Senate Hearing, 105TH Congress - Environmental Audits

S. HRG.
105305
ENVIRONMENTAL AUDITS
HEARING
BEFORE THE
COMMITTEE ON
ENVIRONMENT AND PUBLIC WORKS
UNITED STATES SENATE
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
ON
THE REVIEW OF ACTIVITIES BY THE FEDERAL GOVERNMENT CON-

CERNING INDIVIDUALS OR ORGANIZATIONS VOLUNTARILY SUBMIT-
TING TO ENVIRONMENTAL AUDITS
OCTOBER 30, 1997
Printed for the use of the Committee on Environment and Public Works
(
U.S. GOVERNMENT PRINTING OFFICE
45438 CC WASHINGTON : 1998
For sale by the Superintendent of Documents, Congressional Office

U.S. Government Printing Office, Washington, DC 20402
COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS
ONE HUNDRED FIFTH CONGRESS
JOHN H. CHAFEE, Rhode Island, Chairman
JOHN W. WARNER, Virginia MAX BAUCUS, Montana
ROBERT SMITH, New Hampshire DANIEL PATRICK MOYNIHAN, New York
DIRK KEMPTHORNE, Idaho FRANK R. LAUTENBERG, New Jersey
JAMES M. INHOFE, Oklahoma HARRY REID, Nevada
CRAIG THOMAS, Wyoming BOB GRAHAM, Florida
CHRISTOPHER S. BOND, Missouri JOSEPH I. LIEBERMAN, Connecticut
TIM HUTCHINSON, Arkansas BARBARA BOXER, California
WAYNE ALLARD, Colorado RON WYDEN, Oregon
JEFF SESSIONS, Alabama
JIMMIE POWELL, Staff Director
J. THOMAS SLITER, Minority Staff Director
(II)
(II)
C O N T E N T S
Page
OCTOBER 30, 1997

OPENING STATEMENTS
Allard, Hon. Wayne, U.S. Senator from the State of Colorado ............................ 16
Baucus, Hon. Max, U.S. Senator from the State of Montana .............................. 5
Bond, Hon. Christopher S., U.S. Senator from the State of Missouri ................. 3
Chafee, Hon. John H., U.S. Senator from the State of Rhode Island ................. 1
Hutchinson, Hon. Tim, U.S. Senator from the State of Arkansas ....................... 20
Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma .................... 2
Lautenberg, Hon. Frank R., U.S. Senator from the State of New Jersey ........... 5
Sessions, Hon. Jeff, U.S. Senator from the State of Alabama ............................. 4
Smith, Hon. Robert, U.S. Senator from the State of New Hampshire ................ 19
Thomas, Hon. Craig, U.S. Senator from the State of Wyoming .......................... 20
WITNESSES
Bangert, Patricia S., director, legal policy, Attorney Generals Office, State
of Colorado ............................................................................................................ 30
Prepared statement .......................................................................................... 87
Enzi, Hon. Michael B., U.S. Senator from the State of Wyoming ....................... 7
Herman, Steven A., Assistant Administrator, Office of Enforcement and Com-
pliance Assurance, Environmental Protection Agency ...................................... 21
Hutchison, Hon. Kay Bailey, U.S. Senator from the State of Texas ................... 24
Lott, Hon. Trent, U.S. Senator from the State of Mississippi ............................. 26
McBee, Barry R., chairman, Texas Natural Resource Conservation Commis-
sion ........................................................................................................................ 27
Wallach, Paul, senior partner, Hale and Dorr ...................................................... 31
Letters, environmental audits, New England Council .................................. 104
List, examples of reporting obligations to government agencies .................. 98
Platform, Corporate Environmental Enforcement Council ........................... 99
Woodall, Mark, Sierra Club, Georgia Chapter ...................................................... 34
Grassroot letters to U.S. Senators .................................................................. 114
Statement of Linda Briscoe and Solomon Lundy ........................................... 111
ADDITIONAL MATERIAL
Articles:
Environmental Democracy, Journal of Corporation Law .............................. 141
Small Businesses Respond to Minnesotas Audit Program ........................... 204
Charts supplied by EPA:
Exhibit 1, State Support for EPA Audit Policy .............................................. 56
Exhibit 2, Rough Breakdown of Industry Disclosures Under Federal Audit
Policy .............................................................................................................. 57
Exhibit 3, Opposition to Audit Privilege and Immunity Legislation ............ 58
Letters:
Attorney General Janet Reno .......................................................................... 133
California District Attorneys Association ....................................................... 76
Intertanko ......................................................................................................... 219
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iv
Page
LettersContinued
Louisiana Environmental Action Network ..................................................... 72
Maines Attorney General ................................................................................ 80
Missouri Department of Natural Resources ................................................... 74
National Academy of Public Administration .................................................. 190
National District Attorneys Association ......................................................... 184
New England Council ....................................................................................... 104
New York State District Attorneys Association ............................................. 186
Sierra Club ........................................................................................................ 114
U.S. Attorney for Alaska Robert C. Bundy .................................................... 68
List, State environmental audit privilege legislation ........................................... 156
Press release, Cahill announces environmental enforcement plan, Office of
Gov. Pataki of New York ..................................................................................... 61
Report, Resolving the Paradox of Environmental Protection, National Acad-
emy of Public Administration ............................................................................. 191
Statements:
Airports Council International-North America and American Association
of Airport Executives .................................................................................... 135
American Farm Bureau Federation ................................................................ 135
Briscoe, Linda and Lundy, Rev. Solomon ....................................................... 111
Bundy, Robert C., U.S. Attorney for Alaska, and Lois J. Schiffer, Assist-
ant Attorney General, U.S. Department of Justice .................................... 129
Geltman, Elizabeth Glass ................................................................................ 137
Representative statements supplied by EPA opposing audit privilege and/
or penalty immunity legislation ................................................................... 60
Wisconsins Attorney General James E. Doyle .............................................. 63
ENVIRONMENTAL AUDITS
THURSDAY, OCTOBER 30, 1997
U.S. SENATE,
COMMITTEE ON ENVIRONMENT ANDPUBLIC WORKS,
Washington, DC.
The committee met, pursuant to notice, at 9:32 a.m. in room 106,
Senate Dirksen Building, Hon. John H. Chafee [chairman of the
committee] presiding.
Present: Senators Chafee, Inhofe, Bond, Baucus, Sessions, Lau-
tenberg, and Allard.
OPENING STATEMENT OF HON. JOHN H. CHAFEE,

U.S. SENATOR FROM THE STATE OF RHODE ISLAND
Senator CHAFEE. OK, well get started.
I want to welcome everyone here this morning. Everybody please
take a seat.
The purpose of todays hearing of the Committee on Environment
and Public Works is to receive testimony on the topic of environ-
mental audit legislation. This is a topic that we touched on during
the hearing the committee held in June on enforcement issues.
At the outset, it might be useful to briefly describe what environ-
mental audit laws do. Audit laws typically include one or both of
the following features: An evidentiary privilege against disclosure
of information discovered in the course of an audit, thats one part
of it; and some form of an immunity from criminal or civil fines or
penalties from any violations discovered, disclosed or corrected inci-
dent to an audit.
Its timely to hear about developments on environmental audits.
While there is no legislation currently pending before this commit-
tee on this topic, two bills have been introduced in the Senate, and
well hear from the sponsors of each bill. Senator Kay Bailey
Hutchison of Texas sponsored S. 866, the Environmental Protection
Partnership Act. Its my understanding she will be joining us short-
ly to discuss her bill. The approach in Senator Hutchisons bill is
to create a privilege and immunity under Federal law.
We will also hear from Senator Mike Enzi of Wyoming, whom we
welcome here today. Yesterday he introduced the State Environ-
mental Audit Protection Act. Senator Enzi, during his service in
the Wyoming State Senate, was the principal sponsor of Wyomings
environmental audit law. The approach in Senator Enzis draft bill
is to create a safe harbor for qualifying State audit laws that would
prevent Federal interference.
(1)
2
We look forward to the testimony from both Senators, and we

welcome them as they come before us.
State legislatures have been very active on environmental audit
legislation. Since 1994, which is after all, only 3 years ago, approxi-
mately 24 State have enacted legislation that either establishes a
privilege for information discovered during an environmental audit
or provides some form of an immunity from violations of laws dis-
covered during an audit.
Some States provide both a privilege and an immunity. I note
the two States that have enacted legislation most recently on envi-
ronmental audits are Rhode Island and Montana. Today, we will
hear from representatives from Texas and Colorado on the topic.
Its apparent from the testimony this is a controversial topic.
EPA and the Department of Justice strongly oppose the creation of
any Federal audit privileges or immunities. Further, they oppose
Federal or State action to enact such privileges. EPA believes its
administrative policies, which feature discretionary penalty reduc-
tions in immunities, are a success and provide sufficient incentives
for regulated entities to conduct audits.
EPA recognizes that despite its policy position, 24 States have
acted. EPA has therefore adopted a legal position on the minimum
requirements of a State audit law, where a State also enforces a
delegated Federal statute, such as the Clean Water Act. This is a
position thats caused tension between EPA and many States. Mr.
Herman, head of EPAs enforcement office, will present EPAs
views today.
We will also hear from a representative of the business commu-
nity to describe why Federal legislation is needed on the topic. Why
the States that have acted to create audit laws and what they ad-
vise Congress to do to make State audit laws work better.
We will also hear from a representative of a group of over 120
organizations and individuals who oppose the creation of statutory
audit privileges or immunity.
So I look forward to hearing from our witnesses.
I just saw Senator Baucus. Hell be here shortly. Were going to
start. Senator Inhofe, do you have anything you wish to say?
OPENING STATEMENT OF HON. JAMES M. INHOFE,

