance is not law, EPA's regions £u-e not bound by the
conditions of the policy. Therefore, companies do not have any enforceable rights
under EPA's policy. Furthermore, EPA does not have the authority to bind other
federal or state enforcement authorities. This binding authority must come from a
rulemaking or legislation. By itself, EPA's policy simply cannot eliminate the im-
pediments to improved environmental compliance.
The federal legislation currently pending would provide the relief we seek, but
there are a few recommendations I wish to make to improve the bill:
79
First, the pending federal legislation should make clear that intentional and will-
ful violations of environmental laws do not qualify for civil or criminal immunity.
Second, violations discovered through the operation of an environmental compli-
ance management system should be eligible for penalty mitigation, similar to EPA's
environmental audit policy.
Third, the protection afforded by the proposed Voluntary Environmental Audit
Protection Act should be extended to state regulatory programs that have been fed-
erally delegated or approved. While there are probably other meaningful suggestions
that could be made to help develop the pending federal legislation, these three is-
sues are important to Oregon Steel, to the SMA and to the NAM.
In concluding, I wish to thank this Subcommittee and Senators Brown and Hat-
field for providing me with the opportunity to express our views on this important
matter. Oregon Steel, SMA and NAM strongly support the pending federal legisla-
tion for voluntary environmental audit protection. This legislation will help us apply
our limited financial resources to solving environmental issues rather than litigating
over violations that would be better handled as voluntary detections, corrections,
and disclosures. On behalf of Oregon Steel, SMA, and NAM we express our appre-
ciation to Senators Hatfield and Brown for introducing legislation that will enhance
compliance with environmental laws while also helping to make U.S. industry more
efficient and competitive internationally. I shall be glad to respond to any questions.
State of Ohio Environmental Protection Agency,
Columbus, OH, April 30, 1996.
Valdas V. Adamkus,
Regional Administrator, U.S. Environmental Protection Agency, 77 West Jackson
Blvd. Chicago, IL
Dear Mr. Adamkus: I am writing to express my concern and disappointment with
your letter dated April 26, 1996 to Jeffery A. Skelding, State Program Director, Ohio
Chapter of the Sierra Club. In the letter, you raise a number of issues regarding
Ohio Senate Bill 138, which would create an environmental audit privilege in Ohio
and would provide immunity from civil and administrative penalties under very lim-
ited circumstances. You then draw the preliminary, admittedly "premature," and in-
accurate conclusion that "enactment of the bill into law would mean that Ohio
would no longer have adequate authority to enforce its federally approved Title V
program."
Your letter has generated a great deal of misinformation about S.B. 138 and has
inappropriately taken the focus of attention away from the bill's intent and long-
term purpose: better environmental compliance in the State of Ohio. S.B. 138 en-
courages companies to proactively look for environmental problems and then
promptly fix them. Since S.B. 138 requires diligent foUowup to violations discovered
through an audit, I am confident this legislation will solve environmental problems
that otherwise may go unabated. Instead of recognizing S.B. 138 as an additional
tool for environmental compliance, your letter has cast doubt on Ohio's ability to ad-
minister and enforce our state's environmental programs, a conclusion with which
we strongly disagree.
It appears that the concerns you express, as well as the preliminary conclusion
you draw, stem from a misinterpretation of the bill. While the points in your letter
may be applicable to "model" audit legislation that has passed in other states, we
have worked diligently to ensure that S.B. 138 contains proper protections for the
public and will not impede our ability to enforce environmental laws. Therefore, I
am writing to correct the errors contained in your letter and to assure you that,
with or without the passage of S.B. 138, Ohio has adequate authority to enforce not
only Title V of the Clean Air Act, but all federally delegated programs.
(1) Ohio EPA does not agree with yovu- contention that an audit privilege will
make investigations of criminal behavior more difficult, interfere with enforcement
actions or compromise the public's right-to-know. Section 3745.71(C)(4) expressly ex-
cludes from the privilege information "required by law to be collected, developed
maintained, reported, or otherwise made available to a government agency." There-
fore, if an audit bill passes, Ohio EPA will have the same access to information that
it has today and will continue to make that same information available to the pub-
Uc.
(2) The bill does not restrict access to important evidence, particularly testimonial
evidence. Section 3745.70(D) restricts the privilege to "data documents, records or
plans that are necessary to an environmental audit and are collected, developed,
made, and maintained in good faith as part of the audit * * *." Section
3745.71(AX2) grants the privilege to contents of communications only when those
80
communications "are necessary to the audit and are made in good faith as part of
the audit after the employee or contractor is notified that the communication is part
of the audit." Again, Ohio EPA would have the same access to evidence that it has
today and, according to section 3745.71(C)(5), may obtain such evidence "from a
source other than an environmental audit report, including, without limitation, ob-
servation, sampling monitoring, a communication, a record, or a report that is not
part of the audit on which the audit report is based."
(3) The bill does not inappropriately allow entities to dictate their own pace in
correcting violations. Rather, section 3745.71(C)(8) precludes use of the privilege if
"the information shows evidence of noncompliance with environmental laws and rea-
sonable efforts to achieve compliance with those laws are not initiated and pursued
with reasonable diligence upon discovery through the environmental audit of non-
compliance." Thus, yoiu- statement that "the privilege portions of the bill would pro-
vide no incentive for or encouragement of prompt and expeditious voluntary compli-
ance" is simply unfounded.
(4) Ohio EPA does not agree that delays or increased litigation will result from
the in camera hearing procedures in the bill. Rather, we believe that those proce-
dures will provide an important safeguard against abuse of the privilege and will
provide Ohio EPA with adequate access to audit information, when necessary.
(5) Yoiu* statement that the bill would give immunity to repeat violators, is incor-
rect. Section 3745.72(E) provides that the immunity "does not apply to the owner
or operator of a facility or property who, within the previous year, made a disclosure
under this section with respect to particular activity and received immunity under
this section with respect to that activity."
(6) Your statement that the bill woiild deprive the State of the ability to penalize
violations of some judicial and administrative orders is also incorrect. Section
3745.72(B)(6) provides that the immunity does not apply where the owner or opera-
tor knows or has reason to know "that a government agency charged with enforcing
environmental laws has commenced an investigation or enforcement action that con-
cerns a violation of such laws involving the activity."
(7) We strongly disagree with your statement that the bill would undercut the pri-
mary purpose of federally delegated programs because it would allow immunity
from monetary penalties where violations result in harm or danger. In order to ob-
tain immunity, an owner or operator must conduct an environmental audit, prompt-
ly and voluntarily disclose an alleged violation, achieve compliance as quickly as
practicable and cooperate with the Agency in investigating the cause, nature, extent
and effects of the noncompliance. While an owner or operator may receive immunity
from civil and administrative penalties, section 3745.72(D) provides that there will
be no immunity from "payment of damages for harm to persons, property, or the
environment; the payment of reasonable costs incvured by a government agency in
responding to a disclosure; or responsibility for the remediation or cleanup of envi-
ronmental harm vmder environmental laws." Again, S.B. 138 provides no immunity
for criminal violations.
(8) Your statement that companies may keep an economic benefit from noncompli-
ance, even where that economic benefit is substantial and deliberately obtained, is
incorrect. It is true that the bill provides immunity from monetary penalties, even
those that would recover economic benefit. However, section 3745.70(A) provides
that only audits "designed to improve compliance, or identify, correct, or prevent
noncompliance, with environmental laws * * *" meet the definition of "environ-
mental audit" and therefore serve as an appropriate basis for claiming immunity.
Deliberate noncompliance would suggest that the audit was conducted in bad faith
or for a fraudulent purpose, which, according to section 3745.71(C)(6), disqualifies
the audit from the privilege. Most importantly, deliberate noncompliance would sug-
gest criminal activity, which is ineligible for immunity under any circumstances.
Finally, Ohio EPA has worked diligently for more than a year to include in this
audit legislation numerous safeguards against abuse of the privilege or immunity.
In particular, we sought to include a sunset of the immunity provisions, in order
to encourage companies to take quick advantage of the bill's incentives and, there-
fore, to come into compliance more quickly. The current version of the bill includes
a five-year sunset of both the privilege and immunity provisions. It also includes
a requirement that Ohio EPA report the impacts of the bill to the General Assembly
in the year 2000. Therefore, over the next few years, we will have the opportunity
to monitor the bill's impacts and to assess whether the privilege or immunity should
be continued.
As I expressed to Dave Ullrich, the factual inaccuracies in your letter to Mr.
Skelding made this an especially inappropriate method of not only influencing State
legislation, but also advising Ohio of potential programmatic issues. I shjire the
view of Representative William Schuck, Chairman of the Ohio House Energy & En-
81
vironment Committee and an attorney with impeccable environmental credentials.
The "Akron Beacon-Journal" quoted Mr. Schuck's assessment of the letter as, "It's
arrogant, it's bullying and it's factually and legally wrong." I have to agree.
We are confident that, even with passage of S.B. 138, Ohio EPA will continue to
have the authority and ability to aggressively enforce the environmental laws of this
state, including those laws that implement federally delegated programs. We are
also confident that passage of S.B. 138 will result in better compliance with environ-
mental laws, an interest we share with U.S. EPA.
If I or my stafi" may be of assistance to you in reviewing this or other legislation
in Ohio, I hope that you will call on us. With respect to this bill and its potential
impact on Ohio's Title V approval, I have asked Bob Hodanbosi, chief of our air pol-
lution control division, to communicate with David Kee on these issues. If you would
like any additional information, please do not hesitate to contact me.
Sincerely yours,
Donald R. Schregardus,
Director.
Senator Brown. Senator Ament.
STATEMENT OF DON AMENT
Mr. Ament. Mr. Chairman, thank you for the opportunity to ap-
pear before the committee today. Maybe, looking at the committee,
we could have done this in Denver last weekend and you would
have been part of a much cooler environment.
My name is Don Ament. I am a State senator from the Sterling
area and I serve, as you know, about half the year in the Colorado
State Senate where I chair agriculture sind natural resources. I
chair the joint committee on capital development. I do transpor-
tation and State affairs. I am currently the chairman of ALEC's
[American Legislative Exchange Council] National Task Force on
Energy, Environment, Natural Resources and Agriculture.
I ran for office. Senator Brown, primarily because I am a farmer
and rancher and I live under a lot of the rules and regulations that
are sent to us from Washington, DC, and I never forget the fact
that one of the most important industries, one of the most impor-
tant protectors of the environment are the people I represent out
there that farm and take care of the land every single day. You
know, so many people take all of that for granted.
I have submitted a complete written statement for the record and
ask that you would include that. I also have with me today, in case
you want to ask questions that I can't answer — I hope Trish is still
here from the attorney general's office, but we also have Dan
Demming, who is the new chairman and executive director of
ALEC, and also our task force staff director is here, Ross Bell. So
in the event I can't answer those questions. Senator Brown, please
ask someone that can.
I will make my comments quite brief here today because, being
the last one to speak today, I think you have heard a lot of issues.
But after hearing Mr. Woodall, I know you don't need any defense,
Hank, but it reminds me that this is the senior Senator from Colo-
rado who is the sponsor on this bill and I wonder if people forgot
all the leadership that you have put forward in the area while you
served in the Colorado Senate. I think of an end stream flow bill
that I believe you were cosponsor of, and I think also of the Cash-
Laputer wild and scenic river bill that you were part of. I also re-
member a wilderness bill, I believe, that you were very instrumen-
tal in putting forward in 1993.
82
I would suggest that maybe some of our critics might hke to
know that you are what Colorado has considered, anyway, as a
very prominent Senator and supporter of the environment.
Senator Brown. I would have called on your earlier if I had
known you were going to say all that. [Laughter.]
Mr. Ament. Maybe, Senator Brown, if I hadn't heard all those
things, I wouldn't have said that earlier.
I am here today on behalf of ALEC's task force, and I don't
know — I am sure you all know about ALEC, but it is one of the
largest bipartisan voluntary membership organizations of more
than 3,000 members from across the country. We pay our own dues
to belong to this group. We work with environmental organizations
and have enlisted the private sector to use their entrepreneurial
skill and spirit to help maintain a clean environment.
I will start and give you a little of the background. Sixteen
States have enacted some type of privilege legislation as of May 1,
1996, including Arkansas. I would refer you maybe to a statement.
I think we all know who the Governor of Arkansas was at that
time, and he said in his State of Union message in 1995 that, "We
do need more common sense and fairness in our regulations, you
bet we do, but we can have common sense and still provide safe
drinking water. We can have fairness and still clean up toxic waste
dumps." I think that is what this legislation promotes.
Since that timer works faster than those of ours in Colorado, I
will move right along. Senator Grassley mentioned to you some
concerns about how the people in small business that live under
the shadow of the Federal Ciovemment react. Let me remind you
of the Colorado Pollution Prevention Partnership, Hank. That is an
organization with representatives from industry, environment, EPA
and the department. They conducted a survey, and when asked if
the Government was a good balance to go for and was that a place
to go for help, the response was one that really troubles me. It was
that EPA was not interested in helping companies be less environ-
mentally damaging.
A second statement, more serious, was that an antagonistic rela-
tionship was exposed between small business and the Government.
Attitudes toward Government and Government regulation were
uniformly negative as to those people that were polled. I want to
take that even a little step further because I believe Mr. Herman
mentioned the Price Waterhouse poll that was done of over 369
businesses. Sixty-four percent of those respondents stated that they
would be encouraged to perform more audits if an enforcement pol-
icy eliminated penalties for self-identified reported and corrected
violations.
Forty-nine percent of those stated that they would be encouraged
to perform more audits if there were a privilege law in effect, and
42 percent of those would be more impressed if there were a State
privilege law in effect. Twenty-four percent of the companies said
that they would be more encouraged to conduct audits if EPA is-
sued a formal, definitive and specific auditing guideline and proto-
col.
You know, unfortunately, there is out there a real fear of what
is happening in this area of Federal regulation, and I would indi-
cate to you some examples that you are probably well aware of.
83
One is a Colorado company that had an experience with EPA. After
including a 25-percent penalty reduction, EPA assessed a penalty
of $196,000 for reporting paperwork discrepancies that were discov-
ered as a result of a voluntary self-evaluation that would have
never been found otherwise.
Perhaps the most troublesome example involved a Colorado com-
pany that performed a voluntary study that was not required by
law, kept the Department informed throughout the study and pro-
vided detailed results of the study to the Department. What the
voluntary study found was that the EPA guidance documents
grossly underestimated air emissions from the types of facilities op-
erated by the company. For identifying sources that had been oper-
ated by the company and had been missed by every regulatory
agency for similar facilities across the company, the company was
rewarded with the assessment of a $1.5 million fine.
This isn't really a surprise to you because you and I worked on
an issue very similar when the city of Fort Morgan was fined $44
million because a plant, in their pre-treatment, in their view, had
violated guidelines. The city of Fort Morgan, with a population of
about 8,000 people, faced a $44 million fine. It is those kinds of ac-
tivities, I think, and it is that kind of fear — that is what we are
trying to eliminate with this bill by giving people an incentive to
do something better, an incentive to do what they know is right.
In our last effort — and I will wind this up — we have been re-
quested more than any other model legislation to provide States —
we had over 40 States last year that requested this model legisla-
tion. We have 25 that have requested it this year. We have sent
a State factor out to all those members who have been interested
in the new paradigm in environmental enforcement.
We think this bill is an effort to do something in an incentive
way to improve our environment and we want to protect those that
are willing to come forward and, on their own, address that kind
of thing. We don't want this to be a road map to prosecution or the
imposition of monetary penalties, but we want this to be an incen-
tive for people to be a good corporate citizen, a good small business
citizen. I applaud you on your efforts to again do something posi-
tive for the environment.
Thank you.
[The prepared statement of Mr. Ament follows:]
Prepared Statement of Don Ament
introduction
In the last few years one of the more common controversies to arise out of the
environmental regulatory context is the debate over whether regulated entities that
conduct environmental audits should be provided an evidentiary privilege and pen-
alty immunity relief for voluntarily discovered, promptly reported and corrected vio-
lations. This testimony will provide an insight into why the establishment of such
a privilege for environmental audits and provision of penalty immunity will benefit
the environment as well as the regulators and members of the regulated commu-
nity, i.e., business and governmental entities that must comply with environmental
regulatory requirements.
First, it is necessary to describe what is meant by an environmental audit. The
U.S. Environmental Protection Agency (EPA) has defined environmental auditing as
a "systematic, documented, periodic and objective review by regulated entities of fa-
cility operations and practices related to meeting environmental requirements." ^ As
the result of an audit, a written report is typically presented to management to en-
able them to determine where their compliance problems are and how to correct
84
them. Audits may be conducted internally, by the regulated entity's employees, or
by outside contractors hired for that purpose. Clearly, the primary function of an
environmental audit is to alert the regulated entity to compliance issues so that
they may be corrected. Whether regulated entities intend compliance with environ-
mental regulations out of civic responsibility or out of fear of penalties is immate-
rial; the fact is that if regulated entities have regular systems in place to ensure
compliance and to promptly correct noncompliance, the environment and the sur-
rounding community benefit. Likewise, governmental resources can better be di-
rected at those regulated entities that do not make the effort and expenditures to
routinely and systematically monitor, expeditiously report and promptly correct non-
compliance events.
EVIDENTIARY PRIVILEGE
The issue of an evidentiary privilege for these audits has arisen out of both the
perception of many regulated entities, and the reality for a few regulated entities,
that audits which they conduct of their own facilities may be used against them by
regulators in enforcement actions or by third parties in private lawsuits, despite the
fact that the regulated entity discovered the regulatory violation during an audit
and has mechanisms in place to promptly report and correct the noncompliance. In
other words, a regulated entity may be reluctant to conduct an environmental audit
because of fears as to the way in which the audit will be used by others and it may
therefore forego an opportunity to enhance its own program of environmental com-
pliance. The current system discourages audits and the identification of environ-
mental compliance problems since entities attempting to improve compliance
through audit programs most often are penalized for their efforts. However, if appli-
cable legal and regulatory mechanisms are in place that provide incentives and en-
couragement for the regulated entity to conduct such an audit, and to correct any
problems it finds as a result, then the regulated entity's environmental compliance
is more likely to be improved, and so, it can be assumed, will be the environment
of the surrounding community.
