A Corporate Officer's Guide to Avoiding Criminal Liability under Environmental Statutes
A Corporate Officer's Guide to Avoiding Criminal Liability under Environmental Statutes
The enforcement sections of most federal and many state environmental statutes include criminal liability provisions. Over the years, enforcement agencies have not hesitated to use these provisions against some major corporations and their officers, both to seek retribution where appropriate and for the deterrent impacts inherent in criminal enforcement.1 Because of the significant consequences to public health and safety that can occur as the result of a violation of environmental statutes, the mens rea provisions in these laws will often allow for the imposition of criminal liability on both corporations and corporate officers for negligent statutory violations. In many circumstances, this liability exposure could have been avoided or minimized through the use of an effective environmental compliance management system through following the United States Environmental Protection Agency's (USEPA) self-policing/self disclosure policy, and through creative efforts to deal with environmental criminal investigators prior to indictment.
This article will provide background information on both the nature of potential environmental crimes and how, through the responsible corporate officer doctrine, these crimes are attributed to senior corporate employees. It will also discuss the use of environmental management systems (EMS) to minimize this exposure. Next, USEPA's self policing policy will be explained. Lastly, the article will provide some suggestions about how best to deal with the environmental prosecutor if the worst happens and an indictment is threatened.
Corporate Environmental Criminal Liability Basics
As noted above, most environmental laws contain criminal liability provisions that call for imposition of criminal sanctions in the event of a negligent, knowing or willful violation of the statute.2 It is easy to understand what constitutes a willful violation, even in the environmental context, and it is rarely the case that a socially conscious corporation or corporate officer will face such charges. However, given the complexities of environmental laws, even the most careful person can face claims of knowing or negligent violations of environmental statutes. Notably, in many circumstances, to prove a knowing violation it is not necessary to prove that the party being charged knew of the specific statute or regulation at issue.3 Proving a negligent violation is even less of a burden to a skillful prosecutor.
The types of environmental crimes to which these standards apply are varied. When thinking about environmental crimes, most people think of the classic case (as in the movie and song Alice's Restaurant) of the midnight dumper who simply ignores compliance because it is too costly or time consuming. However,the circumstances that can lead to imposition of liability on corporations and their officers normally do not involve such incidents. More often, they arise either as the result of a spill or other catastrophic incident, or because of improper reporting of environmental compliance information.
In the former circumstance, criminal exposure is often inevitable because of the significant consequences of the event.4 The enforcement agency will feel compelled to investigate whether the event was caused by a conscious or negligent disregard of the environmental requirements leading to the incident. Many times, the res ipsa loquitur implications of the incident will make proving negligence relatively straightforward, even when the burden of proof is beyond a reasonable doubt.
The latter type of cases can arise from misled efforts by facility personnel to show both to their corporate superiors and to regulatory officials that a particular operation is in compliance with permit requirements. Environmental permitting laws are based upon the premise that the regulated entity must monitor compliance and report the results. Because of this, in order to maintain the integrity of the regulatory compliance system, enforcement officials take very seriously any circumstance where regulated entities have acted to cause inaccurate sampling or reporting. There are a number of reported cases where sampling systems or methods have been rigged by company employees to provide false readings in an effort to show compliance.5 The charges in these cases usually deal with improper tampering with a monitoring device,6 although this provision in the statute has been read broadly to include circumstances where environmental sampling was done in a manner that led to an inaccurate favorable result. While most of these cases arise under the Clean Water Act, the principles in them apply to any environmental statute that requires self reporting.
Another key issue arising from the criminal enforcement of environmental statutes is the application of the responsible corporate officer doctrine. This doctrine originated under the food and drug law where senior corporate officials were found guilty when their companies violated health standards.7 It has been applied under environmental statutes to impose criminal liability upon persons who "ha[ve] authority to exercise control over the corporation's activity that is causing the [regulated activity]," even if that person is not exercising such authority.8 As one pair of commentators noted, "according to those authorities who espouse a broad definition and application of the [responsible corporate officer] doctrine, liability may be based solely on a person's position and authority in a corporation, thus displacing any express statutory mens rea requirement and creating a strict liability offense that is punishable as a felony."9
Given the breadth of the responsible corporate officer doctrine, some corporate officials have jokingly recognized that a title and job description in a given company may make them the "designated felon" for purposes of corporate environmental compliance. In fact, this doctrine has been applied to include in-house corporate counsel who have environmental compliance reponsibilities.10 All of this forces a truly responsible corporate officer to consider the steps to take to avoid criminal liability exposure both. individually and for the corporation.
