USEPA Recently Increased Penalty Amounts for Environmental Violations – Take Action to Ensure Your Portfolio Companies are in Compliance
On July 1, 2016, the maximum civil penalty dollar amount for violations of various environmental laws increased substantially (i.e., up to 150 percent higher) due to inflation. The interim final regulations [81 Fed. Reg. 43019] issued by the United States Environmental Protection Agency (USEPA) provides adjustments triggered by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. These adjustments not only increased the current maximum penalty amounts, but require subsequent annual adjustments for inflation.
For many years, the maximum statutory penalty was $25,000 per day per violation for most statutes. That amount was adjusted in 2009 to a maximum of $37,500 per day per violation, but per-day violations are now significantly higher, as shown in the examples below:
- $56,467 to $97,750 for violations under the Resource Conservation and Recovery Act (RCRA)
- $44,539 for violations under the Clean Water Act (CWA) for violations of oil and hazardous substance discharge provisions
- $53,907 for violations under the Comprehensive Environmental Response, Compensation & Liability Act (CERCLA), which includes most Emergency Planning and Community Right-to-Know Act (EPCRA) violations
- $93,750 for permit violations under the Clean Air Act (CAA)
The adjusted civil penalty amounts apply to civil penalties assessed after August 1, 2016 (the effective date of the rule), for associated violations that occurred after November 2, 2015. The results of USEPA’s new maximum daily penalties can be found in Table 2 of 40 C.F.R. Section 19.4: Civil Monetary Penalty Inflation Adjustment.
Take steps to ensure your portfolio companies are in compliance with applicable environmental regulations.
USEPA and many states have policies and guidance relating to audits and self-reporting violations. Audits are not to be taken lightly—careful planning is required. At EHS Support, we work with our private equity and acquisitive corporate clients’ internal or external legal counsel before proceeding to ensure they have the necessary awareness and legal protections before discovery. Companies must understand the potential consequences, both positive and negative, of moving forward with an audit and proactively working with a regulatory agency to report and resolve violations.
As EHS Support’s Amy Bauer reported in our 2015 4th Quarter M&A Insight edition, there are many benefits to identifying and correcting EH&S compliance issues before “something bad happens.” Besides promoting successful integration post-acquisition (and down the line, a profitable divestiture), the benefits of conducting third party audits are numerous (listed below).
What are the Benefits of Performing an EH&S Compliance Audit on your Companies?
- Identify actual or potential compliance issues before they become a problem
- Determine the root cause of compliance problems to prevent a recurrence
- Prepare for announced or unannounced regulatory compliance audits by Federal, state, or local regulators
- Provide independent eyes on the operations to voice an objective assessment
- Maintain a good corporate image in the community
- Avoid potential Notice of Violations (NOVs) and potential fines
- Institute best management practices to further protect your company from spill or release incidents
- Encourage a responsible culture within the company
- Prepare for new regulations in the pipeline that may impact operations and future compliance
- Reduce the risk of business and personal liability
- Identify ways to improve the efficiency and cost effectiveness of the compliance program.
What are EHS Support’s recommendations for a successful audit?
- Identify potential problems or areas of concern to the auditors. No matter how experienced, don’t rely on the auditor to know the facility or its history as well as you do.
- Surprise audits have their value, but for a scheduled audit provide enough information to the auditors to be prepared (e.g., location of EH&S records, personnel available to interview, best times to observe certain production areas while in process).
- Ensure your auditor is adequately trained and experienced. You don’t want a junior or mid-level auditor. This is the time to use a senior level auditor who has the facility experience and interviewing techniques.
- Checklists are an effective tool to ensure all technical areas are adequately addressed. Checklists are not all inclusive and the auditor should understand what to look for beyond what’s on paper.
- Finally, take action after the audit. Ensure findings are corrected and procedures are put in place to avoid repeat findings.