STATEMENT OF STEVEN A. HERMAN
ASSISTANT ADMINISTRATOR OFFICE OF ENFORCEMENT AND COMPLIANCE ASSURANCE
UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
BEFORE THE ENVIRONMENT AND PUBLIC WORKS COMMITTEE
UNITED STATES SENATE
PRESENTED ON October 30, 1997

I. Introduction

Thank you, Mr. Chairman, for the opportunity to testify on the topic of environmental auditing. Last summer, I testified before this committee on the Environmental Protection Agency's (EPA's) overall enforcement and compliance assurance program and EPA's enforcement relationship with the states. I am pleased that today's hearing provides an opportunity for me to testify in greater detail about EPA's self-disclosure policy, EPA's relationship with the states regarding state audit laws, and proposed federal audit legislation. I firmly believe that EPA is pursuing the right course in this area.

I want to make three points today:

(1) EPA supports environmental auditing and other forms of self-policing and has an effective policy in place to encourage such conduct.

(2) Audit privilege and immunity legislation is not only unnecessary, but it is unwise because it undermines law enforcement, impairs protection of human health and the environment, and interferes with the public's right to know of potential and existing environmental hazards.

(3) EPA has been and is working with states to ensure that at least the statutory minimum enforcement and information gathering authorities are maintained by all states implementing a federal environmental law.

II. EPA Support for Environmental Auditing and Opposition to Audit Privilege and Immunity Laws

EPA strongly supports environmental auditing and use of compliance management systems by regulated entities to improve compliance and prevent and reduce pollution. Self-auditing can result in the prompt detection and correction of violations as well as the identification of potential future violations that can be averted through preventative measures. Companies that conduct audits or use compliance management systems thus safeguard and improve public health and the environment. In addition, because government compliance and enforcement resources are limited, maximum compliance cannot be achieved without active efforts by the regulated community to police itself. Where more companies find and correct their own violations, scarce government resources may be focused on higher risk violators.

Accordingly, it is important for government to encourage environmental auditing, but it must do so without compromising the integrity and enforceability of our environmental laws. Approaches--including legislation--that guarantee amnesty for environmental violators and promote the secrecy of environmental compliance information damage the credibility and effectiveness of the Nation's environmental enforcement program, are unnecessary and, in the final analysis, undermine the integrity of incentives for responsible business.

EPA's approach to environmental auditing is designed to further some key principles of this Administration's environmental enforcement program.

First, industry and government both bear certain responsibilities in achieving compliance. Industry has a responsibility to stay in compliance with the law. Government must maintain an enforcement program that punishes wrongdoers, deters potential violators, brings violators into compliance, and ensures that damage to the environment is rectified. Government should give credit to industry's good faith efforts to comply, but it must do so without compromising its ability to enforce environmental obligations firmly and fairly. The public and law-abiding regulated entities rightly expect EPA to take strong enforcement action against polluters.

Second, business earns the public trust by being open with government and the public at large. Openness is an essential component of corporate accountability.

Third, EPA fully recognizes that it shares with all levels of government a common interest in environmental protection and compliance with environmental requirements. The federal and state relationship must be guided by recognition of the delegated state's primary responsibility for running a strong enforcement program and the benefits of a well-defined federal role as national environmental steward. In its federal role, EPA safeguards the national standards for environmental protection for all citizens and also maintains a level playing field for law abiding companies--regardless of their location.

Fourth, environmental compliance incentives must reflect the legitimate interests of the public, the regulated community, and local, state, and federal officials who enforce the law. Incentives in the form of legislative privilege and immunity have proved divisive and are opposed by many local, state, and federal prosecutors, environmental agencies, and citizens concerned about environmental pollution.

A. EPA's Self-Disclosure Policy

In 1995, EPA issued its policy, "Incentives for Self-Policing: Discovery, Disclosure, and Correction and Prevention of Violations" (60 Fed. Reg. 66706 (Dec. 22, 1995)). The policy was the result of an intensive eighteen-month public process designed to identify the best way to encourage companies to police themselves while preserving fair and effective enforcement and the public's access to information. EPA's policy reflects input from state attorneys general and local prosecutors, state environmental agencies, the regulated community, public interest organizations, and the Department of Justice. It has won praise from industry and environmental groups, and from local, state, and federal law enforcement officials. Eighteen state attorneys general and environmental commissioners declared their support because EPA's policy effectively encourages self-policing while maintaining safeguards to protect the public and the environment. See Exhibit 1.