U.S. SENATOR FROM THE STATE OF OKLAHOMA
Senator INHOFE. I do, Mr. Chairman. Im glad youre having this
hearing. Im glad that Senator Enzi is introducing this bill.
Voluntary environmental audits are fast becoming one of the best
tools to identify and eliminate the violation of our environmental
laws. All too often, the EPA has adopted an attitude that is adver-
sarial to industry, and its been a great concern to me in all of our
subcommittees, and particularly my Clean Air subcommittee.
I understand that EPA does have a policy regarding environ-
mental audits. However, I do not think it adequately addresses the
current concerns of most business. For a voluntary environmental
law to be truly effective, participants must have assurances that
full and honest disclosure will not result in massive fines and years
of litigation due to lawsuits from the Federal Government and out-
side organizations.
3
My first concern revolves around the core mission of the EPA. I

believe that the EPA should, above all else, work to ensure that en-
vironmental laws are being complied with. Instead, the EPA would
rather focus their money and efforts on enforcement and issuance
of penalties.
I have told the story many times, and I feel moved to tell it one
more time, Mr. Chairman, about our Brandon Mill Creek Lumber
Company, the phone call I got the last year I was in the House of
Representatives. Here was a lumber company that was a third gen-
eration lumber company, very competitive. He called up and said,
you know, theyve put us out of business. I said, who has? He said,
the EPA.
I said, what did you do that was illegal? They said, well, I dont
think we did anything. Weve been selling our used crankcase oil
to the same contractor for the last 10 years. That contractor is li-
censed by the Federal Government, by the County of Tulsa, by the
city of Tulsa, and yet theyve traced some of that oil to the Double
Eagle Superfund site.
He said they had a letter, that he read to me over the phone,
that any normal person would say theyre going to invoke fines of
$5,000 a day to this individual. Well, when you read it real care-
fully, you can see they say, thats our intention, we are authorized
to do that, we intend to do that. But they dont commit.
So I wonder, so often, were able to stop it. But how many people
think to call their Congressman, how many people that dont do it
out there. Right now, we have a company in Oklahoma that has
a way of recycling CFCs. Theyre saying, no, we have to incinerate
them. Yet, when you incinerate them, more of the CFCs get into
the air than they do when you recycle them.
So it just seems to me that we have an agency that is constantly
harassing the private sector, those who are employing people and
paying taxes. I applaud you in introducing this Act. I think this is
a way that might instill some kind of confidence and working rela-
tionship between the EPA and industry.
While I cant stay for the whole hearing, were having an Indian
Affairs hearing, where we have the new director designated for the
BIA, and I have to be there, Mr. Chairman. But I will be very
much interested in following this legislation.
Senator CHAFEE. Thank you, Senator.
Senator Bond.
OPENING STATEMENT OF HON. CHRISTOPHER S. BOND,
U.S. SENATOR FROM THE STATE OF MISSOURI
Senator BOND. Thank you very much, Mr. Chairman.
I, too, we have a couple of conference committees going on, so Im
going to have to leave fairly shortly. I would advise you that one
of our witnesses, Mr. Paul Wallach, is a fellow car pool dad, and
friend of mine. So I have not had a great opportunity to speak
about environmental matters with him, but we do follow sporting
events and other educational activities, much more significant
things.
But this is a very significant hearing, Mr. Chairman. When we
approach this issue as we approach other issues, the objective of
this committee ought to be, how can we do the best job of cleaning
4
up the environment. Senator Inhofe has just pointed out a problem

that hes encountered in Oklahoma. I can tell you a horror story
in Missouri.
One of our major manufacturing companies in Jackson County,
MO, just east of Kansas City, voluntarily audited its operations,
found an environmental problem, worked it out with the State of
Missouri so that they could cleanup and take appropriate measures
and pay the appropriate sums. They thought they had an agree-
ment, and then the EPA comes in and over-files and wants to fine
them more.
I am hard-pressed to explain, and maybe some of the witnesses
later on can explain to us, how that is not only going to assure
cleaning up the environment in this particular instance, but what
impact is that going to have on future activities. Arent we all
about cleaning up the environment? If we are, is there a reasonable
grounds, is there a reasonable basis for proceeding in this area to
assure that somebody who is willing to take the initiative, a com-
pany that finds out it has caused pollution, how they can deal with
that problem and not be subjected to stiff penalties.
So I think the testimony today is going to be very important. My
staff will be following it closely and I will be following the record.
I know the Missouri General Assembly has been unable to pass a
decent legislation. I would hope that we could hear out all sides
and figure out how we achieve the objective of assuring a cleaner
environment.
Thank you.
Senator Sessions.
OPENING STATEMENT OF HON. JEFF SESSIONS,
U.S. SENATOR FROM THE STATE OF ALABAMA
Senator SESSIONS. Mr. Chairman, thank you very much.
I applaud Senator Enzi for his insight and effort to improve the
environment. I certainly believe that is the intent of this bill. It
ought to be the situation in this country that if someone finds an
inadvertent error in their activities that they could report those er-
rors without serious consequences raining down upon their heads.
In so allowing them to do, we ought to thereby improve the envi-
ronment by encouraging companies and individuals who may have
violated pollution laws to come forth and correct that problem.
As a prosecutor for quite a number of years, I have been troubled
by the proliferation of criminal law in America. For hundreds of
years, the law on robbery was, whoever takes property by force and
violence from the person of another is guilty of robbery. Thats all
it said. That sufficed for hundreds of years.
Now we draw crime bills that are hundreds of pages, involving
one minor area of law. I think what were seeing in this bill is an
attempt to deal, to mitigate some of the unintended consequences
of strong environmental law.
But I say, at least what concerns me, Mr. Chairman, is the possi-
bility that we will so muddle the law and add so many confusions
with it that it becomes even less clear than it is today.
I think the goal is good. I look forward to working with this legis-
lation to see if we can do it. But I also believe that when we pass
5
a criminal law in this body, it ought to meet the classic goal or re-
quirements of a good criminal law. It ought to be clear, it ought to
be enforceable. Nobody ought to have doubts about when theyre
violating the law and when theyre within the law.
I think this Congress over the years has gotten away from that
principle. Its something that Im concerned about. I just want to
review this legislation with that in mind.
Senator Baucus.
OPENING STATEMENT OF HON. MAX BAUCUS, U.S. SENATOR
FROM THE STATE OF MONTANA
Senator BAUCUS. Thank you, Mr. Chairman.
First of all, let me say that I think environmental audits are a
good idea. Its pretty hard to be against environmental audits. They
increase compliance with the law, and as a result, they improve the
quality of our air and water.
At the same time, Im skeptical about the need for Federal legis-
lation that would prevent information gathered in an environ-
mental audit from being disclosed to the public. Our legal system
is based on the principle that when a law enforcement investiga-
tion is underway, as the Supreme Court has said, The public is
entitled to every persons evidence. Its an important element of
the publics right to know.
I dont see why we should create a special exception for environ-
mental laws, compared to employment discrimination laws, anti-
trust laws, immigration or work place safety laws. To my mind, the
toughest issue involves the Federal-State relationship. As a general
matter, our Federal environmental laws do not and should not re-
quire States to always march in lockstep to the beat of the Federal
drum. Within limits, they can reach different conclusions. States
can experiment.
However, at some point, a State environmental audit law may
undermine State law enforcement efforts to such an extent that the
States enforcement system is inadequate. If we allow that to hap-
pen, we wont have a level playing field. That would threaten to
undermine the progress we have made in protecting the environ-
ment over the last 25 years.
I look forward to addressing these issues during our hearing.
Senator CHAFEE. Senator Lautenberg.
OPENING STATEMENT OF HON. FRANK R. LAUTENBERG,
U.S. SENATOR FROM THE STATE OF NEW JERSEY
Senator LAUTENBERG. Thanks, Mr. Chairman.
I listened with great interest, I have respect and a good relation-
ship with the Senator from Wyoming. Therefore, I listen when he
says something or proposes something.
But frankly, as a former CEO of a very good-sized company, a
company involved in financial recordkeeping, a company I left, had
16,000 employees when I left there, and I was one of those who
started the company. So I know something about audits, etc.
Theyre necessary to keep things in proper perspective.
So I will challenge the notion that those who make mistakes,
those who commit an error have innocently done so, that we should
6
rely on the good will of people to fix problems when it affects their
neighbor, that we are, I remind everybody here, a Nation of laws,
as initially constructed. Laws. Thats what were about. Its not to
curb behavior. Its to make sure that no one steps on other peoples
rights.
Thats the purpose. Everybody should be treated the same.
So as I look at this, Senator Enzi, I have some questions and I
hope well be able to resolve them. Some in favor of audit privilege
law, they talk about helping the environment, they talk about re-
quests from the States for non-regulatory approaches to environ-
mental protection. Many State governments likewise talk of build-
ing partnerships with their business community to address their
environmental concerns, trying carrots instead of sticks.
But Im concerned that the legislation were considering will help
encourage a race to the environmental bottom when it comes to
such issues as State enforcement of environmental protection laws,
allowing a privilege status to environmental audit reports and ma-
terial related to such reports. I think it sends us in that direction.
There have long been calls for new approaches to environmental
regulation other than enforcement, and command and control legis-
lation. Voluntary incentives sometimes do work. I would hope we
wouldnt put our income tax system in voluntary compliance.
I am particularly proud of my contribution, alternative ap-
proaches to environmental protection law, embodied in a piece of
legislation I offered called the Community Right to Know Law.
Under that law, polluters are only required to disclose to the com-
munity what theyre releasing into the air, sent out as trash or
dump into the waterways.
Because companies would rather not have to publicly explain the
content of their toxic emissions, many companies have proactively
changed their environmental behavior. They have changed environ-
mental protection from an end of the pipe cleanup process to a pol-
lution prevention process.
As a result, industries have reduced toxic emissions in some
cases, on average more than 40 percent since 1988, voluntarily. But
the key to the success of the law is that the people in the commu-
nity, those most immediately affected by the pollution, have a gen-
uine right to know. They have a right to know what pollution is
being discharged in their community. Its their right.
However, audit privileges go in the other direction. They will
turn what is now a right to know into a right to keep secrets, po-
tentially toxic secrets. This proposal, I believe, could frustrate in-
vestigations of environmental wrongdoings with illegal maneuver-
ing that have no place in protecting our environment.
Companies could keep secret needed information about how their
actions may contaminate a local drinking water well. They could
keep secret potential crimes from the public and employees.
I dont know, I havent heard any examples of companies that
have stepped forward and said, you know what, we poisoned the
towns well. I havent ever heard that kind of good will coming. Ive
heard at a later date that some companies have tried to clean it
up. But why shouldnt the public have the right to know?
Contractors and others working at a factory would not be free to
talk about whats going on. While the Supreme Court has said that
7
we cannot limit spending on political campaigns, because money is

equal to speech, in the environmental area, were saying corporate
polluters will now have the right of concealment.
In Idaho, a surprise State inspection of a Federal lab run by
Lockheed Martin found illegal handling of toxic wastes. As the
State inspectors left the plant, they were given files and told they
were privileged under State audit law. Is it not surprising that the
State of Idaho let their audit law sunset?
EPA has an audit policy that encourages audits without limiting
risks to environmental protection. It waives certain penalties but
does not allow companies to have an unfair advantage over their
competitors.
I believe in States having flexibility in implementing the Federal
environmental laws. But those States that put the polluter ahead
of the public should lose their authority over those environmental
statutes authorized to them.
Thank you, Mr. Chairman.
Senator Enzi, we welcome you, and I know youve had a long in-
terest in this. This hearing came about because, as I recall, you
were moved to add this as an amendment, and I indicated to you
that we would have a hearing. Therefore, you are gracious in co-
operating with us and we now have this hearing. We welcome you.
Senator Kay Bailey Hutchison might be along. If she is, well put
her on at that time. But you go right ahead, Senator, and again,
were pleased to have you here.
STATEMENT OF HON. MICHAEL B. ENZI, U.S. SENATOR
FROM THE STATE OF WYOMING
Senator ENZI. Thank you, Mr. Chairman and members of the
committee. I really appreciate your holding this hearing.
The opening statements were very interesting to me. Im glad to
know that youre open to the possibilities that there are for the en-
vironmental audits.
For years, many of us have been concerned about making the en-
vironment cleaner, safer and healthier. For two and a half decades,
the EPA has been cleaning things up. But there is still lots to do.
Weve got to get more people involved. Were not going to get all
of the problems until everyone is involved.
I come from a small business background. Ive worked in a vari-
ety of business sizes. I serve on the Small Business Committee. I
need to tell you that my opinion of a small business is one where
the owner of the business sweeps the sidewalks, cleans the toilets
and waits on customers. Im talking about really small.
If we design things so that the small business can handle them,
other businesses dont have any problem. Unfortunately, there are
a lot of small businesses out there that view the EPA more like the
IRS. They have questions theyd like to ask, but theyre afraid to.
Yes, Im talking about small business. Big business has staff and
specialization that allows them to get answers. In fact, big business
can act through their attorneys and even have some lawyer-client
privilege.
Several years ago, I watched Oregon craft a solution. Shortly
afterwards, I saw Colorado do something similar, but different. I
8
was in the Wyoming legislature at the time, and I watched these