Effective Environmental Compliance Management Systems
Most responsible corporations have some type of formal environmental compliance management system. Unfortunately for many, while these systems exist on paper, they are honored in the breach. Corporations may have well written policies that are not applied in day-to-day operations until a problem arises. To be effective both as a means of preventing liability and as a means of mitigating exposure in the event of an incident, the system must both contain all of the necessary elements and be enforced.
Although many compliance management system packages exist under various names and forms, perhaps the best guidance on an effective system comes directly from the USEPA.11 In its Compliance-Focused Environmental Management System Enforcement Agreement Guidance, the agency provides twelve elements that should be incorporated into an effective environmental management system. Although this document is intended to provide guidance for incorporating EMS requirements into agency settlement agreements, the agency notes that it "strongly encourages all organizations interested in focusing their EMSs on compliance to reference the CFEMS model. . . . "12
The USEPA model includes twelve key elements which are summarized below:
1. Environmental Policy - management must be committed to compliance and this commitment must be communicated to all employees.
2. Organization, Personnel and Oversight of EMS - define duties, roles and means of communicating environmental concerns, provide a direct means for concerned employees to reach management without fear of negative consequences.
3. Accountability and Responsibility - specify responsibilities, provide incentives to perform and describe consequences of nonperformance. Nonperformance must be subject to consequences.
4. Environmental Requirements - ensure that applicable requirements are identified and communicated and updated as regulations change.
5. Assessment, Prevention and Control - includes establishing standard operation procedures and management of change.
6. Environmental Incident and Non-compliance Investigations - standard procedures for dealing with incidents to determine causes and prevent recurrence.
7. Environmental Training, Awareness and Competence - must
include documentation of training and periodic updates.
8. Environmental Planning and Organizational Decision Making - includes integration of environmental planning on an annual basis for all corporate decisions.
9. Maintenance of Records and Documentation - should include specification of types of records to be maintained.
10. Pollution Prevention - provides procedures for minimizing waste and emissions.
11. Continuing Program Evaluation and Improvement - includes evaluation of the EMS and periodic audits of facility compliance.
12. Public Involvement/Community Outreach - includes education and environmental awareness.
Each element of an EMS is important, but two of the more important elements are the internal accountability process and the environmental auditing procedures. A corporation's employees are the first line of defense when it comes to ensuring environmental compliance. An EMS that makes it clear both that failure to comply with environmental laws will lead to consequences while rewarding efforts to identify and correct potential non-compliance will go a long way to ensuring an effective EMS program. Too often employees are given a mixed message when it comes to incurring environmental compliance expenses. This leads to circumstances, as in some of the cases described above, where employees seek to create the appearance of compliance, avoiding spending the necessary costs and trying to avoid civil fines by falsely reporting, while putting the company in jeopardy of criminal sanctions. The EMS accountability provisions should make it clear that no employees will be sanctioned for ensuring full compliance with laws, even though it costs money to do so. Moreover, employees who identify potential areas of non-compliance and take corrective steps should be rewarded.
Another area where EMS policies fail is in the auditing process. Environmental auditing can become a routine, paper exercise. Good auditing, however, should delve behind whether required environmental reporting forms are correctly completed. A thorough auditing process should look not only at permit language and reports, but should also consider how environmental measurements are done, and whether all of the information in reporting documents is in fact accurate. This includes determining when, where, and how compliance measurements are taken and whether these measurements are accurate. At the start of any audit process, the corporation should make it clear to all employees that they are expected to fully cooperate with the auditors. Employees should be made to understand that the process is an opportunity for them to raise compliance concerns and will lead to a process for having those concerns resolved.
For many reasons, particularly when an auditing process is first initiated, companies should consider including environmental counsel as part of an audit team. This can be important if during the process issues arise that require legal interpretation to determine if there is a compliance issue. However, one should not assume that including counsel as part of an audit team automatically protects audit findings from disclosure, and for the reasons discussed below, inclusion of counsel on an audit team should not be viewed as a means to cloak audit results with the attorney/client privilege. Because of USEPA's self-policing policy, effective auditing is crucial to avoiding criminal liability.
