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.