Arguments against the privilege for environmental audits
The notion of an evidentiary privilege in favor of environmental audits has
sparked a vigorous debate in the last several years. Among the arguments against
an evidentiary privilege is that it runs counter to the spirit and intention of modem
environmental laws, which promote and require public disclosure.^ This argument
assumes that regulatory agencies and private parties are entitled to be able to ob-
tain the results of internal environmental audits so that the environment and public
health can be better protected. The concept espoused in this argument is that cor-
porations and other regulated entities have vested interests in veiling their environ-
mental audits in secrecy, and that true environmental protections cannot be
achieved unless all internal environmental investigations are made open to the pub-
lic, and, better yet, that the most protective environmental audits are those that are
conducted with input from both regulators and members of the public.^
The U.S. Department of Justice (DOJ) and EPA have made similar arguments in
their opposition to an evidentiary privilege for audits. In EPA's view, a statutory
privilege "* * * could be used to shield evidence of violations of federal environ-
mental law as well as criminal misconduct, deny the public its right to know useful
information affecting its health and the environment, drive up litigation costs, and
create an atmosphere of distrust between regulators, industry and local commu-
nities."'* EPA's Final Policy Statement on Incentives for Self- Policing, issued on De-
cember 18, 1995, reiterates EPA's long-standing opposition to evidentiary privileges
for audits. In fact, although EPA's policy states that it will not request audits to
initiate environmental investigations, if EPA has "independent reason to believe"
that a violation has occurred, the Agency makes clear that it has the authority to
seek "any information," possibly including an audit report, relevant to identifying
violations or determining liability or extent of harm.^ "Independent reason to be-
lieve" that a violation has occurred is not a significant threshold to meet in order
for EPA to request an audit report which may lead the agency to other violations,
even as those violations are being addressed by the facility.
EPA's Assistant Administrator for the Office of Enforcement and Compliance As-
surance, Mr. Steve Herman, in a February 21, 1996, letter to Michigan State Rep-
resentative John Freeman discussing proposed Michigan legislation, articulates
EPA's position regarding evidentiary privileges for audits. Mr. Herman asserts that
Michigan's proposed evidentiary privilege "* * * could hamstring investigations of
Footnotes at end of article.
85
criminal behavior, interfere even with routine enforcement actions, and compromise
the public's right to know."
Mr. Herman, in his letter to Representative Freeman, raises the issue of whether
state evidentiary privileges can apply to federal environmental programs adminis-
tered in the state. This tactic is being used in other states as well; for example, the
State of Texas, which adopted an evidentiary privilege for audits in 1995, is cur-
rently seeking delegation of the National Pollutant Discharge Elimination System
(NPDES) program. Such delegation of authority is authorized to the state under the
federal Clean Water Act and the Title V operating permits program under the fed-
eral Clean Air Act. However, EPA apparently is delaying the approval of Texas' pro-
grams, in part, because of concerns over Texas' audit privilege legislation.^ In keep-
ing with its long-standing tradition, EPA seems of the view that if it cannot impose
its policy directly, it can attempt to impose it by refusing to allow states to imple-
ment their own programs under federal environmental laws.
DOJ supports EPA's position and advocates against an evidentiary privilege for
environmental audits. "The approach taken in state laws and proposed federal legis-
lation of creating evidentiary privileges for polluters that perform environmental au-
dits or providing statutory immunity for violations by such polluters conceals envi-
ronmental hazards from the public and public authorities, impairs enforcement, and
shields misconduct. Therefore, the Department will continue vigorously to oppose
such legislation." ^
EPA's and DOJ's fears about the effects of evidentiary privileges for audits are
unfounded. Their arguments are myths being used to oppose a sensible concept and
should be exposed as such.
Arguments in favor of an environmental audit privilege
Myth 1: An evidentiary privilege for environmental audits will shield criminal
misconduct.
First, EPA and DOJ believe that evidentiary privileges may shield criminal mis-
conduct. This position apparently arises out of the fact that most privilege statutes
include an immunity from prosecution for violations discovered and corrected as a
result of audits. In fact, most audit privilege policies limit any privilege and/or im-
munity to a situation in which a voluntary audit has uncovered a violation and the
violation is promptly and effectively corrected. Many such statutes expressly provide
that a privilege or immunity is not available in instances of criminal misconduct.
For example, the Texas legislation excludes from the immunity provisions those ac-
tions that are intentional or knowing violations or reckless violations that result in
substantial injury to persons on-site or in substantial harm to persons or property
off-site or to the environment.^ The Texas law also limits its immunity provision to
those violations that are reported to the appropriate state agency.^
Myth 2: A privilege will hide serious environmental impacts.
EPA and DOJ apparently also believe that privilege and immunity statutes will
block discovery of, and remedies for, serious environmental impacts. Audit privilege
legislation enacted by the various states requires that the violations which are un-
covered be corrected promptly. This requirement will, in and of itself, reduce the
chances of serious environmental harm occurring, because the auditing facility has
an additional incentive to correct the violation and remedy any harm. Further,
privilege laws do not undo the obligation which companies have under a variety of
federal, state and local laws to report and remedy any environmental damages. If
a state or federal law requires that a spill of a hazardous chemical be reported and
cleaned up and any contamination of soil or water be remediated, the existence of
an evidentiary privilege for the audit that uncovers the past occurrence of the spill
does not change the remediation obligation under law. Certainly the privilege does
not alter any liability that an auditing facility has to third parties who may be
harmed by that entity's environmental violations. The privilege typically means
that, in certain particular circumstances, plaintifTs' lawyers cannot obtain audits
and use them as client development devices. In circumstances where there is inde-
pendent evidence of harm to a third party — in situations of legitimate liability — the
fact that a privileged audit exists will neither relieve the perpetrator of liability nor
relieve the third party of its burden to prove that their has been environmental
harm caused by the defendant's actions.
Myth 3: A privilege prevents the public from having information about their own
community.
The argument that a privilege undercuts the public's right to know of the environ-
mental issues in its community ignores the facts that there are legitimate limita-
tions on the right-to-know concept and that state and federal environmental laws
already provide for many mandated public disclosures. The Emergency Plan and
Community Right-to-Know Act (EPCRA) is based upon the very principle that the
86
public does have a right to know if there are hazardous chemicals in their commu-
nities. i° This same statute is the source of the annual Toxic Release Inventory
(TRI), a report that regulated entities must file every year describing the disposition
of any hazardous chemical or substance which has been on their property during
that year. Other environmental statutes and regulations require regular reporting
of monitoring results from a regulated entity's activities, such as discharge monitor-
ing reports under the federal Clean Water Act. The existence of these self-reporting
requirements eases the way for regulators bringing enforcement actions and for pri-
vate parties to bring citizen suits or toxic tort suits. In any case, there is already
a plethora of environmental reporting required by law that likely would not be sub-
ject to any audit privilege.
For those regulated entities that conduct environmental audits, in addition to the
mandated reporting described above, the presence in the public domain of more in-
formation may lead to more allegations of violations, more enforcement actions and
more lawsuits, even though those regulated entities are the very ones that, by con-
ducting the audit in the first place, are attempting to attain better compliance. The
regulated entities that do not conduct audits may give the appearance of having bet-
ter environmental compliance, but that may be the result of the fact that failing to
look for violations will always lead to a failure to discover violations. After more
than 25 years of experience with environmental regulatory programs, it is evident
that the "bad actors" often appear to be "good guys" when in fact they have failed
to undertake the extra effort to discover and correct situations of noncompliance.
Myth 4: Auditing entities have no need to worry about how audits will be used
if they are publicly available.
Though it is true that environmental audits have been used against regulated en-
tities in only a few cases, the potential for information voluntarily collected to be
used against the entity in a regulatory action or lawsuit is what motivates its deci-
sion whether to proceed with audit programs. A survey of various industries regard-
ing environmental audits found that in the chemical industry (an industry that has
certainly benefited from a commitment to auditing), the reason most often cited for
not conducting environmental audits was the fear of resulting information being
used against the company. ^^ The perception that audit results will be used by regu-
lators, prosecutors and plaintiffs' attorneys has caused regulated entities that other-
wise could benefit from conducting audits to either refrain from doing so or attempt
to use other means to prevent disclosure of findings of violations. For instance,
many regulated entities try to protect their audits by using the attorney-client to
work product privileges, with the disadvantages and limitations inherent in those
privileges. Other entities have decided to write the audit report in such sanitized
language that the report does not clearly set forth the discovered violations for those
who have the ultimate responsibility of addressing the problems found. These var-
ious responses by regulated entities all make sense from a liability perspective, but
they do not advance the public policy goal of encouraging regulated entities to dili-
gently seek out their noncompUant activities and correct them.
PENALTY IMMUNITY
In addition to an evidentiary privilege, a companion issue in providing incentives
for voluntary compliance is the concept of immunity from penalties for companies
that promptly report and correct environmental violations. Some states have adopt-
ed penalty immunity without the audit privilege; others have embraced both as re-
lated elements in their attempts to encourage regulated entities to investigate, re-
port and correct any violations.
EPA, while it objects to the notion of an evidentiary privilege, has accepted the
idea of partial immunity from penalty for reporting and correcting violations.
EPA environmental self-policing policy
In EPA's Final PoUcy Statement, issued on December 18, 1995, 12 and supported
by DOJ, EPA offers to not seek (or reduce) gravity-based (i.e. non-economic benefit)
penalties for those facilities that discover violations through voluntary environ-
mental audits or efforts which reflect a regulated entity's due diligence to prevent,
detect and correct violations, provided that the company satisfies all of EPA's nine
conditions.
EPA will eliminate all of the gravity-based portions of any penalty for violations
that are found through auditing, if the violations are promptly disclosed and cor-
rected. If the company demonstrates that it has a compliance management system
that meets EPA's criteria for "due diligence," the gravity-based portion of the pen-
alty will also be waived. EPA, however, expressly reserves the right to collect "any
economic benefit" that may have accrued to the company as a result of the delay
in its compUance.13 [The "economic benefit of noncompliance" concept for quantifica-
87
tion of penalty amounts is an agency developed theorem that is the subject of sub-
stantial debate.]
Even if the company does not perform an environmental audit and cannot dem-
onstrate that it has a compliance management system qualifying as due diligence,
EPA will waive 75% of the gravity-based portion of the penalty if the violation is
voluntarily discovered, promptly disclosed and expeditiously corrected and EPA's
conditions are met.i''
EPA will not recommend for criminal prosecution a regulated entity that has vol-
untarily discovered violations through an audit and has voluntarily disclosed these
violations to the government. This immunity from criminal prosecution does not
apply where corporate officials are consciously involved or willfully blind to viola-
tions or conceal or condone noncompliance. ^^
The conditions that facilities must meet in order to qualify for the immunities de-
scribed above are: First, discovery of the violation through an environmental audit
or "an objective documented, systematic procedure or practice reflecting due dili-
gence" (even if this condition is not met, the company may still be eligible for a 75%
reduction in the gravity -based penalty). ^^
Second, voluntary discovery and prompt disclosure to EPA. This condition applies
to any violation that is voluntarily discovered, even if the violation is required to
be reported under another law or regulation. The immunity does not apply, how-
ever, to a violation which is discovered through a required mechanism such as emis-
sions monitoring required by statute or regulation. Such violations are not "volun-
tarily" discovered. 1''
Third, the disclosure "made to EPA" must be within 10 days of discovery of the
violation. ^8
Fourth, discovery and disclosure must be made by the entity independently (i.e.
prior to commencement of any regulatory agency inspection; information request;
citizen suit notice; legsd complaint by third party; whistleblower employee report; or
imminent discovery by a regulatory agency.) ^^
Fifth, expeditious correction and remediation. The violation must be corrected
within 60 days or the facility must provide written notice to EPA that the violation
will take longer than 60 days to correct.^"
Sixth, prevention of recurrence. The facility must take steps to prevent recurrence
of the same violation in the future, ^i
Seventh, no repeat violations. The same or a closely-related violation must not
have occurred previously within the past three years at the same facility, or be part
of a pattern of violatioiis over the past five years at other facilities owned by the
same entity.22
Eighth, exclusion of some violations. Penalty immunity is not available for viola-
tions of specific terms of an order or consent agreement. Immunity is also not avail-
able for violations that result in serious actual harm or an imminent and substan-
tial endangerment to public health or the environment.^^
Ninth, cooperation. The facility must cooperate with EPA, including possible as-
sistance in determining the facts surrounding the disclosed violation and any relat-
ed violations that may be suggested by the disclosure. ^^
EPA's policy is quite lenient in some respects. It essentially permits a company
that accidentally or otherwise discovers violations to reduce their penalty by 75%
through prompt disclosure and correction. The policy is broader in this respect than
many similar policies adopted by states. The Texas statute, for example, provides
immunity only for violations discovered as a result of environmental audits, and the
company must have notified the state in advance of its intention to conduct an audit
before the immunity will apply.^^
The EPA policy also continues to suffer from several shortcomings. For instance,
the policy does not apply "where corporate officials are consciously involved in or
willfully blind to violations or conceal or condone compliance." ^^ Thus, culpability
of corporate officials is lefl wide open to interpretation, since reasonable people can
differ over what condoning non-compliance means or what sequence of events con-
stitutes "willfully blind to violations."
Shortcomings of EPA environmental self-policing policy
EPA uses the breadth of its policy as an argument that no evidentiary privilege
for environmental audits is necessary. To the contrary, a company is not adequately
protected by the penalty immunity alone.
EPA's waiver of penalties and commitment not to seek disclosure of audits as an
enforcement tool does not prevent a company from being subject to enforcement at
the state or local level or to third party lawsuits by prosecutors and plaintiffs' law-
yers who inevitably will seek to obtain an audit to use as a litigation guide. The
agency has also cleverly disguised its intent as to how environmental audit reports
88
will be treated under the new self-policing policy. The certainty provided by EPA
is that invitation of environmental investigations will not be premised upon re-
quests for audits.2'' However, if EPA has "independent reason to believe" that a vio-
lation has occurred — EPA also makes clear that authority to seek "any information"
relevant to finding violations. ^^ What constitutes "independent reason to believe" is
left to the reader's imagination! Is it a citizen complaint? What about allegations
made by a disgruntled or recently discharged employee? Or, better yet, an EPA em-
ployee being aware of a violation of a minor recordkeeping requirement certainly
meets this low threshold for requesting an environmental audit. Likewise, as DOJ
has clearly stated once it has received information that a regulated entity has com-
mitted violations of environmental law, "the Department seeks all relevant informa-
tion, including audit reports." ^9
EPA's policy is one step toward a full realization that environmental protection
must rely on voluntary compliance, and it is a good step. Unfortunately, however,
EPA has steadfastly refused to take the next logical step that would move environ-
mental protection into a new realm of compliance, supporting an evidentiary privi-
lege for environmental audits and full penalty immiuiity for those acting in good
faith to promptly report and correct noncompliant situations. Only when both steps
are taken together will we have in place positive incentives that generate the sort
of "ownership" of environmental issues by the upper management level of all regu-
lated entities of all sizes and types to take aggressive and affirmative steps to pro-
tect the environment.
CURRENT STATUS OF STATE LEGISLATION
The public policy goal of enlisting the private sector in efforts to maintain a clean
environment and the obvious advantage of evidentiary privilege in achieving that
goal are such that sixteen (16) states have enacted some type of privilege legislation
as of May 1, 1996. {e.g., Arkansas, Colorado, Idaho, Illinois, Indiana, Kansas, Ken-
tucky, Michigan, Minnesota, Mississippi, New Hampshire, Oregon, Texas, Utah, Vir-
ginia, and Wyoming.) Penalty immunity of some type is also provided in the laws
of twelve (12) of those states (Colorado, Idaho, Kansas, Kentucky, Michigan, Min-
nesota, Mississippi, New Hampshire, South Dakota, Texas, Virginia and Wyoming).
As of May 1, 1996, nine (9) other states including Alabama, Alaska, California,
North Carolina, Oklahoma, New Jersey, Ohio, Tennessee, and South Carolina, were
considering privilege and/or immunity bills, which had already passed one branch
of the Legislature. Various other states, e.g., Delaware, Florida and Pennsylvania
also had legislation pending that related to establishing incentives for voluntary dis-
covery and prompt reporting and corrective action of environmental noncompliance
events.
CONCLUSION
Environmental regulations are pervasive, voluminous and highly technical. Per-
fect compliance with them is a near-impossibility, and the chances of achieving high
levels of compliance decrease with ever-increasing levels of complexity in the regu-
latory requirements. Given the expansive applicability of environmental require-
ments to virtually every business and governmental entity and the shortage of re-
sources within federal and state governments, regulatory agencies are finding it in-
creasingly difficult to adequately monitor compliance. Private citizens also lack the
resources, as well as the knowledge, to regularly monitor the compliance of a com-
plex industrial facility or major municipality whose operations are governed by high-
ly technical environmental regulations. Typically, most citizens and some regulators
do not become aware of a compliance problem until it is too late and the environ-
ment, or worse, human health, is affected. As societal attitudes have changed and
developed in the past twenty-five years, the entity with the greatest resoiu"ces, the
greatest knowledge, and ultimately, the greatest interest in asstiring compliance has
become the regulated entity itself. Therefore, it only makes sense that the most ef-
fective tool toward environmental protection is the ability of the regulated entity to
discover and correct its environmental compliance problems, before they become se-
rious issues for the entire community. However, if the regulated entity legitimately
fears that its very attempt to be a good citizen will result in lawsuits and enforce-
ment actions over violations that might otherwise never have come to Ught, it will
naturally be reluctant to conduct thorough audits. This result shortchanges owr citi-
zenry and the environment.