two pieces of legislation for a couple of years to see what results
they would get, and to see if there were any court challenges.
The legislation worked and there were no court challenges. A
couple of other States copied one or the other of the laws. I com-
bined the two laws for a bill for Wyoming.
I took that bill through the legislature. The bill was unanimous
out of committee. It passed both houses by more than a two-thirds
majority, and was signed into law.
As you know, thats a lot of steps and a lot of public input. There
was a consensus, not only did people have a chance to get involved
in the process, but the debate itself raised important, raised the
importance of a cleaner environment. It forced people to focus on
the fact that our objective is to have a cleaner, safer environment.
Thats not an emphasis on levying big fines.
This winter, when I got to Washington, several States with audit
laws were meeting with the EPA. Since I had been involved in the
drafting and passage of one of these laws, they met with me. The
EPA was using threats of over-filing and delaying approval of State
enforcement programs.
Of course, over-filing means the EPA could come in and use the
audit information as a road map for prosecution and levying fines.
They can do this even after a person has conducted an audit ac-
cording to State law. After a business has gone through the ex-
pense and exposure to be sure that they are not harming the envi-
ronment. The EPA was sounding like the IRS.
So how do we encourage especially a small business to spend
extra money looking for environmental problems and then also ex-
pect them to pay for the cleanup of the problems if they find them?
Twenty-four States have found that all you have to do is take the
fear out of the effort. A small business doesnt want to go to all the
expense of checking for problems, and then all the expense of
cleaning up problems if the reward is simply fines and penalties,
and especially the rumored fines and penalties of the EPA.
Have you ever heard of a small fine from them? Small business
people never have, particularly in relation to the size of their busi-
ness. To a small business person, a small EPA fine would seem
huge. They have just as much fear of the embarrassment. What if
their neighbors think they have been polluting? They have to worry
about what others in the community think of them. Their reputa-
tion is what holds their businesses together.
I want to thank you, Mr. Chairman, and the Environment and
Public Works Committee, for holding this hearing. Because it de-
serves congressional attention. To date, 24 States have chosen to
enact some form of environmental audit law. Legislation is pending
in 16 other States.
I would point out that 11 members who sit on this committee
come from States that have audit laws. Another five members come
from States that are considering audit laws. I dont want to spend
a lot of time explaining the intricacies of the laws, because you
have an expert panel of witnesses here today that can do a good
job of that.
How do you ease peoples fear of the EPA and get them to clean
up the environment at their own cost? You simply assure them
9
that they wont be fined in addition to their personal effort. You as-
sure them that they dont have to turn over any more of a road
map of their problem than the law already required. Protection of
voluntary gathered information. Material that wouldnt have been
available if it werent for the audit.
If they dont do the audit, these materials are not available. We
dont protect bad actors. We dont protect repeat offenders. We
dont protect people that have had an environmental accident. A
carefully crafted audit law, and thats what you get the excitement
of working on, assures that the audit protections apply only to good
faith efforts, efforts that are voluntary, that are above and beyond
what is otherwise required by law.
People conduct audits to find things they do not already know
about. There are examples from the existing audit laws of multiple
audits by the Environmental Protection Agency themselves that
missed things that were found in their own audit.
Entities that conduct audits can include businesses, but they also
include schools, hospitals, towns and counties. Any disclosures are
a net gain above the traditional enforcement. They are a net gain
for a safer, cleaner and healthier environment.
Now, audits do cost money. If a violation is found, it costs to
clean it up as well. Because if youre under an audit process, and
you dont clean it up and you know about it, its a criminal activity.
Thats more pressure on the businesses. Once they report it, with-
out audit protections, they can be fined and even taken to court.
So in deciding to conduct an audit, a person takes on a big risk.
Its big enough so that most small businesses wont voluntarily un-
dertake it. These folks choose instead to take their chances and
wait for the inspectors. After all, only 2 percent, only 2 percent of
regulated entities are on inspection schedules anyway. Just 2 per-
cent, Mr. Chairman.
How do we encourage the other 98 percent to really think about
their environmental performance, when we reward them with
fines?
Id like to take a minute to explain my approach to the issue. The
State laws have been working. They can work better. They need
some Federal assurances. The legislation Ive introduced would pro-
vide a safe harbor for State laws that fit within certain limits. Its
the limits that are important. It would not give any authority to
any State unless they go through the full legislative process, in-
cluding all of the local discussion and debate that it entails.
This doesnt give a blanket authorization nationwide for an audit
law. It requires that local debate, that local concern, the local detail
and the local differences. Thats a critical part of this process, and
something of value that we should recognize. State legislators live
in the places that the laws affect. Its their home.
This bill would allow Congress to set the boundaries of the safe
harbor and determine what State laws may provide, such as lim-
ited protection from discovery for audit information. But only infor-
mation that is not required to be gathered. All legal reporting re-
quirements and permitting disclosures remain in effect and could
not be covered by audit privilege.
The State audit law may provide limited protection from pen-
alties if violations are promptly disclosed and cleaned up. Note the
10
protection will not cover criminal actions and the law must pre-
serve the ability of regulators to halt activities that pose imminent
danger to public health.
Third, a State law falls within the safe harbor, the EPA would
be prohibited from withholding State enforcement authority or
over-filing against individuals simply because of the States audit
law. Lastly, the bill would require an annual State performance re-
port that would help measure the success of the different laws, so
we can see what works and what doesnt.
I want to point out that this legislation will not dilute enforce-
ment. There are safeguards to ensure that the State audit laws al-
ways act to supplement, not to supplant, the existing enforcement.
Its important to note that. Audits are an affirmative tool. Used
properly, they can only be used to achieve an environment thats
safer and healthier than the status quo. They do not protect any
entity from regular inspection or monitoring.
Some form of Federal legislation is necessary to provide the cer-
tainty our State laws need in order to be effective. I think its a
tragedy that the EPA has been so obstructive in giving States a
chance to test reasonable and innovative solutions to a cleaner en-
vironment. Instead of promoting reinvention that the EPA talks
about, the EPA is perpetuating an environmental race of medioc-
rity.
Id like to close by telling you how Wyomings law has weathered
the process. Im pleased to report that in the last couple of months,
after many delays, the EPA has been into the State and taken a
look at our law. Ive been pleased with the comments that theyve
made on it and the ability that we have to continue to use it.
At least thats what they tell us today. They just might change
their minds tomorrow and decide to over-file against Wyoming peo-
ple who use it. So its no wonder that people are afraid to use the
law. Its time we put this issue to rest by defining some level of
a safe harbor, some level, in giving State laws the certainty they
need to be effective.
Id encourage the members of the committee to take a look at
this bill and see if they can find a reasonable solution that will as-
sure a cleaner and healthier environment.
Thank you, Mr. Chairman and members of the committee.
This is a little bit complex, I must say. See if I understand it.
Currently, lets take the Wyoming situation. Currently in Wyo-
ming, which I presume is somewhat typical, you have an audit law.
Does that apply in those areas where the Federal Government has
given the enforcement procedures to the State, as in the Clean
Water Act, for example, in many instances?
Senator ENZI. Yes, it does.
Senator CHAFEE. But the reason youre coming before us now,
after all, if Wyomings situation is working well, and Colorado or
whatever it is might be working well, youre saying that you want
Federal legislation in order to prevent over-filing, is that it? Is that
why youre here?
Senator ENZI. Theyre not working well only from the aspect that
people are afraid to utilize the law, because theyre not sure what
the status will be of EPA intervention in their law.
11
Senator CHAFEE. I see.

Senator ENZI. Theyre not going to hang themselves out by going
to all this work and all of this cost and then have the EPA say that
it wasnt worth anything, that they have to go ahead and levy the
fines on them.
Senator CHAFEE. Because under the current situation, even
though you have a Wyoming law, for example, and the business
owner conducts and audit and discovers that hes made some mis-
takes, and addresses those mistakes, youre saying that despite the
Wyoming law, the EPA can still come in on top of that business
man and subject him to fines.
Senator ENZI. Yes, Mr. Chairman, thats the threat that was
brought to us in January that got me involved in this issue again.
Several of the States were here for a meeting, and thats exactly
why they were here.
Senator CHAFEE. Were going to hear from Mr. Herman from the
EPA. Its my understanding, obviously, that EPA opposes the State
protection laws. But as I understand, theyve issued some guidance
that details minimum standards that a State audit law must pro-
tect to gain the approval of EPA. So it seems to me theyre working
both sides of the street, as I understand it. Well hear from Mr.
Herman on that.
One of the questions thats going to be raised here is, why do you
restrict it to environmental laws? I guess Senator Baucus or maybe
Senator Lautenberg said, what about the Internal Revenue laws?
Senator ENZI. I havent taken a look at it from that aspect yet,
but it might be a good idea.
Senator CHAFEE. Well, I suppose youve bitten off enough.
Senator ENZI. In Wyoming, were limited to one topic per bill.
[Laughter.]
Senator CHAFEE. Well, I think they were talking, I think Senator
Baucus listed several items, several areas where this might apply
but yet has not been addressed.
Senator Baucus.
Senator BAUCUS. Thank you, Mr. Chairman.
This is an interesting subject. I think it was in 1975 when Con-
gress codified the Federal Rules of Civil Procedure. A question
arose as to whether we should codify privileges to a general rule
and all evidence thats relevant or could lead to relevant evidence
is admissible, and the public has a right to know of it.
Congress decided not to codify those privileges, as, say, the attor-
ney-client privilege. Because Congress felt that since evidentiary
rules, including exceptions to the rule and its various privileges,
was developed really through the common law, that it should be
left that way and left to the courts to interpret and decide what
evidence is properly admissible and what is not.
In fact, interestingly, on the subject that the chairman raised,
IRS audits, for example, its not directly on point, but I think the
Supreme Court has ruled that there is no work product privilege
between a taxpayer and an auditor and an accountant. That is not
privileged information.
The question also does come up, as the chairman said, what
about all these other areas? Why should environmental audit infor-
mation be privileged when virtually all other information is not
12
privileged, civil rights or employment discrimination laws, OSHA