How does EPA's self-disclosure policy work? It carefully balances auditing incentives with protections for law enforcement, human health and the environment, and community right-to-know. Where violations are discovered through an environmental audit or compliance management system and the full conditions of the policy are met, EPA will: (1) eliminate gravity-based civil penalties (i.e., the penalty amount over and above the company's economic gain from non-compliance); and (2) not recommend criminal prosecution so long as there is no high-level corporate involvement or a prevalent management practice to conceal or condone violations. In addition, EPA commits not to make requests for audit reports to initiate civil or criminal investigations.

EPA's conditions for granting these benefits are based on common sense and sound public policy. For example, companies must promptly disclose and correct the violation, prevent recurrence of the violation, remedy any environmental damage, and provide such information as is necessary and requested by EPA to determine the applicability of the policy. Exceptions for individual criminal conduct, repeat violations, violations of consent orders or agreements, and violations that present an imminent or substantial endangerment or result in serious harm protect human health and the environment. EPA retains its discretion to recover economic benefit gained as a result of noncompliance so that companies will not obtain an economic advantage over their competitors by delaying their investment in compliance.

Business has been receptive to the EPA self-disclosure policy and has come forward, rectified problems, and avoided prolonged and expensive litigation. To date, more than 225 companies have disclosed and corrected violations under the policy at more than 700 facilities. Disclosing companies run the gamut, ranging from large Fortune 500 companies to small businesses, from a wide variety of industrial sectors. See Exhibit 2.

Earlier this month, the agency and GTE Corporation reached an agreement under the policy, resolving 600 Emergency Planning and Community Right to Know Act (EPCRA) and Clean Water Act Spill Prevention Countermeasure and Control (SPCC) violations at 314 GTE facilities in 21 states. Correction of these violations will protect communities and firefighters, police, and others in the event of a chemical spill or release, and will help to lessen the likelihood that hazardous chemicals will pollute our waterways. The company will pay a $52,264 penalty, equal to the amount of money saved during its period of non-compliance. Because the company voluntarily disclosed and corrected the violations, EPA waived another $2.38 million in assessable penalties. After discovering non-compliance at several facilities, GTE promptly notified EPA of the violations pursuant to EPA's self-disclosure policy and undertook a company-wide audit at 10,000 sites nationwide. This settlement demonstrates the self-disclosure policy's broad scope in promoting compliance at facilities nationwide.

In addition, states including California, Connecticut, Delaware, Florida, Maryland, North Carolina, Oklahoma, Pennsylvania, Tennessee, Vermont, and Washington, have designed their own self-disclosure policies, thereby providing incentives while maintaining enforcement authority.

B. EPA's Opposition to Audit Legislation

Let me now turn to the topic of audit legislation. As I have stated on many occasions, EPA strongly opposes audit privilege and immunity legislation. Audit privilege and immunity laws restrict governments' ability to obtain injunctive relief and penalties to address violations affecting human health and the environment, and to obtain evidence necessary for enforcement. Audit privileges invite secrecy, complicate criminal and civil discovery and trials, and impede public access to information. Let me explain.

While EPA supports penalty mitigation as an incentive for voluntary disclosure and correction of violations, EPA believes that immunizing violations--including serious violations--discourages companies from making the investments in pollution control necessary to prevent such violations. We also oppose immunity because it undermines deterrence and the rule of law. Strong environmental enforcement provides an incentive for responsible behavior, not immunizing violations.

EPA opposes audit privileges for a number of reasons. First, such privileges invite secrecy, instead of the openness needed to build public and government trust in industry's ability to self-police to protect human health and the environment. Second, audit privileges weaken law enforcement necessary to protect human health and the environment by making relevant information unavailable to government prosecutors and civil enforcers, and by erecting procedural barriers to access this information. Audit privileges, particularly when law enforcers may be legally constrained from using any evidence derived from the audit report, interfere with the investigation of environmental crimes. Why should we make it easier for violators and harder for our local, state, and federal law enforcement officials?

Third, audit privilege laws impede public access to information concerning environmental hazards. Such laws undermine one of this Administration's priorities--public right-to-know. When informed, the public can actively and intelligently participate in its own environmental protection.

