Workshop L. Self-Audits: How to Conduct a Self-Audit, Manage Self-Disclosures & Avoid Penalties. Tuesday, March 18, :00 p.m. to 3:15 p.m.

Transcription

1 Workshop L Self-Audits: How to Conduct a Self-Audit, Manage Self-Disclosures & Avoid Penalties Tuesday, March 18, :00 p.m. to 3:15 p.m.

2 Biographical Information Kim K. Burke, Partner, Taft Stettinius & Hollister LLP 425 Walnut Street, Suite 1800, Cincinnati, Ohio, Direct: Kim Burke serves as co-chair of Taft's Environmental Practice. He has concentrated in a variety of environmental law areas. Mr. Burke has been named to the Woodward-White listing of The Best Lawyers in America since 1991, and was recognized as the 2014 Best Lawyers Southwest Ohio Lawyer of the Year for Environmental Litigation. He has been honored by Chambers USA: America's Leading Business Lawyers since 2008, the International Who s Who of Environmental Lawyers, and has been named an Ohio Super Lawyer since 2005 by Cincinnati Magazine and Law & Politics magazine. He is a Certified Hazardous Materials Manager. Matthew J. Leary, Corporate EHS&S Manager Pilot Chemical Company 2744 East Kemper Road, Cincinnati, Ohio mjleary@pilotchemical.com Matthew Leary is the Manager of Environmental, Health, Safety and Security at Pilot Chemical Company, located in Cincinnati, Ohio. He received a B.S. degree from the University of Findlay in Hazardous Materials Management and has been active in the EHS arena for over 20 years in both consulting and manufacturing. Pilot Chemical Company is a manufacturer of high-quality specialty chemicals involving alkylation, sulfonation, sulfation and a number of other specialty operations. Matt currently is Chair of the Alliance for Chemical Safety which is a non-profit group of Greater Cincinnati Industries, government agencies, emergency responders, social service organizations and interested Citizens who have joined together to promote public understanding and involvement in chemical risk management

3 Self-Audits: How to Conduct Them and Avoid Penalties MEC Sustainability and Environmental Health & Safety Symposium March 18, 2014 Matthew J. Leary, Manager, EHS&S, Pilot Chemical Company Kim K. Burke, Partner, Taft Stettinius & Hollister LLP

4 The Federal (USEPA) Self- Auditing Policy a. USEPA encourages self-auditing b. April, 2000: USEPA Incentives for Self-Policing: Eliminates gravity based penalties No recommendations for criminal prosecution No routine requests for audit report c. Protection for New Owners (2008): provides incentives for owners of new companies to conduct self-audits d. Audit Agreements: EPA states that audit agreements providing extended deadlines are available with EPA, but experience shows that EPA is discouraging Audit Agreements 2

5 EPA s Audit Policy for New Owners Effective August 1, 2008 New owners have a unique opportunity to make a clean start Provides tailored incentives for penalty mitigation Extends deadlines for disclosure and includes certain mandatory disclosures as eligible 3

6 EPA Self-Audit Policy: Conditions (Overview) Systematic discovery through audit or CMS Voluntary & 21 day disclosure Correction (60 days), remediation, recurrence Repeat violations Cooperation 4

7 EPA Self-Audit Policy: The Self-Disclosure Letter Disclosure must address the nine prerequisites for Policy protection EPA may choose only to mitigate the penalty, and depending on other factors, choose enforcement action Check and double-check prior history of client compliance here, and at other locations. The Policy is less likely to provide protection for repeat offenders Expect EPA to follow-up. The client s answers to EPA s questions must be honest and consistent with the selfdisclosure letter Do not play games with the 21 day clock 5

8 The Nine Points of Light 1. Systematic Discovery of the violation through audit or CMS 2. Voluntary Discovery (not through legally required monitoring) 3. Prompt Disclosure (21 days): objectively reasonable basis for believing that a violation has occurred 4. Independent Discovery and Disclosure (before EPA identifies the violation) 5. Correction and Remediation (60 days from discovery not disclosure) 6. Prevent Recurrence 7. Repeat violations are not eligible (past 3 years at same facility or if part of a pattern 5 years at all company facilities) 8. Certain violations not eligible (serious harm; imminent & substantial endangerment, violations of any orders) 9. Cooperation 6

9 EPA Self-Audit Policy: What Happens if EPA Determines the Policy Does Not Apply? Your client has admitted violations and provided a roadmap for EPA enforcement. You cannot take it back The client should expect an enforcement action How do consultants, lawyers, and companies protect themselves from the ugly consequences of this unhappy situation? 7

