Stepped-up Enforcement Increases Need For Corporate Compliance Programs
December 1, 1999
One of the fastest-growing areas of criminal enforcement is the prosecution
of corporations and their officers and employees for violations of environmental
law. Since passage of the Pollution Prosecution Act in 1990, the Environmental
Protection Agency (EPA) has steadily increased the number of environmental cases
referred to the Department of Justice (DOJ) for criminal prosecution, from 107
cases in 1992 to a high of 278 cases in 1997. The emphasis on prosecution of
environmental offenders shows no signs of abating; DOJ is focusing on
environmental crimes ranging from uncontrolled asbestos emissions during
building renovation and demolition projects to pollutant discharges into the
Mississippi River basin, and is coordinating with the Coast Guard on criminal
investigations involving the maritime industry. In 1998, the largest number of
federal environmental criminal cases related to storage or disposal of hazardous
waste, followed closely by emission discharge violations. Fifty-three percent of
criminal penalties in environmental cases prosecuted in 1998, and $49 million in
criminal fines, related to violations of the Clean Air Act. During 1998, courts
imposed a total of 173 years in criminal sentences in environmental cases.
Regulators view criminal and administrative enforcement as an effective means of
raising public awareness and deterring violations of environmental law, while
simultaneously replenishing the public coffers with millions of dollars in fines
and penalties.
In view of the increasing frequency and severity of environmental
prosecutions, corporations should take steps immediately to minimize their
criminal liability. A detailed, actively implemented, and strictly enforced
corporate compliance program is essential in order to avoid prosecution or
minimize criminal penalties. A criminally liable corporation likely will be
required to implement a draconian version of such a program under the watchful
eye of the government as a condition of its probation. On the other hand,
adopting a corporate compliance program with a self-auditing component can
buffer a corporation from criminal prosecution, pursuant to EPA and DOJ policies
encouraging the reporting and correction of environmental violations discovered
during a voluntary audit. In the current enforcement climate, a corporate
compliance program is an indispensable bulwark against the harsh consequences of
criminal and regulatory liability.
WHO MAY BE CRIMINALLY LIABLE FOR ENVIRONMENTAL VIOLATIONS? Criminal
enforcement actions are not reserved for "midnight dumpers" and other
deliberate despoilers of the environment. Federal prosecutors are increasingly
pursuing criminal cases against corporations and municipalities who slip up in
their environmental compliance obligations. While most criminal laws require a
finding that the perpetrator acted with criminal intent, the federal
environmental statutes are different. Most environmental statutes provide
criminal penalties for "knowing" violations, and some, including the
Clean Water Act, provide that mere negligence in violating the law, even without
actual knowledge of the law's requirements, is punishable as a crime.
Corporations may be held criminally liable for the act of an employee done
with the intent to benefit the corporation, and individual corporate officers
and employees can be found guilty if they had knowledge of the facts giving rise
to a violation, even if they did not know that the law actually had been
violated. DOJ policy requires prosecutors to pursue not only the corporation and
individual violators, but also the highest-ranking "responsible corporate
officer" who knew or should have known about the facts giving rise to the
violation. Thus, chief executive officers and upper-level environmental
compliance managers are subject to criminal liability for the actions or
inactions of their subordinates, even if they did not have actual knowledge of
the environmental violation.
WHAT TYPES OF ACTIVITIES CAN GIVE RISE TO CRIMINAL LIABILITY? Actions running
the gamut from deliberate dumping to negligent discharge of wastewater failing
to meet pretreatment standards can be the source of criminal liability under
environmental statutes. For example, under the Clean Water Act (CWA),
individuals and corporations can be found criminally liable for knowing or
negligent discharges of pollutants into waters of the United States, either
without a permit or in violation of a permit. The CWA also imposes criminal
liability for knowing or negligent discharges of industrial wastewater and
domestic wastes into a sewer system without a permit or in violation of
pretreatment requirements. Like most of the environmental statutes, the CWA
establishes criminal penalties for any person who knowingly omits material
information or makes a false material statement or representation in a required
document or report, or tampers with a monitoring device. Similarly, the Safe
Drinking Water Act prohibits tampering with public water supplies.