for example, thats not privileged.
Im not so sure, frankly, that companies that are going to audit
much more than they currently do if this law were passed. I think
companies are going to audit because its in their own self interest
to conduct these audits, to find out whether theyre doing it right
anyway.
Obviously, too, our environments been cleaned up quite a bit in
the last 25, 30 years since we passed major environmental laws. As
you know, one of the premises, underlying assumptions of our Fed-
eral environmental laws is that they are Federal laws, they are na-
tional laws, Clean Water Act, Clean Air Act, etc. But a lot of States
do have some flexibility, because each State is a little bit different.
That assures the country that a person traveling around the
country is going to have virtually the same environmental protec-
tion in whatever State he or she might be in. It also prevents
States from gaming the Federal statute by enacting certain weak-
nesses to attract industry or what-not. Its worked pretty well.
Nothings perfect, and we struggle with trying to find the right bal-
ance.
But the question I have is, what happens under your statute and
bill, for example, when an attorney general certifies that a State
is properly enforcing the laws but the Justice Department or the
EPA have a different point of view? For example, because the State
audit law prevents a State from recovering economic benefits de-
rived from the violation, what do we do there?
Senator ENZI. In that particular case, there would be court action
that would result in the opportunity for the State as well to
present its case, not just the Federal.
Senator BAUCUS. But wouldnt the information be protected
under your bill?
Senator ENZI. The only information thats protected under my
bill is additional information beyond the Federal Government re-
quirements. If its required to provided at the present time, it
doesnt come under privilege at all. This doesnt change Federal
law. The same laws will apply nationwide that apply at the present
time. So well still have the same uniformity of law. Well just have
an opportunity varying by State on how they can do an audit and
what kinds of protection they get for the audit.
Senator BAUCUS. I understand. But does the State audit law, it
prevents a State from recovering economic benefit derived from vio-
lation, that would be a significant change from general Federal en-
forcement of environmental laws.
Senator ENZI. The bill itself allows Congress to provide the pa-
rameters of that safe harbor, whatever that might be. The States
would have to operate within those parameters then.
Senator BAUCUS. Which leads me to my final question. Isnt it
really working out pretty well now? I say that because EPA looked
at Wyomings environmental audit law, and said, you know, its
OK. EPA looked at the Texas environmental audit and said woops,
youve got to make a change here. Texas did make a change.
Now, maybe thats the reason for the bill, is that Senator
Hutchison did not want the change. But that was an economic ben-
efit situation.
13
So in certain circumstances, it seems to me its just not nec-

essary. Its a solution in search of a problem. Because the current
system, although not perfect, certainly has lots of flexibility, which
is in many ways good. Whereas on the other hand, if we lock into
a statute, a provision that reduces the flexibility, but also, the real
question is then what about all the parameters and guidelines that
Congress would enact, and exceptions? We may be just back where
we started from again.
Senator ENZI. Wed be back where we started from with one
large exception, and thats that the businesses out there could rely
on it. Thats what happens when we codify the law. The businesses
can then rely on the action thats taken. Thats the missing part
in the environmental audit right now, what can you rely on, will
you be over-filed.
Senator BAUCUS. The logical question is, why do businesses need
protection here but not in other areas?
Senator CHAFEE. Thats getting back to the question of the IRS
and OSHA and so forth.
Senator BAUCUS. Thats right, and why not the discrimination
laws?
Senator ENZI. If we want people to take an active part in discov-
ering errors that may have been made, the more incentive you give
them to do it, the more errors theyll find.
Senator BAUCUS. Thank you.
Senator CHAFEE. Senator Sessions.
Senator SESSIONS. Thank you, Mr. Chairman.
I think it may not be fair to say its not necessary. I think Sen-
ator Enzi is suggesting that there may be a lot of even minor viola-
tions that if business officials knew that if they promptly discov-
ered it and reported it and fixed it, they would be constantly mon-
itoring. They may be afraid to do a lot of monitoring, because they
may find some minor error that would cost them thousands of dol-
lars. Or if they proceed in a way that would satisfy State law, they
could still be penalized by EPA.
Is that the fundamental concern, that if you go in and report a
problem, you pay to clean it up and stop doing it in the future, or
you could still be subjected to very large fines from Environmental
Protection Agency? Is that the basic problem you have?
Senator ENZI. Yes, thats correct. The businesses are afraid that
if they, and when you make this step, its a huge commitment, be-
cause you cant just do an audit and then ignore what you found.
You have to pay for the audit. That costs money. Then you also
have to pay to clean up anything you find.
When you start an audit, youre agreeing to do that, or you have
absolutely no protection and possible criminal action. So theyre
taking a huge risk. They are willing to do that, if they have some
assurances on the fines and penalties and in some States, they
have the assurance that the additional information that theyre
generating themselves, to find their own problem, wont have to be
shared.
Senator SESSIONS. Its really a policy decision, it seems to me,
whether you think the benefits of utilizing the results of that con-
fidential audit, I dont know if using a confidential audit against
the company, the threat over them to prosecute them or otherwise
14
penalize them, so that they dont produce that information. Its a

policy decision.
I recall, Mr. Chairman, it being discussed within the Department
of Justice on the issue of defense fraud, what about large compa-
nies who discover a lower level employee of that company whos
committed fraud and how we could encourage them to come for-
ward and report that? So I dont know if laws were ever passed in
that regard or not, but I know it was seriously considered a num-
ber of years ago.
I would, as I just repeated earlier, though, this is contrary to
classical criminal law, though were not dealing with classical
criminal law and environmental laws. Thats it.
Agencies are given authority to change the percentage of emis-
sions that can be done. Theres great dispute over whether some of
these things can safely be put in a landfill or not safely be put in
a landfill. So theres so much uncertainty about it. I think that
gives value to your proposal.
Let me ask this. With regard to the privilege, I share that con-
cern. Do you think theres any way that part of your bill and most
of the environmental audit bills could be modified in some way, so
that evidence of serious wrongdoing would not be, they wouldnt be
able to withhold that from the Government?
Senator ENZI. Mr. Chairman, there is provision in there that
theres no criminal activity thats protected. Withholding that
would be criminal activity.
So there would probably be greater prosecution, not less. I dont
know if that answers the question or not.
Senator SESSIONS. Im not sure I read it that way. But there is
language to that effect in there, and I have not studied it carefully.
The other point that would concern me, I think weve got to deal
with, would be the language that says with regard to immunity,
which is a serious act, to give someone an immunity from an of-
fense, that you couldnt get immunity if the violation were inten-
tional and willful. I think having both of those requirements is
probably too strong, and I would be concerned about that.
Thats something I have not studied, and would like to look at
it more. Because there are some offenses, as presently written,
dont even require willfulness, for example. So it may go broader
than you intend, I think, in that statute.
Senator ENZI. It should probably be or, in that instance.
Senator SESSIONS. Or may solve that problem.
Senator ENZI. The immunity is from fines, not from criminal
prosecution.
Senator SESSIONS. Is that right?
Senator ENZI. Yes.
Senator SESSIONS. Well, that helps me a lot. I didnt realize that.
I misread that. So if that is just from civil fines or penalties, then
Im less concerned about that than if I thought it were the actual
criminal offense.
Senator ENZI. Theres no protection at all from criminal. Thats
strictly from civil. I think that every State thats passed one of
these laws also has in camera reviews allowed by the judges to see
if theres anything there that could have any criminal activity in
it as well.
15
Senator SESSIONS. Well, I think that is a positive step. Because

as I said, there may be instances in which it would not be appro-
priate to maintain a privilege on evidence involving serious crimi-
nal violation.
Senator ENZI. Absolutely.
Senator SESSIONS. Mr. Chairman, thank you.
Senator CHAFEE. Thank you, Senators.
Senator SESSIONS. Thank you, Senator Enzi, for your work. I
think its raising an important issue. I know it will take a lot of
effort, and I applaud you for that.
Senator ENZI. Thank you.
Senator CHAFEE. Thank you. Senator Lautenberg.
As I understand EPAs policy on audits, penalties are waived.
Theres really no such thing as a small fine. Penalties are waived
except for economic advantages for non-compliance. So I think the
specter of these egregious acts by EPA and fines and so forth is
probably a little less real than as I heard the discussion going on,
Senator. I dont know whether that in any way mitigates somehow
or other your mistrust or your wariness about an EPA action.
What I find here is that weve said that in camera, the informa-
tion can be revealed. Once again, establishing privilege for another
group that must respect confidentiality.
The ones who are left out are the people who are affected by it
directly. If a judge hears the case, its in the closed environment
of a private session of the court. But the people whose water supply
may be affected or whose children might be endangered by an envi-
ronmental condition, theyre not allowed to know whats going on.
Frankly, I must tell you, and I respect what youre trying to do,
if we can reduce regulation without losing the mission that we
want to accomplish, thats OK with me. But I find it hard to imag-
ine that making internal discoveries of violations of environmental
rules ought to be guarded such that you cant discuss, that it cant
be forced to be brought to the attention of those who are in charge.
So I again, I think were applying an honor system differently in
this case than we are in almost any other. I would ask you that,
if someone violates the rules, a law, as an employee of a company,
and the company manager discovers it. Are they then forced to
make it known to authorities, or are they allowed to keep that
quiet as a privilege? At the same time say, OK, from now on this
employee is terminated or else he or shes got to change the way
they do things?
Senator ENZI. Im not sure I understand the question.
Senator LAUTENBERG. Is the manager of the company required
to, are they permitted to keep this as privileged even though it was
by no intent of the companys to have it done this way, illegal dis-
charge, lets say? Are they entitled to keep that as privileged infor-
mation by simply taking the corrective action in there to change
whats going on within the work system without getting on with
the cleanup or advice to someone that theres a danger out there?
Senator ENZI. No, that wouldnt happen. In fact, under the Wyo-
ming law, theyre required to report that theyre going to do an
audit. Anything discovered before that point is criminal if they
dont take care of it.
16
So the employee reporting it to management is making manage-