USEPA's Self-Policing Policy
Any company that undertakes an EMS including auditing as a means to avoid potential criminal liability must be prepared to share any negative results of the auditing process with USEPA and state environmental agencies. Under the USEPA Policy on "Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations,"13 an entity that discovers a violation through an Environmental Audit of Compliance Management System and fully discloses it to the agency within twenty-one days of discovery should be able to avoid criminal prosecution for that violation. This policy contains several key elements, including: systematic discovery of the violation; that the violation was discovered on a voluntary basis (i.e., not disclosure of required monitoring data); prompt disclosure within twenty-one days of discovery; independent discovery (that the discovery was not made by an agency or third-party); correction and remediation of the violation; a description of steps to prevent recurrence; that the violation is not a repeat offense; that no serious harm to the environment occurred as a result of the violation; and that the disclosing party fully cooperate with the government. In the past, parties who have discovered employee wrongdoing in an environmental context have successfully used this policy to avoid corporate criminal liability. In order to do so, it is important that all of the elements of the policy be met. Therefore, any company implementing an EMS or undertaking an audit needs to be ready to respond quickly to any potential issues to determine if they represent real violations warranting disclosure within the time period provided in the USEPA policy. The disclosure itself should fully address each of the elements of the self-policing policy and make the case that the policy applies. Follow up reporting showing successful implementation of the corrective measures can also be important.
Even if a corporation makes a prompt disclosure of audit findings, the individuals involved in the questionable activity may still face criminal liability. In some instances, the agency may decide that it is appropriate to proceed with a criminal prosecution of involved employees, even though the company met all the conditions of the self-disclosure policy. Depending upon the nature of the violation, the agency may be compelled to so act to set the example for other employees. Companies and their counsel need to make clear to individual employees that a corporation's disclosure may not protect them from individual bad acts and that the employee should seek his or her own counsel in these circumstances.
Dealing with the Environmental Prosecutor
At times, because of catastrophic events or failures in EMS policies, companies may end up facing an environmental criminal investigation or prosecution. These circumstances can be complicated if civil authorities are simultaneously seeking to exercise enforcement authority based upon the same factual circumstances.14 It is important in these circumstances to remember that the applicable mens rea standard may be less under the environmental statutes than under other criminal laws. Based upon past experience, there are several key steps a corporation can take to minimize the risk of an actual criminal prosecution. First, a thorough investigation of the facts leading up to an incident must be undertaken. In doing so, it must be recognized that most of these facts will be made apparent at some point to the prosecutor. Second, based upon these facts and other surrounding circumstances, develop an argument to show a prosecutor that a civil resolution is appropriate recourse. Factors that can be meaningful in these circumstances include the corporation's compliance history, whether it has and follows an EMS process, and the promptness and completeness of its response to the incident. The consequences to the community of indicting the corporation may also play into the prosecutor's decision. For instance, if indicting the corporation will lead to displacement of innocent employees or other such consequences, a prosecutor may be more willing to exercise discretion and agree to a civil resolution.
Third, be creative in proposing alternative solutions. At times, by agreeing to fund or implement substantial environmental improvement projects as a means of resolving an investigation pre-indictment, a corporation can avoid the stigma of the indictment itself. Part of such resolutions may include implementing or enhancing an EMS policy or updating employee training. When considering these options, coordination between prosecutors and civil enforcement authorities can become the task of the regulated entity and needs to be considered. In many circumstances a corporation that proactively responds to a potential environmental prosecution can limit its criminal liability risk.
Environmental statutes do include enforcement provisions allowing criminal prosecution based upon negligent acts, against both corporations and responsible corporate officers. Prudent companies will develop compliance-based environmental management systems which they will fully implement and enforce. Companies should be prepared to promptly and fully disclose violations discovered pursuant to an EMS or environmental audit, to correct such violations and prevent any recurrence. The EMS process should also be used to identify risks of potential catastrophic incidents before they occur so that preventative measures can be taken. If notwithstanding such policies an incident occurs, the corporation should recognize the issues and deal proactively with the environmental prosecutor to offer creative solutions in lieu of indictment and prosecution. These steps should minimize the chance that the corporation or its officers will face criminal prosecution for environmental violations.
