10/31/91

EPA Policy Regarding The Role of Corporate Attitude, Policies, Practices, and Procedures, In Determining Whether to Remove A Facility From The EPA List of Violating Facilities Following A Criminal Conviction

               UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
                          WASHINGTON, D.C.  20460

MEMORANDUM

SUBJECT:  EPA Policy Regarding The Role of Corporate Attitude, Policies,
          Practices, and Procedures, In Determining Whether to Remove A
          Facility From The EPA List of Violating Facilities Following A
          Criminal Conviction

FROM: /s/ Edward E. Reich
          Acting Assistant Administrator

TO:       Assistant Administrator and General Counsel
          Assistant Administrator for Air And Radiation
          Assistant Administrator for Water
          Regional Administrators
          Regional Counsels
          Regional Air & Water Division Directors
          Enforcement Counsels for Air and Water
          Director, Office of Criminal Enforcement

I.  Introduction

    This guidance memorandum clarifies EPA policy concerning the role of
corporate attitude,  1/  policies, practices, and procedures in
determining whether, in mandatory contractor listing cases,  2/  the
condition giving rise to a criminal conviction has been corrected.

  1/ The term "corporate attitude" refers to all organizational
    defendants, not only to incorporated entities.

  2/ Although discretionary listing is outside the scope of this guidance,
    evaluation of corporate attitude, policies, practices, and procedures
    may be applied appropriately in discretionary listing cases as well.

Clean Air Act ( "CAA" ) Section 306 and Clean Water Act ( "CWA" ) Section
508 require correction of the condition

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giving rise to the conviction as a prerequisite for removal of a facility
owned, operated, or supervised by a convicted person from the EPA List of
Violating Facilities ( "the List" ).

II.  Background

    In 1990, EPA formally recognized that the condition leading to a
conviction under CWA Section 309(c) or CAA Section 113(c) could include a
convicted environmental violator's corporate attitude, policies,
practices, and procedures regarding environmental compliance.  In the
Matter of Valmont Industries, Inc., ( ML Docket No. 07-89-LO68, Jan. 12,
1990 ) ( "Valmont" ).  In Valmont, the decisions of both the Assistant
Administrator for Enforcement ( AA ) and the EPA Case Examiner established
the principle that the presence of a poor corporate attitude regarding
compliance with environmental standards, thus creating a climate
facilitating the likelihood of a violation, may be part of the condition
giving rise to the conviction which must be corrected prior to removal of
the facility from the List.  40 CFR Section 15.20.

    Valmont was convicted of crimes of falsification and deception.  The
AA determined that not only was Valmont required to correct the physical
conditions which led to its conviction, but that it also was required to
demonstrate that it had implemented appropriate corporate policies,
practices, and procedures, designed to ensure that the mere appearance of
compliance with environmental standards was not put above actual
compliance with those standards.  The Case Examiner later affirmed the use
of the corporate attitude standard in determining whether the condition
leading to listing has been corrected.

    Following Valmont, EPA has applied the corporate attitude test in
other cases where facilities have requested removal from the List,
including cases involving knowing or negligent conduct, not involving
deliberate deception.  See,  Colorado River Sewage System Joint Venture,

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( ML Docket No. 09-89-LO47, August 20, 1991 ); Zarcon Corp. ( ML Docket
No. 09-89-LO58, Aug. 1, 1990 ); Sellen Construction Co. ( ML Docket No.
10-89-LO73, June 13, 1990 ).  This memorandum clarifies the extent to
which corporate attitude may be a relevant factor in cases involving
knowing or negligent criminal conduct, which does not involve willful
falsification or deception.  It also clarifies the criteria which will be
applied by EPA in determining whether the condition giving rise to a
conviction has been corrected in a given case.

    The purposes of this guidance are to inform the public and the
regulated community, thereby facilitating greater compliance with
environmental standards; to formally restate criteria applied in EPA
contractor listing cases over the past two years; and to provide EPA
personnel with a readily available summary of EPA policies which will
enable them to evaluate contractor listing cases.

III.   Scope of Application

    The corporate attitude, policies, practices, and procedures of a
listed facility's owner, operator, or supervisor will always be relevant
when a facility that has been listed as the result of a criminal
conviction requests removal from the List.  How significant a factor the
corporate attitude, policies, practices, and procedures will be depends
upon the degree of intent involved in the violation at issue.  The degree
of intent shall be determined ( for purposes of removal from the List ) by
the AA,  3/  with reference to the facts of, and the nature of the conduct
involved in,

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each case.