Under the Resource Conservation and Recovery Act (RCRA), it is a crime
knowingly to treat, store or dispose of hazardous waste without a permit, or to
transport hazardous waste without a properly completed manifest. The Clean Air
Act imposes criminal liability for knowing violations of emissions standards and
work practice requirements for pollutants such as asbestos. Several
environmental statutes, including the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA), the Toxic Substances Control Act, and
the Emergency Planning and Community Right-to-Know Act, impose criminal
sanctions for failure to make required reports concerning releases of actionable
levels of hazardous substances into the environment, or the manufacture of a new
chemical. The Federal Insecticide, Fungicide, and Rodenticide Act prohibits
knowing violations of regulations governing the registration, distribution, or
use of pesticides and has been the basis of criminal prosecutions for
application of powerful pesticides such as methyl parathion inside homes.
A large number of statutes authorize criminal penalties for discharges of
pollutants in the marine environment, including the Oil Pollution Act of 1990,
the Migratory Bird Treaty Act, the Act to Prevent Pollution from Ships, the
Ports and Waterways Safety Act, and the Ocean Dumping Act. Wetlands discharges
and dredging and filling in violation of permit requirements under the CWA and
the Rivers and Harbors Act of 1899 are also subject to criminal penalties.
Numerous other environmentally related statutes in allied areas such as
hazardous materials transportation and occupational safety and health contain
criminal liability provisions as well.
WHAT CRIMINAL PENALTIES MAY BE IMPOSED FOR ENVIRONMENTAL VIOLATIONS? Under
the Federal Sentencing Guidelines, individuals who are convicted of
environmental crimes virtually always will receive jail sentences. The length of
the sentence may be increased depending on a number of factors, including the
nature of the violation, the amount of environmental harm caused by the
violation, and the special skills and responsibilities of the defendant.
Monetary sanctions are also imposed against individuals, in the form of fines,
forfeitures or restitution, in an amount determined by multiplying the loss
caused by the offense by a multiple representing the difficulty of detecting and
punishing the offender.
Corporations found guilty of environmental violations are also treated
severely under the "offense level" calculations prescribed in the
Federal Sentencing Guidelines. The corporation will typically receive a large
fine, as well as a probationary sentence requiring clean-up or other mitigation
of the environmental harm. As a condition of probation, corporations are usually
ordered to implement a corporate compliance program designed to prevent and
detect environmental violations and are subject to frequent, unannounced
inspections and rigorous reporting requirements under the jurisdiction of a
court-appointed monitor. In addition to the financial penalties imposed upon
conviction, a criminally liable corporation is subject to additional adverse
financial impacts from publicity surrounding its conviction, debarment from
contracting with governmental entities and stockholder suits.
HOW CAN A CORPORATE COMPLIANCE PROGRAM HELP? The federal government considers
a corporate environmental compliance program to be essential in demonstrating
that a corporation is undertaking its best efforts to comply with environmental
laws and prevent and detect violations and environmental harm. DOJ guidance for
deciding when to prosecute environmental crimes includes as one of the primary
factors whether the corporation has a "regularized, intensive and
comprehensive environmental compliance program." If such a program is in
place and the corporation can demonstrate that it is rigorously implemented and
effective, the government will be more lenient in its determination of whether
to prosecute.
Under an October 1, 1997, guidance memorandum implementing EPA's December
1995, audit policy, referred to as the "Incentives for Self-Policing:
Discovery, Disclosure, Correction, and Prevention of Violations," EPA will
not recommend criminal prosecution of companies that voluntarily disclose
criminal violations discovered as the result of due diligence, an environmental
audit, or other "voluntary self-evaluation," such as that typically
required under an environmental corporate compliance program. The corporation
must meet additional requirements of the EPA guidance, including a commitment to
correct the underlying causes for the violation and to remedy any environmental
harm, in order to avoid a recommendation of criminal prosecution. Prompt
voluntary disclosure is the key, however, and an environmental compliance
program is the optimum means of ensuring that the corporation will be able to
obtain the benefits of prosecutorial discretion under EPA and DOJ policy.
Moreover, if prosecution for an environmental crime is unavoidable, the
existence of an effective corporate compliance program may be a mitigating
factor in calculating the applicable fine and sentence to be imposed. Since
virtually all of the corporate probationary sentences issued in environmental
cases require implementation of an environmental compliance program, usually
with draconian reporting and oversight components, it is preferable to have an
environmental compliance program already in place in order to increase the
likelihood that more onerous requirements will not be imposed on the
corporation. A corporation with a comprehensive, effective compliance program is
in the best position for preventing violations of environmental law in the first
place and avoiding criminal prosecution if, despite the corporation's best
efforts, those violations occur.
For more information, contact Janice Rowan at 1-888-688-8500.
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