EPA Launches eDisclosure for Self-Reporting Violations
As expected and last reported in our June 2015 blog post, the U.S. Environmental Protection Agency (EPA) on December 9, 2015, launched eDisclosure — EPA’s updated, electronic voluntary audit and disclosure reporting system. Under eDisclosure and subject to certain requirements enumerated below, a regulated party can voluntarily report compliance violations of environmental laws and receive full penalty mitigation from the EPA. Reporting to EPA under eDisclosure must be made through a new centralized web-based Central Data Exchange system (CDX), which will more efficiently process and resolve violations disclosed to EPA under its Audit Policy and Small Business Compliance Policy (SBCP). In addition to penalty mitigation, eDisclosure is intended to save transaction costs, increase efficiency and provide quicker responses.
To qualify for full penalty mitigation under eDisclosure, a party must still satisfy the nine requirements set forth in EPA’s Audit Policy, 65 Federal Register (Apr. 11, 2000), formally titled “Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations” (AP), which provides significant penalty reductions for regulated entities who voluntarily come into compliance with federal environmental laws and regulations. These criteria require systematic, voluntary and independent discovery of a violation, which does not pose a serious harm; prompt disclosure of the violation within 21 days to EPA; prompt correction; preventing recurrence of environmental violations; no repeat violations; and cooperation.
The reporting of a violation will be handled under one of two categories, depending on whether the violation is covered under the Emergency Planning and Community Right-to-Know Act of 1986 (EPCRA), 42 U.S.C. §§ 1101 et seq. Violations covered by the EPCRA are classified as “Category 1 violations” and submission is a simpler process:
- Submission must be used for most EPCRA violations that meet all Audit Policy criteria.
- Category 1 cannot be used for chemical release reporting violations under § 304 of EPCRA or § 103 of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. § 9603), or when the violation results in significant economic benefit.
- eNotice of Determination (eNOD) will automatically be issued confirming EPA’s receipt of the submission, resolution of the violation with no assessment of civil penalties, conditioned on the accuracy and completeness of the eDisclosure.
- Correction of the Category 1 violation must be completed within 60 days of the date of discovery, or 90 days of discovery if submission is made under the SBCP, which is applicable to employers with fewer than 100 employees. No extension of the violation correction period will be granted under Category 1 submissions. If an extension of the correction deadline is required, the disclosure will be potentially eligible only for Category 2 treatment.
- No follow-up reporting is required.
Category 2 submissions will cover all non-EPCRA violations or other EPCRA violations not eligible for Category 1 submission:
- EPA’s acknowledgement letter will automatically be issued with commitment to make an eligibility determination for penalty mitigation if and when EPA considers taking enforcement action for the violation.
- Correction of a Category 2 violation must also be completed within 60 days of discovery with ability for additional 30 days with online request, which will be automatically granted with no explanation required. Any request to extend the correction period beyond the additional 30 days, must be requested online with justification. The total period for correction, however, cannot exceed 180 days after the discovery date. Any request beyond the automatic 30 day extension is made effective but is not considered by EPA to be granted or denied, as EPA reserves the right to scrutinize the request if and when it considers taking any enforcement action for the reported violation.
- Correction deadlines applicable to small businesses (fewer than 100 employees) can receive an initial, automatic extension for correction of up to 90 additional days with no explanation. Any additional requests by a small business cannot exceed a total of 360 days, and additional requests beyond the first 90 day period will require a justification, which EPA will scrutinize if and when it considers taking enforcement action.
- Compliance Report must be submitted within 60 days after filing the initial disclosure (or within 90 days of filing if submitted under the SBCP). Any extended correction period requested will extend the deadline for compliance reporting by the same number of days requested for the correction period extension. The Compliance Report must identify the specific violations and certify that the violations have been corrected and that the AP or SBCP conditions have been met.
Other notes to keep in mind include:
- Resubmission to eDisclosure within 120 days (or by April 8, 2016) is required for any unresolved and pending voluntary disclosure of non-compliance submitted to EPA prior to December 9, 2015.
- CDX Registration by submitter of eDisclosure must be made with EPA’s CDX system, which is already used for cross media e-reporting and recordkeeping. CDX registrants already identity-proofed under CDX will not need to re-register.
- Authorized persons (such as a consultant, attorney or agent) can make eDisclosure, but must be CDX registered.
- Confidential business information (CBI) will not be protected, so sanitized (non-CBI) information should be submitted. Any follow-up CBI would have to be submitted manually.
- Disclosure of unresolved violations to public is expected in most cases under the Freedom of Information Act (FOIA), unless EPA in its discretion foresees that release would harm an interest protected by a FOIA exemption.
- Withdrawal of initial disclosure will be permitted if, for instance, no violation actually occurs, or party cannot certify compliance within conditions of the AP.
- Notice of Untimely Compliance Certification will be issued by EPA, which will note the entity’s attempt to disclose, will retain such record, and will advise that the disclosure does not qualify for penalty mitigation under the AP or SBCA.
Amanda Neidert and Marian C. Hwang have counseled clients on numerous voluntary audit disclosure matters, including multi-facility audit reporting. Ms. Hwang is a CDX registrant.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.