DOJ enhances corporate voluntary self-disclosure policy for environmental violations

Companies that make voluntary disclosures upon learning of criminal violations of environmental statutes may be protected from serious criminal penalties. The Environmental Crimes Section (ECS) of the Environment and Natural Resources Division is the latest US Department of Justice (DOJ) division to update its policy on corporate self-disclosure.

The ECS Voluntary Self-Disclosure Policy update (Policy), issued on March 2, 2023, offers relief from criminal penalties to companies that make voluntarily self-disclosures (VSDs) regarding violations of environmental criminal statutes, including the Clean Air Act (CAA), Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), Clean Water Act (CWA), Resource Conservation and Recovery Act (RCRA), Toxic Substances Control Act (TSCA), and others.

In a departure from earlier versions of the policy, the update specifies that ECS will not seek a guilty plea if a company makes an effective VSD.

The Policy joins a trend across the DOJ to enhance corporate disclosure incentives and strengthen VSD programs. Deputy Attorney General Lisa Monaco issued a memorandum in September 2022 instructing each section of DOJ that prosecutes corporate crimes to review its policies on corporate VSD. Further, federal prosecutors announced a new policy for VSDs made to US attorneys’ offices in February, and DOJ announced additional guidance and policy changes in March, among other developments.

The Policy will operate in tandem with a longstanding Environmental Protection Agency (EPA) policy incentivizing disclosures for civil noncompliance, together reflecting the regulated community’s critical role in avoiding and addressing environmental violations.

Policy benefits

Under the Policy, DOJ prosecutors will not seek a guilty plea if a company:

• Makes a VSD that meets the six criteria described below
  
  
• Fully cooperates, including against responsible individuals
  
  
• Timely and appropriately remediates criminal conduct, and
  
  
• Presents none of the six aggravating factors described below.

Additionally, where a company follows a VSD with full cooperation and timely and appropriate remediation, as well as demonstrates that it has implemented and tested an effective internal compliance program, DOJ will not impose an independent compliance monitor.

Policy requirements

The Policy establishes six elements of a qualifying VSD but emphasizes that “[p]rompt and complete self-disclosures to the government will be considered favorably, even if they do not satisfy all the VSD criteria.”[1]

• Voluntary: The information must not be subject to independent reporting obligations, such as those prescribed by the CAA and CWA, and must be made by the company, not a third party like a competitor or whistleblower.
  
  
• Timing of the disclosure: A VSD must be made:
  
  
  • Prior to an imminent threat of disclosure, such as by a whistleblower or government investigation
    
    
  • Prior to the misconduct being publicly disclosed or otherwise known to the government, and
    
    
  • Promptly after the company discovers the misconduct (burden on company to show timeliness). Any delay allowing additional violations to occur or creating financial benefits for the company will be considered in the federal government’s assessment of the timeliness of a disclosure.
    
    
• Disclosure made to DOJ: A VSD must be made directly to ECS or the US Attorney’s Office in the district where the conduct occurred.[2] DOJ will consider a disclosure to ECS simultaneous to a disclosure to another government authority, such as EPA, if made within seven days.
  
  
• Method of discovery: DOJ will accord significant benefit where a violation is discovered and disclosed through a company’s ethics or compliance program.
  
  
• Substance of the disclosure and accompanying actions: The initial disclosure must provide all available information concerning the misconduct and individuals involved, and the reporting company must preserve information and provide timely updates as its investigation efforts progress.
  
  
• Acquisitions: A new owner may receive VSD benefits if it voluntarily, timely, and completely discloses misconduct as to an entity it has acquired. The disclosure must include relationships between relevant entities and when, how, and by whom the misconduct was discovered, and the reporting entity must fully cooperate against implicated individuals.

Unlike prior versions, the Policy lists six aggravating and disqualifying factors that will limit the benefits available to a company making a VSD. Whereas the original 1991 policy and the 2020 update listed similar negative factors that prosecutors should consider in determining whether to exercise leniency, the revised policy specifies that DOJ may seek a guilty plea where the conduct at issue:

1. Posed a serious threat to the environment or public health and safety
2. Involved the knowing endangerment, serious injury, or death of any individual
3. Was deeply pervasive throughout the company
4. Involved concealment or obstruction of justice by senior management
5. Was followed by lack of full cooperation, or
6. Was followed by lack of timely and appropriate remediation, including disgorgement of financial gain and disciplinary action against responsible personnel.

Importantly, however, even where an aggravating factor is present such that DOJ elects to pursue a guilty plea, a VSD can serve to reduce the number or type of charges or criminal fine. As did earlier versions, the revised framework will complement – and sometimes overlap with – the EPA Audit Policy’s encouragement of self-reporting for civil environmental violations.