ment aware of an activity thats out there that theyre required to
clean up anyway. None of that is privileged. Of course, were usu-
ally talking about small businesses with this. Big businesses al-
ready have their own forms of protection on it.
Senator LAUTENBERG. All right, well, small businesses can create
havoc with the environment just like the big businesses if theyre
handling mercury or some other highly toxic material. The size of
the business shouldnt determine what the outcome is. If someone
uses a small gauge pistol, it causes as much danger, aimed prop-
erly, as a big shotgun. So we dont say, well, if its small, its excus-
able, the persons dead on the other end. I dont understand why
a small business isnt compelled to obey sensible environmental
laws. Or environmental law, lets strike that. The sensible, we can
discuss that.
Senator ENZI. The small businesses do have to observe the same
rules, to the same extent, with the same reporting, but with less
people and less capability. They dont have the specialization, they
dont have the experts, they cant afford the experts.
But they come under the same fine structure as the bigger ones.
They also know that their possibilities of being inspected are prob-
ably once in 50 years. So theres not much incentive for them to
do anything there. They might as well just wait and see if theres
a problem, rather than take an aggressive look and see if theres
a problem.
Were not talking about the environmental accidents here. What
usually turns up in these laws as a result of the use of the laws
is not environmental violations. What usually turns up is environ-
mental eyesores. Not things that are illegal, just things that look
bad. But there are businesses out there that are afraid to even ask
about those for fear of the fines they might sustain. They know
that if they wait, they may have sold the business before anybody
fines it.
So what usually turns up as eyesore is not violations.
Senator LAUTENBERG. Beauty is in the eyes of the beholder, I
guess, or the reverse of that.
Thanks.
Senator CHAFEE. Senator Allard.
Senator ALLARD. Thank you, Mr. Chairman. I apologize for being
late.
I have an opening statement I would like to make part of the
record, if I may.
Senator CHAFEE. Certainly.
[The prepared statement of Senator Allard follows:]
PREPARED STATEMENT OF HON. WAYNE ALLARD, U.S. SENATOR FROM THE STATE OF
COLORADO
Thank you Mr. Chairman. This is an appropriate and timely topic for a committee
hearing. The issue of environmental audits has been at issue in the State of Colo-
rado for some time now, with the Environmental Protection Agency attempting to
force State agencies to act as mirror image of themselves instead of allowing states
to try innovative compliance methods. Its always disappointing when the Federal
bureaucracies fall back on a command and control approach to problems when they
feel intimidated by innovation.
What is more disappointing is that EPAs rhetoric fails to match their efforts in
the area of Federal facilities. If the EPA were to pursue Federal agencies who are
17
responsible for some contamination at a research institute at the Colorado School
of Mines as vigorously as they pursue States who are trying to increase compliance
with environmental laws, we would all be better off. Unfortunately, EPA appears
to be more interested in controlling states than helping to clean up the environment.
To address EPAs policy toward innovative compliance policies we have an excel-
lent group of witnesses, but Im particularly pleased that we have Trish Bangert
who is the director of Legal Policy in the Colorado Attorney Generals office. She
has been in the forefront of the debate on environmental audits nationwide and un-
like other States, she has been key in assuring that what Colorados elected legisla-
ture has determined is best for the State, isnt overturned by unelected Washington
bureaucrats. It was Trish who in hearing before this committee last June identified
the hypocrisy of the EPA with respect to its treatment of States versus the Federal
Government when she said, I cannot help but mention that EPAs fine sentiments
about protecting the environment extend only to private parties, and, seemingly not
to the Federal Government. It is ironic that the states EPA doesnt trust are beg-
ging the EPA to do their job against the Federal Government.
I commend the chairman for calling this hearing, and look forward to all the wit-
nesses, but would like to particularly welcome the witness from my State.
Senator ALLARD. Mr. Chairman, I think the fundamental ques-
tion here is do you want to make the small business man out there
a part of the team in cleaning up the environment, or do you want
to create him as an adversary and discourage him from working
and trying to clean up the environment in a responsible manner.
I have some examples I can point to in the State of Colorado,
where weve had self-audits. The Environmental Protection Agency,
after sometimes, many times its not always the business man.
When were talking about a small business man, sometimes its
local government. Many times its local government. Its small com-
munities.
We can point to one situation in Colorado. We had a small, local
entity of government, local government, made a violation. They dis-
covered it. It was an employee, a problem with an employee, as
Senator Lautenberg alluded to in his question. They took the ques-
tion, but then the Environmental Protection Agency comes in be-
hind them and subjects this local entity of government to a lot of
harassment and threat of serious fine after they did the responsible
thing of reporting it and trying to immediately remediate it.
Its impossible for us to put an EPA employee in every small
business in America. One way that you can get this is to pass some
common sense legislation, like Senator Enzi and Senator
Hutchison, that says, OK, lets make the small business adminis-
trator, local government administrator part of the team. Lets give
them some incentives to work with the Environmental Protection
Agency to recognize these problems and clean them up. Theyll get
cleaned up faster and better.
I think Senator Lautenberg made a good point there. If you can
make that part of the employee record, then the employee becomes
subject to discipline through the administration. If for some reason
you cant make that, then it makes that much more difficult to dis-
miss that employee, perhaps at a later time, if he persists in that
type of behavior.
Trish Bangert is going to testify before your committee here in
the next panel. She works with the Attorney Generals office from
the State of Colorado. They are working on this issue, and shell
be able to go into more detail on some of these problems that weve
had in the State of Colorado.
18
But basically, Senator Enzi, thats what youre trying to do, is

just make the business man or perhaps the local government, I
dont think we have enough EPA employees to be involved in each
local government to monitor them, as a matter of fact. Youre try-
ing to make them a part of the team in cleaning up the environ-
ment, isnt that basically what youre trying to do?
Senator ENZI. Yes, Im trying to increase the amount of people
that are interested in getting something done. I know we cant af-
ford to hire 50 times as many EPA auditors.
Senator ALLARD. Well, you know, I happen to agree with that. I
can point, you know, the Federal Government is one of the largest
polluters in the country. In the State of Colorado, they treat them-
selves differently than they do everybody else. I have a real prob-
lem with this adversarial relationship that the Environmental Pro-
tection Agency is trying to set up with the local governments or the
local communities when they have a problem in their own back
yard.
It seems to me if we can pull things together and make every-
body, if we really want to clean up the environment, the success
to that is having everybody work together. So Mr. Chairman, those
are just some brief comments I wanted to make. I wanted to give
Senator Enzi an opportunity to elaborate a little more.
I suspect that probably a lot of his Wyoming constituents have
seen whats happened in Colorado and backed off on self-audits, be-
cause they saw what happened in our State and other States.
Would you like to respond to that, Senator Enzi?
Senator ENZI. Yes. I can respond more than just for Wyoming,
in fact, on it. Thats that in most of the States where it passed,
theres been a sudden decrease in the number of people that are
out there looking for their environmental problems, because there
is that uncertainty. Theyre not sure what the EPA and the Federal
Government are going to do.
So its stopping a process that was solving a lot of problems. As
I mentioned, it was solving problems even in instances where the
EPA came in and did the inspections, when they did their own
thorough inspection, they found problems that the EPA had missed
on as many as three or four previous inspections.
So it can solve problems, it is a solution, its a way to encourage
people. Of course, the value of it is in the way that you draw the
parameters. Thats the opportunity that you have. You have a
chance to get people involved in environmental cleanup and still
protect against some of the things that have been brought up here
today. I think the legislation that Ive drafted takes care of most
of the concerns you have.
Senator CHAFEE. Im not sure I understood this latest exchange.
What your point is that, and what SenatorIm not sure what
Senator Allard meant when he said people in Wyoming saw what
happened in Colorado.
Senator ENZI. Yes.
Senator CHAFEE. Is the point youre making here that under the
State laws you passed, theres an encouragement to come forward
and reveal, to conduct an audit to start with and then try to do
something about it. But the point youre making is that the Federal
Government then comes in, the EPA does, and over-files, as it
19
were, and comes down on you like a ton of bricks? If youd re-
mained quiet, you wouldnt have gotten into all that trouble? Is
that the point?
Senator ENZI. Thats the point.
Senator CHAFEE. So thats the need for the Federal legislation.
Senator ENZI. Yes.
Senator CHAFEE. Thats why youre here.
Senator ALLARD. Mr. Chairman, the State of Colorado, this inci-
dent that happened in the State was reviewed by the Colorado De-
partment of Health. There are no shrinking violets in that depart-
ment when it comes to environmental concerns. They worked it
out.
The problem that I think probably Trish Bangert will talk to you
about was handled in a very responsible manner, and then quickly
remediated. Then the EPA ignores all that, they say, well, theres
that initial violation, so youre subject to a $10,000 fine.
The fact is, if that self-audit wasnt there, that employee, that
local unit of government would not have reported it, and nobody
would even have known that there was that violation.
Senator CHAFEE. Thats the need for the Federal law.
Senator ALLARD. Thats the need, and thats the way I see it,
thats the need for the Federal legislation.
Senator CHAFEE. All right, fine. Thank you very much, Senator.
Senator Enzi, if youd like to come up and join us here on the ros-
trum, you can do so. I know youre very interested in this subject.
I have several statements by Senators who cannot be here today,
but wish to have their statements placed in the record.
[The prepared statements of Senators Smith, Thomas, and
Hutchinson follow:]
PREPARED STATEMENT OF HON. BOB SMITH, U.S. SENATOR FROM THE STATE OF NEW
HAMPSHIRE
I am pleased to attend this hearing regarding the legal privilege issues associated
with environmental audits. This issue provides a useful opportunity to see whether
common sense can be part of our environmental laws. I look forward to hearing
what the witnesses will have to say on this matter.
I believe the Senate should seriously consider environmental audit legislation for
a variety of reasons. In general, I believe it has the potential to encourage compa-
nies to act proactively to do the right thing with regard to the environment. Envi-
ronmental audits will encourage companies to search out and correct problems and
not be afraid of doing so. Many States have come to the conclusion that industry
needs to be provided with more incentives to encourage environmental innovation,
not merely more penalties for noncompliance. Increasingly, I think some in Congress
are coming to the same conclusion.
My home State of New Hampshire has an audit law that was strongly supported
in the State legislature. In just the last few years, 24 States have enacted environ-
mental audit laws, and recent experience with these statutes has demonstrated that
positive results are already being accomplished in meeting our common goal of pro-
tecting human health and the environment.
I believe that the congressionally-enacted protection of State environmental laws
may be necessary to stop the chilling effect caused by needless and destructive med-
dling from inside-the-beltway bureaucrats. Unfortunately, some people still think
they know more just because they work in Washington. Hopefully, todays hearing
will shed some light on this important matter. Thank you.
20
PREPARED OF STATEMENT OF HON. CRAIG THOMAS, U.S. SENATOR FROM THE STATE
OF WYOMING
Mr. Chairman, thank you for holding this hearing today. I welcome my colleague
from Wyoming, Senator Enzi, and look forward to his testimony. It is important that
we examine the concept of environmental self-audits. Well over half of the States
have some kind of audit law or policy. The question is then, are we going to allow
States to pursue this innovative concept to protect the environment, or is the Envi-
ronmental Protection Agency (EPA) going to insist on its traditional command and
control, outdated way of doing business?
In 1995, the Wyoming Legislature, under the leadership of now U.S. Senator
Enzi, passed an environmental self-audit law. It was good legislation that would cre-
ate incentives for businesses to identify and correct their pollution problems. It is
important to emphasize that point; the intent of the Wyoming law and all audit
laws is to protect the environment. They dont roll back other environmental stand-
ards. They take a different approach than the traditional environmental enforce-
ment methods of the past, that is focusing on environmental protection and cleanup
rather than penalties and sanctions. These laws will allow enforcement officials to
focus their limited enforcement resources on bad actors.
Unfortunately, earlier this year, EPA delayed the transfer of final authority over
several pollution programs, including the Resource Conservation and Recovery Act
(RCRA) and the Clean Air Act, to the Wyoming Department of Environmental Qual-
ity (DEQ) because of concerns over the States environmental self-audit law. EPA
also threatened to remove State primacy for other environmental laws. Aside from
the very serious issue of trampling on the State of Wyomings 10th Amendment
rights, EPAs adversarial approach wont help us get any closer to achieving our mu-
tual goal of protecting the environment. It is my understanding that EPA has
backed off a bit and is now negotiating in good faith with the State of Wyoming.
I strongly encourage EPA to continue that dialog and reach a constructive agree-
ment.
I am sure that we will hear today from EPA that Federal legislation is not nec-
essary because they have an administrative policy to encourage self-disclosure. In-
deed, it is a good, first step forward. However, the EPA policy doesnt provide
enough incentives to businesses for it to be an effective environmental protection
tool. In a nutshell, the EPAs policy is that it will not prosecute businesses as ag-
gressively as it could otherwise if a company comes forward and discloses a viola-
tion. The business is not protected from lawsuits or penalties. In fact, EPA strongly
opposes providing privilege or immunity for these businesses, alleging that it will
let polluters off the hook Nothing could be further from the truth. Under these
laws, there is no protection for: Willful and intentional violations; companies that
do not promptly cure violations; companies asserting the law fraudulently. Further,
companies cant hide information through audits that they would ordinarily have to
disclose under other laws and regulations.
Our environment is cleaner than it was 25 years ago. In order to protect our natu-
ral resources for the next century, we need to follow the States lead and utilize in-
novative concepts like self-audit laws. I commend Senators Enzi and Hutchison for
coming forward with this legislation and look forward to working with them on this
important issue in the future.
PREPARED STATEMENT OF HON. TIM HUTCHINSON, U.S. SENATOR FROM THE STATE
OF ARKANSAS
Thank you, Mr. Chairman. Mr. Chairman, I am pleased that you have seen fit
to call this hearing today on environmental self-audits. In my opinion, this is one
of the more important environmental issues that this committee will consider this
Congress.
Environmental self-audits can be a first step toward creating a system whereby
industry becomes an actor in improving our environment, instead of being labeled
as a participant in destroying it. Instead of constantly fighting against the Environ-
mental Protection Agency, industry can become a partner by working out environ-
mental problems before they become too severe.
There certainly is precedent in passing this type of legislation, in that it has been
approved in 24 States, with several others considering similar legislation. These
States have recognized the necessity of protecting those industries who are attempt-
ing to be responsible environmental stewards.
Self-audits, however will not be a legitimate reality unless Federal legislation like
we are considering today is passed. This legislation will encourage industry to actively
21
pursue an aggressive strategy of self-audits, without the fear of reciprocation
from the EPA, the Department of Justice or other law enforcement agencies.
Environmental self-audits are the epitome of environmental responsibility on the
part of industry. In this day when environmental rules and regulations have become
so complex that it takes hundreds of experts to determine whether a company is
in compliance with environmental laws, it only makes sense that a company have
a system whereby they test their compliance. This type of testing will not only allow
a company to avoid unnecessary red tape and potential fines, but it could dramati-
cally increase environmental protection, and in the long term, eliminate costly
cleanup.
These responsible companies must have the protection from potential litigation
that may result from their internal audits. If the results of their audits are used
against them in litigation, not only is there no incentive to perform internal audits,
there is significant incentive to avoid them.
While there is criticism that companies would take advantage of this law to get
around environmental protection, I believe there are significant safeguards that will
prevent this from happening. Among other willful violations, companies who inten-
tionally violate the law, dont promptly mend violations, or have patterns of viola-
tions are exempted from any kind of protection.
I strongly support this legislation and look forward to working with Senators
Hutchison and Enzi toward passing a bill that is both environmentally responsible
and fair to those companies who perform the audits.
Senator CHAFEE. Now lets have the next panel please come for-
ward. If Senator Hutchison comes in, well insert her in and let her
proceed.
But we now have the Honorable Steven Herman, assistant ad-
ministrator for the Office of Enforcement and Compliance; Mr.
Barry McBee, chairman, Texas Natural Resource Conservation
Commission; Ms. Patricia Bangert, director, Legal Policy, Colorado
Office of the Attorney General; Mr. Paul Wallach, on behalf of the
National Association of Manufacturers and the Corporate Environ-
mental Enforcement Council; and Mr. Mark Woodall, from the Si-
erra Club.
So well go in that order. Well start with Mr. Herman. We wel-
come you here, Mr. Herman. Go to it.
STATEMENT OF STEVEN H. HERMAN, ASSISTANT ADMINIS-
TRATOR, OFFICE OF ENFORCEMENT AND COMPLIANCE AS-
SURANCE, ENVIRONMENTAL PROTECTION AGENCY
Mr. HERMAN. Thank you very much, Mr. Chairman. Its a pleas-
ure to be here before you today.
One of the first actions
Senator CHAFEE. I would say, I failed to mention, if you can have
your statements roughly in the area of five minutes, and you can
see the clocks here. Well give you a little latitude, but dont press
me too hard.
Mr. HERMAN. Im going to try and come in within that limit, Mr.
Chairman.
One of the first actions we took when Administrator Browner re-
organized the enforcement program at EPA was to develop a policy
to encourage the performance of voluntary self-audits by the regu-
lated community. We believe that self-policing incentives, along
with a strong environmental enforcement program, are essential to
protecting the environment through achieving better environmental
compliance with our environmental laws.
The EPA environmental self-auditing policy was issued two years
ago. Under that policy, companies that voluntarily discover,
promptly disclose and correct violations, prevent their recurrence
22
and remedy any environmental damage, do not face gravity-based