10 Ohio s Self-Audit Privilege/Immunity Amended Sub. House Bill 59 (2013) revised Ohio Rev. Code to remove the sunset date for Ohio s immunity protection Ohio s law provides significant incentives for self-disclosure and it is the law, not just a policy Self-disclosures can be made jointly to USEPA and state agencies if the facts fit 8

11 Ohio Law Protections Contents of audit report are privileged/confidential Communications concerning audit are privileged/confidential Immunity from civil penalties for disclosed violations No immunity from (i) criminal or (ii) significant economic benefit Ohio Revised Code Sections

12 Ohio Law: Conditions Disclosure must be voluntary, meaning not the result of government investigation, and compliance achieved ASAP or as ordered by state Disclosure was not required by law 10

13 Indiana s Self-Audit Protection Closely follows USEPA s Policy Is both Statutory and a Policy Statute: creates privilege. Policy: establishes reductions in penalties for self-disclosure Up to 100% civil penalty reduction through voluntary disclosure No enforcement for violations where conditions satisfied IDEM will not request a copy of your audit 11

14 Indiana s Audit Protection Conditions Nine Conditions (just like EPA) Discovered voluntarily through audit or systematic evaluation Disclosure within 21 days Correct violations within 60 days Agree in writing to prevent recurrence Label Environmental Audit Report; Privileged Document 12

15 Indiana s Statutory Protection An internal, voluntary audit is privileged and inadmissible in civil cases Exceptions: a. Criminal b. Fraud c. Failure to make efforts to achieve compliance Can be waived by giving it to IDEM Attorney-client and work product privileges unaffected IC through IC & 69 13

16 Kentucky s Self-Audit Privilege/Immunity Kentucky General Assembly updated this law in 2001 Confer both privilege/confidentiality and immunity The privilege and immunity are law. The EPA Self-Audit Policy is well a policy. K.R.S

17 Kentucky Audit Protection Conditions Must result from an environmental audit Must have the magic words Environmental audit report: privileged document on its face Violations must be promptly and voluntarily disclosed to Kentucky Cabinet 60 days to correct violations Does not affect federal law or the law of other states 15

18 Kentucky s Law Protections The audit report and communications are privileged/confidential Immunity is provided for civil penalties, but not criminal prosecution 16

19 Developing an EH&S Self- Audit Program Strategic considerations: what are your objectives? Is the company prepared to fix what you find? Is this a one-off, or part of a systematic plan? The baby steps approach to self-auditing In-house or outside auditors: benefits, downsides, and costs In-house: forming the audit team and assigning duties 17

20 Instructions to Audit Team Prior to Audit Level of involvement of plant personnel Confidentiality: lawyers or no lawyers Suggestions regarding recording of observations and findings Audit Report: format, drafts, final, recipients Corrective Measures follow-up When tempted to use ..stop.keep it verbal 18

21 Do s Hand-pick your audit team carefully (attitude, competence, ability to work with others, can-do approach) The team should meet prior to the audit to understand respective roles Give precise instructions: map it out Interim verbal reporting to Team Leader of significant findings Verbal internal reporting of violations of law (and legal involvement) Correction of issues on the spot 19

22 Do s Conduct document review and review their organization Encourage good housekeeping Consider unannounced audits 20

23 Don ts Discuss the audit with anyone outside the team Write s discussing the audit Take photos unless cleared with legal first Confront employees Jump to conclusions: your first oh **** is usually wrong 21

24 Benefits of Self-Auditing Avoids enforcement actions in most situations Enhances compliance management systems Adds statutory privilege to audit materials and communications Serves to establish culture of compliance in eyes of regulators 22

25 Pitfalls of Self-Auditing Privilege laws have exceptions which can be traps for the unwary (e.g., magic words ) Disclosure of violations is still subject to FOIA and open records laws: private citizens reviewing files may bring separate actions Audit reports and internal correspondence must avoid admissions: there is no guarantee that the privilege will apply 23

26 Avoiding Pitfalls Carefully evaluate self-reporting vs. notice of violation from regulatory agency: if the matter is likely to come to the attention of the agency, the pendulum swings toward self-reporting Keep your internal audit team small and confidential: set the ground rules first Follow the environmental audit privilege requirements in detail Ensure that the company has authorized corrective measures for suspected problems before commencing the audit 24

27 Is My Company Fully Protected if I Follow These Steps? No. Third-party citizens suits under environmental laws may not be barred. No. Private-party nuisance, trespass and bodily injury claims are not barred. On balance, is self-disclosure still the right client decision? Answer: Usually it is. 25

28 Summary: Federal & State Self- Audit Privileges/Immunities USEPA: Policy Based Ohio: Statutory privilege and immunity Kentucky: Statutory privilege and immunity Indiana: Statutory and Policy based privilege Each self-audit privilege/immunity requires that specific procedures be followed 26

29 Questions? 27