Typically, environmental audit privileges are not absolute. They do not usually
protect the underlying facts, and a regulated entity will lose the privilege if it is
determined to have claimed it fi-audulently. Through public education it is possible
that some of the opposition to the environmental audit privilege can be eliminated.
89
People should be assured that the privilege will not apply to those who claim it
fraudulently, to information which is required to be reported under some other law,
to deliberate violations of the law or in situations of imminent and substantial
endangerment to the environment and human health. In other words, the issues
about which most people are likely to be concerned are likely not to be covered by
the privilege. On the other hand, the granting of the privilege, provide those regu-
lated entities that are genuinely striving toward environmental compliance a tool
to use in achieving compliance in the most effective way possible, without fear that
that tool will be used to punish them for discovering, reporting and correcting their
own violations.
Audit privileges and penalty immunities are, nevertheless, an incentive for regu-
lated entities to conduct environmental audits. These audits promote candid, effec-
tive discussions within regulated entities as to the causes of, and solution to, envi-
ronmental noncompliance. By removing the incentive to not identify or hide non-
compliance, the regulated entity can actually address the problem in the most con-
structive way possible and government can be assured that more entities will be en-
couraged to address their compliance status forthrightly.
Environmental regulation has for the last twenty-five years focused on the "com-
mand and control" model. As a result, we have developed an extremely complicated
regulatory scheme, while government at all levels lacks the resources necessary to
ensure compliance by all members of the regulated community. Thus, the model for
environmental regulation has become outdated and needs to change. The move to
an environmental regulation model that focuses on and encourages voluntary com-
pliance is the key to further rational regulation to protect environmental values. It
is in the best interest of any regulated entity to be a good corporate citizen, and
to the extent that an entity is free to investigate itself without the fear of providing
a "road map to prosecution" or the imposition of monetary penalties for its good be-
havior that entity will be better able to attain compliance with the regulations and
to ensure environmental protection. In addition, our regulatory agencies will be able
to direct their limited enforcement resources at those among the regulated commu-
nity that do not strive to be good citizens.
FOOTNOTES
I "Incentives for Self-Policing," EPA Final Policy Statement, 60 Fed. Reg. 66706, 66710 (De-
cember 22, 1995).
2 See, i.e., Ronald, David. "The Case Against an Environmental Audit Privilege", National En-
vironmental Law Journal, September 1994.
3 See, i.e., Lewis, Sanford. "Moving Forward Toward Environmental Excellence: Corporate En-
vironmental Audits and the Public's Right to Know." The God Neighbor Project for Sustainable
Industries, February 1, 1995.
4 "Incentives for Self-Policing" EPA Fact Sheet, December 18, 1995, p. 2.
560 Fed. Reg. 66706, 66711 (December 22, 1995).
^"Federal regulators concerned about Texas environmental law," Austin American-Statesman,
February 28, 1996 stating that the Deputy Administrator of EPA, Fred Hansen, said "the
[Texas] law could be an obstacle for a state plan to administer the key program under the Fed-
eral Clean Air Act" [title V operating permits].
^January 31, 1996 letter from Lois J. Schiffer, Assistant Attorney General, Environment and
Natural Resources Division, U.S. Department of Justice to Steven Herman, Assistant Adminis-
trator, Office of Enforcement and Compliance Asstirance, U.S. Environmental Protection Agency.
8 Texas Environmental, Health and Safety Audit Privilege Act, 74th Leg., R.S., Ch. 219
§ 10(b)(7), 1995 Tex. Sess. Law Serv. 1963 (Vernon).
9Id at § 10(b)(1).
10 42 U.S.C.A §§ 11001 to 11050.
II See, Price Waterhouse, L.L.P., "The Voluntary Environmental Audit Survey of U.S. Busi-
ness," March 1995.
12 "Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violation"
60 Fed. Reg. 66706, December 22, 1995.
13 60 Fed. Reg. 66706, 66712 (December 22, 1995).
i'»60 Fed. Reg. 66706, 66711 (December 22, 1995).
15 Id.
16 60 Fed. Reg. 66706, 66711 (December 22, 1995).
i''60 Fed. Reg. 66706, 66711 (December 22, 1995).
18 Id.
19 Id.
20 Id.
21 Id.
22 60 Fed. Reg. 66706, 66712 (December 22, 1995).
23 60 Fed. Reg. 66706, 66712 (December 22, 1995).
24 Id.
25 Texas Environmental, Health and Safety Audit Privilege Act, 74th Leg., R.S., Ch. 219
§ 10(g) Tex. Sess. Law Serv. 1963 (Vernon).
2660 Fed. Reg. 66706, 66711 (December 22, 1995).
90
27 60 Fed. Reg. 66706, 66711 (December 22, 1995).
28 Id.
23 January 31, 1996 letter from Lois J. Schiffer, Assistant Attorney General, Environment and
Natural Resources Division, U.S. Department of Justice to Steven Herman, Assistant Adminis-
trator, Office of Enforcement and Compliance Assurance, U.S. Environmental Protection Agency.
Senator BROWN. Thank you. You all have been most patient and
kind, so I won't try and delay much further, but I wanted to see
if we could get some confessions against interest in these last few
things.
Mr. Richartz, you made the statement that there is little or no
incentive to voluntarily self-audit or self-report. My impression is
that if a company or if an operation declines to self-audit or report,
it is commonly believed that they are more likely to get the atten-
tion of the EPA or other enforcement entities. Would that be a fair
statement?
Mr. Richartz. Not necessarily fearful of getting the attention of
the EPA. We go to great lengths, frankly, to do modified types of
audits in our plants under attorney-client privilege and it becomes
more of a factor of increased cost for little gain potentially that
may occur. If we were to have the environmental audit privilege,
we would go ahead probably with audits that would be more in-
depth, and go ahead and simply work with the agency, as we have
in Oregon and Colorado, as well as California. So we are not really
fearful. We have our plants open to tours by groups that are neigh-
borhood groups, and so we are not afraid of the public either. We
just want to be treated fairly.
Senator Brown. Thank you. Mr. Woodall, you were kind enough
to go through some of the privileges in Georgia, I think you made
a reference to. In your mind, is it fair to compare a self-audit to
the fifth amendment protection against self-incrimination?
Mr. Woodall. No, sir; I don't go along with that comparison be-
cause I don't believe that corporations deserve the same protection
as people. I mean, the Bill of Rights was set up to protect the peo-
ple of the United States, not the creatures of the States, the cor-
porations. So I wouldn't go along with that analysis at all.
Senator Brown. Individuals that might have personal respon-
sibility — wouldn't you say that there is an analogy there?
Mr. Woodall. Well, that came up for quite a bit of discussion
in the roundtables that were alluded to between all the interested
parties as to how you would get at the individual rather than the
corporation, and Mr. Herman touched on that earlier. I am not
really competent as — I am not an attorney, so I don't think I had
better get into that, actually, how that should work.
Senator Brown. I don't know as it puts you at any disadvantage.
It may put you at an advantage. The reason I brought it up is be-
cause it seems to me the core of this question is whether or not you
get more information about misdeeds with regard to the environ-
ment through this process than you would if you didn't have it.
Obviously, you represent an organization that is deeply con-
cerned about the environment. Is it your belief that you are not
going to get significant new information, or you won't get new in-
formation in this way?
Mr. Woodall. No, sir; I wouldn't contend that. There may be
some information that comes out because of this. I guess it is our
contention that the price we pay for getting that information is too
91
great. To take away the rights of the third parties next door, to
take away the rights of the employees, the workers — that is what
you are getting into when you get into making this information
privileged, so we feel it is too high a price to pay. It is an improper
incentive.
Senator Brown. By taking away the rights, you mean their right
to seek civil action?
Mr. WOODALL. Yes, sir. I mean, we had in Georgia — Representa-
tive Robert Ray is a State representative. You may remember his
brother. Congressman Ray, from Peach County. He was out there
in his pecan orchard doing some irrigation. He reached down and
it tasted like pure gasoline. He came to find out the major gasoline
pipeline that runs through Georgia north-south runs through his
farm there. It took him years of litigation before he ever recovered
from the big oil companies, you know. He had a lot of trouble get-
ting a hold of documents.
I mean, there is an awful lot of trouble getting evidence now. Our
people have to go through very extensive discovery. If we get into
these new privileges, I mean I think it would be impossible to
reach a settlement in a case like that.
Senator Brown. Would any of the problems in getting evidence
there relate to self-audits?
Mr. WoODALL. No. I think that would probably go under the hy-
pothetical situation.
Senator Brown. Senator Ament, you have had a chance to ob-
serve the Colorado statute for some years. What is your view with
regard to the impact it has had in terms of disclosing problems in
Colorado and getting them corrected?
Mr. Ament. I think we started this, as you may recall, in 1989,
and finally by 1994 passed the first bill. It has had an impact; cer-
tainly, not as much as we might hope, and I think that is still a
fear that is out there that is expressed to you from some of these
various studies that we have done, the fear of overfiling, and so on,
by the Feds. It is just something that still is limiting the process.
So I think that is why I am here today. That is why our task
force, I think, has been asked for so much of this overview, and so
on. The thing that you are doing here is part of the puzzle. There
is still a fear that big brother is going to step on them, and I think
this is an important piece to go along with what the States are
doing.
Senator BROWN. Let me thank this panel and the other panels
for their testimony. I think it is a very helpful hearing. As you
know, while not all our members are here, their staffs are here.
The information that has been presented, I think, is very helpful
and will be helpful in trying to work on the statute itself. Thank
you for coming.
[Whereupon, at 4:29 p.m., the subcommittee was adjourned. 1
40-017 97-4
92
APPENDIX
Proposed Legislation
104th congress
1st Session
S.582
To amend title 28, United States Code, to provide that certain voluntary
disclosures of violations of Federal laws made pursuant to an environ-
mental audit shall not be subject to discovery or admitted into evidence
during a Federal judicial or administrative proceeding, and for other
purposes.
IN THE SENATE OF THE UNITED STATES
March 21 (legislative day, March 16), 1995
Mr. Hatfield (for himself and Mr. BRO^VK) introduced the following bill;
which was read twice and referred to the Committee on the Judiciary
A BILL
To amend title 28, United States Code, to provide that
certain voluntary disclosures of violations of Federal laws
made pursuant to an environmental audit shall not be
subject to discovery or admitted into evidence during
a Federal judicial or administrative proceeding, and for
other purposes.
1 Be it enacted by the Senate and House of Representa-
2 tives of the United States of America in Congress assembled,
3 SECTION 1. SHORT TITLE.
4 This Act may be cited as the "Voluntary Environ-
5 mental Audit Protection Act".
93
2
1 SEC. 2. VOLUNTARY SELF-EVALUATION PROTECTION.
2 (a) In General. — Part VI of title 28, United States
3 Code, is amended by adding at the end the following new
4 chapter:
5 "CHAPTER 179— VOLUNTARY SELF-
6 EVALUATION PROTECTION
"Sec.
"3801. Admissibility of environmental audit reports.
"3802. Testimony.
"3803. Disclosure to a Federal agency.
"3804. Definitions.
7 "§3801. Admissibility of environmental audit reports
8 . "(a) General Rule. —
9 "(1) In general. — Except as provided in para-
10 graphs (2) and (3), an environmental audit report
11 prepared in good faith by a person or government
12 entity related to, and essentially constituting a part
13 of, an environmental audit shall not be subject to
14 discovery and shall not be admitted into evidence in
15 any civil or criminal action or administrative pro-
16 ceeding before a Federal court or agency or under
17 Federal law.
18 "(2) Exclusions. — Paragraph (1) shall not
19 apply to —
20 "(A) any document, communication, data,
21 report, or other information required to be col-
22 lected, developed, maintained, or reported to a
•S 582 IS
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3
1 regulatory agency pursuant to a covered Fed-
2 eral law;
3 "(B) information obtained by observation,
4 sampling, or monitoring by any regulatory
5 agency; or
6 "(C) information obtained from a source
7 independent of the environmental audit.
8 "(3) Inapplicability. — Paragraph (1) shall
9 not apply to an environmental audit report, if —
10 "(A) the owner or operator of the facility
11 that initiated the environmental audit expressly
12 waives the right of the person or government
13 entity to exclude from the evidence or proceed-
14 ing material subject to this section;
15 "(B) after an in camera hearing, the ap-
16 propriate Federal court determines that —
17 "(i) the environmental audit report
18 provides evidence of noncompliance with a
19 covered Federal law; and
20 "(ii) appropriate efforts to achieve
21 compliance were not promptly initiated and
22 pursued with reasonable diligence; or
23 "(C) the person or government entity is as-
24 serting the applicability of the exclusion under
25 this subsection for a fraudulent purpose.
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4
1 "(b) Determination of Applicability. — The ap-
2 propriate Federal court shall conduct an in camera review
3 of the report or portion of the report to determine the
4 applicability of subsection (a) to an environmental audit
5 report or portion of a report.
6 "(c) Burdens of Proof. —
7 "(1) In general. — Except as provided in para-
8 graph (2), a party invoking the protection of sub-
9 section (a)(1) shall have the burden of proving the
10 applicability of such subsection including, if there is
11 evidence of noncompliance with an applicable envi-
12 ronmental law, the burden of proving a prima facie
13 case that appropriate efforts to achieve compliance
14 were promptly initiated and pursued with reasonable
15 diUgence.
16 "(2) Waiver and fraud. — A party seeking
17 discovery under subparagraph (A) or (C) of sub-
18 section (b)(3) shall have the burden of proving the
19 existence of a waiver, or that subsection (a)(1) has
20 been invoked for a fraudulent purpose.
21 "(d) Effect on Other Rules. — Nothing in this
22 Act shall limit, waive, or abrogate the scope or nature of
23 any statutory or common law rule regarding discovery or
24 admissibility of evidence, including the attorney-client
25 privilege and the work product doctrine.
•8 682 IS
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5
1 **§ 3802. Testimony
2 "Notwithstanding any other provision of law, a per-
3 son or government entity, including any officer or em-
4 ployee of the person or government entity, that performs
5 an environmental audit may not be required to give testi-
6 mony in a Federal court or an administrative proceeding
7 of a Federal agency without the consent of the person or
8 government entity concerning the environmental audit, in-
9 eluding the environmental audit report with respect to
10 which section 3801(a) applies. "
11 **§ 3803. Disclosure to a Federal agency
12 "(a) In General. — The disclosure of information re-
13 lating to a covered Federal law to the appropriate official
14 of a Federal agency or State agency responsible for admin-
15 istering a covered Federal law shall be considered to be
16 a voluntary disclosure subject to the protections provided
17 under section 3801, section 3802, and this section if —
18 "(1) the disclosure of the information arises out
19 of an environmental audit;
20 "(2) the disclosure is made promptly after the
21 person or government entity that initiates the audit
22 receives knowledge of the information referred to in
23 paragraph (1);
24 "(3) the person or government entity that initi-
25 ates the audit initiates an action to address the is-
26 sues identified in the disclosure —
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6
1 . "(A) within a reasonable period of time
2 after receiving knowledge of the information;
3 and
4 "(B) within a period of time that is ade-
5 quate to achieve compliance with the require-
6 ments of the covered Federal law that is the
7 subject of the action (including submitting an
8 application for an applicable permit); and
9 "(4) the person or government entity that
10 makes the disclosure provides any further relevant
11 information requested, as a result of the disclosure,
12 by the appropriate official of the Federal agency re-
13 sponsible for administering the covered Federal law.
14 "(b) Involuntary Disclosures. — For the pur-
15 poses of this chapter, a disclosure of information to an
16 appropriate official of a Federal agency shall not be con-
17 sidered to be a voluntary disclosure described in subsection
18 (a) if the person or government entity making the disclo-
19 sure has been found by a Federal or State court to have
20 committed repeated violations of Federal or State laws,
21 or orders on consent, related to environmental quality, due
22 to separate and distinct events giving rise to the violations,
23 during the 3 -year period prior to the date of the disclo-
24 sure.
•S 582 IS
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7
1 "(c) Presumption of Applicability. — If a person
2 or government entity makes a disclosure, other than a dis-
3 closure referred to in subsection (b), of a violation of a
4 covered Federal law to an appropriate official of a Federal
5 agency responsible for administering the covered Federal
6 law —
7 "(1) there shall be a presumption that the dis-
8 closure is a voluntary disclosure described in sub-
9 section (a), if the person or government entity pro-
10 vides information supporting a claim that the infor-
1 1 mation is such a voluntary disclosure at the time the
12 person or government entity makes the disclosure;
13 and
14 "(2) unless the presumption is rebutted, the
15 person or government entity shall be immune from
16 any administrative, civil, or criminal penalty for the
17 violation.
18 "(d) Rebuttal of Presumption. —
19 "(1) In general. — The head of a Federal
20 agency described in subsection (c) shall have the
21 burden of rebutting a presumption established under
22 such subsection. If the head of the Federal agency
23 fails to rebut the presumption —
24 "(A) the head of the Federal agency may
25 not assess an administrative penalty against a
•S 582 IS
99
8
1 person or government entity described in sub-
2 section (c) with respect to the violation of the
3 person or government entity and may not issue
4 a cease and desist order for the violation; and
5 "(B) a Federal court may not assess a civil
6 or criminal fine against the person or govern-
7 ment entity for the violation.
8 "(2) Final agency action. — ^A decision made
9 by the head of the Federal agency under this sub-
10 section shall constitute a final agency action.
11 "(e) Statutory Construction. — Except as ex-
12 pressly provided in this section, nothing in this section is.
13 intended to affect the authority of a Federal agency re-
14 sponsible for administering a covered Federal law to carry
15 out any requirement of the law associated with informa-
16 tion disclosed in a voluntary disclosure described in sub-
17 section (a).