Dennis M. Toft is a member of the firm of Wolff & Samson and head of the firm's environmental department. He holds a Bachelor of Science in physics from the Massachusetts Institute of Technology and graduated from Columbia Law School. Mr. Toft's practice includes representing clients in transactions including environmental issues and before numerous regulatory agencies including NJDEP, USEPA and the Army Corps of Engineers. He is involved in numerous Brownfields projects across the State. He has testified as an expert witness concerning the impact of regulation on the developability of property and written numerous articles on environmental topics. He has successfully represented clients in dealing with self-disclosures and in connection with potential environmental criminal liability. Dennis M. Toft, Esq., Wolff & Samson PC, One Boland Drive, West Orange, New Jersey 07052; Phone:973-530-2214; E-Mail:email@example.com. Jennifer De Lyon, an associate at Wolff & Samson PC assisted in the preparation of this article.
1. See e.g., Press Release, U.S. E.P.A., Cast Iron Pipe Manufacturer, Company Officials Found Guilty of Environmental Crimes and Worker Safety Violations - Convictions Represent Fifth for McWane Divisions in Two Years (Apr. 26, 2006); Press Release, U.S. E.P.A., Sinclair Tulsa Refining Company to Pay $5 Million, Managers Sentenced for Environmental Crimes (Jun.11, 2007); Press Release, U.S. Attorney General, Northshore Company Pleads Guilty to Federal Environmental Offense (Apr. 3, 2008).
2. U.S. E.P.A., Compliance and Enforcement, What is an Environmental Crime, http://www.epa.gov/oecaerth/criminal/investigations/ environmentalcrime.html(accessed May 13, 2008); see, e.g., Resource Conservation and Recovery Act, 42 U.S.C. § 6928(d), Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. § 9603(b), Clean Water Act, 33 U.S.C. § 1319(c)(2), Clean Air Act, 42 U.S.C.§ 7413(c)(1).
4. See, e.g., U.S. v. Brittain, 931 F.2d 1413 (10th Cir. 1991); U.S. v. MacDonald & Watson
Waste Oil Co, 933 F.2d 35 (lst Cir. 1991); U.S. v. Hartsell, 127 F.3d 343 (4th Cir. 1997); U.S. v. Iverson, 162 F.3d 1015 (9th Cir. 1998).
5. U.S. v. Sinskey, 119 F.3d 712 (8th Cir. 1997).
6. See, e.g., Clean Water Act, 33 U.S.C. § 1319(c)(2) and (6).
7. U.S. v. Dotterweich, 320 U.S. 277 (1943); U.S. v. Park, 421 U.S. 658 (1975).
8. Iverson, 162 F.3d at 1015.
9. Brenda S. Hustis and John Y. Gotanda, The Responsible Corporate Officer: Designated Felon or Legal Fiction?, 25 Loy. U. Chi. L.J. 169 (1994).
10. Press Release, United States Department of Justice, Koch Industries Indicted for Environmental Crimes at Refinery (Sept. 28, 2000);U.S. Indicts Koch Industries on Pollution Violations in Texas, N.Y. Times (Sept. 29, 2000), available at http://query.nytimes.com/gst/fullpage.html?res=9805EEDF163DF93AA1575C0A9669C0A9669 C8B63 (accessed May 23, 2008).
11. Steven W. Sisk, Compliance-Focused Environmental Management System - Enforcement Agreement Guidance, U.S. E.P.A. Office of Enforcement and Compliance Assurance, Office of Criminal Enforcement, Forensics and Training (August 1997, rev'd. June 2005).
13. U.S. E.P.A., Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations, Final Policy Statement, FRL 6576-3 (2000).
14. Memo from Granta Y. Nakayama., U.S. E.P.A. Office Criminal Enforcement and Compliance Assurance, to Regional Administrators, Regional Counsel, Regional Enforcement Directors, and OECA Office Directors, Transmittal of Final OECA Parallel Proceedings Policy (Sept. 24, 2007).
© 2008 Bloomberg Finance L.P.Originally published in Bloomberg Corporate Law Journal. Reprinted with permission.