General Publications June 12, 2015

“Managing a Company’s Environmental Self-Disclosure,” Law360, June 12, 2015.

Extracted from Law360

Whether to self-disclose environmental violations presents a host of choices that require careful and thoughtful decision-making in a short period of time. Companies may have little lead time to address follow-up agency inquiries as they may have only learned about the violations shortly before reporting them to the government. Responses to queries posed by agencies after the self-disclosure will often dictate whether there is a potential penalty and, if so, its potential magnitude. This article examines the challenges created by self-disclosing environmental violations and provides tips on how to manage the regulatory agencies’ inquiries after disclosure.

The self-disclosure of minor violations is relatively routine. According to the U.S. Environmental Protection Agency, more than half of the disclosures under the audit policy are for reporting and record keeping violations.[1] Because of the volume, the EPA has a well-established protocol for reviewing these self-disclosures, including generally not pursuing any enforcement action or penalties. Further, the EPA will be incorporating, and essentially automating, that protocol into its forthcoming eDisclosure portal.

For most violations of the Emergency Planning and Community Right-to-Know Act ("EPCRA") reported through the portal, the system will automatically issue an electronic notice of determination ("eNOD") confirming that the violations are resolved without a civil penalty.[2] This approach is consistent with encouraging companies to ensure compliance with their corporate governance policies and promotes goodwill with the regulatory agencies, especially in times of shrinking enforcement budgets.

In instances where the violation is potentially significant, the presumed goodwill may unfortunately tip in the other direction when self-disclosed. Instead of valuing the self-disclosure and rewarding a company for coming forward, the initial reaction of a government agency may be oriented more toward enforcement. Accordingly, environmental managers and in-house counsel should consider certain proactive steps to mitigate the risk and damage to a company.

Hope for the Best, Plan for the Worst: Government Investigations May Potentially Follow Self-Disclosure

A company that has self-disclosed an environmental noncompliance potentially involving harm to human health or the environment cannot rule out regulatory enforcement from federal, state and local regulators.[3] One potential action will involve injunctive relief that the agency or agencies perceive is needed to prevent any potential for ongoing harm to human health or the environment.

A company should anticipate this scenario at the time of self-disclosure and be in a position to demonstrate that it has taken adequate steps to ensure that the violations are no longer ongoing or capable of being repeated. For example, if the case involved discharges from an unauthorized pipe, removing a section of the pipe and capping it at the outfall, and having a picture to show the same, would be a good way to demonstrate that the outfall is no longer in use or capable of use. The more a company can do to demonstrate that the violation already has been remedied and cannot reoccur in the future, the less likely the company will be subject to some injunctive relief.

Leave Room to Maneuver: Potential Additional Self-Disclosed Facts

Under the EPA’s self-disclosure policy, a company must self-disclose a violation within 21 days of discovery.[4] Many states have similar requirements for prompt reporting. The 21-day time frame often presents a Hobson’s choice for the self-disclosing entity. In 21 days, a company may learn enough facts to establish a violation occurred, but it may not know the extent of the noncompliance. In addition, investigation into one set of violations, for example Clean Water Act discharge violations, may later lead to the discovery of a related, land-based disposal in violation of the Resource Conservation and Recovery Act.

The 21-day deadline can put a company in a difficult position about what to report. In the above example, for instance, the company may have developed sufficient facts to support reporting the CWA violation, but not the RCRA violation. If the RCRA violation is not self-disclosed, and the agency’s follow-up investigation independently uncovered it first, the company would not receive credit for self-disclosing the RCRA violation.[5]

Even when a company is unsure about the validity of a violation, it may still be prudent to identify it in the self-disclosure. For example, the company could say that it is still investigating the matter and will report any additional violations as those facts become known. Once the decision to self-disclose has been made, the better practice is to include everything you can in order to maximize the credit received. However, a fair amount of care must be taken in deciding what to report, as self-disclosing unsubstantiated rumors does not do the company any good and may send the government down some unnecessary rabbit holes. There is no surefire way to guarantee that the company will get this completely right, and it will have to make hard choices about what to report based on the relative risks involved.

For Serious Criminal Self-Disclosure, Request an In-Person Meeting in Addition to the Written Disclosure

In most if not all instances, the actual written self-disclosure made to the EPA or a state agency should be as pedestrian as possible. As Sergeant Friday used to say on the TV show Dragnet, “Just the facts, ma’am.” In general, the disclosure should be no more than one or two pages. However, in more egregious cases, a company will almost always want to follow up the written notification with an in-person meeting. There may be facts of a sensitive nature, for example, facts learned in certain company interviews that counsel may not want to include in the initial self-disclosure, but that would be critical for the agency to know about as it begins its investigation.