18 "§ 3804. Definitions
19 "As used in this chapter:
20 "(1) Covered federal law. — The term 'cov-
21 ered Federal law' —
22 "(A) means —
23 "(i) the Federal Insecticide, Fun-
24 gicide, and Rodenticide Act (7 U.S.C. 136
25 et seq.);
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9
1 "(ii) the Toxic Substances Control Act
2 (15 U.S.C. 2601 et seq.);
3 "(iii) the Federal Water Pollution
4 Control Act (33 U.S.C. 1251 et seq.);
5 "(iv) the Oil Pollution Act of 1990
6 ' (33 U.S.C. 2701 et seq.);
7 "(v) title XIV of the Public Health
8 Service Act (commonly known as the 'Safe
9 Drinking Water Act') (42 U.S.C. 300f et
10 seq.);
11 "(vi) the Noise Control Act of 1972
12 (42 U.S.C. 4901 et seq.);
13 "(vii) the Solid Waste Disposal Act
14 (42 U.S.C. 6901 et seq.); •
15 "(viii) the Clean Air Act (42 U.S.C.
16 7401 et seq.);
17 "(ix) the Comprehensive Environ-
18 mental Response, Compensation, and Li-
19 ability Act of 1980 (42 U.S.C. 9601 et
20 seq.);
21 "(x) the Emergency Planning and
22 Community Right-To-Know Act of 1986
23 (42 U.S.C. 11001 et seq.); and
24 "(xi) the Pollution Prevention Act of
25 1990 (42 U.S.C. 13101 et seq.);
•S S82 IS
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10
1 "(B) includes any regulation issued under
2 a law listed in subparagraph (A); and
3 "(C) includes the terms and conditions of
4 any permit issued under a law listed in sub-
5 paragraph (A).
6 "(2) Enyirontmental audit. — The term 'envi-
7 ronmental audit' means a voluntary and internal as-
8 sessment, evaluation, investigation or review of a fa-
9 cility that is —
10 "(A) initiated by a person or government
1 1 entity;
* 12 "(B) carried out by the employees of the
13 person or government entity, or a consultant
14 employed by the person or government entity,
15 for the express purpose of carrying out the as-
16 sessment, evaluation, investigation, or review;
17 and
18 "(C) carried out to determine whether the
19 person or government entity is in compliance
20 with a covered Federal law.
21 "(3) Environmental audit report. — The
22 term 'environmental audit report' means any re-
23 ports, findings, opinions, field notes, records of ob-
24 servations, suggestions, conclusions, drafts, memo-
25 randa, drawings, computer generated or electroni-
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102
11
1 cally recorded information, maps, charts, graphs,
2 surveys, or other communications associated with an
3 environmental audit.
4 "(4) Federal agency. — The term 'Federal
5 agency' has the meaning provided the term 'agency'
6 under section 551 of title 5.
7 "(5) Government entity. — The term 'gov-
8 emment entity' means a unit of State or local gov-
9 emment.".
10 (b) Technical Amendment. — The analysis for part
11 VI of title 28, United States Code, is amended by adding
12 at the end the following:
**179. Voluntary Self-Evaluation Protection 3801".
1 3 SEC. 3. APPLICABILITY.
14 This Act and the amendment made by this Act shall
15 apply to each Federal civil or criminal action or adminis-
16 trative proceeding that is commenced after the date of en-
17 actment of this Act.
O
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Questions and Answers
Responses From Don Ament to Questions From Senator Grassley
Question 1. EPA claims that state audit privilege and/or immunity legislation po-
tentially affect a state's ability to enforce environmental laws, and that EPA will
need to evaluate the impact of individual state statutes on state enforcement pro-
grams. What has been your state's experience with EPA and its review of your state
legislation regarding audit privilege and/or disclosure immunity?
Answer 1. I am not familiar with the State of Colorado's experience and its discus-
sions with EPA representatives, beyond that information which Ms. Bangert of the
Colorado Attorney General's office provided in her testimony and oral remarks at
the Subcommittee hearing.
Question 2. EPA and others claim that the privilege as proposed in S. 582 would
eliminate all punishment for certain criminal and other violations that are volun-
tarily disclosed regardless of harm, basically giving total immunity to companies
which have committed environmental violations. EPA and DOJ testified that the
immunity provisions in S. 582 would allow a company to escape prosecution even
for criminal conduct merely by confessing and belatedly taking corrective action.
Question 2a. Could you please respond to these concerns? What are the safe-
guards in the privilege that are in, or should be in, S. 582 that will ensure bad ac-
tors and criminal activity are not protected?
Answer 2a. S. 582 may be amended to conform with state legislation in this area
which exempts certain criminal acts, e.g., intentional or knowing violations. A num-
ber of safeguards to ensure that bad actors and criminal activity is not protected
are contained in S. 582. For instance, the audit must be "prepared in good faith"
[Sec. 3801(a)(1)] and must not be for a fraudulent purpose [Sec. 3801(a)(c)]. In addi-
tion, the privilege does not apply unless efforts to achieve compliance are not
promptly initiated and pursued with reasonable diligence.
Question 2b. How have your states dealt with this problem? Specifically, how did
you craft your legislation to make sure that safeguards were in place?
Answer 2b. The Colorado law provides no immunity for intentional knowing or se-
rious violations that constitute a pattern of continuous or repeated violations. More-
over, and most importantly, the privilege will be lost and the immunity is not avail-
able if compliance is not pursued with due diligence and the discovered violation has
not been corrected within, at most, a period of 2 years.
Question 2c. How do yovu- states take care of situations where you have an envi-
ronmental emergency — can the regulator come in with cease and desist orders or
some other type of relief to enforce the law?
Answer 2c. The Colorado law places no additional restrictions on the state agen-
cy's ability to obtain a cease and desist order, other than rebutting the presumption
that the disclosure was made voluntarily. Only violations that are discovered
through an audit receive any immunity and environmental emergencies almost al-
ways are immediate and obvious. Thus, it is very unlikely that an environmental
emergency will be discovered through an audit.
Question 3. EPA and other opponents to S. 582 claim that the proposed bill en-
courages litigation because it does not adequately define what falls within the scope
of an audit. In order to evade disclosure, violators could argue that many routine
business activities are "compliance evaluations." Further, they claim that the "rea-
sonable efforts" standard to correct environmental violations is unclear, and that the
"compelling circumstances" the government would have to determine to overcome
the privilege in a criminal investigation are also vague.
Question 3a. How would you respond to these criticisms? Also, how would you de-
lineate the parameters of the term "voluntary environmental self-evaluation'7
Answer 3a. The language of the bill can be craff;ed to avoid encouragement of liti-
gation, as was done in Colorado. Based on what I know from Colorado, and what
I heard at the hearing about the Texas experience with its law, exactly the opposite
seems to be taking place, the laws encourage "getting to the solution" behavior. I
do not find the phrase "environmental self-evaluation" in S. 582, rather the phrases
"environmental audit" and "environmental audit report" are defined terms. Never-
theless, I think a "voluntary environmental self-evaluation" is a critical analysis
performed on a voluntary basis by or on behalf of a regulated entity in an effort
to ascertain its performance or compliance with applicable requirements.
Question 3b. Could this privilege actually increase litigation because parties will
argue about the limits of what is and what is not protected? What has been the ex-
perience in your state?
104
Answer 3b. To the best of my knowledge, the experience in Colorado has been a
decrease in litigious activity; however, the State Attorney CJeneral's office would
have more complete information available to it than I possess on this aspect.
Question 3c. Does the audit privilege in S. 582, as currently drafted, protect fac-
tual data as well as legal conclusions? Doesn't this restrict access to important evi-
dence, including testimonial evidence, that would determine whether a violation has
occurred or whether a potential environmental disaster might be possible?
Answer 3c. S. 582 is open to the interpretation that it protects disclosure of un-
derljring facts. The Colorado Attorney General's office response to this question cor-
rectly states how our statute deals with this issue.
Question 3d. Opponents of the bill claim that S. 582 would provide penalty immu-
nity even where violations result in serious harm or imminent and substantial
endangerment, thus undercutting the primary purpose of federally delegated pro-
grams to protect public health and the environment. Do you agree with this criti-
cism? Do you believe that this deprivation of penalty authority would limit a state's
leverage in negotiating an appropriate remedy for any damage that may have been
caused or injunctive relief that may be necessary?
Answer 3d. The experience that I am most aware of is that environmental solu-
tions are delayed or have become secondary, while the lawyers become focused on
extended negotiation of the language related to, and the amount of penalties, both
for past activity and stipulated penalties for any possible future non-compliance.
Whatever additional leverage is lost with the granting of a penalty immunity ap-
pears to be offset by the threat of losing privilege or immunity protection if correc-
tive action is not expeditious. In my view, the state's leverage still exists.
Question 4. According to S. 582, the protection for audit reports would only apply
where a federal comt has determined that identified instances of non-compliance
have been promptly corrected and where the protection was not sought for fraudu-
lent purposes.
Question 4a. Will qualified audit protection legislation prevent the government
from obtaining crucial data about a company's non-compliance?
Answer 4a. Audit protection legislation does not prevent the government from ob-
taining crucial data about non-compliance so long as all existing enforcement powers
other than penalties are kept in place.
Question 4b. Do you agree with EPA's criticism of S. 582 that the bill allows regu-
lated entities to dictate their own pace in correcting violations because it only calls
for corrective action or elimination of a violation by the exercise of "reasonable dili-
gence"? EPA also has claimed that compliance might be slower than would be in
the best interests of protecting public health and the environment. What is your re-
sponse? Additionally, doesn't waiting for correction of the violation present a prob-
lem? Is it clear that the problem would have to be corrected in order for the privi-
lege to apply?
Answer 4b. How it is possible for EPA to read Section 3801(c)(1) of S. 582 which
provides that the regulated entity is required to demonstrate "that appropriate ef-
forts to achieve compliance were promptly initiated and pursued with reasonable
diligence" (emphasis added) only demonstrates how disingenuous the federal agency
employees have become in their efforts to thwart the state efforts to bring about the
new paradigm in environmental enforcement. It is clear that timely correction of the
problem is the linchpin to both the existence of the privilege and the grant of pen-
alty immunity. For EPA to argue that this legislation might lead to slower compli-
ance is patently ridiculous since any compliance response that compromises public
health and the environment is not "appropriate".
Question 4c. Could you elaborate on why the privilege/immunity as provided in
S. 582 is preferable to EPA's policy of penalty mitigation in terms of promoting com-
pany self-evaluations and compliance with environmental regulations?
Answer 4c. Enactment of federal law providing both privilege and penalty immu-
nity would provide certainty to the regulated community. On the other hand, EPA's
policy is unlikely to be consistently applied by its various Regional Offices, is not
binding upon U.S. Attorneys and DOJ, does not provide any protection from use or
misuse by others of sensitive information gained through an environmental audit
(thus constituting an encouragement for regulated entities to create a road map to
futiu"e litigation being brought against them) and contains various ambiguities
which leaves wide open to interpretation as to when and how their policy applies.
105
Responses From Don Ament to Questions From Senator Thurmond
Question 1. In each of your views, is the proper way to evaluate this legislation
to determine whether, considering all factors, it will result in a healthier and clean-
er environment than in its absence?
Answer 1. This audit legislation should be evaluated on the basis of whether its
adoption and implementation will lead us to achieving a cleaner and healthier envi-
ronment in a more rational manner than takes place under the historical enforce-
ment first approach. The Colorado statute, which strikes a proper balance as to com-
pliance incentives versus enforcement, is an effective tool in achieving compliance.
Our state law establishes the framework for a collaborative and cooperative effort
to expeditiously address and resolve non-compliance situations.
Question 2. Would any of you care to comment on the extent to which this legisla-
tion would permit companies to work cooperatively with enforcement agencies to
find solutions to problems, rather than posturing and fighting over technicalities
and unhelpful questions of interpretation?
Answer 2. Our limited state resources in Colorado need to be focused on problem-
solving and ensuring compliance as opposed to legal battles over interpretations of
complex technical language and issues, many of which have little, if any, actual
threat to the environment. The Colorado statute has proven to be effective in avoid-
ing the legal wrangling, and focuses both the regulator and the regulated entity on
compliance and remediation of any problems that may have been discovered.
Question 3. As the Chairman of the Antitrust, Business Rights, and Competition
Subcommittee, I am interested in each of your views on whether it is desirable to
attempt to protect competition by imposing fines based on any "economic benefit"
which a company has obtained by lack of compliance with environmental laws or
regulations. That is, if a company unintentionally benefits from being out of compli-
ance, does that give it an unjustified competitive edge over its competitors that
needs to be addressed, or would the cure be worse than the problem?
Answer 3. The short answer to the two important issues raised in your question
is that following the rationale of both DOJ and EPA leads to "a cure that is much
worse than the problem." EPA's expressed concern at the hearing about whether
penalty immunity for the economic benefit of a non-compliance that has occurred
for an extended period (some 10 to 15 years) would have an inequitable effect on
compliant companies, merely demonstrates that regulatory and enforcement pro-
grams being operated by EPA and others are rather ineffective, otherwise a viola-
tion would not continue for over such a period without detection. Thus, if the cur-
rent federal and state enforcement mechanism have been unable to detect such a
violation, creation of incentives for the regulated community to self-police these dif-
ficult-to-detect violations, report them, and bring their facility into compliance, are
even more important. The environment benefits from discovery and correction of vio-
lations, not from the number of violations detected and penalty dollars collected (the
latter are promotional grading mechanisms employed by regulators). A much more
sensible public policy (rather than struggling with the nebulous concept of "economic
benefit of non-compliance") is to create incentives for regulated entities to expedi-
tiously come into compliance, which necessarily requires an equal or very significant
economic expenditure — and to ensure that they continue in compliance in the fu-
ture. Correction of transgressions and ensuring a level economic playing field into
the future is much more important than trying to speculate about any indetermin-
able past dollar differential between regulated entities to what each spent on envi-
ronmental controls.
Responses From Patricia S. Bangert to Questions From Senator Grassley
Question 1. EPA claims that state audit privilege and/or immunity legislation po-
tentially affect a state's ability to enforce environmental laws, and that EPA will
need to evaluate the impact of individual state statutes on state enforcement pro-
grams.
a. What has been your states' experience with EPA and its review of your state
legislation regarding audit privilege and/or disclosure immunity?
Answer 1. The EPA has made it clear that it will scrutinize delegated programs
in states with privileges and immunities laws to determine whether those states
have the necessary enforcement authorities to maintain those programs.
Recently, EPA has raised the issue of whether Colorado's privileges and immuni-
ties law will prevent the agency from approving the state's application to take over
certain programs under the Clean Water Act. Specifically, EPA has imposed hurdles
to the approval for delegation of the federal facilities, pretreatment and biosolids
programs to the state.
106
Of broader application, EPA headquarters has recently released a memorandum
providing guidance to its regions in evaluating the effect of privilege/immunity laws
on state air programs. The memorandum clearly suggest that such state laws may
take away the enforcement authority needed for states to carry out the Title V per-
mit programs. Without going into great detail here, we believe the memorandum is
written in such broad terms that it could potentially result in the withdrawing of
Title V delegation in many states with privilege and immunities laws.
These express and implied threats by EPA to withdraw delegation under the
Clean Water and Clean Air Acts have an additional chilling effect on the implemen-
tation of state privileges and immunities laws.
Question 2. EPA and others claim that the privilege as proposed in S. 582 would
eliminate all punishment for certain criminal and other violations that are volun-
tarily disclosed regardless of harm, basically giving total immunity to companies
which have committed environmental violations. EPA and DOJ testified that the
immunity provisions in S. 582 would allow a company to escape prosecution even
for criminal conduct merely by confessing and belatedly taking corrective action.
a. Could you please respond to these concerns? What are the safeguards in the
privilege that are in, or should be in, S. 582 that will ensure bad actors and criminal
activity are not protected?
b. How have your states dealt with this problem? Specifically, how did you craft
your legislation to make sure safeguards were in place?
c. How do your states take care of situations where you have an environmental
emergency — can the regulator come in with cease and desist orders or some other
type of relief to enforce the law?
Answer 2. In any environmental audit law passed by Congress, measures should
be included in the Act to ensure that individuals or businesses use the information
learned from the self-audit to come into compliance with the environmental laws,
and not to avoid compliance responsibilities. In S. 582, the privilege is waived if the
individual or business does not come into compliance the environmental laws identi-
fied in the audit within a reasonable period of time, or if the privilege is being as-
serted for a fraudulent purpose. Certain information should be expressly excluded
fi"om the privilege under the Act: information required to be developed, maintained
or reported by any environmental law, information required to available or fur-
nished pursuant to any environmental law, information obtained by a regulatory
agency through observation, sampling, or monitoring, information obtained through
independent sources, documents prepared prior or subsequent to, independent of the
voluntary self-evaluation, and any information not otherwise privileged, that is de-
veloped or maintained in course of regularly conducted business activity or practice.
To the extent that S. 582 is not clear in its inclusion or exclusion of these items,
it should be amended to clarify matters.
Colorado has enacted a statute that sets out incentives for regulated industries
to perform self-audits and to disclose violations found in those evaluations. Specifi-
cally, the statute allows an evidentiary and testimonial privilege for self-audits that
are followed by prompt correction of any environmental violations found. Further,
the law allows immunity from certain civil and criminal penalties for violations re-
ported and corrected.
The EPA makes assertions about privileges and immunities laws that are not
well-founded. In Section III of its Voluntary Environmental Policy and Self-Disclo-
sure Policy Statement, for example, EPA asserts that privileges and immunities
statutes can shield criminal misconduct, drive up litigation costs and create an at-
mosphere of distrust between regulators, industry and local communities. The EPA
provides no basis for making these assertions. In fact, they cannot provide such a
basis.
A well-drafted law will not allow a business to shield criminal misconduct. For
example, Colorado's law would not allow disclosure immunity for a party who has
had a series of violations in the past. Further, a privilege would not be allowed for
an audit done for a fraudulent purpose. S. 582 should provide similar protection to
the Colorado law.
Question 3. EPA and other opponents to S. 582 claim that the proposed bill en-
courages litigation because it does not adequately define what falls within the scope
of an audit. In order to evade disclosure, violators could argue that many routine
business activities are "compliance evaluations." Further, they claim that the "rea-
sonable efforts" standard to correct environmental violations is unclear, and that the
"compelling circumstances" the government would have to determine to overcome
the privilege in a criminal investigation are also vague.
a. How would you respond to these criticisms? Also, how would delineate the pa-
rameters of the term voluntary environmental self-evaluations"?