  3/ The Assistant Administrator will, as in all contractor listing
    removal cases, give considerable weight to the recommendation of the
    EPA Region in which the listed facility is located.

This shall not be determined solely by the nature or title of the crime,
4/  or by the terms or language contained in any plea agreement.

  4/ E.g., a conviction for "negligent discharge" of pollutant under
    Clean Water Act Section 309(c) may be a minor violation requiring
    minimal proof of change of corporate attitude, or it may be a
    significant violation reflecting knowing or deliberate conduct,
    requiring more substantial proof of such change.  The determination
    will be made on the facts of each case.  Criminal defendants and
    prosecutors frequently agree to enter a plea to a misdemeanor, rather
    than go to trial on more serious felony charges which may be supported
    by the facts.

    In every case involving fraud, concealment, falsification, or
deliberate deception, proof of change of corporate attitude must be
demonstrated over an appropriate and generally substantial period of time,
commensurate with the seriousness of the facts involved in the
violation(s) ( see Section IV ).

    In most cases involving knowing misconduct, proof of change of
corporate attitude must also be demonstrated over an appropriate period of
time, commensurate with the seriousness of the facts involved in
violation(s) ( even if there was not affirmative fraud or concealment ).
There may be some extremely rare cases in which knowing conduct ( not
involving affirmative fraud or concealment ) may be deemed to be
relatively minor.  In such rare cases, proof of change of corporate
attitude may not be a significant factor.

    In cases involving criminal negligence, proof of change in corporate
attitude may be significant as it relates to ensuring prevention of
further negligent violations.  ( E.g., in a negligent discharge case,
proof of change of corporate attitude may be demonstrated by educating and
training employees on proper treatment and disposal requirements and
practices ).  In cases of serious negligence,  5/  more significance may
be placed on demonstrating proof of

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change of corporate attitude, before facility will be removed from the
List.

  5/ Cases involving convictions for criminal negligence may include a
    wide range of conduct, from relatively minor, e.g., accidental
    spillage of a can of paint, up to potentially disastrous, e.g.,
    failure to train employees properly and to respond to oil leak
    detection systems, which results in a massive oil spill.  The label of
    "negligence" alone does not adequately describe the nature and
    severity of the criminal conduct in a given case.

In other cases of negligent violations,  6/  a limited set of minor
violations may exist which constitute criminal conduct resulting in
conviction, but in which minimal significance will be placed on
demonstrating proof of change of corporate attitude, policies, practices,
and procedures.

  6/ E.g., accidental spillage of paint into a storm sewer.

    In addition, a case may arise in which the violations which gave rise
to listing occurred considerably before the request for removal.
Nevertheless, as set forth at section IV., infra, to warrant removal,
proof of change of corporate attitude for an appropriate continuing period
of time, until the removal request is granted, is required if the crime
involved fraud, or deliberate falsification or concealment, knowing
misconduct ( unless minor ), or serious negligent violations.

    If a listed facility is sold ( after the conduct which gave rise to
the conviction or listing ), the new owner of that facility is obligated
to demonstrate that appropriate and effective corporate policies,
practices, and procedures are in place, in accordance with the criteria
and factors outlined in this guidance, before the facility will be removed
from the List.

IV.  Criteria For Demonstrating Proof Of Change in Corporate Attitude

    In cases where proof of change of corporate attitude is relevant to
determining whether the condition giving rise to a criminal conviction has
been corrected, factors to which EPA will look include, but are not
limited to, the following:  7/

  7/ These criteria are adapted from the proposed U.S. sentencing
    guidelines for organizational defendants.

    A.  Whether the owner, operator, or supervisor of the ( listed
    facility ) has put in place an effective program to prevent and detect
    environmental problems and violations of the law.  An "effective
    program to prevent and detect environmental problems and violations of
    the law" means a program that has been reasonably designed,
    implemented, and enforced so that it will be effective in preventing
    and detecting environmental problems or violations, and criminal
    conduct.

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    The hallmark of an effective program is that the organization
exercises due diligence in seeking to prevent and detect environmental
problems or violations, or criminal conduct.  Due diligence requires, at a
minimum, that the organization has taken at least the following types of
steps to assure compliance with environmental requirements.