penalties. In addition, our policy does not recommend, and I think
this goes to what Senator Sessions was talking about a little be-
fore, our policy does not recommend corporate criminal prosecution
for companies that meet the terms of the policy.
To protect public health and safety, the policy does not apply to
disclosures involving individual criminal conduct, repeat violations,
and violations involving serious harm to the environment or people,
or imminent and substantial endangerment. Our policy has won
praise from some in industry, environmental groups and from local,
State and Federal law enforcement officials. Even more important,
the policy has been a success.
Just this month, EPA and the GTE corporation used the policy
to resolve more than 600 violations at 314 facilities in 21 States.
Under the agreement, GTE pays a $52,000 penalty. Thats what its
economic benefit was. EPA waived $2.38 million in penalties. GTE
corrected the violations and has taken steps to prevent future ones.
Overall, and I want to emphasize, overall, 225 companies have
disclosed and corrected violations under the policy at more than
700 facilities around the country. These include Fortune 500 com-
panies and small businesses. EPA has made the use of the audit
policy a priority for next year, and during the next 18 months we
will also be evaluating the results of our self-policing policy.
Many States have adopted auditing incentives, some administra-
tively, and others by legislation. A number of State approaches are
consistent with EPAs. Other State approaches we feel are less pro-
tective, because they impose secrecy and they provide for arbitrary
immunities.
Where there should be openness, State audit privilege laws strip
the State of statutory authority to obtain information.
EPA has both legal and policy concerns where States create such
audit privileges and immunities. As a legal matter, for example,
Federal environmental laws mandate that EPA ensure that dele-
gated States maintain minimum enforcement authority, including
the authority to get injunctive relief and penalties, and also have
minimum authorities to secure information necessary to monitor
and ensure compliance.
Our goal is to ensure that States have the minimum authorities
required to run delegated State programs. We are dependent on
these programs to achieve a high level of compliance and protec-
tion.
In light of these requirements, we have worked with States to
modify their audit laws so that they will meet minimum Federal-
State standards. We are not against experimentation. We are not
against different approaches. What we are saying is that the ex-
periments have to be done within the bounds of existing Federal
law.
Our discussions with Utah and Texas have resulted in changes
to their laws that meet the needs of both the State and the Federal
Government. We have continued to have discussions with other
States, and many of them have gone favorably.
As a policy matter, which is different than the constraints im-
posed by the law, but as a policy matter, as I have stated in this
committee and on numerous other occasions, EPA opposes privilege
23
and immunity legislation, including what we have been able to see

of S. 866. We have not studied Senator Enzis bill to date.
Audit privilege laws promote secrecy. That is their purpose. They
are anti-law enforcement. They impede the publics right to know.
Some even penalize employees who report illegal activity to law en-
forcement authorities.
These statutes interfere with the Governments ability to obtain
the information it needs to protect the public health and safety.
They may also shield environmental criminals from prosecution. In
short, why should we make it easier for violators and harder for
our State and local law enforcement officials?
While we support penalty mitigation as an incentive to self-polic-
ing, we believe that to immunize serious violations, including those
where there may be criminal conduct, imminent and substantial
endangerment and actual harm, is wrong. Such immunity laws dis-
courage needed investments in pollution control, lower the stand-
ard of care, and undermine the rule of law.
It is unfortunate, Mr. Chairman, that representatives from nu-
merous States that support a balanced approach to environmental
auditing are not able to appear here today. In Exhibit 3 to my writ-
ten statement, I have included opinions from some of the many
local, State, and Federal law enforcement and environmental offi-
cials and citizens who support environmental auditing, but who op-
pose privileges and immunities.
In conclusion, I would like to quote from an October 24, 1997 let-
ter sent to you, Mr. Chairman, by William Murphy, the president
of the National District Attorneys Association. The NDAA empha-
sizes its opposition to environmental self-audit privilege as con-
tained in legislation before the States. We continue to believe that
this is an extreme measure far beyond any remedy necessary, and
that if you enact self-audit privilege you will be doing a vast dis-
service to law enforcement efforts, not only in the realm of environ-
mental law, but across the spectrum of white collar crime.
Finally, and I will be glad to go into more detail
Senator CHAFEE. That letter was addressed to me, apparently?
Mr. HERMAN. Thats correct.
Senator CHAFEE. Ill make sure that the other members get a
copy of that.
Mr. HERMAN. Thank you, Mr. Chairman.
One last thing that both Senator Enzi and Senator Allard men-
tioned, the importance of bringing in small business. I would men-
tion that our small business policy was referenced in the Small
Business Regulatory Enforcement Fairness Act (SBREFA) legisla-
tion passed last session, and was referenced as a positive approach
to working with small business in terms of mitigating penalties.
Thank you again very much for the opportunity to testify before
your committee. I agree, this is a very important issue, and I look
forward to answering any questions you may have.
Senator CHAFEE. Thank you, Mr. Herman.
This is what were going to do. Wed like the panel to stay here,
and well ask that you wait until everybody testifies, then well
have questions for the panel.
Now were going to have a slight change. Mr. Herman, if you
could just step back into a chair back there.
24
Senator Hutchison is here and we want to give her an oppor-