107
b. Could this privilege actually increase litigation because parties will argue about
the limits of what is and what is not protected? What has been the experience in
your state?
c. Does the audit privilege in S. 582, as currently drafted, protect the factual data
as well as legal conclusions? Doesn't this restrict access to important evidence in-
cluding testimonial evidence, that would determine whether a violation has occurred
or whether a potential environmental disaster might be possible?
d. Opponents of the bill claim that S. 582 would provide penalty immunity even
where violations result in serious harm or imminent and substantial endangerment,
thus undercutting the primary purpose of federally delegated programs to protect
health and the environment. Do you agree with this criticism? Do you believe that
this depreviation of penalty authority would limit a state's leverage in negotiating
an appropriate remedy for any damage that may have been caused or injunctive re-
Uef that may be necessary?
Answer 3. While there may be a need for initial judicial clarification of terms and
provisions in privileges and immunities laws, there is no reason to believe that liti-
gation costs will increase because of such laws in the long-term. To the contrary,
we believe, and a U.S. Senate resolution has found, that these statutes will resvdt
in more violations being corrected with less administrative and judicial cost.
Under Colorado law, "voluntary [environmental] self-evaluation" means a self-ini-
tiated assessment, audit, or review, not otherwise expressly required by environ-
mental law, that is performed by any person or entity, for itself, either by an em-
ployee or employees employed by such person or entity who are assigned the respon-
sibility of performing such assessment, audit, or review or by a consultant engaged
by such person or entity expressly and specifically for the purpose of performing
such assessment, audit, or review to determine whether such person or entity is in
compliance with environmental laws. Once initiated, such voluntary self-evaluation
shall be completed within a reasonable period of time. Nothing in this section shall
be construed to authorize uninterrupted voluntary self-evaluations.
This is the context in which we view the term "voluntary [environmental] self-
evaluation."
Colorado's privileges and immunities law has been successful in bringing compa-
nies together with our Department of Health to solve problems. Approximately fif-
teen companies have come forward to disclose violations of the environmental laws.
These violations have ranged from permit exceedences to unpermitted discharges of
pollution. Many of these violations would not have been discovered by enforcement
personnel. More important, these are violations that have been or are being cor-
rected. To the extent that S. 582 is not clear in its inclusion or exclusion of these
items, it should be amended to clarify matters.
Under Colorado law, an environmental audit report is privileged and is not admis-
sible in any legal action or administrative proceeding and is not subject to any dis-
covery pursuant to the rules of civil procedure, criminal procedure, or administrative
procedure, unless:
(a) The entity or person for whom the environmental audit report was prepared,
whether the environmental audit report was prepared by the entity or by a consult-
ant hired by the entity, waives the privilege under this section;
(b)(1) A court of record or an administrative law judge, after an in camera review,
determines that:
(A) The environmental audit report shows evidence that the person or entity for
which the environmental audit report was prepared is not or was not in compliance
with an environmental law; and
(B) The person or entity did not initiate appropriate efforts to achieve compliance
with the environmental law or complete any necessary permit application promptly
after the noncompliance with the environmental law was discovered and, as a re-
sult, the person or entity did not or will not achieve compliance with the environ-
mental law or complete the necessary permit application within a reasonable
amount of time.
(c) If the evidence shows noncompliance by a person or entity with more than one
environmental law, the person or entity may demonstrate that appropriate efforts
to achieve compliance were or are being taken by instituting a comprehensive pro-
gram that establishes a phased schedule of actions to be taken to bring the person
or entity into compliance with all of such environmental laws.
(d) A court of records and administrative law judge after an in camera review de-
termines that compelUng circumstances exist that make it necessary to admit the
environmental audit report into evidence or that make it necessary to subject the
environmental audit report to discovery procedures;
(e) A court of record or an administrative law judge after an in camera review,
determines that the privilege is being asserted for a fraudulent purpose or that the
108
environmental audit report was prepared to avoid disclosure of information in an
investigative administrative, or judicial proceeding that was underway, that was im-
minent, or for which the entity or person had been provided written notification that
an investigation into a specific violation had been initiated; or
(f) A court of record or an administrative law judge after an in camera review,
determines that the information contained in the environmental audit report dem-
onstrates a clear, present, and impending danger to the public health or the envi-
ronment in areas outside of the facility property.
These protections are more than sufficient to rebut the criticisms leveled against
the privilege and immunity provisions. To the extent that S. 582 is not clear in its
inclusion or exclusion of these items, it should be amended to clarify matters.
Question 4. According to S. 582, the protection for audit reports would only apply
when a federal court has determined that identified instances of non-compliance
have been promptly corrected and where the protection was not sought for fraudu-
lent purposes.
a. Will qualified audit protection legislation prevent the government from obtain-
ing crucial data about a company's non-compliance?
b. Do you agree with EPA's criticism of S. 582 that the bill allows regulated enti-
ties to dictate their own pace in correcting violations because it only calls for correc-
tive action or elimination of a violation by the exercise of "reasonable diligence'7
EPA also has claimed that compliance might be slower than would be in the best
interests of protecting public health and the environment. What is your response?
Additionally, doesn't waiting for correction of the violation present a problem? Is it
clear that the problem would have to be corrected in order for the privilege to apply?
c. Could you elaborate on why the privilege/immunity as provided in S. 582 is
preferable to EPA's policy of penalty mitigation in terms of promoting company self-
evaluations and compliance with environmental regulations?
Answer 4. The qualified audit protection legislation will not prevent the govern-
ment from obtaining crucial data about a company's non-compliance. S. 582 does not
restrict the power of any governmental agency to investigate violations of the law.
To the extent any Umitations exists at all, S. 582 merely allows small businesses
that go beyond the investigation and reporting requirements under existing law to
protect themselves fi-om penalties, if they fix the problem they discover.
The point that EPA continuously overlooks is that in all of the cases to which S.
582 would apply, the environmental problems would not have been discovered by
a small business that merely complies with the law and regulations. Under current
federal law, ignorance is rewarded while good faith compliance efforts create risks
of piuiishment. Congress should enact a law like S. 582, which is designed to en-
courage small businesses to find out whether they are in compliance and to take
compliance steps sooner rather than later. The use of the term "reasonable dili-
gence" acknowledges that a "one size fits all" approach is inappropriate for the vari-
ety of circumstances that may be faced. Clearly, the business availing itself of the
protections provided in S. 582 will have the burden of establishing that it has acted
with reasonable diligence. To the extent that S. 582 is not clear that the protections
apply only when the problem has been corrected, it should be amended to so specify.
The EPA final policy is not an adequate substitute for federal legislation. While
we applaud the agency's extensive efforts to gain public and state input into its pol-
icy, and its sincere efforts to enact a policy that provides incentives for self-evalua-
tion, the policy is just that — a policy. In the end, it is a guidance document only
which, by its own admission, "does not create any rights, duties, obligations, or de-
fenses, implied or otherwise, in any third parties." In short, the final policy provides
no certainty that enforcement action will not be taken.
In addition to the uncertainty for business caused by the lack of federal privilege
and immunity provisions, there is great uncertainty for state delegated and author-
ized programs. The EPA has made it clear that it will scrutinize delegated programs
in states with privileges and immunities laws to determine whether those states
have the necessary enforcement authorities to maintain those programs.
Responses From Patricia S. Bangert to Questions From Senator Thurmond
Question 1. In each of your views, is the proper way to evaluate this legislation
to determine whether, considering all factors, it will result in a healthier and clean-
er environment than in its absence?
Answer 1. Yes. The President's National Performance Review acknowledged that
there are numerous examples where the failure of EPA to devise better ways to pro-
tect the environment affordably may result in just the opposite of the intended ef-
fect. Colorado's environmental audit law is based on the assumption that business
109
will respond positively to the incentives offered. In the long run, we expect that en-
vironmental compliance will improve. This is especially true for small businesses.
For example, those that are newly covered by recent Clean Air Act amendments face
a daunting choice. On the one hand, they may wish to comply with the law and un-
dertake an audit to determine how their practices must be changed to reach compli-
ance. On the other hand, it may be a more logical business decision to blissfully ig-
nore environmental responsibilities, hope that regulators will be too busy to notice
their small enterprise, and come into compliance only when forced. They may fear
that they are already violating environmental laws, but are afraid to discover the
truth.
Question 2. Would any of you like to comment on the extent to which this legisla-
tion would permit companies to work cooperatively with enforcement agencies to
find solutions to problems, rather than posturing and fighting over technicalities
and unhelpful questions of interpretation?
Answer 2. Colorado's privileges and immunities law has been successful in bring-
ing companies together with our Department of Health to solve problems. Approxi-
mately fifteen companies have come forward to disclose violations of the environ-
mental laws. We would expect even more success if a federal privileges and immuni-
ties law, like S. 582; were enacted.
Question 3. As the Chairman of the Antitrust, Business Rights and Competition
Subcommittee, I am interested in each of our views on whether it is desirable to
attempt to protect competition by imposing fines based on any "economic benefit"
which a company has obtained by lack of compliance with environmental laws or
regulations. That is, if a company unintentionally benefits fi-om being out of compli-
ance, does that give it an unjustified competitive edge over its competitors that
needs to addressed, or would the cure be worse than the problem?
Answer 3. The theory behind economic benefit penalties is to recapture the eco-
nomic value that a facility receives from delaying compliance with environmental
regulation. EPA's stated goal in assessing economic benefit penalties is to negate a
company's incentive to avoid compliance.
The goal of negating an economic incentive to avoid compliance is not relevant in
cases of voluntary disclosure. Small businesses that perform voluntary self-evalua-
tions and then disclose their audits have clearly made a commitment to achieve
compliance regardless of the cost. In performing the audit, the small business incurs
significant cost to identify areas of noncompliance. By voluntarily disclosing in-
stances of non-compliance, it is stepping forward to work with regulators and, in
doing so, is committing itself to funding what can be a very expensive effort to cor-
rect deficiencies.
It is important to remember that S. 582 requires a company to discover non-com-
pliance through an environmental audit. The entity cannot have known about the
violation and then voluntarily disclosed the non-compliance. Since the company can-
not have prior knowledge of its non-compliance, and was therefore unaware of any
potential economic benefit, the punitive rationale regarding such penalties is not ap-
plicable to a voluntary disclosure under this type of legislation.
Tossing a company making a good faith effort to cooperate and achieve compliance
into the quagmire of economic benefit calculations defeats the whole piupose of this
type of legislation. It turns a new and innovative process that is intended to focus
on environmental quality into contentious negotiations, that, based on past experi-
ence, could drag on for a year or more. This creates the very uncertainty that dis-
courages companies from conducting voluntary self-evaluations and voluntarily dis-
closing the results.
Question 4. This question was directed to Mr. Johnson.
Response From Patricia S. Bangert to Question of Unidentified Senator
Question. Does the Colorado law provide immunity for criminally negligent acts
which are later disclosed and corrected by a company?
Answer. The Colorado law does not allow immunity for information that a busi-
ness was required to provide under existing laws. To the extent that there is no ex-
isting obligation to investigate or report, information generated by a self-evaluation
would be protected, unless there is a finding that the business is a repeat offender
or "bad actor."
110
Responses From the U.S. E^A^RONMENTAL Protection Agency to Questions
From Senator Kohl
Question 1. The EPA has recently implemented a new policy to provide incentives
for environmental audits. However, the agency indicates that "[t]he policy is not a
final agency action and is intended as guidance. It does not create any rights, du-
ties, obligations, or defenses, implied or otherwise, in any third parties." 60 Fed.
Reg. 66712 (Dec. 22, 1995). Some companies beUeve that this means that the EPA
can and will disregard the policy at will. Please explain why the EPA opted to use
a policy rather than fully commit to a rule.
Answer 1. EPA has specifically left open the issue of whether to convert its self-
disclosure policy into a rulemaking. The Policy itself states, "While EPA is taking
steps to ensure consistency and predictability and believes that [the Policy] will be
successful, the Agency will consider this issue and will provide notice if it deter-
mines that a rulemaking is appropriate." This issue was discussed at length during
the stakeholder focus group dialogues utilized by EPA to develop the Policy.
EPA is aware of the desire on the part of the regulated community for greater
enforcement certainty, and we are applying the self-disclosure policy consistently by
establishing a steering committee to review significant issues and develop and pub-
lish answers to questions about the policy's application. EPA has established a
Quick Response Team (QRT) which is charged with making nationally consistent,
fair and expeditious decisions concerning the application of the Policy. The QRT
meets weekly to review nationally significant issues and develop guidance interpret-
ing the Policy. EPA is also tracking cases and publicizing decisions made under the
Policy. EPA intends to apply the Policy on every occasion in which the Policy condi-
tions are met. Finally, the self-disclosure policy states that within three years EPA
will conduct a study on the Policy's effectiveness, and the Agency expects to consider
enforcement certainty issues then.
Question 2. To what extent is this new policy binding on regional EPA offices, and
how do you assure uniformity of applications?
Answer 2. EPA is uniformly applying the self-disclosure policy across all EPA en-
forcement programs and Regions. The Agency has established a Quick Response
Team (QRT) which is charged with making nationally consistent, fair and expedi-
tious decisions concerning the applicability of the Policy. The QRT meets weekly to
review nationally significant issues and develop guidance interpreting the Policy.
EPA is also tracking cases and publicizing decisions made under the Policy. The
Agency intends to apply the Policy on every occasion in which the Policy conditions
are met.
Question 3. The new policy requires that companies report any violations within
ten days. Some companies have complained that this is too short a period. In your
experience, have most companies been able to comply with this requirement or offer
a reasonable grounds for waiver of strict enforcement of the 10 day deadline?
Answer 3. Yes, most companies have been able to disclose violations under the
Policy within ten days after they have discovered that a violation has or may have
occurred. Companies have the opportunity to disclose that a violation "may have oc-
curred" where the company has some doubt about the existence of a violation.
Where reporting within ten days is not practical because the violation is complex
and compliance cannot be determined within that period, the Agency may accept
later disclosures if the circumstances do not present a serious threat and the com-
pany meets the burden of showing that the additional time was needed to determine
compliance status.
Question 4. In his written testimony, Tom Gehl from the Kohler Company makes
a good point. He said: "a responsible regulated entity that audits should not be in
a position of greater potential liability than an entity that does not audit." He also
says that the EPA policy fails because it does not "protect information provided to
EPA ft-om disclosure to other government agencies or third-parties." How do you re-
spond to his criticism?
Answer 4. EPA agrees that responsible companies that audit should not be in a
position of greater potential liability than companies that do not audit, so long as
violations are promptly disclosed and promptly corrected. The 1995 Price
Waterhouse survey clearly demonstrates that auditing is widespread and growing
because the industry already believes that auditing reduces liability both for third
party actions and enforcement actions. See Repsonses to Question 25 of survey. The
Agency's self-disclosure policy provides further comfort by eliminating gravity-based
penalties and the threat of criminal prosecution for companies that promptly dis-
close and promptly correct violations and meet the other reasonable safeguards of
the Policy. With the Agency's policy in place, responsible companies have no reason
to hide from their government.
Ill
With respect to citizen suits, companies that promptly disclose and correct viola-
tions pursuant to the terms of the self-disclosiu-e policy are highly unlikely targets
for citizen suits, many of which are limited to addressing on-going violations. More-
over, most environmental statutes preempt citizen suits where there is "diligent
prosecution" of violations. With respect to toxic tort suits, the type of evidence that
should be available to tort plaintiffs relates to issues beyond the jimsdiction of EPA.
Generally, however, during 18 months of public hearings, industry has presented lit-
tle evidence of abuse by government or third parties regarding the use of self-eval-
uative materials, so EPA is unpersuaded that an evidentiary privilege is needed in
any context.
Responses From the U.S. Environmental Protection Agency to Questions
From Senator Thurmond
Question 1. Mr. Herman, you repeatedly indicate in your written testimony that
the Chemical Manufacturers Association praised and supports the new EPA policy.
Are you aware that the Chemical Maniifacturers Association believes significant
changes are needed in the EPA policy, and in fact supports legislation such as we
are considering at this hearing?
Answer 1. EPA's testimony did not state that the Chemical Manufacturers Asso-
ciation (CMA) "supported" EPA's policy. Rather, we noted that EPA's Policy "has
won praise from the Chemical Manufacturers Association", among others. In a state-
ment dated December 22, 1995, David F. ZoU, Vice President and Greneral Counsel
of the Chemical Manufacturers Association, wrote:
"CMA commends the Agency for issuing this policy, as it represents a substantial,
positive development in the Agency's views on the subject. We also salute the Agen-
cy for instituting the open, 19-month process that gave rise to the new policy * * *
By its new policy, EPA recognizes the increasing importance of companies' own ef-
forts in assuring compliance. EPA has also committed itself to treating companies
that find, fix and disclose noncompliance more favorably than those that do not. We
believe the new poUcy will substantially promote the use of environmental auditing
and compliance management systems. It should also lead to greater willingness to
disclose noncompliance discovered through these activities. The result will be great-
er environmental protection through the prevention of noncompliance, as well as
greater public awareness of regulated entities' compliance status and efforts."
Question 2. Do any of you care to respond to the view that EPA and the Justice
Department are being unduly paternalistic in dealing with the States that have
passed legislation encouraging voluntary audits? For example, the Texas environ-
mental agency apparently believes that the Texas legislation has helped compliance
efforts and is making the environment in Texas cleaner, but that the EPA is making
it more difficult for the Texas agency to do its job.
Answer 2. EPA does not believe that it is being "unduly paternalistic" towards
States that have passed audit privilege and/or penalty immunity statutes. Under
federal law, EPA must evaluate the enforcement authority of any given State before
a federal program can be administered by a State. When that enforcement authority
is inadequate, federal law prohibits the state fi-om administering such programs.
This helps ensure a "level plajdng field" for regulated entities nationwide.