Fourth, some audit privilege laws penalize employees who report known or potential environmental concerns to law enforcement authorities. Such sanctions conflict with federal laws preserving employees' rights, have a chilling effect on employee disclosures of illegal conduct, and hamper enforcement. Why would we want to discourage the disclosure of illegal activity?

Yet another reason why EPA opposes audit privilege is that it is simply unnecessary. Environmental auditing has increased to the point where it is already standard practice for 75% of corporations responding to a 1995 survey by Price Waterhouse, and is growing among the remaining 25% as well. Most companies do not view privilege as a precondition to conducting auditing--they see good business reasons for auditing. A privilege is unnecessary.

Businesses also view the types of incentives in EPA's self-disclosure policy as effective in motivating auditing. Of respondents to the 1995 Price Waterhouse survey, over 40% said that penalty mitigation for self-identified, reported, and corrected violations would encourage the company to conduct more auditing. About the same number viewed a presumption against corporate criminal prosecution as encouraging auditing. In the same survey, 96% of the corporate respondents who conduct audits said that one of the reasons that they did so was to find and correct violations before they were found by government inspectors. Thus, legislation that impairs enforcement, like audit privilege legislation, may actually decrease the amount of auditing, as well as decrease the incentives for prompt correction of violations.

Finally, proponents of audit privilege legislation sometimes contend that companies need an audit privilege to protect them against overzealous environmental law enforcement. The reality is that neither EPA nor the Department of Justice seeks audit reports as a means of identifying targets for civil or criminal prosecution. Furthermore, I am not aware of any case in which a voluntary audit has been used to enforce against a company that discovered a violation on its own, disclosed, and promptly corrected it.

These are among the many reasons why audit privilege is so adamantly opposed by a bipartisan coalition of state attorneys general that includes Republicans like Grant Woods of Arizona and Dennis C. Vacco of New York, as well as Democrats like Scott Harshbarger of Massachusetts and Christine O. Gregoire of Washington. No wonder the Governor of New York has announced his opposition this year to environmental audit privileges, and the Governor of Idaho has announced that he will allow that state's privilege and immunity law to expire at the end of this year. The National District Attorneys Association, the California District Attorneys Association, and the New York State District Attorneys Association have long expressed opposition to audit privilege and immunity legislation. I strongly encourage you to solicit the views of the broad range of local, state, and federal law enforcement and environmental officials who oppose enactment of audit privilege and immunity legislation. See Exhibit 3.

III. EPA-State Dialogue

The federal environmental statutes recognize the necessity and importance of the federal government's role in ensuring that baseline national standards established by the environmental laws to protect human health and the environment are implemented and enforced fairly and consistently in all states. To reinforce that goal, federal law also authorizes citizens to petition EPA to review or withdraw state programs on the grounds that the states lack the enforcement authority necessary to meet federally established standards.

EPA's opposition to the enactment of state audit privilege and immunity laws is based on policy considerations as well as law. On the policy level, EPA strongly opposes enactment of audit privileges because they shield evidence of wrongdoing and run counter to the state and federal partnership in encouraging the kind of openness that builds trust between regulators, the regulated community, and the public. EPA opposes immunizing violations disclosed in audits because they discourage investment in pollution control and undermine deterrence.

As to the legal issue, EPA must ensure that the enactment of state audit laws does not impair the state's ability to adequately enforce its environmental laws and to gather information necessary to monitor and ensure compliance, and that such laws do not interfere with the public's access to information. EPA may not approve, delegate, or authorize any new federal program unless it determines that such authorities are adequate.

These requirements are not new, and were not developed just to oppose audit laws. They have been part of the program approval process for many years.

Federal statutes and regulations require states and the public to have access to environmental compliance information. A state must have the ability to obtain information needed to identify and assess noncompliance and criminal conduct, and ensure correction of violations.

Public access to information must be preserved and remain consistent with the provisions of federal statutes granting citizens the ability to participate in permitting and enforcement proceedings to ensure adequate environmental protection. The state also may not sanction "whistle blowers"--employees who divulge information about a company's noncompliance.