tunity. We welcome you, Senator, and you forward.
STATEMENT OF HON. KAY BAILEY HUTCHISON,
U.S. SENATOR FROM THE STATE OF TEXAS
Senator HUTCHISON. Thank you, Mr. Chairman.
I do not want to disrupt the panel, and I apologize for being late.
Im chairman of the Surface Transportation Subcommittee, and a
member of the Surface Transportation Board was before our com-
mittee. Thats why I was late.
Senator CHAFEE. Well, thats very important in our lives. We
give you wide privileges.
Senator HUTCHISON. I dont want to hold up this panel. But I
would like to just have a statement submitted for the record re-
garding my bill, which is similar in some ways to Senator Enzis
bill. I do support Senator Enzis bill. I think his bill is very impor-
tant, because the States that have taken this approach are showing
that it does increase environmental quality. What his bill does on
the State level my bill does on the Federal level. Texas is one of
those States being challenged by EPA. Im pleased that Barry
McBee, the chairman of our Natural Resources Conservation Com-
mission in Texas, is here. He will talk about the difficult situation
in Texas.
My bill, the Environmental Protection Partnership Act, speaks
also to the Federal level. It allows many of the same activities to
go forward by encouraging the companies to voluntarily do audits
and take corrective action and report the violations without being
penalized unfairly by the EPA. It does it at the Federal level, what
I think Senator Enzis bill allows States to do under their own laws
that have the same type of protection.
Basically, I think audit regulation is so important because if we
can encourage companies to voluntarily audit themselves so that
they can root out any environmental problems they have, I think
we will be able to go beyond just what the EPA and regulators are
able to do under the present structure. Although the EPA has a
policy on this, I think its important that there be a law because
the policy can be changed without any notice to parties. This dis-
courages companies from relying on the policy.
So my goal is to put into law a policy that will encourage compa-
nies to do self-audits and take corrective action and be able to re-
port that they have done so. My bill would allow companies to do
this without penalty if they take corrective action. However, if their
audit is done and they do not take corrective action, or they refuse
to take corrective action, then they could still be penalized.
I think this is a good approach. I would like to work with the
committee to try to form a policy that is positive.
I know that you have many other witnesses. But I would like for
you to look at both my bill and Senator Enzis bill and perhaps
even work on both of them at the same time.
[The prepared statements of Senators Hutchison and Lott follow:]
PREPARED STATEMENT OF HON. KAY BAILEY HUTCHISON, U.S. SENATOR FROM THE
STATE OF ARKANSAS
Thank you, Mr. Chairman for the opportunity to present testimony on the impor-
tant issue of voluntary environmental audit.
25
Environmental protection as we have known it in this country for the last quarter
century is based on the command-and-control model and we have greatly improved
our environment as a result. Our rivers are cleaner, we breathe cleaner air.
But it is precisely this progress that makes it necessary for us to reconsider our
present regime. Experience shows that we can increase environmental protections
even more if, in addition to existing enforcement tools, we partner with businesses
by encouraging them to voluntarily assist oar State and Federal agencies in protect-
ing the environment. We must institute policies that accommodate this broader ef-
fort so we can target enforcement resources where they will be most effective.
Many companies have developed sophisticated environmental compliance systems
to determine not only whether their operations are complying with existing stand-
ards, but how they can avoid future problems. These companies have invested in
cutting-edge technology and expert personnel to search for ways to improve their en-
vironmental performance. They are way ahead of the regulators in finding potential
problems and avoiding environmental harm. Clearly, it is to everyones advantage
to encourage these efforts.
Nevertheless, under present Federal law, we almost always treat companies that
voluntarily audit their compliance worse than companies that violate the law and
hide the violations. The law punishes a company that comes clean and reports vio-
lations that it finds and fixes. Meanwhile, a company that fails to investigate or oth-
erwise hides violations could likely go scot free. In addition, the law discourages
companies from producing detailed reports beyond those required by law, since they
thereby increase their potential liability to third parties in an era of billion-dollar
lawsuit awards.
This situation is worse in States with audit protection laws. Right now in Texas,
if a company in good faith finds, fixes and reports a violation to the State, it is not
punished by the State. Unfortunately, the Federal Government has the authority to
use this same information the company willingly turned over to the State to fine
the company for Federal violations of the very same law. This hardly creates an at-
mosphere of cooperation.
The notion that voluntary audits should be encouraged is not ground breaking.
Even back in 1990, Congress strongly encouraged voluntary audits in the conference
report on the Clean Air Act amendments, noting that substantial benefits could be
achieved.
Yet here we are at the close of 1997, and Congress still has not acted to give com-
panies the go-ahead to conduct voluntary environmental audits.
States have, however. States have boldlyand bipartisanlyadopted laws that
ensure companies that they will not be punished for cultivating thoroughness and
vigilance in environmental compliance. 23 States have these laws so far.
What I propose is that Congress take its cue from the States and adjust Federal
law to encourage companies to search for possible violations of environmental regu-
lations. Together with Majority Leader Trent Lott, I introduced the Environmental
Protections Partnership Act of 1997, S. 866.
Under this bill, if a regulated entity voluntarily audits its compliance with envi-
ronmental laws, the government may not turn around and use the audit report
against the company in an enforcement action.
In addition, if a company does an audit, promptly corrects any violations, and re-
ports the violations to EPA, no punitive action will be taken against the company
for the violations. By ensuring companies that they will not be dragged into court
for being honest, the bill encourages companies to find and fix violations and report
them to EPA.
In order to ensure that these laws do not protect bad actors, I have included sev-
eral protections: (1) No one gets the benefits of this bill who does not promptly cor-
rect and disclose violations uncovered in an audit. (2) Repeat violators do not get
any benefits of the bill. (3) Willful and intentional violators are in no way protected
by the bill. (4) The Federal Government is not prohibited from getting an injunction
against a violator if it is necessary to protect public health or the environment, nor
is the government prohibited from inspecting or monitoring compliance with exist-
ing law.
Our old-world model of environmental protection will not serve us in the next cen-
tury. An the new modela public/private joint venture to find and fix violations
is already in place in 23 States. Congress should resign its role as the ball and chain
of environmental enforcement and start looking for ways to encourage positive ac-
tion and compliance beyond the scope of present capability.
26
PREPARED STATEMENT OFHON. TRENT LOTT, U.S. SENATOR FROM THE
STATE OF MISSISSIPPI
I would like to thank Chairman Chafee and the Committee for this opportunity
to comment on S. 866, Senator Kay Bailey Hutchisons environmental voluntary
self-audit legislation. I commend the committee for addressing this very important
issue, and hope that my testimony is helpful in highlighting the need for a Federal
initiative in this area.
S. 866 provides a necessary Federal standard regarding voluntary environmental
self-auditing for States. There are nearly two dozen States that have passed or are
experimenting with laws to encourage self-audits. These laws are aimed at increas-
ing environmental protection and directing scarce enforcement resources toward the
real bad actors. We need Federal legislation to make these State laws work as they
were intended. I believe that Senator Hutchison has found a balanced and fair ap-
proach.
As the number and scope of Federal regulations increase, there is an even greater
need for self-audit programs. Generally, an environmental audit is a means of re-
viewing a business activities in order to get a snapshot of its overall compliance
with the law and to avoid potential future problems. Although no State or Federal
law requires companies to undertake comprehensive self-audits, it is a good busi-
ness practice initiated by those taking extra steps to stay in full compliance.
Self-audits are more extensive than an inspection by a State or Federal regulator
because they are done more often and because companies simply know much more
about their operations and permit obligations than regulators do. A company con-
ducting its own audit can identify and correct a much wider range of potential envi-
ronmental violations.
Unfortunately, many companies do not perform self-audits because the informa-
tion contained in the audit documents can be obtained by government regulators,
prosecutors, citizens groups and private citizens and used to sue the company.
These documents, if made public, are a roadmap for third parties to sue even if the
problem has been corrected and no environmental harm has occurred. Due to the
complexity of environmental law, it is possible and logical that companies which
take on the task of self-evaluation will find problemsand that is what we want
them to do. The threat of a lawsuit is a tremendous disadvantage to self-auditing.
Almost half of the nations States, including Mississippi, have recognized this dis-
incentive and have acted to correct this problem. These State laws typically do three
things: (1) provide qualified evidentiary protection for internal audit documents, (2)
grant penalty immunity to companies that conduct audits and voluntarily disclose
all violations they discover in their audit, and (3) require prompt cleanup of the vio-
lation.
Under these State laws, the incentive to self-audit is reinstated. Responsible com-
panies that find, report and fix problems are rewarded. These companies do not
have to pay fines and are protected from any court action on an internal audit. But
these companies must correct the deficiencies. This is key because without the
audit, this particular deficiency would not have been corrected.
Americans get more environmental protection by allowing honest companies free-
dom from sanctions and penalties. Taxpayers get a better return on their tax dollars
because enforcement resources can be directed toward those not complying with the
law.
Critics of self-audit legislation claim that these State laws are about secrecy and
letting polluters off the hook. This is just not true. These laws do not protect any
information required by law to be collected, developed, maintained, reported or oth-
erwise made available to a government agency. Any action that causes an imminent
threat is not protected and must be immediately reported to authorities. Companies
gain nothing from these laws if they are using an audit for a fraudulent purpose
or if they find a violation and dont fix it.
These laws present a new way of doing business. Twenty-three States think this
is a better way to get things done. Twenty-five others are considering voluntary self-
audit legislation. Legislation on the Federal level will assist these States with a full
and effective implementation of this concept if they desire to enact it.
Mr. Chairman, 95 million Americans live in States which have learned that self-
audit legislation is a successful way to get there. I thank you for the opportunity
to address the Committee and hope that this hearing will convince you of the need
for Federal legislation.
Senator CHAFEE. Well, thank you, Senator. Well certainly care-
fully examine your bill.
27
I think the point you make, and Im going to obviously ask Mr.
Herman about this when we get to the questions. Theres a dif-
ference between a policy and a statute. As you point out, EPA has
a policy but that can be changed. What worries me a little bit is
the indefiniteness of it. Its not clear and certainly not written
down what the law is in this subject as far as EPA dealing with
these situations, where disclosure is made.
Ill ask Mr. Herman about that when the questioning period
comes.
Now, we want to give the Senators a chance to ask you any ques-
tions.
Senator Baucus.
Senator BAUCUS. Thanks, Mr. Chairman. I have no questions,
just want to thank Senator Hutchison.
This is not an easy area. Its not an easy subject. On the one
hand, we want to encourage States to be flexible in their law en-
forcement approaches. On the other hand, we want our environ-
mental statutes enforced. Therein lies the rub.
Your bill is certainly a contribution to the subject, and we appre-
ciate your introducing it.
Senator HUTCHISON. Thank you, Senator Baucus.
Senator CHAFEE. Senator Sessions, do you have any questions of
Senator Hutchison?
Senator SESSIONS. No, I just thank you very much for your work
in raising this important issue. I do think we need to encourage
our reporting and self-evaluation, and thank you for raising it.
Senator CHAFEE. Senator Lautenberg.
Senator LAUTENBERG. Thanks to Senator Hutchison.
But I also, Mr. Chairman, will forgo any questioning at this
point.
Senator CHAFEE. All right. Again, thank you very much, Senator.
Senator HUTCHISON. Thanks for your forbearance.
Senator CHAFEE. Youve made a fine contribution here, and we
appreciate it.
Senator HUTCHISON. Thank you very much.
Senator CHAFEE. Now, Mr. McBee, Chairman, Texas Natural Re-
source Conservation Commission. Mr. McBee, why dont you pro-
ceed.
STATEMENT OF BARRY R. MCBEE, CHAIRMAN, TEXAS
NATURAL RESOURCE CONSERVATION COMMISSION
Mr. MCBEE. Thank you, Mr. Chairman, and members. I am the
chairman of Texas
Senator CHAFEE. Senator, if you wish to sit up here, you may do
so. I know you have a heavy schedule, so you do as you wish.
Senator HUTCHISON. I thank you very much. I do want to wel-
come my colleague here, and he is very, very knowledgeable. So I
hope he can explain our Texas law. But I will not be able to stay.
Thank you very much.
Senator CHAFEE. A George Bush appointee?
Senator HUTCHISON. Yes, he is.
Mr. MCBEE. Yes, Senator.
Senator CHAFEE. OK, thank you.
Go to it, Mr. McBee.
28
Mr. MCBEE. Thank you again, Mr. Chairman and members of