The Agency on April 5th of this year issued guidance which explains and summa-
rizes our obligations under the Clean Air Act to evaluate certain State enforcement
authorities prior to approving a Title V program. Federal law requires, for example,
that States have authority to recover penalties for criminal and civil violations of
federal requirements. We have attached a copy of that guidance for your informa-
tion.
The State of Texas has enacted an audit privilege and penalty immunity law, and
also has applied for approval to administer a Clean Air Act Title V program. The
Clean Air Act clearly requires us to determine whether the Texas audit law pre-
vents that State from having adequate enforcement authority to administer a Title
V program. We are working closely with the State in reviewing these federal re-
quirements and the Texas law.
EPA has made no secret of its opposition to State audit privilege and penalty im-
munity laws. We believe that, contrary to some stated views, the evidence shows
that such laws are not needed to encourage environmental auditing. Even if they
offer companies some marginal incentives to audit, however, the harm that they
cause to enforcement programs far exceeds their positive effects. The Agency has
worked closely with States to promote constructive alternatives that promote vol-
untary compliance without compromising enforcement.
112
Question 3. Mr. Herman, should we not believe companies when they state that
existing law and EPA policy currently deter them from conducting voluntary audits?
In particular, what is the basis for your written statement that companies are not
discouraged by the limitations in the EPA policy?
Answer 3. Apparently, current law and EPA policy do not deter businesses from
conducting voluntary audits. In fact, the opposite is true. Siirveys conducted by
Price Waterhouse, Arthur Andersen, and the Investor Responsibility Research Cen-
ter indicate that 75-85% of businesses have compliance audit programs. In the 1995
Price Waterhouse survey, 96% of businesses that audit do so in order to discover
and correct environmental violations before Agency inspectors find them. Moreover,
approximately 90% of companies that audit do so for sound business reasons. See
Responses to Question 25 in survey. Finally, companies that do not audit are not
primarily concerned about confidentiality. See Responses to Question 21 in survey.
EPA has already agreed to provide additional incentives by reducing penalties for
companies that audit, disclose and correct violations. So far, the Agency has re-
ceived disclosures from over 65 companies, and has reached 15 settlements in which
12 companies received penalty waivers from EPA.
Question 4. Mr. Herman, you state that under the EPA policy companies should
have nothing to hide from the "government." What is your response to company con-
cerns about creating documents that may be used against the company by third par-
ties in private litigation? Can you offer any comfort there?
Answer 4. Responsible companies have no reason to hide from their government,
if they promptly disclose and correct violations and meet the other reasonable seife-
guards in the self-disclosure policy. With respect to citizen suits, companies that
promptly disclose and correct violations pursuant to the terms of the self-disclosure
policy are highly unlikely targets for citizen suits, many of which are limited to ad-
dressing ongoing violations. Moreover, most environmental statutes preempt citizen
suits where there is "diligent prosecution" of violations. With respect to toxic tort
suits, the type of evidence that should be available to tort plaintiffs relates to issues
beyond the jurisdiction of EPA. Generally, however, during 18 months of public
hearings, industry has presented little evidence of abuse by government or third
parties regarding the use of self-evaluative materials, so EPA is unpersuaded that
an evidentiary privilege is needed in any context.
Question 5. (See the Department of Justice's response to this question.)
Responses From the U.S. Environmental Protection Agency to Questions
From Senator Grassley
Question 1. Several environmental statutes, like the Clean Air Act, allow states
to take the lead in the enforcement of environmental laws through the development
of state programs satisfying federal minimum standards. However, some states
which have enacted or are considering legislation dealing with an environmental
audit privilege or disclosiu-e immunity, have reportedly been pressured by EPA to
reject such policies or have final approval of their programs withheld or withdrawn.
In fact, an April 5, 1996, EPA memo establishing criteria for Title V approvals
states that where a state privilege or immunity law deprives the state of adequate
enforcement authority, "it must be amended before final Title V approval can be
granted." This is the case regardless of the success and benefits the privilege may
have produced at the state level.
Question la. Shouldn't states be able to enact and administer their own environ-
mental audit protection and voluntary disclosure legislation that they believe pro-
tects the public and environmental without federal prosecution of companies who
want to take advantage of such protections? Shouldn't states rights be recognized
and why?
Answer la. EPA encourages States to experiment with new ways of improving
compliance with their environmental laws, and has consulted closely with States in
developing its own policies. This freedom to experiment, however, is subject to those
minimum standards established under federal law, which make clear that States
must have adequate authority to enforce the requirements of federal programs
which they administer. As noted above in answer to a question from Senator Thur-
mond, EPA is required by most federal statutes to ensure that States have adequate
enforcement authority before the Agency can delegate programs to those States. For
example. Section 502(b)(5) of the Clean Air Act requires States to have specific au-
thority to enforce the terms and conditions of Title V Permits, including the ability
to recover civil penalties of at least $10,000 per day and to recover "appropriate"
penalties for criminal conduct. EPA's April 5, 1996, guidance for the Clean Air Act
Title V permit program, a copy of which is attached, explains more fully the mini-
113
mum enforcement authorities which Congress has said States must have been EPA
can approve their Title V programs.
Question lb. How have you dealt (or how do you plan on dealing) with situations
where a company has attempted to withhold information under a state privilege?
Answer lb. Neither EPA nor the Department of Justice believe that audit privi-
leges as established under State law apply in federal enforcement actions. Allowing
States to estabHsh a myriad of different evidentiary rules for federal cases would
be a radical departure from current practice.
Question Ic. In what respects is adoption of the privilege and/or immunity protec-
tions under state law incompatible with current EPA and DOJ enforcement policy?
Answer Ic. With respect to State environmental audit privileges, such protections
are incompatible with current EPA enforcement policy to the extent that they can
deprive the government of information that may be crucial to prosecuting a case
successfully, and also may hamstring undercover investigations. With respect to
penalty immunities, some State laws provide penalty immunity for violations which
do not qualify for penalty mitigation under EPA's self-disclosure policy.
Question 2. EPA criticizes state audit privilege and/or immunity legislation and
S. 582 affecting the ability to enforce environmental laws in criminal and emergency
situations. Yet, witnesses testified at the hearing that states still retain the ability
to enforce their environmental programs through emergency orders and injunctive
relief and that they are fully able to carry out their criminal enforcement authority.
Question 2a. Has EPA made any determinations with respect to the impact of in-
dividual state statutes on Title V enforcement or the enforcement of other environ-
mental statutes? Has EPA determined that any state has adopted particularly egre-
gious laws which would undermine the state's ability to enforce its programs?
Answer 2a. EPA decisions on whether to approve delegation of Clean Air Act Title
V permit programs are pending in Idaho, Texas and Michigan, all of which have
audit privilege and penalty immunity laws. EPA has concerns about the effect on
the State's enforcement powers of the audit privilege/penalty immunity laws in
these States, and may exercise in one or more of them the option of granting in-
terim approval but requiring changes before final Title V approval is granted. The
Title V delegation process allows the Agency to grant interim approval to a State
program, with final approval conditioned upon changes to legislation or the issuance
of reasonable legal interpretations fi-om the state attorney general demonstrating
that the State has the required authority.
Question 2b. Please provide the basis of yoiir opinion that S. 582 offers immunity
to repeat violators. Since the bill states that the privilege is not afforded when dis-
closure is made by an entity that "has been found by a Federal or State court to
have committed repeated violations of Federal or State laws, or orders on consent,
related to environmental quality due to separate and distinct events giving rise to
the violations, during the 3-year period prior to the date of the disclosure", doesn't
this cure your problem (See Section 2(a) of S. 582)
Answer 2b. The "repeated violations" exception requires a finding of a past re-
peated violation by a court. This seems to suppose that either the defendant has
fought several prior enforcement actions all the way to adverse judgment, or that
the United States would be expected in a prosecution for one claim to prove a series
of prior violations by the defendant or to forego evidence material to the claim actu-
ally filed. This supposition ignores the fact that most environmental matters are re-
solved in settlement, typically without any admission of liability.
Because the "repeated violations" exception in S. 582 is so narrow in practical ef-
fect and the fact that limited resources do not allow the government to pvirsue every
violator to judgment for every violation, it is unlikely that the government will be
able to make the showing required by S. 582, regardless of the gravity of the viola-
tion that initially caused the government to bring the action.
By contrast, EPA's policy on "Incentives for Self-Policing: Discovery, Disclosure,
Correction and Prevention of Violations" requires that:
"The specific violation (or closely related violation) has not occurred previously
within the past three years at the same facility, or is not part of a pattern of federal,
state or local violations by the facility's parent organization (if any), which have oc-
CTirred within the past five years. For the purposes of this section, a violation is:
(a) any violation of federal, state or local environmental law identified in a judicial
or administrative order, consent agreement or order, complaint, or notice of viola-
tion, conviction or plea agreement; or
(b) any act or omission for which the regulated entity has previously received pen-
alty mitigation from EPA or a state or local agency."
Question 3. One of the criticisms that EPA and DOJ have about the bill is that
evidence will be buried under the privilege and that the government will not be able
to effectively prosecute cases.
114
Answers 3a-3d. (See the Department of Justice's response to this question.)
Question 3e. What is the basis of your belief that S. 582 allows companies to keep
an economic benefit from noncompliance where that economic benefit is substantial
and deliberately obtained? According to the bill, only audits conducted for the ex-
press purpose of determining whether the entity is in compliance with federal law
are covered by the privilege. Doesn't deliberate noncompliance suggest that an audit
was conducted in bad faith or for fraudulent purposes and disqualify such an audit
from the privilege, thereby addressing your concerns?
Answer 3e. S. 582 has two components: evidentiary audit privilege and penalty
immunity. Under the penalty immunity component, where violations are "volun-
tarily disclosed" under the bill, the entity making the disclosure "shall be immune
from any administrative, civil, or criminal penalty * * *." Thus, companies that
make "voluntary disclosures" would not be assessed any penalties no matter how
egregious the violation and no matter how much the company gained economically
from its noncompliance.
Question 4. Industry proponents have stated that the EPA Final Policy is just
that, "just a policy" that can be changed at any time and that it has no force of
law. They argue that since EPA's guidance is not law, EPA's regions are not boimd
by the conditions of the policy and, further, under the policy companies do not have
any enforceable rights. What is your response to these statements?
Answer 4. EPA is uniformly applying the Audit Policy across all EPA enforcement
programs and Regions. EPA has established a Quick Response Team (QRT) which
is charged with making nationally consistent, fair and expeditious decisions concern-
ing the applicability of the Policy. The QRT meets weekly to review nationally sig-
nificant issues and develop guidance interpreting the Policy. EPA is also tracking
cases and publicizing decisions made under the Policy. EPA intends to apply the
Policy on every occasion in which the Policy conditions are met.
Question 5. In its written testimony, DOJ states that the statute is "hopelessly
flawed." However, I think we all believe that the evidentiary privilege and the pa-
rameters of disclosure immunity in S. 582 need to be further defined and more spe-
cifically delineated. Additionally, I'm sure you know that the purpose of the bill is
not to interfere with law enforcement, conceal information, or reward violators of
the law — rather the goal is to encourage companies to proactively look for environ-
mental problems and then promptly fix them.
Answers 5a and b. (See the Department of Justice's response to this question.)
Responses From the U.S. Environmental Protection Agency to Questions
From Senator Feingold
Question 1. Why did EPA choose to issue its guidelines on environmental auditing
as a policy, rather than as a regulation? Has the agency ruled out the possibility
of issuing the policy as a regulation?
Answer 1. EPA has specifically left open the issue of whether to convert its self-
disclosure policy into a rulemaking. The Policy itself states, "While EPA is taking
steps to ensure consistency and predictability and believes that [the Policy] will be
successful, the Agency will consider this issue and will provide notice if it deter-
mines that a rulemaking is appropriate." This issue was discussed at length during
the stakeholder focus group dialogues utilized by EPA to develop the Policy.
EPA is aware of the desire on the part of the regulated community for greater
enforcement certainty, and we are applying the self-disclosure policy consistently by
establishing a steering committee to review significant issues and develop and pub-
lish answers to questions about the policy's application. EPA has established a
Quick Response Team (QRT) which is charged with making nationally consistent,
fair and expeditious decisions concerning the applicability of the Policy. The QRT
meets weekly to review nationally significant issues and develop guidance interpret-
ing the Policy. EPA is also tracking cases and publicizing decisions made under the
Policy. EPA intends to apply the Policy on every occasion in which the Policy condi-
tions are met. Finally, the self-disclosure policy states that within three years EPA
will conduct a study on the Policy's effectiveness, and the Agency expects to consider
enforcement of certain issues then.
Question 2. You testified that EPA is opposed to the privilege provisions of this
bill. Would the agency support expanding the exceptions to privilege section con-
tained in the bill to include: gross negligence, negligence, and reckless conduct, and
use of audit information to impeach witnesses?
Answer 2. Privilege itself creates obstacles to effective and fair enforcement re-
gardless of the exceptions which will certainly lead to more litigation in every case.
The costs of any new privilege dwarf the benefits which the proponents have failed
115
to establish as an effective incentive. In fact, a Price- Waterhouse survey of industry
in April of 1995 found that privilege was less import;ant than penalty mitigation and
that among those companies that do not already audit, confidentiality ranked
among their least concerns.
Question 3. Does EPA believe that S. 582 which provides privilege and immunity
for voluntary audits conducted by "governments" preempts state run compliance as-
sistance programs, such as Wisconsin's? Does the EPA provide similar compliance
assistance?
Answer 3. Because the bill does not clearly exempt state programs which contain
more stringent requirements, it could conceivably preempt certain state programs.
For example, if the State program does not recognize a privilege, or provides less
extensive penalty immunity, S. 582 would preempt that program. Witnesses at the
May 21st hearing testified that establishing a uniform standard was a primary ben-
efit of S. 582.
EPA funds several sector-oriented Compliance Assistance Centers in partnership
with industry, academic institutions, environmental groups and other federal and
state agencies. The Agency also has a program of extensive grants to States under
several laws. For example, under the Pollution Prevention Act, EPA provides grants
for programs which often have compliance assistance components, and under Sec-
tion 507 of the Clean Air Act, the Agency funds compliance assistance centers spe-
cifically for small businesses. Finally, under its Policy on Compliance Incentives for
Small Businesses, EPA provides substantial penalty mitigation for businesses who
seek assistance from compliance assistance centers and promptly correct violations.
Responses From Thomas P. Gehl. to Questions From Senator Grassley
In your testimony, you state that privilege/immunity legislation for environmental
audits encourages companies to comply with environmiental laws.
Question la. Have your companies taken advantage of either the final policy cri-
teria or a state environmental audit privilege? If so, what has been your experience
with the policy or privilege, favorable or unfavorable?
Answer la. One company has indicated that they utilized their state's environ-
mental audit privilege which sets forth requirements for claiming the privilege and
contains conditions which trigger the loss of the privilege. This company indicated
that the privilege has allowed them to write more detailed and frank audit findings
with the expectation that they are for internal eyes only. This company indicates
that adding the federal protection would give more complete assurance that reports
would not be used against them. They also indicate that since the passage of the
legislation more site self-audits as well as corporate audits have been conducted.
Another company was faced with a situation in which a private litigant requested
copies of an environmental audit report in connection with a citizens' suite brought
in a state tribunal in Illinois. The company relied on both attorney-client privilege
and lUinois's audit privilege, and was successful. Had the suite been brought in fed-
eral court, audit privilege would not have been available under federal law, and
EPA's policy would not have applied. Reliance on the attorney-client privilege
means, however, that the audits may be used only for the limited purpose of provid-
ing management legal advice concerning the compliance status of the facility in
question. This company indicates that this restriction severely limits both the use
to which audit information can be put, and the extent to which that information can
be communicated internally. Accordingly, the effectiveness of internal policing ef-
forts is also hampered.
Another company indicated that although they had not had an occasion to take
advantage of EPA's Final Policy criteria or a state environmental audit privilege,
because the state has not yet passed such legislation they did, however have had
an occasion to disclose information to the Agency which revealed inadvertent non-
compliance with certain manufacturing limitations imposed by a relevant Federal
environmental law. This information was discovered while the Company was con-
ducting a self-assessment of its own chemically specific management programs pur-
suant to conducting a self-assessment of its own chemically specific management
programs pursuant to certain Federal regulatory requirements. Disclosure was
made and it was timely. After the disclosure was made, the "required" enforcement
component of the matter was administered under the Agency's applicable Penalty
Policy, and a monetary penalty was assessed based on that policy. In addition, the
Company was prohibited from using the existing inventory of the chemical involved
in the noncompliance until more could be manufactiu-ed under proper Agency ap-
provals. Other requirements and operational limitations were imposed.
116
This company stated that the experience of discovering noncompliance, investigat-
ing its cause and implementing time corrective measures, along with discussing
these matters — as well as the like consequences of such a violation and voluntary
disclosure — with Senior Management, is never a "favorable" experience. But in spite
of the fact that no environmental harm occurred (nor was any reasonably possible),
that absolutely no economic benefit was obtained, that the violation was entirely in-
advertent and unintentional, that all allowable "reductions" or discounts in the base
penalty amount were properly permitted according to the Penalty Policy and that
the Agency's personnel were sincere, helpful and cooperative in reaching resolution,
the pajonent of significant penalty as well as the substantial costs associated with
the business and operational disruption, as well as significant outside legal ex-
penses, is not a sufficient outside legal expenses, is not a sufficient positive incen-
tive for members of the regulated community to come forward to voluntarily dis-
close. This uncertainty * * * and fear * * * still exists in the Agency's Final Pol-
icy because of the discretionary nature of the determining whether or not the disclo-
sure is eligible for the protection under the Policy. Legislation would provide cer-
tainty, and certainty provides an incentive to all who would consider voluntary dis-
closure. The lack of certainty, the possibility of substantial penalties, the likelihood
of business interruption and of additional, related costs may be sufficient to prevent
disclosure. * * * again particularly when one considers the discretionary application
of EPA's Final Policy.
