Key Notes:

  • New eDisclosure system unveiled December 9, 2015.
  • Intended to process disclosures of most federal civil environmental violations.
  • May not provide as much certainty or closure as previously provided to regulated entities.
  • Unresolved disclosures may now be subject to greater public scrutiny through FOIA requests.

On December 9, 2015, the United States Environmental Protection Agency (EPA) officially launched its new electronic portal for the submission of certain voluntary disclosures of federal environmental violations under its self-audit policies. The details of the eDisclosure system are largely consistent with what EPA presented during its June 2015 announcement and related webinars, as discussed in the June 2015 Thompson Hine Environmental Update, with a few important distinctions.

The new system may impact how voluntary disclosures are processed and whether disclosing parties receive the same level of closure as EPA provided under the prior system. In a reversal of longstanding policy, EPA has also eliminated the presumption that unresolved Audit Policy disclosures are exempt from information requests under the Freedom of Information Act (FOIA), and in fact confirmed it will attempt to make most unresolved disclosures available shortly after the disclosure is made.

EPA Audit Policies

Regulated entities may disclose federal civil environmental violations pursuant to EPA’s Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations (Audit Policy), 60 Fed. Reg. 66706 (December 22, 1995), Small Business Compliance Policy (applicable to entities with 100 or few employees), 65 Fed. Reg. 19618 (April 11, 2000) and Interim Approach to Applying the Audit Policy to New Owners (New Owner Policy), 73 Fed. Reg. 44991 (August 1, 2008). Under these policies, entities that meet all nine conditions, such as systematic and voluntary discovery of violations, prompt disclosure (within 21 days of discovery) and taking corrective action within a prescribed timeframe (typically within 60 to 90 days of discovery), are eligible for total mitigation of the gravity-based portion of civil penalties and no recommendation for criminal prosecution. Parties that meet all conditions except systematic discovery may be eligible for 75 percent mitigation of the gravity component of a penalty. EPA’s new eDisclosure system does not change the substance of these policies.

eDisclosure System

EPA created the eDisclosure system to modernize and streamline how the agency receives and processes self-disclosed violations. After registering for the eDisclosure system through EPA’s central data exchange, disclosing parties may submit their voluntary disclosures within 21 days of discovery of a violation. Within specified periods of time from the date of discovery (60 days under the Audit Policy and 90 days under the Small Business Compliance Policy), parties must certify their return to compliance and that they have met the applicable policy conditions. Parties disclosing Category 2 violations (civil violations other than certain violations of the Emergency Planning and Community Right-to-Know Act (EPCRA)) may request limited extensions to make the requisite certifications.

For Category 1 disclosures (most EPCRA chemical report violations other than EPCRA Section 304 chemical releases), EPA will typically provide automatic Notice of Determination letters indicating that the disclosed violation is resolved. However, for Category 2 disclosures (all disclosures other than those classified as Category 1), EPA will merely issue Acknowledgement Letters, which will note that EPA received the disclosure but will not make a penalty mitigation eligibility determination unless it considers taking enforcement action in the future. By not resolving or taking action on Category 2 disclosures, parties making these disclosures may be left with greater uncertainty of potential future enforcement, although under the old system parties often did not receive formal closure from EPA when they submitted disclosures. This uncertainty could pose problems for companies seeking loans or selling operating assets.

Changes from June 2015 Announcement

When EPA announced its intent to roll out the eDisclosure system in June 2015, it presented the details of the proposed system in webinar sessions and written materials. With the official launch in December 2015, it is apparent that EPA kept most of the details of its draft system intact, with a few changes.

First, EPA initially created some ambiguity as to whether entities would be permitted to use eDisclosure to disclose violations pursuant to the New Owner Policy (applying to parties who conducted systematic audits either directly before or after acquiring new businesses or facilities). EPA has confirmed that New Owners may disclose violations through eDisclosure, but the system is not designed to process New Owner Policy submissions (i.e., EPA cannot give New Owner treatment to such disclosures). Thus, to obtain New Owner consideration, including being eligible for modifications to certain Audit Policy conditions, parties must continue to submit such disclosures manually and negotiate individual audit agreements with EPA, as appropriate. Consistent with the June 2015 announcement, the eDisclosure portal also cannot be used to disclose criminal violations.

EPA has also changed the names of the two groups into which disclosures may fall. Originally proposed as Tier 1 and Tier 2, EPA renamed these groupings as Category 1 and Category 2 disclosures to avoid confusion with similar terminology in the EPCRA.

Finally, EPA has provided more clarity as to how it will treat FOIA requests for unresolved disclosures. Previously, it withheld most unresolved disclosures under FOIA’s “law enforcement proceeding” exemption. Effective December 9, 2015, EPA has eliminated the presumption of withholding unresolved disclosures. Although EPA indicates it will review such FOIA requests on a case-by-case basis, it also clarifies that it “generally expects to make Category 1 and Category 2 disclosures publicly available within a relatively short period of time after their receipt.” Despite EPA’s attempt to reassure the regulated community that this policy change will not result in more citizen suits, this is a legitimate concern and should be carefully considered before disclosures (especially under Category 2) are made.

Conclusion

While the new eDisclosure system may result in more efficient voluntary disclosure of federal civil environmental violations, it may also reduce certainty as to whether the disclosed violation is resolved and could lead to greater public awareness of unresolved disclosures through FOIA requests. As before, parties should carefully consider the pros and cons of making voluntary disclosures on a case-by-case basis, while also accounting for the risks the new system may create.

Details regarding the new eDisclosure portal are available at EPA’s website.