Of the three-letter acronyms for federal agencies that cause the most dread in CEOs, owners, officers and plant managers across the company, EPA ( next, perhaps, to IRS) is probably right at the top. Ordinary regulatory actions (and civil suits) regarding alleged pollution violations are worrying enough; far worse, however, is the specter raised by notice by EPA (Environmental Protection Act) that criminal investigations are under way.
EPA’s criminal enforcement actions resulted in more than $4.5 billion in combined fines, restitution and court-ordered environmental projects in fiscal year 2013 alone. In some cases, however, a wholly different kind of punishment can be – and has been – imposed, jail time. And this harsh penalty is utilized more than is commonly assumed.
One example: In March 2013, the owner of a Texas bio-diesel company was sentenced for 51 counts of wire fraud, 24 counts of money laundering and four counts of making false statements in the context of the Clean Air Act (CAA) violation after pleading guilty to participating in a scheme to defraud the EPA. EPA, with the U.S. Secret Service, conducted the joint investigation; in the end, the individual received a $175,000 fine, 188 months in federal prison in addition to being ordered to pay almost $55 million in restitution.
The defendant, according to the charges, falsely represented himself as the owner of a bio-diesel fuel production facility which, in reality, produces that fuel, while selling renewable fuel credits based on that imaginary biofuel production. These credits, purchased by oil companies and brokers, resulted in revenue amounting to almost $45 million on more than 50 transactions wired to a bank account controlled by the owner. The scam was carried out from September 2010 through October 2011.
That same month, the environmental manager of a New York coke facility was found guilty of violation of the Clean Air Act (11 counts), the Resource, Conservation, and Recovery Act (RCRA, the hazardous waste regulatory law) (3 counts), as well as one count of obstruction of justice. The offenses related to the release of coke oven gas containing benzene via an unreported pressure relief valve, along with the lack of required (under Title V of the CAA) baffles in the facility’s coke-quenching tower.
It is important to note the particular intentional nature of one of the charges: The defendant was also found guilty of having instructed another employee to conceal the emissions during an EPA inspection. This charge was particularly egregious because the act was both purposeful and fraudulent.
Further, the company also violated RCRA regulations by mixing coal tar sludge, a listed hazardous waste, on the ground without a treatment, storage and disposal hazardous waste permit. The charges carried a maximum combined penalty of as many as 75 years in prison and more than $200 million in fines.
Also in New York, two defendants, one a landowner and the other a recycling company owner, were found guilty in a case involving a conspiracy to dump thousands of tons of construction and demolition (C & D) debris, not only with much of it containing asbestos, but also using 28 acres of federally regulated wetlands as the dumpsite, all without required permits. The two men conspired to fill in owned by one defendant with the C & D waste processed at facilities owned by the other defendant.
In July 2013, the owner and vice president of a Colorado-based electronic waste recovery company were sentenced for multiple crimes committed in the process of illegally disposing of electronic waste (see article “The Electronics Explosion, Hazardous Waste, and the Upcoming New Disposal Regulations” in the Volume III 2013 issue-issue of the Counselor, as well as “The New Manifest” in this issue). The company was registered with the state as a “large quantity handler of universal wastes.” [Universal wastes are certain widely generated hazardous wastes managed under the rules set forth in 40 C.F.R. Part 273, including batteries, certain lamps, certain pesticides and mercury-containing thermostats].
Holding itself out to customers as having “extensive knowledge of current EPA requirements” regarding e-waste and other materials, the company advertised that it disposed of electronic wastes in compliance with all local state and federal laws and that it recycled the waste “properly, right here in the U.S.” as opposed to exporting it overseas. It was determined, though, that the company regularly exported the waste to foreign countries: more than 300 exports with 160 of them containing more than 100,000 cathode ray tubes (CRTS) contain lead. This discovery led to the charge that, from 2005-2009, the two men ran a scheme to defraud customers (including various government entities).
Charged with mail and wire fraud, failure to file notification of intent to export hazardous waste, exportation contrary to law, and destruction, alteration or falsification of records in federal investigations and bankruptcy, the company was given three-years’ probation and a $4,500,000 fine, while the owner was sentenced to 30 months in federal prison with three years’ supervised release, a fine of $7,500 and $70,144 in restitution. The company vice president was sentenced to 14 months in prison, a $7,500 fine and more than $15,000 in restitution. Asset forfeiture in the amount of $142,241.10 was also ordered by the court.
In Panama City, Fla., the largest criminal wetland violation fine in state history was levied against a company and its owner for illegal dredging and federal wetlands violations (under the Clean Water Act).
The owner was fortunate to receive only a criminal fine of $100,000. The company was sentenced to three years’ probation, and levied a fine of $2.5 million, a special monetary assessment of $400, and ordered to pay a community service payment of $1 million to the National Fish and Wildlife Foundation for mitigation projects.
Criminal liability for environmental violations is a risk for even the most conscientious owner, officer or manager of a business. Indeed, in public seminars, the EPA itself has touted its criminal enforcement as being particularly effective, having the most “bang for the buck” of all enforcement actions within its power. A gallows-humor joke at conferences on EPA criminal enforcement back in the mid-80’s made the rounds: What do you call the Vice-President in Charge of Environmental Compliance at a Fortune 500 company? The answer: The designated felon.
The unfunny truth is, unlike civil enforcement of environmental laws, which itself can be financially difficult for any company, criminal enforcement can ruin actual human lives, and sometimes these are the lives of individuals who are otherwise – considered by themselves and others as simply good businessmen or women and pillars of their communities. They usually do not have criminal records. They are often hard-working, responsible and productive people, many with families. Their entire world can be altered nightmarishly, with life-long consequences.
Criminal liability under CERCLA – unlike most criminal statutes – does not require what is referred to in criminal law as a “mens rea” (a “guilty mind” ) – intent to commit a criminal offense. All it technically requires is committing or continuing an environmental violation with culpable knowledge. As the cases described above illustrate, however, intentional and knowing wrongdoing is often a part of – and sometimes the catalyst for – criminal prosecution.
Clearly, any officer, manager or anyone else at a business receiving notice – or otherwise suspecting that criminal investigation by any environmental agency may be contemplated – should immediately contact legal counsel. Defense of such cases almost always requires the services of both environmental and criminal counsel, working together.
Civil enforcement of environmental violations is serious and complex enough; criminal enforcement brings in entire new layers of the complexity of criminal law, which is filled with pitfalls for the unwary. The point of this article is not at all to imply that the government callously or abusively uses this great power of criminal prosecution; rather, it is to emphasize that environmental offenses are not just expensive nuisances: In the right situation, they can turn decent, otherwise law-abiding citizens into criminals in ways never anticipated. Be aware.