Question lb. Do you agree with EPA's criticism of S. 582 that the bill allows regu-
lated entities to dictate their own pace in correcting violations because it only calls
for corrective action or elimination of a violation by the exercise of "reasonable dili-
gence?" EPA also has claimed that compliance might be slower than would be in
the best interests of protecting public health and the environment. What is your re-
sponse? Doesn't waiting for correction of the violation present a problem? Is it clear
that the problem would have to be corrected in order for the privilege to apply?
Answer lb. One company has responded that they do not believe that companies
will take a lax approach to fixing problems found in audits. They add that under
their state's privilege law, evidence of noncompliance must be addressed "promptly"
and with "reasonable diligence." Because a facility has 90 days to apply for a permit
if it discovers it needs one, this company has used the 90 day period as a guide to
what would equate to "reasonable diligence." Of course, this company adds, the fact
may dictate a longer period if for example, equipment must be designed or ordered.
This company adds that federal legislation can easily include such direction for rem-
edying problems found.
Another company states that they do not agree with EPA's criticism in this re-
gard, because most companies would want to ensure that issues are addressed with
guidance from the appropriate state or federal agency anyway. This company adds
that it is frequently the case that response lags in obtaining approvals fi-om such
agencies are the primary cause of any delays in initiating or completing cleanups,
once a decision has been made to address the issue.
Another company indicates that "Reasonable diligence," unlike the Agency's asser-
tion, does not permit regulated entities to correct violations at their own, slower
pace. Rather it requires the entity to correct the violations pursuant to the time con-
straints and with appropriate dedication of resources that reasonable parties would
agree are, in fact reasonable considering the specific facts of the violation. In addi-
tion, the determination of that which is "reasonable" is not a unilateral determina-
tion. The likelihood of a regulated party coming forward to make disclosure about
a matter not yet corrected. * * * knowing that a hearing will take place, in camera,
to determine if the corrective actions were pursued with "reasonable diligence" and,
further, knowing that the burden of proving a prima facie case that appropriate ef-
forts to achieve compliance were promptly initiated and pursued with "reasonable
diligence" is, ft-om a practical point of view, remote. It is much more likely that enti-
ties that intend to take advantage of the benefits of voluntary disclosure will make
the required corrective efforts with all deliberate speed and diligence in order to as-
sure, as best they can, that the benefits of the privilege and of voluntary disclosure
are made available.
A violation that has not been the subject of timely corrective actions will not per-
mit the disclosure to be characterized as "voluntary" (therefore subject to immunity)
and likewise, will not permit the claim of privilege to be upheld after in camera
hearing. Disclosing entities don't usually leave such matters to chance.
However, this company added, that there may be violations that cannot be cor-
rected quickly because of their technical complexity or because they require partici-
pation of approvals from the Agency or the State. In this situation, the regulated
party should be able to voluntarily disclose, agree to the necessary compliance
schedule to insure environmental protection is maintained and still be eligible for
117
the benefits of self disclosure in spite of the incomplete nature of the correction ac-
tions rather than wait until correction is complete in order to invoke the privilege
or to make a voluntary disclosure. Clearly, appropriate efforts to achieve compliance
should be promptly initiated and pursued with reasonable diligence — and those ef-
forts to achieve compliance and complete correction surely must continue after dis-
closure, likewise, the noncompliance must have been disclosed within a reasonable
period of time after its discovery. But there is not a justifiable reason for disqualify-
ing one from receiving the benefits of such a voluntary disclosure simply because
appropriate correction could not be achieved prior to disclosure.
Question 2. EPA and others claim that the privilege as proposed in S. 582 would
eliminate all punishment for certain criminal and other violations that are volun-
tarily disclosed regardless of harm, basically giving blanket immunity to companies
which have committed environmental violations. The Environmental Protection
Agency (EPA) and the Department of Justice (DOJ) testified that the immunity pro-
vision of S. 582 would allow a company to escape prosecution even for criminal con-
duct merely because the company confessed and belatedly took corrective action.
Could you please respond to those concerns? What are the safeguards in the privi-
lege as proposed in S. 582 that ensure that bad actors and criminal activity are not
protected?
Answer 2. Intentional, willful, or piuT)0seful environmental violations or knowing
endangerment offenses should not be subject to protection under the privilege nor
under the voluntary disclosure provisions. Bad actors must be punished. Enforce-
ment in these circumstances is appropriate and necessary. Neither companies nor
individuals should escape punishment for intentional violations of the law. Immu-
nity should be reserved for the unintentional violations, those committed through
inadvertence or perhaps even negligence, but not for intentional acts. S. 582 should
be clarified, if necessary, that intentional, willful and purposeful environmental vio-
lations or knowing endangerment offenses should not be subject to protection under
the privilege or the voluntary disclosure provisions.
Question 3a. EPA and others also claim that the proposed bill encourages litiga-
tion because it does not adequately define what falls within the scope of the audit.
In order to evade disclosure, violators could argue that many routine business ac-
tivities are "compliance evaluations." Further, they claim that the "reasonable ef-
forts" standard to correct environmental violations is unclear, and that the "compel-
ling circumstances" the government would have to determine to overcome the privi-
lege in a criminal investigation are also vague. How would you respond to those
criticisms? Also, how would you delineate the parameters of the term "voluntary en-
vironmental self-evaluation?"
Answer 3a. In order to eliminate the possibility of continuing disagreements with
regard to what is and is not within the definition of an audit, there needs to be a
clearer definition of what falls within the scope of an audit, including what falls
within the scope of a comprehensive environmental compliance management system.
Many state privilege laws have defined the report by spelling out the pvupose of the
audit exercise and what is included under the scope of the report. We would wel-
come the opportunity to work with the Subcommittee to craft such a definition.
Question 3b. Could this privilege actually increase litigation because parties vnW
argue about the limits of what is and what is not protected?
Answer 3b. Recognizing that there is always litigation over any new law or regu-
lation, if the audit report is well defined, litigation over what is protected should
be minimized. There is no reason to believe that this legislation will generate any
more litigation or discussion about what is properly within the privilege than litiga-
tion that is currently flowing from existing privileges. In fact, a strong argument
can be made that litigation will not be increased but decreased because the privilege
and immunity will encourage cooperative efforts between the regfulators and regu-
lated entities.
Question 3c. Does the audit privilege in S. 582, as currently drafted, protect fac-
tual data as well as legal conclusions? Doesn't this restrict access to important evi-
dence, including testimonial evidence, that would determine whether a violation has
occurred or whether a potential environmental disaster might be possible?
Answer 3c. No, access to important evidence, including testimonial evidence,
would not be restricted. Data that is otherwise required to be reported to the gov-
ernment is specifically excluded. As with other privileges, underlying factual data
is not protected. The privilege in S. 582 only protects additional information and
legal conclusions that are generated as part of the audit documentation process. The
Agency is always free to require the disclosure of pre-existing data, data generated
outside the protection of the audit, or information and data that it generates by ob-
servation, sampling and monitoring. The Agency always has access to the facts.
118
Question 3d. Opponents of the bill claim that S. 582 would provide penalty immu-
nity even where violations result in serious harm or inuninent and substantial
endangerment, thus undercutting the primary purpose of federally delegated pro-
grams to protect public health and the environment. Do you agree with this criti-
cism? Do you believe that this deprivation of penalty authority would limit a state's
leverage in negotiating an appropriate remedy for any damage that may have been
caused or injunctive relief that may be necessary?
Answer 3d. No, we do not agree with this criticism. The privilege only applies to
violations that are discovered during routine audits conducted in the context of "self-
policing" efforts. The net result is that the problems would be discovered, reported
and addressed much more quickly than if the problem is hidden or undiscovered.
The result of the privilege would be to encourage more disclosure and address envi-
ronmental problems more quickly. In such a situation, the privilege would only
apply if a court reviews the audit and determines that appropriate efforts to achieve
compUance were promptly initiated and pursued. This is especially important in sit-
uations where there is a potential for imminent and substantial endangerment.
Moreover, CEEC believes that the government should retain the authority to seek
appropriate injunctive relief in specific situations.
Responses From Thomas P. Gehl to Questions From Senator Thurmond
Question 1. In each of your views, is the proper way to evaluate this legislation
to determine whether, considering all factors, it will result in a healthier and clean-
er environment than in its absence?
Answer 1. Yes, we believe that your view is an appropriate and a refreshingly in-
sightful way of viewing the policy justifications for this type of legislation. Not only
will such legislation allow the Agency to utilize its limited resources more effec-
tively, but it can also be a major step forward in the reinvention of environmental
regulation. Our nation's focus should be on improved environmental performance
and protection, not on an increased number of enforcement cases. This legislation
can help re-direct our country's environmental focus toward a healthier and cleaner
environment by enlisting and providing incentives to regulated entities to "find it
and fix it" rather than an Agency policy that advocates enforcement policies based
purely on the number of cases pursued through enforcement mechanisms. The focus
should be on whether this legislation moves us closer to compliance. Regulators
should be hard pressed to oppose legislation that moves this nation toward cost-ef-
fective, voluntary and positive environmental policies.
Question 2. Would any of you care to comment on the extent to which this legisla-
tion would permit companies to work cooperatively with enforcement agencies to
find solutions to problems, rather than posturing an fighting over technicalities and
unhelpful questions of interpretations?
Answer 2. We believe the entire purpose of S. 582 is to address the objective that
you have just described. The volimtary reporting that will occur because of this leg-
islation will bring many issues before environmental regulators that would not have
been surfaced otherwise. Each report to the Agency will present opportunities for
both sides to learn how to do things that are better for our environment. We recog-
nize that there will always be lingering questions of interpretation and approach but
we believe that removing an "Enforcement First" mindset will provide more coopera-
tion, and ultimately, a more environmentally beneficial relationship between the
regulated community and their regulators.
Question 3. As the Chairman of the Antitrust, Business Rights, and Competition
Subcommittee, I am interested in each of your views on whether it is desirable to
attempt to protect competition by imposing fines based on any "economic benefit"
which a company has obtained by lack of compliance with environmental laws or
regulations. That is, if a company unintentionally benefits from being out of compli-
ance, does that give it an unjustified competitive edge over its competitors that
needs to be addressed, or would the ciu-e be worse than the problem?
Answer 3. Companies that will utilize this legislation are companies that recog-
nize a responsibility to correct the harm or the violation that is discovered. The cost
of that correction is not one to be ignored. By recouping a perceived economic benefit
appears to be so fraught with difficulty and potential inequity that it may simply
act as a disincentive to "find it-fix it" * * * or as you have suggested, the ciu-e could
be worse than the problem. In addition, economic benefit arguments are sometimes
used as a negotiating tool by governmental organizations. In reality, the companies
that have instituted auditing programs have found many benefits beyond the cost
and are not focused on punishment for competitors — particularly if other companies
are finding problems through the audit process.
119
Responses From Thomas P. Gehl to Questions From Senator Kohl
Question 1. In January of this year, the EPA instituted its own pohcy to encour-
age audits. Under its program, if you conduct an audit, disclose a violation, and cor-
rect it, the agency will not assess a penalty. Have you used the EPA procedure yet?
If so, how often, and what has been the result? If not, why not?
Answer 1. CEEC participated actively during the time that EPA developed its pol-
icy statement. Our organization filed extensive comments, which are attached, be-
fore the policy was issued and submitted a letter, that is attached, to Assistant Ad-
ministrator Steve Herman following the issuance of the enforcement policy. CEEC's
members do not, for reasons outlined in the letter to Mr. Herman, believe that the
EPA policy is adequate. A number of CEEC companies indicate that they have not
yet utilized the EPA policy for a number of reasons. More than the one company
has expressed concern over the fact that, because it is a discretionary policy, EPA
can decide to use it or not use it depending on their own determination. One com-
pany indicated that they have not used the procedure yet, at least in part for fear
that other agencies and/or private litigant, not subject to the policy, would attempt
to obtain the results of such internal self-policing and use the information obtained
against the company. Another company indicated concerns over the use of the poUcy
because they have historically voluntarily disclosed information to regulators and
then subjected to substantial enforcement penalties.
Question 2. You are concerned that the audits that you undertake in good faith
will be used against you. That's understandable. After all, you spend your time and
invest your good will in trying to comply with the law, and then someone can come
along and make you pay for trying to do the right thing. Has the EPA ever asked
you or a company that belongs to your Council for an environmental audit as part
of a fishing expedition on their part to find violations?
Answer 2. Most of our companies have not been asked by EPA to produce their
environmental audit reports as part of a "fishing expedition." But one CEEC com-
pany indicated, "I have personailly sat in numerous meetings, however, and have
Heard DOJ civil and criminal enforcement attorneys, EPA criminal enforcement at-
torneys, and state attorney's general proclaim with substantial bravado that they
will not hesitate to request copies of the audit if they know one exists in an ongoing
enforcement matter." Another company indicated that a private litigant did seek an
audit fi-om this company, as part of what they believed was a fishing expedition.
This company added that the news of this event has had a substantial chilling effect
on the willingness of other companies to conduct audits.
Question 3. If you are given immunity under federal law for voluntarily conduct-
ing an audit, reporting a violation and correcting the problem, please explain why
you would also need the privilege?
Answer 3. The privilege is essential to protect companies fi"om others such as citi-
zen suits or tort claim discovery requests seeking the audit reports. Without the
privilege the audit process wiU be chilled.
Question 4. Do you believe you need immunity fi-om criminal prosecutions for the
statute to be effective?
Answer 4. Intentional, willful, or purposeful environmental violations or knowing
endangerment offenses shoiild not be subject to protection under the privilege nor
under the voluntary disclosure provisions. Bad actors must be punished. Enforce-
ment in these circumstances is appropriate and necessary. Neither companies nor
individuals should escape punishment for intentional violations of the law. Immu-
nity should be reserved for the unintentional violations, those committed through
inadvertence or perhaps even negligence, but not for intentional acts. S. 582 shoiild
be clarified, if necessary, that intentional, willful and purposeful environmental vio-
lations or knowing endangerment offenses should not be subject to protection under
the privilege or the voluntary disclosure provisions.
Responses From Victor Johnson, III to Questions From Senator Grassley
Question 1. In your testimony you give the prosecution's view of the concept of
environmental audit privilege.
Question la. Could you elaborate on how the environmental audit privilege re-
stricts a prosecutor's ability to obtain evidence in criminal investigations and com-
promise enforcement? Isn't an in camera hearing an adequate method of determin-
ing the privilege?
Answer la. In any criminal case the intent or knowledge of the actors is deter-
minative of criminal culpability. In "white collar" crimes, as in environmental of-
fenses, the overt criminal act may only implicate the immediate actors and not re-
veal the business decisions and practices that fueled the act. Who made decisions
120
and how they were executed are important factors in determining if conduct is truly
criminal and worthy of prosecution. Thus the corporate records can be extremely
valuable in reconstructing historical events leading to the overt act.
If a privilege were extended to environmental audit records, a "worst case" sce-
nario can easily be envisioned. At this time, corporate counsel seek to protect audit
records under the guise of attorney-client privilege or as litigation work product.
With the advent of a self-audit privilege, clever corporate counsel would add this
as a third "layer" of protection. They would also require that all records and docu-
ments pertaining to environmental actions, decisions and compliance be incor-
porated into the "audit." To gain access to these records, or to even challenge their
inclusion in the audit, would require lengthy court proceedings, assuming that a
court of competent jurisdiction could be determined.
An in camera proceeding, in a criminal case, has several draw backs from the per-
spective of a local prosecutor. First, jurisdiction by the criminal court normally at-
taches only after criminal charges have been filed. If the prosecutor needs the audit
to determine if criminal conduct has occurred, he would have either to try to get
a search warrant or subpoena for the documents and then face the in camera review
and subsequent appellate challenges. This would be costly for most communities
and the time pending final appeals would lead to further difficulties in preserving
evidence; meeting speedy trial and statute of Umitations requirements; and protect-
ing the community from additional harm. Moreover, to be successful in an in camera
review, the prosecutor must already have sufficient evidence of criminality to get
beyond the privilege.
The claim of privilege may be so broad that these problems extend to every com-
munication conceivable, oral and written, between the polluter, their employees,
agents, and associates. If this is the effect, then investigation can never proceed to
the point where the process is anything but an endless string of in camera hearings
resulting in nothing but enriching defense lawyers and frustrating public health and
safety policy.
In our system of criminal justice, the prosecutor has been given great discretion
in determining who, how, when, and even, if someone should be charged with a
criminal offense. Daily I must make decisions that effect the liberty of individuals
and sometimes must even consider whether some defendants ought to face the ulti-
mate penalty. If this legislation were to restrict my discretion in the area of environ-
mental crimes, then Congress is deciding that corporate executives are entitled to
special protections not available to the average citizen.
Question lb. How does the bill's audit privilege make investigations of criminal
behavior more difficult, interfere with routine enforcement actions, or compromise
the public's right to know, if S. 582 expressly excludes from the privilege informa-
tion "required to be collected, developed, maintained, or reported to a regulatory
agency"; "obtained by observation, sampling, or monitoring by any regulatory agen-
c/'; or "obtained from a source independent of the environmental audit'7 (See sec-
tion 2(a) of S. 582) Don't these exemptions from the privilege allow a prosecutor to
have the same access to information that it has today?
Answer lb. The empirical data required by these types of reports, assuming they
are accurate, would be important evidence but as discussed in la, would not indi-
cate the pattern of decision making, supervision or negligence that discloses the true
character of the violation. Criminal investigations do not routinely rely on regu-
latory agencies. In fact, many regvdators do not perceive enforcement their primary
mission and either pursue other, sometimes incompatible remedies, or even frus-
trate others from discovering the violator at all. At the most innocent level, many
regulators do not know when an act is a possible criminal violation and do not refer
them to the appropriate agency. Administrative law does not require the burden of
proof needed for a criminal prosecution. While most administrative hearings can re-
sult in findings if the evidence shows a preponderance in favor of one party (mean-
ing more likely than not), the criminal prosecution demands proof beyond a reason-
able doubt, a degree of certainty which is dependent on an entirely different ap-
proach to investigation. A reasonable doubt can be anything which makes a person
hesitate to convict, even if they believe guilt has been proven. To rely on regulators,
trained minimally if at all, to present criminal cases would weaken substantially
any real effort to obtain convictions for environmental crime violations.