Federal statutes and regulations require that states maintain authority to obtain injunctive relief and civil and criminal penalties for any violation of federal program requirements. As reflected in the "Statement of Principles," which was issued by EPA on February 14, 1997, EPA is particularly concerned with whether a state has the authority to obtain immediate and complete injunctive relief; to recover civil penalties for significant economic benefit, repeat violations and violations of judicial or administrative orders, serious harm, and activities that may present an imminent and substantial endangerment; and to obtain fines and sanctions for criminal conduct.

Although EPA strongly believes that environmental audit privilege and immunity laws can only impair the government's and citizens' ability to monitor and enforce the laws and to protect communities from environmental threats, the agency has worked with states to modify their state audit privilege and immunity statutes to meet the minima necessary to comply with federal laws designed to ensure a floor of enforcement and public access to information. For example, EPA's discussions with the states of Utah and Texas have resulted in changes to their laws that were acceptable to those states and that also met the minimum federal requirements for enforceability and public access. We are ready to do the same with other states as well. However, EPA will continue to oppose enactment of state audit privilege and immunity laws because of their adverse impacts on state environmental enforcement and community right-to-know.

IV. New Projects Evaluating the EPA Self-Disclosure Policy and State Audit Laws

I am pleased to announce that EPA has initiated two new projects to evaluate the effectiveness of various state audit laws and policies, and the EPA self-disclosure policy. The time line for completion of both projects is one year to eighteen months. These projects should form a valuable information base from which to evaluate EPA's experience to date under its self-disclosure program and whether any federal legislation is needed.

EPA recently awarded a grant to the National Conference of State Legislatures (NCSL) to conduct surveys of state officials and facility owners and operators to obtain objective data on the amount and type of audit activity being performed in states with audit laws, audit policies, or neither a law nor a policy.

In addition, EPA will soon begin compiling information to prepare a report on the effectiveness of the EPA self-disclosure policy. The report will evaluate the effectiveness of the policy in encouraging regulated entities to voluntarily discover, disclose, correct, and prevent violations of federal environmental requirements.

V. Federal Audit Legislation

I strongly believe that federal audit legislation will not strengthen America's environmental programs at this time. As described above, audit privilege and immunity laws encourage secrecy, impede environmental law enforcement, and limit public access to environmental hazard information.

There is no real need for federal audit legislation of any kind. Environmental auditing is already widespread and is growing without federal audit legislation. Abusive use of audits in enforcement just does not exist. Finally, as I have suggested throughout my testimony, EPA's self-disclosure policy reflects the proper balance of incentives for auditing and protections for human health and the environment. It is clearly appropriate to analyze each case individually to determine what type of enforcement action, if any, is appropriate for a given violation. It is impossible to categorize all the possible factors in advance through legislation. Attempting to do so will only create litigation burdens in those enforcement actions brought to protect human health and the environment.

S. 866, an audit privilege and immunity bill introduced in this Congress, reflects many of the serious problems with audit privilege and immunity legislation which I've outlined today and in previous testimony. If enacted, the bill would weaken law enforcement, promote secrecy at the expense of the public's right to protect itself, endanger human health and safety, and erode environmental protection. Let me explain.

How does S. 866 weaken law enforcement? The bill generally conceals from law enforcers information placed in an audit report and testimony about an audit. This privilege would hamstring effective law enforcement, especially criminal investigations and prosecutions. The privilege and immunity provisions would apply even to criminal conduct, and violations causing an imminent and substantial endangerment or serious actual harm. The bill would also make it harder to prosecute criminals by requiring the government to prove that the defendant had the specific intent to violate or disregard the law. Congress has not required a specific intent standard throughout our existing environmental laws.

S. 866's repeat violation exception to immunity gives multiple bites at the compliance apple. A company must violate the same requirement repeatedly over a three-year period and each time incur an enforcement action to be excepted from blanket immunity. Given the speed with which courts operate and the fact that most violations are resolved without resort to formal enforcement, this is no exception at all. In addition, under S. 866, regulated entities receive amnesty for violations that are required to be monitored and reported. This effectively writes prompt compliance with these provisions out of the environmental laws, and deprives the state and the public of the information they need to ensure compliance.

How does S. 866 promote secrecy at the expense of the public's right to protect itself? The bill fails to protect public access to information. Citizen plaintiffs seeking to enforce environmental laws or obtain a remedy for a toxic release will not have access to needed information. In fact, information will not be available to the public even if it is the only evidence of the cause of an environmental problem or the extent of environmental harm (like fish kills, groundwater contamination, or contaminated soil).

