United States: EPA Brings Self-Disclosure Process Into The 21st Century, Adding More Transparency

The United States Environmental Protection Agency recently modernized its implementation of its two primary self-disclosure incentive policies – the Audit Policy and the Small Business Compliance Policy – by creating a centralized, web-based "eDisclosure" portal to receive and automatically process regulated entities' self-disclosed civil violations of environmental law.  The Audit Policy and Small Business Compliance Policy provide penalty mitigation and other incentives for large and small businesses that discover, promptly disclose and expeditiously correct environmental violations and take steps to prevent future violations.  According to EPA, the automated eDisclosure system will make the processing of more routine voluntary disclosures faster and more efficient, and save time and resources for both regulated entities and EPA.  Nonetheless, while efficiency is desirable for public and private parties alike, potential users of the new system should bear in mind that self-disclosure of a violation to EPA is the last step in a multi-part and often complicated process of information collection, risk evaluation and decision-making that is best undertaken with the assistance of experienced environmental consultants and legal counsel.

In the future, all self-disclosed civil violations (except for disclosures under EPA's New Owner Policy) must be made through the eDisclosure portal.  Entities that disclose potential violations through the portal may qualify for one of two types of automated treatment, Category 1 or Category 2.  Category 1 disclosure is available only for minor violations of the Emergency Planning and Community Right-to-Know Act ("EPCRA").  For Category 1 disclosures, the eDisclosure system automatically issues an electronic Notice of Determination ("eNOD") confirming that the violations have been resolved with no assessment of civil penalties, on the condition that the certified eDisclosure is accurate and complete.

Category 2 Disclosures include all non-EPCRA violations, EPCRA violations where the entity can certify compliance with all of the Audit Policy's nine conditions except that the method of violation discovery was systematic, violations of CERCLA § 103/EPCRA § 304's chemical release reporting requirements, and EPCRA violations with "significant economic benefit" (as defined by EPA).  For these disclosures, the eDisclosure system automatically issues an electronic Acknowledgement Letter confirming EPA's receipt of the disclosure and promising that EPA will make a determination regarding eligibility for penalty mitigation if and when it considers taking an enforcement action for environmental violations.

EPA stated in its December 9, 2015 Federal Register notice announcing the launch of the eDisclosure portal that it "is not modifying the substantive conditions in its Audit Policy or Small Business Compliance Policy."  However, anyone considering using the eDisclosure portal to self-report a civil violation of environmental law needs to be aware that EPA has significantly changed its longstanding approach to responding to Freedom of Information Act ("FOIA") requests for such disclosures. 

Since 1997, EPA has deemed resolved voluntary disclosures under the Audit Policy and Small Business Compliance Policy publicly releasable under FOIA.  The agency will continue to take this approach to Category 1 disclosures submitted through the eDisclosure portal.  Specifically, it will grant FOIA requests for eNODs issued for Category 1 disclosures in most cases. 

However, EPA's handling of unresolved voluntary disclosures will shift 180 degrees going forward.  Until now, EPA has generally withheld unresolved disclosures pursuant to FOIA's "law enforcement proceeding" exemption, Exemption 7(A).  This exemption protects from disclosure "records or information compiled for law enforcement purposes, but only to the extent that the production of such law enforcement records or information (A) could reasonably be expected to interfere with enforcement proceedings ...."  Now, simultaneous with its implementation of the eDisclosure portal, EPA has eliminated its practice of withholding unresolved disclosures and replaced it with a presumption in favor of releasing regulated entities' voluntary disclosure information to the public.  In responding to FOIA requests for individual unresolved disclosures, EPA now will determine on a case-by-case basis whether it "reasonably foresees that release would harm an interest protected by a FOIA exemption."  In doing so, it will aim "to be as accommodating as possible in responding to such requests," with the result that it "generally expects to make Category 1 and Category 2 disclosures publicly available within a relatively short period of time after their receipt."

As the agency explains it, this policy shift is consistent with the 2009 memoranda from President Barack Obama and Attorney General Eric Holder in favor of federal government transparency.  Nonetheless, it could reduce the perceived benefits of the Audit Policy and Small Business Compliance Policy for some in the regulated community and provide a disincentive to self-report.  Moreover, at least one commentator has suggested that EPA's new willingness to release information in response to FOIA requests may "fuel...  private attorney general litigations."  This could be particularly problematic where EPA releases disclosure information through a FOIA request before it has determined whether in fact the business in question is eligible for penalty mitigation or will not be a target of enforcement action. Although EPA is trying to reassure the regulated community that this policy change will not result in more citizen suits, potential eDisclosure portal users are legitimately concerned about such arguably premature releases of disclosure information, and should carefully evaluate their circumstances before making any disclosure, especially under Category 2.

The potential for the release of unresolved disclosures to cause harm to eDisclosure users could be further exacerbated as an unintended result of the expansion of intergovernmental data exchanges such as the Environmental Information Exchange Network, a partnership of states, territories, tribes and EPA working to provide increased access to high-quality environmental data.  Users of the eDisclosure system may have cause to worry that if they disclose unrelated minor violations to EPA over time, private plaintiffs may use these reports to try to establish a pattern of bad behavior where it does not exist.  Defending against such efforts in the legal and media arenas could be costly for businesses that are simply trying to "do the right thing."

In sum, by introducing the eDisclosure system, EPA has streamlined the self-disclosure process for certain environmental violations, which likely will reduce the time and expense involved in making such disclosures.  However, EPA has not provided any additional detail or direction for businesses to use in determining whether a specific violation meets the substantive criteria of the Audit Policy or Small Business Compliance Policy.  This determination – and the ultimate decision of whether disclosure will be beneficial – should be made with careful consideration of the relevant facts and applicable law, under the guidance of knowledgeable environmental consultants and legal counsel.

Published in the TerraLex Connections Newsletter (January 2017)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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