legislation: Self-Audits Inspire Leniency From States

States increasingly seem more interested in environmental excellence than in pollution penalties. They are supporting companies that monitor their own compliance with environmental requirements and that are candid with authorities about the violations they find.

Such encouragement usually takes the form of reducing or eliminating fines and other penalties for many infractions found through a company's self-examination procedures.

In the past four years, some 20 states have adopted environmental audit laws that formally offer some form of immunity to companies who, while conducting an audit, find shortcomings in their environmental compliance. These states also treat the content of such audits as privileged information that cannot be used in court.

Another dozen states are promoting self-policing activities within the regulated community through administrative policies. These policies spell out the terms and conditions for reducing or eliminating fines and penalties, as well as excusing violations altogether.

Nine states with such administrative policies are California, Florida, Maryland, North Carolina, Oklahoma, Pennsylvania, Tennessee, Vermont and Washington. At press time, three other states - Delaware, New Mexico and West Virginia - were poised to adopt them.

State officials give several reasons for adopting policies that encourage and reward self-disclosed violations. Some are merely following the U.S. Environmental Protection Agency's (EPA) lead. Others say that establishing a policy, instead of passing a law, better protects their federally delegated air, water and waste programs from challenge. Environmental groups formally have asked EPA to rescind federal delegation of environmental programs in five states - Colorado, Idaho, Michigan, Ohio and Texas - where audit privilege/immunity laws allegedly undermine enforcement authority.

Environmental officials in Tennessee adopted an administrative policy after the business community lobbied hard for audit privilege and immunity legislation. The policy represents a compromise that placates environmental groups that resisted a fullblown audit law but gave businesses an incentive to be candid.

For its part, EPA adopted its policy on compliance self-evaluation and violation disclosure in 1995. The policy covers only violations that a company voluntarily and promptly reports to EPA and then corrects without delay.

Companies that conduct voluntary environmental audits that implement comprehensive compliance management systems or that engage in other efforts demonstrating genuine concern and due diligence, can usually avoid punitive sanctions from EPA. Moreover, EPA is not likely to prosecute a company if an employee commits a criminal act that contravenes company policy.

If the agency turns up violations that do not arise out of any environmental audit or due diligence efforts, it will reduce punitive penalties up to 75 percent if the offender has disclosed the infractions and begins fixing the problems immediately. Nevertheless, EPA likely will seek penalties that reflect any economic benefits realized by a violator through noncompliance.

EPA recently has announced standards by which it will judge whether state environmental audit laws conflict with the authority states need to manage federally delegated programs. The agency says it will use the standards when it evaluates a state's overall qualifications for a delegated program or state's proposed modifications to an existing program.

States must have the power to seek an unrestricted injunction against offenders, whether or not they conduct environmental audits. States also must be able to collect civil fines and penalties based on whatever economic benefit is realized by a violation.

The standards also address state laws that prevent environmental audit reports from being introduced in court as evidence. Such laws cannot completely eliminate state officials' authority to gather necessary information, the agency said, particularly for criminal investigations and prosecution. In addition, agency policy frowns on laws that would limit the public's right to obtain information on noncompliance and to bring citizen suits for violations of federal law.

Sixteen states have no audit laws or administrative policies tied to environmental audits. Still, some of these jurisdictions informally offer immunity for violations that a company finds and reports to state officials. For example, environmental officials in Alaska do not recommend prosecution for polluters who discover and voluntarily disclose violations.

Meanwhile, in Nebraska, where no formal audit guidelines exist, Mike Linder, legal counsel for the Department of Environmental Quality says his agency does not penalize companies that voluntarily disclose their violations. "I don't think we've ever tried to punish anybody who's come forward and tried to do the right thing," he said.