Web Portal Will Be Exclusive Method for Making Most Disclosures
The U.S. Environmental Protection Agency (EPA) plans to modernize and streamline its process for companies to self-audit and report to the agency violations of environmental laws, with a national online reporting tool. During a recent EPA webinar, EPA staff explained how the web-based “eDisclosure portal” will not change any of the Audit Policy’s and Small Business Compliance Policy’s (audit policies) purposes, incentives or qualifying criteria, but it will change the manner in which the audit policies are put into practice.
The eDisclosure portal and certain aspects of its implementation are under development, as previously reported by AGC. As currently envisioned, and as explained on the EPA webinar, the new system will use forms and pull-down menus to collect and present the information needed to determine whether a disclosure qualifies for the penalty mitigation and other incentives under EPA’s audit policies. The process would become almost entirely self-executing. The trade-offs for this increase in efficiency are that the new system may provide less certainty and less flexibility to industry than current procedures, as explained below.
Specifically, to use the new eDisclosure process, a company would need to register electronically through EPA’s existing Central Data Exchange (CDX), submit a Violation Disclosure Report online (by completing an electronic form within 21 days of discovering a violation), and submit a Compliance Report online (in adherence with the specific policy’s deadlines) to certify that the violations have been timely corrected and that the Audit Policy or Small Business Compliance Policy conditions have been met.
EPA plans to officially launch the system with a Federal Register notice this fall 2015. After the launch, all voluntary disclosures under EPA’s audit policies (except those falling under the 2008 New Owner Policy – see below) must be submitted through the eDisclosure portal. Specifically, it will be a two-tier system:
- Tier 1 disclosures include most Emergency Planning and Community Right-to-Know Act (EPCRA) violations, if they meet all conditions of the audit policy, and do not provide significant economic benefit as defined by EPA. For Tier 1 disclosures, the eDisclosure system will automatically generate an electronic notice of determination (eNOD) that the violation is resolved without civil penalty.
- Tier 2 disclosures cover all other violations, including certain chemical release reporting violations under EPCRA and the Comprehensive Environmental Response, Compensation, and Liability Act, and disclosures of EPCRA violations where the disclosure fails to meet all of the audit policy's criteria. For Tier 2 violations companies will receive an acknowledgment of receipt. The “Acknowledgement Letter” will confirm EPA’s commitment to determining eligibility for penalty mitigation if and when the agency considers the matter and decides to take an enforcement action.
As long as entities meet their reporting deadlines, the eDisclosure portal would issue eNODs and Acknowledgement Letters automatically. Extensions to deadlines for correcting violations and submitting compliance reports would be available for Tier 2 disclosures but not Tier 1 disclosures. EPA plans to spot check and screen disclosures and compliance reports for errors, inconsistencies and other issues of concern.
New Owner Disclosures
In contrast, EPA’s approach to resolving disclosures for newly acquired businesses (new owner audits) is not changing. Pre-existing new owner disclosures will not be resolved through the eDisclosure system but instead will be resolved manually using current procedures. New owners may elect to use the portal to disclose future violations, but EPA also will continue to accept and manually process new owner disclosures outside of the eDisclosure system pursuant to EPA’s New Owner Policy, and EPA will enter into audit agreements as appropriate with new owners.
In general, EPA will no longer enter into audit agreements outside of the eDisclosure process — wherein the agency provides special, separate compliance procedures — except in the new owner context and in rare exceptional cases.
Potential Drawbacks to Electronic System
The webinar brought to light concerns that companies reporting Tier 2 disclosures under the new online eDisclosure portal may receive less legal certainty, than under the current system, about whether they will face enforcement or benefit from penalty mitigation and other incentives. Under the anticipated eDisclosure approach, EPA will not rule on the disclosure report until such time — if ever — that it is contemplating an enforcement response for the particular disclosed matters. Until that time, or the expiration of the statute of limitations, the extent of the disclosing company’s liability exposure would be in limbo.
Webinar participants also asked questions about the public release of companies’ disclosures of violations under the Freedom of Information Act (FOIA), expressing concerns about the increased risk of disclosure of data submitted to EPA. “EPA generally expects to make Tier 1 and Tier 2 disclosures publicly available within a relatively short period of time after their receipt,” EPA said. Staff said the agency has always considered audit policy disclosures subject to production under FOIA after enforcement has been resolved. EPA made clear during the webinar that with the launch of eDisclosure, in accordance with the Administration's policy in favor of transparency, the agency will consider whether to release disclosures of unresolved violations on a case-by-case basis. EPA did go on to note that disclosures of unresolved violations may be withheld from release pursuant to FOIA’s exclusion for legal proceedings. This anticipated change may negatively impact the incentive to audit, for some in the regulated community.
Confidential business information (CBI) will, however, continue to be protected. Indeed, EPA said that all portal submissions should be free of CBI, and CBI must be separately submitted under existing EPA regulations.
Another issue may be that sometimes-complicated factual or legal circumstances may be difficult to appropriately capture in a questionnaire-driven format or a web-based dialog box. As EPA has not yet completed the template or interface for these electronic disclosures, it remains unclear the degree to which this is a concern.
Background
To encourage companies to establish and maintain formal environmental management systems (including self-policing and continual improvement) EPA’s so-called audit policies provide incentives, such as penalty mitigation and avoiding criminal prosecution, for companies that voluntarily disclose and correct violations of environmental laws and regulations, if the disclosure meets certain EPA standards. EPA last amended the Audit Policy in 2008 to provide special penalty mitigation incentives for new owners designed to encourage robust and comprehensive environmental compliance auditing in connection with merger and acquisition activities, allowing newly acquired companies to start with a “clean slate.”
EPA’s website provides more information on its planned eDisclosure portal, the process for implementation, and the audit policies in general. Although EPA does not intend to open a formal comment period, companies should consider providing input now (milton.philip@epa.gov or 202-564-5029), while EPA is still in the process of developing the eDisclosure portal.