Penalty Mitigation

The Audit Policy offers complete mitigation of the possible penalties for a violation of environmental laws if nine conditions are met  

Ihe EPA Office of Regulatory Enforcement issued an Audit Policy Interpretive Gnidance (Jan. 1997) and Audit Policy Frequently Asked Questions (2007). available through http // www.epa.gov/compliance/incentives/auditing/auditpolicy.html. 

These labels are not self-explanatory, and each requires further discussion. 

Systematic Discovery of the Violation Through an Environmental Audit or a Compliance Management System 

To meet this criterion, a company must have discovered the potential violation through either an environmental audit or through appHcation of a compliance management system. While the Audit Pohcy describes compliance management systems in detail, its definition of audit is fairly cursory. 

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If the violations were discovered and reported to the EPA in compliance with the EPA s Audit Policy, complete or 75 percent penalty mitigation may be avadable. ... 

Most companies begin their analysis of the potential ramifications that could follow a TSCA violation by determining if they meet the Audit Policy criteria for complete penalty mitigation. If they do meet all of the criteria, then the dollar value of the potential penalties that they have avoided becomes an academic question. However, the Audit Policy assumes familiarity with some of the terms in the ERPs, and so it is helpful to discuss the ERPs first. 

The ERPs are also important if the Audit PoHcy only provides a reduction in penalty, instead of complete penalty mitigation. 

The EPA recognized that a company with multiple facihties may operate those facilities independently of each other, and that an audit at one facility will not reach another commonly owned facility. Therefore, a company with multiple facilities can take advantage of Audit Policy penalty mitigation for violations at facilities where discovery of the potential violation is not imminent. The EPA did not allude to the fact that it audits facility-by-facility, especially when commonly owned facilities are in different EPA Regions, but that provides an additional justification for encouraging companies to come forward to report violations at other of its facilities, even if the EPA is actively auditing one of those facilities. 

A company that has been notified by the EPA or a third-party of the same type of violation, or a closely related one, at the same facility in the past three years cannot qualify for Audit Policy penalty mitigation. If the EPA or a state has mitigated a penalty then that constitutes a prior violation, because in that case the company had an opportunity to correct the underlying cause of the violationd If the company has multiple facilities, it cannot receive Audit Policy penalty mitigation if any of its facilities had a pattern of the same type of violation, or closely related ones, in the past five years. 

Small businesses may also qualify for the Audit Policy s penalty mitigation, but because the standards in the Small Business Compliance Policy are so much easier to meet, there are only limited situations in which a small business would opt to prove the higher standards in the Audit Policy. These situations are when a violation involves criminal activity, because in that case a company can receive penalty mitigation imder the Audit Policy, but cannot receive penalty mitigation imder the Small Business Compliance Policy. Similarly, if a small business has two or more unrelated environmental violations in the prior five years, it would not qualify for penalty mitigation under the Small Business Compliance Pohcy but it could qualify for mitigation under the Audit Policy. In both of these circumstances a small business should try to meet the Audit Policy requirements. 

A small business cannot obtain relief under the Small Business Policy if it has received a warning letter, notice of violation, field citation, citizen suit complaint, or any other enforcement action for the same violation within the prior three years. It is also barred from relief if it received penalty mitigation under the Small Business Pohcy (or a State or Tribal analog) for the same or similar violation in the past three years, or if it has been the subject of two enforcement actions for any environmental violation in the past five years. " ... 

The primary disadvantage of self-reporting is that a company may pay a penalty for a violation that the EPA would never discover on its own. Even if the Audit Policy applies to reduce the penalties to zero, the company will have to spend considerable time in making the report and justifying complete penalty mitigation. Another disadvantage is that a self-reported violation will count as a prior violation that may increase the penalty assessed on a future violation. 

Both the Audit Policy and the Interim Approach permit penalty mitigation for all environmental statutes, including the Toxic Substances Control Act (TSCA).7... 

With this in mind, the seller should make sure that any pre-Closing activities it intends to conduct that may expose a violation of TSCA are set up in advance to maximize the ability to meet the requirements of the various EPA penalty mitigation pohcies. Sellers should also be mindful that TSCA 16 makes it a crime to knowingly or willfully violate TSCA, so a seller must react quickly to correct continuing violations it discovers to avoid criminal risks. 

Any violator can also qualify for complete penalty mitigation under the Audit Rolicy if it meets its requirements. ... 

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