Question Ic. Have you personally run into problems where facts, documents or
communications were shielded under this privilege/immunity while you were pros-
ecuting a case, or do you know of any cases where this has happened? How was
this situation dealt with?
Answer Ic. Fortunately Tennessee has seen fit not to adopt such a wide ranging
statute. Efforts in this state to pass an environmental self-audit privilege have
121
stalled in large part because of concern over the mischief this protection could have
in criminal enforcement.
While I have not encountered interference in the environmental area, I have had
the investigation into abuse at a mental health institution scuttled by a reporter's
privilege not to cooperate as a witness.
The attached article from the Denver Post (April 21, 1996) outlines the short-
comings of this legislation as experienced by a state with such a law.
Question Id. What specific provisions in S. 582 are problematic and why? Please
provide a summary of the current provisions of S. 582 that you continue to oppose
and/or have concerns about. How do you suggest these provisions need to be tailored
to conform with EPA/DOJ enforcement criteria?
Answer Id. As indicated in my original testimony, the National Association of Dis-
trict Attorneys opposes the criminal privilege and criminal immunities that this leg-
islation would provide. To the extent that the bill seeks to create a criminal privi-
lege and immunity, such language should be removed. Our association stands ready
to assist in crafting legislation that will assist industry in dealing with govern-
mental regulation while not vmduly hamstringing law enforcement.
Responses From Victor Johnson, III to Questions From Senator Thurmond
Question 1. In each of your views, is the proper way to evaluate this legislation
to determine whether, considering all factors, it will result in a healthier and clean-
er environment than in its absence?
Answer 1. Yes. Responsible companies will do the self- audits both as a matter of
good corporate citizenship and as a sound business practice, with or without this
legislation. Cost effectiveness, compliance requirements and safety issues will be
and are addressed by our good business citizens through internal evaluations.
Consideration of this legislation in the criminal context must recognize the shield
it creates for the unscrupulous polluters and the mechanism it establishes to aid
in the skirting of the law vmtil government action is feared or initiated. Any evalua-
tion of this proposal must address the question of continued damage to the environ-
ment during the "grace" periods allowed and how this impacts a prosecutor's ability
to act decisively to protect the public interest.
Question 2. Would any of you care to comment on the extent to which this legisla-
tion would permit companies to work cooperatively with enforcement agencies to
find solutions to problems, rather than posturing and fighting over technicalities
and unhelpfiil questions of interpretation?
Answer 2. A polluter who wants to work cooperatively can and will do so pres-
ently. New EPA guidelines coincide with policies already in effect in prosecutor's of-
fices. Unfortunately, this legislation will create and encourage protracted arguments
over technicalities that do not currently exist in the area of criminal enforcement.
If the goals of this legislation are to encourage compliance and ameliorate regu-
latory sanctions, they should be addressed clearly without complicating the legisla-
tion with privileges and immvmities that will only interfere with the efforts of law
enforcement.
Question 3. As the Chairman of the Antitrust, Business Rights, and Competition
Subcommittee, I am interested in each of your views on whether it is desirable to
attempt to protect competition by imposing fines based on any "economic benefit"
which a company has obtained by lack of compliance with environmental laws or
regulations. That is, if a company unintentionally benefits from being out of compli-
ance, does that give it an unjustified competitive edge over its competitors that
needs to be addressed, or would the cure be worse than the problem?
Answer 3. The important issue in this discussion is whether or not the noncompli-
ance was intentional and meant to create an unfair advantage. An "intentional" fail-
ure to comply is a purposeful violation of the law, and it would be reasonable to
expect that any punishment imposed would seek to remove or reclaim an unjustified
and illegally obtained economic benefit. On the other hand, an "unintentional" non-
compliance that is discovered, reported and corrected, under EPA's current guide-
lines, would not be referred for criminal prosecution. Consequently, a company that
unintentionally failed to comply would not be subjected to criminal penalties in the
first place. I am not aware of a prosecuting attorney that would want to indict and
prosecute a case of obviously unintentional non-compliance. I am also not familiar
with any such cases that have been prosecuted. This legislation attempts to develop
a elaborate protection against an imagined attack.
Question 4. Mr. Johnson, could you explain whether you think companies are de-
terred from conducting voluntary environmental audits based on the current state
of the law? If so, would there not be benefits from legislation such as this?
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Answer 4. I do not think responsible companies are deterred from conducting vol-
imtary environmental audits because of fear of possible criminal prosecution. As a
matter of fact, I am not aware of any company that has been prosecuted criminally
as the result of self-disclosed violations that were promptly and cooperatively cor-
rected. This legislation responds to a "fear" that industry has expressed and not an
actual problem, Insofar as criminal prosecution is concerned, this is unnecessary
legislation which will only impede criminal investigations, encourage wasteful and
dilatory litigation and disserve the public.
Responses From Jerry Richartz to Questions From Senator Grassley
Question 1. In your testimony, you state that privilege/immunity legislation for
environmental audits encourages companies to comply with environmental laws.
Question la. Have your companies taken advantage of either the final policy cri-
teria or a state environmental audit privilege? If so, what has been your experience
with the policy or privilege, favorable or unfavorable?
Answer la. Oxir companies conduct modified audits, called an "Environmental Pri-
orities Program", at our facilities. These are conducted under Attorney-Client privi-
leged information as well as the state environmental audit privilege in Oregon and
Colorado. In the state of California, where there is no state privilege, the program
is protected by attorney-client privilege information.
Our experience has been that we have not found a condition where we would have
had to use the privilege. However, with the privilege, we have a greater degree of
confidence that if we find a problem, we would be able to allocate funds to solve
the problem rather than spend a potentially larger amount in litigating the final
outcome. In my opinion, therefore, the privilege allows for a more favorable outcome.
In my opinion, therefore, the privilege allows for a more favorable outcome.
Question lb. Do you agree with EPA'S criticism of S.582 that the bill allows regu-
lated entities to dictate their own pace in correcting violations because it only calls
for corrective action or elimination of a violation by the exercise of "reasonable dili-
gence'7 EPA also has claimed that compliance might be slower than would be in
the best interests of protecting public health and the environment. What is your re-
sponse?Doesn't waiting for correction of the violation present a problem? Is it clear
that the problem would have to be corrected in order for the privilege to apply?
Answer lb. First, S. 582 does not allow regulated entities to dictate their own
pace in correcting violations. Section 3801(c)(1) of S. 582 requires the regulated en-
tity to demonstrate "that appropriate efforts to achieve compliance were promptly
initiated and pursued with reasonable diligence" (emphasis added) The proposed
legislation clearly requires a prompt response. Once initiated, compliance must be
achieved with reasonable diligence. For some violations, this may require a lot of
time, e.g., to gain approval from the Environmental Protection Agency ("EPA" or
"the Agency") for a permit under the Clean Air Act, the Clean Water Act, or the
Resource Conservation Recovery Act. For other violations (e.g., a simple paperwork
violation), the regulated entity may only need a few days to file amended docu-
ments. Either way, the Agency will always have latitude within its enforcement dis-
cretion to assess whether or not a regulated entity has pursued compliance with
reasonable diligence. Moreover, Senator Brown specifically invited both EPA and
the Department of Justice ("DOJ") to help the Subcommittee improve S. 582. Given
this invitation by Senator Brown, EPA should support what they characterized at
the hearing as "the laudable intentions of (the bill's) — sponsors." EPA should assist
the Subcommittee by offering well reasoned improvements to S. 582 rather than
criticisms which could forestall its enactment.
Second, compliance will not be slower S. 582 than necessary to protect public
health and the environment. A compUance response that compromises public health
and the environment would not be "appropriate." Section 3801(c)(1) of S. 582 does
not protect compliance that is not "appropriate." Therefore, the audit report would
not be protected. Again, the Agency should work with the Subcommittee to improve
the bill if, in the Agency's opinion, this issue needs to be clarified.
Third, waiting for the correction of an environmental violation may, at times,
present a problem. In those instances, waiting would not be "appropriate." Under
S. 582, Section 3801(c)(1) requires prompt initiation of an "appropriate" response.
Where waiting to correct a problem is not reasonable or appropriate, the standard
established in Section 3801(c)(1) of S. 582 would not be met. Therefore, the audit
report would not be protected.
Fourth and finally, S. 582 clearly states that a problem would have to be corrected
in order for the privilege to apply. Otherwise, the regulated entity would not have
taken the necessary "appropriate efforts to achieve compliance." The Agency should
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work with the Subcommittee if the EPA feels this provision of S. 582 coiild be clari-
fied.
Question 2. EPA and others claim that the privilege as proposed in S. 582 would
eliminate all punishment for certain criminal and other violations that are volun-
tarily disclosed regardless of harm, basically giving blanket immunity to companies
which have committed environmental violations. EPA and DOJ testified that the
immunity provision in S. 582 would allow a company to escape prosecution even for
criminal conduct merely because the company confessed and belatedly took correc-
tive action. Could you please respond to these concerns? What are the safeguards
in the privilege as proposed in S. 582 that ensure bad actors and criminal activity
are not protected?
Answer 2. As indicated by their statements at the Subcommittee hearing, the con-
cerns raised by EPA and DOJ regarding the immunity provision in S. 582 are not
valid, given the objectives of Senators Brown and Hatfield. These concerns would
have to be addressed as a condition of immunity for a voluntary disclosiu-e under
Sections 3803 and 3804 of the pending legislation. However, as a I indicated in my
written testimony, S. 582 should make it crystal clear that intentional and willful
violations of environmental laws do not qualify for civil or criminal immunity. Both
Senators Hatfield and Brown indicated they are receptive to such a suggestion. EPA
and DOJ should work with the Subcommittee to improve this aspect of the bill.
In addition, the privilege as proposed in S. 582 has a number of safeguards to
ensure that bad actors and criminal activity are not protected. These safe guards
can be found in S. 582 under the following sections:
Section 3801(a)(1) requires that the audit be "prepared in good faith."
Section 3801(a)(3)(C) requires that the protection afforded by S. 582 not apply if
the person claims the protection for a fi-audulent purpose.
Section 3801(aX3)(B) requires that the protection afforded by S. 582 not apply if
the appropriate Federal covut determines that (i) the environmental audit report
proviaes evidence of noncompliance with a covered Federal law; and (ii) appropriate
efforts to achieve compliance were not promptly initiated and pursued with reason-
able diligence.
Section 3801(aX2) requires that the protection afforded by S. 582 not apply to any
document, communication, data, report, or other information required to be col-
lected, developed, maintained or reported to a regulatory agency pursuant to a cov-
ered Federal law.
Section 3803(a)(2) requires the voluntary disclosure be made promptly after the
person that initiates the audit receives knowledge of the disclosed information.
Section 3803(aX3) requires the person that initiates the audit to address the is-
sues identified in the voluntary disclosure within a reasonable period of time after
receiving knowledge of the information and within a period of time that is adequate
to achieve compliance with the requirements of the federal law.
Section 3803(aX4) requires that as a result of the disclosure the regulated entity
must provide any further relevant information requested by the appropriate Agency
official.
Section 3803(b) makes the benefits for voluntary disclosure conditional, so a per-
son committing repeat violations (as found by a federal or state court) will not qual-
ify for the benefits of a voluntary disclosure.
Question 3. EPA and others also claim that the proposed bill encourages litigation
because it does not adequately define what falls within the scope of an audit. In
order to evade disclosure, violators could argue that many routine business activi-
ties are "compliance evaluations." Further, they claim that the "reasonable efforts"
standard to correct environmental violations is unclear, and that the "compelling
circumstances" the governments would have to determine to overcome the privilege
in a criminal investigation are also vague.
Question 3a. How would you respond to these criticisms? Also, how would you de-
hneate the parameters of the term "voluntary environmental self-evaluation"?
Answer 3a. While EPA and others may claim S. 582 will encourage litigation, the
experience in the seventeen states with environmental audit laws does not support
this claim. The state enforcement agencies have not reported that people are trying
to claim the protection of the state laws for routine business activities. In sharp con-
trast, the representative from Texas at the Subcommittee hearing indicated the
Texas environmental audit law encourages a "getting-on-to-solutions" attitude
where legal posturing is not necessary. Perhaps the net effect will be less litigation.
The real-life experience in Texas would appear to suggest such an outcome.
As to whether the terms "reasonable efforts" or "compelling circumstances" are
unclear or vague in S. 582, they are not relevant because S. 582 does not use these
terms. However, if any of the terms used in S. 582 are unclear or vague, I would
respectfully submit that EPA and DOJ accept the invitation from Senators Hatfield
40-017 97-5
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and Brown to become familiar with the proposed legislation and help improve the
bill.
As an example of a possible need for further clarification, you have asked how
I would delineate the parameters of the term "voluntary environmental self evalua-
tion." Again, I have not been able to find the term "voluntary environmental self
evaluation" in S. 582. Therefore, I am unclear why the parameters for this term
should be delineated. In the alternative, allow me to emphasize that the parameters
of the related terms "environmental audit" and "environmental audit report" are de-
lineated in Sections 3804 (2) and (3) of the bill. If these terms need further clarifica-
tion or delineation, a simple survey of the statues in the seventeen states with envi-
ronmental audit laws will provide many examples to meet this goal.
Question 3b. Could this privilege actually increase litigation because parties will
argue about the limits of what is and what is not protected?
Answer 3b. The privilege in S. 582 probably will not increase litigation over what
is, or what is not protected. To date, the sixteen states with environmental audit
laws providing privilege are the best source of information on this issue. So far,
none of the sixteen states with privilege for environmental audit reports have re-
ported any problems with increased litigation over this issue. Apparently the prob-
lem is only specvilative and the real-life results in the states do not support the
speculation.
Question 3c. Does the audit privilege in S. 582, as currently drafted, protect fac-
tual data as well as legal conclusions? Doesn't this restrict access to important evi-
dence, that would determine whether a violation has occurred or whether a poten-
tial environmental disaster might be possible?
Answer 3c. As currently drafted, Section 3801(a)(2) of S. 582 does not protect any
document, conununication, data report, or other information required to be collected,
developed, maintained, or reported to a regulatory agency pursuant to a covered fed-
eral law. The protection only applies to information a company voluntarily collects
and develops. Therefore, S. 582 does not restrict access to any important evidence
that is required to be reported.
In addition, S. 582 provides a company with strong incentives to voluntarily de-
tect, correct, and disclose information that is not required to be reported by law. By
encouraging companies to generate this information, S. 582 actually encourages dis-
closure of additional information that may avert the possibility of an unintended,
potential environmental disaster. As a result, more and better information is dis-
closed. This increase in the quality and quantity of disclosed information helps com-
panies improve their compliance and in doing so, protects the environment.
Question 3d. Opponents of the bill claim that S. 582 would provide penalty immu-
nity even where violations result in a serious harm or imminent and substantial
endangerment, thus undercutting the primary purpose of federally delegated pro-
grams to protect public health and the environment. Do you agree with this criti-
cism? Do you believe that this deprivation of penalty authority would limit a state's
leverage in negotiating an appropriate remedy for any damage that may have been
caused or injunctive relief that may be necessary?
Answer 3d. The criticism that S. 582 would provide penalty immunity for viola-
tions that result in serious harm or imminent and substantial endangerment con-
tradicts the express intent of Senators Hatfield and Brown in proposing this legisla-
tion. To this end. Senators Hatfield and Brown have indicated a desire to improve
the bill. Therefore, the "opponents of the bill" should offer constructive suggestions
to help clarify how S. 7582 should handle voluntary disclosures of violations that
resulted in serious actual harm, or cases of imminent and substantial
endangerment.
Responses From Jerry Richartz to Questions From Senator Kohl
Question 1. In January of this year, the EPA instituted its own policy to encour-
age audits. Under its program, if you conduct an audit, disclose a violation, and cor-
rect it, the agency will not assess a penalty. Have you used the EPA procedure yet?
If so how often, and what has been the result? If not, why not?
Answer 1. At Oregon Steel Mills, Inc. ("Oregon Steel") we have not used the Envi-
ronmental Protection Agency ("EPA or "the Agency") procedure. The EPA procedure
is a statement of policy rather than law, and as such, does not provide us with as-
surance that a penalty will not be assessed. Because EPA's policy is not law, compa-
nies do not have any enforceable rights under the policy. Therefore, EPA's regions
are not bound by the conditions of the policy- The authority to bind the regions and
provide enforceable rights must come from a rulemaking or legislation. By itself,
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EPA's policy cannot eliminate the impediments to improved environmental compli-
ance.
Question 2. You are concerned that the audits you undertake in good faith will
be used against you. That's understandable. After all, you spend your time and in-
vest your good will in trying to comply with law, and then someone can come along
and make you pay for trying to do right. Has the EPA ever asked you or a company
that belongs to your Council for an environmental audit as part of a fishing expedi-
tion on their part to find violations?
Answer 2. Oregon Steel has not been asked for an environmental audit as part
of a fishing expedition to find violations. Nor do we know of other companies in the
Steel Manufacturers Association subject to a fishing expedition. However, in amplifi-
cation of this issue, we respectfully submit for the Subcommittee's review the at-
tached exerpt from a 1995 Congressional General Accounting Office ("GAO") report
on environmental auditing. See Environmental Auditing, A Useful Tool That Can
Improve Environmental Performance and Reduce Costs, GAO/RCED-95-37, execu-
tive summary attached as Exhibit 4. The GAO report states "environmental audit-
ing is also discouraged by (1) the inconsistent application by some EPA regions of
the agency's policy on requests for audit reports and (2) current enforcement policies
that provide managers with only vague assurance that taking the initiative to audit
for compliance and correct identified deficiencies will by some measure reduce pen-
alties." Id. at 3. This statement in the GAO report suggests that representatives of
EPA's regional off 