1.   The organization must have written policies defining the standards
     and procedures to be followed by its agents or employees.  8/

  8/ Although specifics will be determined on a case-by-case basis, with
    reference to the conduct underlying the violation, examples include,
    but are not limited to, training on company rules, EPA requirements,
    ethical standards and considerations, and standards of criminal
    liability.

2.   The organization must have specific high-level persons, not reporting
     to production managers, who have authority to ensure compliance with
     those standards and procedures.

3.   The organization must have effectively communicated its standards and
     procedures to agents and employees, e.g., by requiring participation
     in training programs and by the dissemination of publications.

4.   The organization must establish or have established an effective
     program for enforcing its standards, e.g., monitoring and auditing
     systems designed to prevent or detect noncompliance; and a
     well-publicized system, under which agents and employees are
     encouraged to report, without fear of retaliation, evidence of
     environmental problems or violations, or criminal conduct within the
     organization.

5.   The standards referred to in paragraph 1, above, must have been
     consistently enforced through appropriate disciplinary mechanisms.

6.   After an offense or a violation has been detected, the organization
     must immediately take appropriate steps to correct the condition
     giving rise to the listing ( even prior to the conviction or
     listing ).  The organization must also take all reasonable steps to
     prevent further similar offenses or violations, including notifying
     appropriate authorities of such offenses or violations, making any
     necessary modifications to the organization's program to prevent and
     detect environmental problems or violations of law, and discipline of
     individuals responsible for the offense or violation.  This may
     include conducting an independent environmental audit to ensure that
     there are no other environmental problems or violations at the
     facility.

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B.  The precise actions necessary for an effective program to prevent and
detect environmental problems or violations of law will depend upon a
number of factors.  Among the relevant factors are:

1.   Size of organization:  The requisite degree of formality of a program
     to prevent and detect violations of law or environmental problems
     will vary with the size of the organization; the larger the
     organization, the more formal the program should typically be.

2.   Likelihood that certain offenses may occur because of the nature of
     its business:  If, because of the nature of an organization's
     business, there is a substantial risk that certain types of offenses
     or violations may occur, management must have taken steps to prevent
     and detect those types of offenses or violations.  For example, if an
     organization handles toxic substances, it must have established
     standards and procedures designed to ensure that those substances are
     handled properly at all times.

3.   Prior history of the organization:  An organization's prior history
     may indicate types of offenses or violations that it should have
     taken actions to prevent.  Recurrence of misconduct similar to that
     which an organization has previously committed casts doubt on whether
     it took all reasonable steps to prevent such misconduct.

An organization's failure to incorporate and follow applicable industry
practice or the standards called for by any applicable governmental
regulation weighs against a finding of an effective program to prevent and
detect violations of law or environmental problems.

C.  EPA will also consider additional voluntary environmental cleanup, or
pollution prevention or reduction measures performed, above and beyond
those required by environmental statutes or regulations, and voluntary
compliance with pending environmental requirements significantly before
such compliance is actually required.

    In cases where probation is imposed by the sentencing court, the term
of probation will be presumed to be an appropriate period of time for
demonstrating a change of corporate attitude, policies, practices, and
procedures.  9/

  9/ The presumption is derived from the determination, which will already
    have been made by the sentencing court, that the convicted person's
    criminal conduct justifies a period of supervision and oversight by
    the court, i.e,., probation.

This presumption may be rebutted by either the owner, operator, or
supervisor of the listed facility, or by the government, upon a
demonstration

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that the probation term is not an appropriate time in which to demonstrate
such change.  If probation is not imposed in the criminal case, the AA
shall determine, after a request for removal from the List is filed, what
is an appropriate period of time in which to demonstrate that the
condition leading to conviction has been corrected.  This determination
shall be based upon the facts of each case.

    The time required to demonstrate a change of corporate attitude,
policies, practices, and procedures shall be presumed to be an appropriate
period, as determined by the AA, commensurate with (a) the nature, extent,
and severity of the violations ( including the length of time during which
the violations occurred ), and (b) the complexity and extent of remedial
action necessary to ensure that appropriate policies, practices, and
procedures ( including, but not limited to, any necessary employee
education or training programs ) have been completed.  At a minimum, the
period of time shall be sufficient to demonstrate successful performance,
consistent with those policies, practices, and procedures, including
consideration of steps which were taken prior to conviction or listing.

    The policies and procedures set out in this document are intended for
the guidance of government personnel and to inform the public.  They are
not intended, and cannot be relied upon, to create any rights, substantive
or procedural, enforceable by any party in litigation with the United
States.

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