EPA Audit Policy

The EPA policy on Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations, referred to as the EPA Audit Policy, offers relief from civil penalties. Introduced four years after the first iteration of the ECS VSD guidelines,[3] the EPA Audit Policy was likewise designed to encourage regulated entities to report and avoid environmental violations, and the two policies have since operated in tandem to offer criminal and civil relief respectively.

As under the Policy’s framework, benefits are available under the EPA Audit Policy only to “regulated entities [that] voluntarily discover, promptly disclose to EPA, expeditiously correct, and prevent recurrence of future environmental violations.”[4] More than 10,000 entities have self-disclosed violations to EPA since the policy rolled out in 1995.[5]

A disclosure meeting all nine of the EPA Audit Policy’s criteria for penalty mitigation may result in a total waiver of the gravity-based penalty (leaving only the portion of the penalty corresponding to the economic benefit derived from the violation). This provides an added incentive to meet the first condition below – ie, to implement an internal compliance management system capable of detecting, correcting, and preventing environmental violations. If a disclosure meets criteria 2 through 9, EPA generally will not recommend the matter for criminal prosecution and may waive up to 75 percent of the gravity-based penalty.

1. Systematic discovery of the violation through an environmental audit or the implementation of a compliance management system. (EPA does not routinely request internal audit reports – eg, outside the context of an investigation.)
   
   
2. Voluntary discovery of the violation, meaning it was not detected as a result of a legally required monitoring, sampling, or auditing procedure.
   
   
3. Prompt disclosure via EPA’s eDisclosure system within 21 days of discovery or such shorter time as may be required by law.
   
   
4. Independent discovery and disclosure before EPA or another regulator would likely have identified the violation.
   
   
5. Correction and remediation within 60 calendar days, in most cases, from the date of discovery.
   
   
6. Prevent recurrence of the violation.
   
   
7. Repeat violations are ineligible where the violations have occurred at the same facility within the past three years or are part of a pattern at multiple facilities owned or operated by the same entity within the past five years.
   
   
8. Certain types of violations are ineligible, such as those that result in serious harm, present imminent and substantial endangerment, or violate an administrative or judicial order.
   
   
9. Cooperation by the disclosing entity is required.

EPA offers tailored incentives for new owners of facilities where environmental compliance violations have occurred in the past or are ongoing. A broader set of violations is eligible for penalty mitigation under the New Owner Audit Policy provided the owner promptly discloses any discovered violation to or enters into an audit agreement with EPA, the violation originated under prior ownership, and other criteria are met.

EPA retains the authority to recommend violations for prosecution, however, where they are part of a widespread pattern, or were condoned, known, or willfully ignored by high-level managers or officials within the company. EPA may also recommend implicated individuals or subsidiary organizations for prosecution based on self-disclosures. EPA is in the process of updating its procedures to screen eDisclosure submissions for indicia of imminent hazards and criminal violations in response to findings by its Office of Inspector General that current screening is ineffective and inconsistent across the agency.[6] 

Not all self-disclosures to EPA have resulted in penalty mitigation,[7] but the agency has waived significant penalties – sometimes in the seven figures – in scores of cases since the EPA Audit Policy came into effect.[8]

Next steps

The updated VSD policy clarifies federal prosecutors’ priorities and criteria for evaluating environmental self-disclosures. In combination with the EPA Audit Policy, it offers major benefits to companies that identify violations and make qualifying disclosures.

Companies should consider:

1. Reviewing ethics and environmental compliance programs. The purpose of the Policy and EPA Audit Policy is to incentivize companies to implement internal compliance systems, and each agency provides special benefits where violations are disclosed as the result of compliance programs meeting agency standards.
   
   
2. Conducting an internal audit. Ideally, companies should conduct environmental audits on a periodic basis, using a third party with deep knowledge.
   
   
3. Instituting training programs. A company’s employees (and others with responsibility for the company’s environmental health and safety processes and procedures) should be required to undergo periodic training and refresher courses.
   
   
4. Creating new standard operating procedures. A company is well advised to maintain and publicize standard operating procedures to promote best practices.
   
   
5. Risks associated with internal compliance initiatives. Although EPA offers limited confidentiality protections for self-disclosed information, neither EPA nor DOJ treats VSDs or audit reports as confidential or privileged unless some independent protection applies. Companies should consider taking measures to ensure available privileges – such as those protecting attorney-client communications, attorney work product, self-critical analysis, or state law protections for environmental assessments – apply to compliance-related documents and communications. Companies should also consider the possibility that an audit will uncover information that triggers a separate disclosure obligation. Many environmental statutes mandate reporting when certain violations are discovered, and these non-voluntary disclosures will not be protected or rewarded under the policies discussed above.

Please contact any of the authors for further information. DLA Piper maintains robust practices in the areas of environmental law, white collar crime, and government and regulatory affairs, and will continue to track updates and revisions to corporate self-disclosure policies across DOJ sections.