If the objective is to maximize the credit received for self-disclosing, then your best strategy is to provide the government with as much information as possible about the violation without waiving the attorney-client privilege. In the authors’ experiences, the initial meeting with the U.S. Department of Justice, EPA and state investigators and inspectors can be critical to demonstrating a commitment to cooperation and plays a significant role in the agency’s ultimate determination about any ensuing civil or criminal enforcement.

Of course, every case is different, so the decision to meet with the agency after self-disclosing is not one to be taken lightly. Further, it is critical that no company personnel with any direct or, if possible, even indirect involvement with the violation should attend. Ideally, the company should be represented by an executive uninvolved with the violation, but personally responsible for correcting all factors contributing to the violation.

Cooperate with the Government; Do Not Capitulate

A prerequisite to receiving credit under the EPA or DOJ’s self-disclosure policies is cooperation with the government’s investigation.[6] Cooperation is not well-defined and is left largely to the discretion of the government personnel in charge of the investigation and prosecution. The subjective nature of this standard makes it imperative to have a former EPA or DOJ attorney as part of the company’s self-disclosure team. Doing so demonstrates to the government that the company has someone on its team who is familiar with the role of cooperation in self-disclosure. In most instances, the value of a company’s self-disclosure to the government, beyond discovery of the violation itself, is the ability of the government to obtain relevant facts in an expedited manner with limited expenditure of resources. Former prosecutors on your team will have a very good sense of the facts that will be most helpful to the government, and steering them in the direction of those facts will go a long way to showing good faith and cooperation.

Once that trust is established, many other aspects of cooperation can be negotiated. For example, the DOJ has a policy stating that a waiver of attorney-client privilege is not a precondition to cooperating.[7] To receive the full benefit of the self-disclosure, a company and its attorneys may feel considerable pressure to waive the privilege to ensure that they are viewed as having cooperated. In our assessment, a waiver of the privilege is not necessary if you can otherwise steer the government toward the relevant facts. For example, rather than providing an attorney’s notes of an interview with a critical witness, it may be enough to tell the government that it would be in its best interest to interview that particular witness on a particular topic. Further, directing the government to key documents and physical evidence will be viewed as more beneficial than an offer to waive the privilege. To be sure, if an attorney for the company happens to be involved in the decision-making that led to the violation, waiver becomes a very tricky proposition as the failure to do so might be viewed as an attempt to cover for that attorney. An assessment of just how involved the attorney is in the decision-making becomes critical to the waiver analysis.

There are also other areas where a company may need to push back on the government’s cooperation demands. For example, if the self-disclosure is the result of discovery of violations after acquisition of a new facility, it is important to separate the acts of the prior owner. This is particularly true in cases where the old owner continues to be employed by the new company for a period of time. The government may view the violations as one long continuum of violations by the old owner and new owner and may not appreciate the fact that the new owner, by self-disclosing, is attempting to establish a different company policy. The government may view a company’s continued employment of old owners after acquisition as a signal that it did not take the violation seriously. There are many legitimate business reasons why an old owner or employee may be kept on after acquisition, not the least of which is an intimate knowledge of the facility. The mere fact that a new owner kept an old owner or employee on board should not be used or suggested by the government as establishing a new owner’s knowledge or intent with respect to any self-disclosed violation.

The bottom line with cooperation is not to assume the government understands the limits of its authority. As the saying goes, power corrupts and absolute power corrupts absolutely. If the government begins making outrageous demands in return for a finding of “cooperation,” or insists on a fine amount that fails to account for the self-disclosure, a company needs to push back. If you are not receiving any satisfaction at the line attorney level, ask for meetings with the DOJ or EPA supervisors. Your job in a self-disclosure setting is largely to keep the government honest, and while pushing back may seem risky, it may be necessary to prevent the government from overreaching. You should not let your lack of negotiating strength on the underlying violation be the end-all in your negotiations with the government. These efforts may not always be successful, but if the government is being unreasonable in the first place, you don’t have as much to lose.

[1] U.S. EPA, EPA’s Interim Approach to Applying the Audit Policy to New Owners,
[2] U.S. EPA, Office of Enforcement and Compliance Assurance eDisclosure Information Sheet, EPA 300-B-15-002 June 2015,
[3] Note that violations that result in actual harm to the environment or those that present an imminent and substantial endangerment are not eligible for relief under the audit policy. Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations, 65 Fed. Reg. 19,618 (April 11, 2000).
[4] Id.
[5] See id.
[6] Id.
[7] The EPA is not bound by DOJ policy and has no similar provision discouraging a request for a waiver of the attorney-client privilege. Given the DOJ’s position, the EPA could, but is unlikely to, use this criterion as the sole basis for claiming that a company failed to cooperate and therefore does not qualify under its self-disclosure policy.
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