How would S. 866 endanger human health and erode environmental protection? The bill allows privilege and immunity regardless of the seriousness of the environmental or human health harm caused by failure to comply. It grants a privilege and provides immunity from prosecution even if the violations are not actually corrected. Under the bill, compliance with applicable environmental requirements is not required, only initiation and pursuit of efforts to comply. There is not even an explicit obligation imposed on regulated entities to remedy any environmental or human harm caused by the underlying violations.

Most significantly, this bill encourages states to lower environmental standards to compete for business at the expense of human health and the environment. S. 866 endorses state privilege laws, with the sole specified exception of making the privilege inapplicable to violations required to be disclosed. This could mean that many violations, regardless of whether they've been corrected, caused environmental harm, were intentional, or went uncorrected for months or even years, could be kept secret from law enforcers and the public. S. 866 also endorses state immunity laws without specified exception. States could immunize criminal conduct, ongoing violations, even environmental catastrophes, and still receive federal program approval and federal dollars. Under S. 866, a company also retains any amount of economic benefit gained from noncompliance. Adherence to the law is directly undermined by provisions like these.

Human health is also jeopardized under the bill because the default provision in S. 866 not only gives immunity for violations causing serious actual harm, but also gives immunity to all violations--no matter how egregious--if the government fails to challenge a disclosure within 60 days.

The bill offers plenty of work for lawyers at the potential expense of taxpayers. Law enforcement personnel will be forced to litigate ambiguous definitions and standards for application of privilege and immunity, delaying or preventing important decisions that impact human health and the environment.

Let me suggest just a few concrete examples of how S. 866 would seriously erode our environmental enforcement efforts.

Scenario One: An audit reveals that the plant manager submitted falsified monitoring reports to an environmental agency. The company submits a corrected report. Result: Evidence of past criminal conduct in the audit would be inadmissible in an action against the plant manager as would testimony concerning the findings in the audit.

Scenario Two: An audit recommends replacement of aging equipment. The company fails to act on the recommendation. The equipment breaks down and releases hazardous waste into the environment. A neighboring farmer's well is contaminated. Result: The company's failure to act would not be available as evidence in an enforcement action to determine the cause of the problem or the extent of the harm nor would it be available to the farmer whose groundwater was contaminated by the release. Citizens would not be allowed to use this evidence to recover damages, regardless of the harm to them and their families. The government also could not use the information in an enforcement action, despite the fact that the company had sufficient knowledge to prevent the harm, but simply ignored it.

Scenario Three: A criminal investigator receives a tip that waste is being disposed of illegally. Result: If the investigator follows up and finds out that the informant received the information from an environmental audit, the midnight dumpers may be able to escape prosecution altogether because of the "tainted" evidence or some of the most damaging evidence could be excluded from the trial. Even if a company finds a longstanding violation that it could have and should have avoided using available pollution control equipment, it can disclose that violation and receive amnesty.

Tragically, some of the concerns about how audit laws would endanger human health and the environment expressed in the three scenarios may be found in actual cases. In Arkansas, in a suit brought by citizens, the El Dorado Chemical Company attempted to use the state audit privilege law to shield environmental impacts information from local citizens--including children--who allegedly suffered numerous respiratory ailments when subjected to repeated contamination from ammonia, sulfuric acid, and other air pollutants. Similarly, at a landfill near Amarillo, Texas, Browning-Ferris, Inc. (BFI) succeeded in persuading a state administrative law judge to prevent disclosure of two environmental audits that local citizens were seeking in order to document an alleged imminent and substantial endangerment as a result of contaminated groundwater.

Such cases must not occur in federal proceedings due to enactment of federal audit legislation.

VI. Conclusion

In conclusion, I urge that the current federal approach to environmental auditing be allowed to continue. Under the EPA self-disclosure policy, EPA gives credit to good faith efforts to comply, without compromising fair and effective enforcement or jeopardizing government and public access to crucial compliance information. Recent GTE disclosures illustrate how the policy makes good environmental and business sense. We support the states' efforts to promote compliance and innovation, but we also must work to ensure that states maintain effective enforcement programs which accommodate the interests of all--businesses; local, state, and federal regulators; and citizens--and which ensure a level playing field for law-abiding companies nationwide.

Thank you again for the opportunity to testify before your committee. I would be happy to answer any questions.