the committee.
As noted, I am Barry McBee. I am chairman of the Texas Natu-
ral Resource Conservation Commission, Texas multimedia, com-
prehensive environmental agency. One of our guiding principles is
to promote and foster voluntary compliance with environmental
laws. To further this goal, we pursue an effective and efficient com-
pliance and enforcement program that maximizes voluntary compli-
ance, ensures that potential polluters are informed of their environ-
mental responsibilities, and compels compliance through legal ac-
tion when necessary to protect public health and the environment.
This opportunity to provide testimony regarding privilege and
immunity provisions of environmental self-audit laws comes at a
critical time for the future course of the State-Federal relationship.
EPA Administrator Carol Browner has said that she views the re-
lationship between the Federal and State environmental agencies
much like a marriage.
Based on my experience, EPA often sees States as children and
itself as the parent in a paternalistic relationship that is not appro-
priate, given the capabilities of State environmental agencies
today. It is not healthy. It is one that we must both work to
change.
In May 1995, Texas enacted an environmental audit privilege
act, an initiative that our legislature thought was sound and bene-
ficial public policy, for many of the reasons already articulated this
morning. As we have heard, 24 State legislatures today have
agreed and have adopted laws encouraging this type of partnership
between we, the regulator, and those we regulate.
Rather than embracing these innovative State approaches and
providing Federal support, however, EPA has been a persistent an-
tagonist. Delegation to Texas of Federal environmental programs
has been threatened, and ultimately, Texas was forced to com-
promise by amending its audit law to address some of EPAs con-
cerns in order to get delegation back on track.
In passing the Texas audit act, the legislature believed that it
was enacting a creative solution to achieving and monitoring com-
pliance in a collaborative system, just the kind of approach es-
poused by President Clinton and by this Administration. EPA has
not sought, in our view, to foster, but to stifle that sort of creativ-
ity.
In March of this year, a coalition of States, including Texas, met
with EPA Administrator Browner and presented what was thought
to be a reasonable compromise: A 2-year evaluation period of State
environmental self-audit laws in States whose attorney general had
certified that the State had the necessary regulatory authority to
carry out any new or existing program. Administrator Browner re-
jected that proposal outright, telling States that there would be no
moratorium, and that each State must negotiate with EPA officials
to resolve their differences.
Texas came to the table with proposed revisions addressing the
specific concerns EPA had raised, including changes to our statute
to remove immunity and privilege with respect to criminal viola-
tions. In March 1997, high level negotiations between EPA and
Texas resulted in a compromise being reached and specific legislative
29
changes were adopted by our legislature this year, and became

effective on September 1, 1997.
However, I would take an opportunity to point out that in those
negotiations, in our view, EPA stretched the common and clear
meaning of the words of its regulations to incorporate instead its
philosophies and policies. For example, out of the words appro-
priate penalty EPA concluded, contrary to our reading of regulatory
and judicial precedent that Texas must recoup the economic benefit
of non-compliance.
This language is not taken from any law passed by Congress that
we can find, but only from EPA policy. We believe statutes should
be strictly adhered to, and that EPAs arbitrarily selecting lan-
guage that must be included in State laws from among its policies
is inappropriate.
It should also be noted that EPA has actively pursued its opposi-
tion to the audit act in Texas outside the delegation context. In De-
cember 1996 and January 1997, five Texas companies that had
taken advantage of the audit act and voluntarily disclosed viola-
tions were confronted with threatening EPA letters of inquiry re-
garding those same violations. These companies today remain
under EPA investigation.
Texas now has almost 212 years of very positive experience im-
plementing our audit act. The audit privilege has shifted part of
the burden to the regulated community to fund their own compli-
ance, rather than keeping it on the State to fund more inspections.
As noted in my written testimony provided to the committee, the
audit act has provided very significant benefits to Texas and to our
States environment. At the same time, we have maintained a
strong inspection and enforcement presence to provide a disincen-
tive to fraudulent misuse of the audit legislation.
The lack of Federal cooperation in the implementation of State
self-audit laws has created needless tension and uncertainty that
hampers State efforts to experiment with innovative enforcement
tools, and deters regulated entities from utilizing them. Federal
legislation expressly allowing States authority to pursue such inno-
vations would be a welcome development, to restore the States
ability to pursue approaches that differ from EPAs preferred poli-
cies. That is, I think, the gist of Senator Enzis and Senator
Hutchisons bills.
I hope, in closing, that my statement has provided you with some
opportunity to understand the benefits Texas has derived from its
use of self-audits as a compliance tool. We hope that next week,
when EPAs inspector general visits the TNRCC to begin an inves-
tigation of the implementation of the Texas audit act that they will
also recognize the merits of the Texas law, and that EPA will pre-
pare for its implementation of the Federal environmental audit
privilege and immunity legislation that we hope will be enacted by
this session of the Congress.
Thank you all very much.
Senator CHAFEE. Thank you very much, Mr. McBee.
Now, Ms. Bangert, we welcome you, Director of Legal Policy, Col-
orado Office of the Attorney General.
30
STATEMENT OF PATRICIA S. BANGERT, DIRECTOR, LEGAL
POLICY, ATTORNEY GENERALS OFFICE, STATE OF COLORADO
Ms. BANGERT. Thank you, Mr. Chairman, members of the com-
mittee.
Im here today to testify on behalf of Gale Norton, the attorney
general of Colorado. We appreciate this opportunity to address the
important subject of State voluntary audit laws. Im going to concur
in Mr. McBees remarks and add some insight, hopefully, from the
Colorado experience.
Specifically, I want to make two points. Audit laws are good for
the environment. The audit experiment may well fail. Sounds con-
tradictory? Let me try to explain.
State audit programs may well fail, not because theyre bad
ideas, but because a Federal agency wants them to fail, and is
working very hard to make them fail. Before I get to EPA, let me
explain why I think the audit laws are good for the environment.
The Colorado audit law is not intended to allow anyone to hid
information. Its purpose is to encourage companies and other regu-
lated entities to create new information, specifically to encourage
them to look voluntary at their environmental compliance, and to
correct any deficiencies found there. All of this without Govern-
ment participation or expense.
Twenty-five entities in Colorado have disclosed violations found
in voluntary self-evaluations. Most of the disclosures solved prob-
lems that never would have been found absent the audit. Some re-
sulted in long term benefits for the environment.
An example of this is the Denver Water Board, a situation men-
tioned by Senator Allard. The Denver Water Board is a municipal
entity responsible for supplying water to Denver residents. In 1995,
the board hired CH2MHill to perform an audit of its environmental
compliance. The audit found discharges into old storm sewers and
minor violations of the hazardous waste laws.
Upon finding the violations, the Water Board immediately noti-
fied the Department of Health and set about correcting the prob-
lems. What Id like you to do is notice several things about the situ-
ation. First, the violations would never have been found absent the
audit. The discharges into the old storm sewers had been occurring
since before the Clean Water Act was passed in 1972, and had
never been discovered. Second, the hazardous waste violations were
so minor that a routine inspection would never have found them.
Also note that most of the violations were corrected immediately,
within the same week that the discoveries were made, much, much
sooner than a normal enforcement action would have required.
Most important, notice that CH2MHill recommended changes going
way beyond anything the regulators could have ordered. Changes
the Denver Water Board, most of the changes, the Denver Water
Board accepted and put into effect.
The Denver Water Board is a success story for self-audit laws.
We could have more of these if it were not for EPA interference.
In short, EPA has launched a campaign to ensure the failure of the
audit experiment. In this campaign, the agency has used two tac-
tics. Ill call them the delegation ploy and the over-file ploy.
The delegation ploy works as follows. EPA sets out a minimum
for State delegated program thats a combination of law and EPA
31
policy. EPA then negotiates separately with each State. EPA re-
jected Ecosys suggestion for a 2-year moratorium while the States
experimented with audit laws and worked with EPA as a block.
In the individual negotiations, EPA pressures the States to elimi-
nate or change their audit laws. Not surprisingly, the results of the
negotiations are either no audit laws or an audit law that looks an
awful lot like EPAs audit policy. As you know, Idaho sunsetted its
law, Texas changed its law, Utah changed its law, Michigan has
agreed to change its law.
At the same time that the EPA is intimidating States into chang-
ing their laws, the agency is discouraging companies from utilizing
the audit laws. I call this the over-file ploy. Lets take Colorado.
Weve seen a dramatic increase in over-filings in Colorado in the
past year.
Mr. Herman stated in earlier testimony to this committee that
EPA over-filed in only four cases nationwide from October 1995
through October 1996. In the first several months of 1997, EPA
over-filed in 3 cases in Colorado alone, and has threatened to over-
file in 10 more. In addition, EPA has threatened to over-file against
three entities that used the disclosure immunity provisions of the
audit law in Colorado.
Remember the Denver Water Board? When the board disclosed
violations to our Department of Health, it asked for immunity from
fines under the audit law. The disclosures made the violations pub-
lic. Upon learning of the disclosures, EPA rewarded the Water
Board for its sensitivity to environmental compliance by requesting
hundreds of pages of documents concerning the disclosed violations.
Further, the agency has made no secret of the fact that its consid-
ering over-filing against the board.
In conclusion, State representatives have tried to meet with EPA
and come to some compromise regarding audit programs. The re-
sults have been disappointing. Unfortunately, EPA continues to
wage its aggressive war against self-audits. We have no recourse
then but to ask for legislative assistance.
Thank you, and again, we appreciate being here. Wed be happy
to answer any questions that you might have when the time comes.
Senator CHAFEE. Thank you very much, Ms. Bangert.
Now Mr. Paul Wallach on behalf of the National Association of
Manufacturers and the Corporate and Environmental Enforcement
Council. Mr. Wallach.
STATEMENT OF PAUL WALLACH, SENIOR PARTNER,
HALE AND DORR, LLP
Mr. WALLACH. Thank you, Mr. Chairman and members of the
committee.
In addition to being a part-time car pool driver, as Senator Bond
mentioned, and by the way, that was a bipartisan car pool, I have
practiced environmental law with the law firm of Hale and Dorr for
many more years than I want to remember.
I prepared, Mr. Chairman, a written statement that I ask be sub-
mitted into the record. The staff has copies.
Senator CHAFEE. Thats fine.
Mr. WALLACH. As you mentioned, I am here today on behalf of
the National Association of Manufacturers and the Corporate Environmental
32
Enforcement Council. As I believe you know, NAM is one

of the oldest and largest broad-based industrial trade associations.
It is the oldest and largest in the country. It has more than 14,000
members. It includes approximately 10,000 small manufacturers in
every State.
CEEC is an organization of 22 major companies that are all re-
garded as having very progressive and strong commitments to the
environment and environmental programs. It was formed several
years ago to look at environmental enforcement policy issues exclu-
sively, and the question of whether environmental enforcement is
always furthering the goal of environmental protection, and where
it is not, to address those issues.
I brought with me a copy of CEECs Platform, which is also at-
tached to my statement, and would ask that it also be introduced
into the record.
I should add, Mr. Chairman, as you know, I chair the New Eng-
land Councils Environment Committee, although I am not here in
that capacity. I do want to say that we have had extensive meet-
ings at the New England Council and have spoken with the New
England congressional delegation. As New Englanders who are
very concerned about the environment, the council has adopted a
very strong resolution in support of Federal audit legislation.
Both NAM and CEEC have carefully considered, and their mem-
bers have carefully considered, the issues relating to voluntary au-
diting and voluntary disclosure. Without question, the failure to
have in place adequate and certain protection for voluntary audits
has created strong disincentives and obstacles to auditing. A lot of
companies do audits, even in the face of these obstacles.
It is the right thing to do. But I can tell you that the lack of pro-
tection for these audits has a very real, chilling effect, which in
practical terms limits their scope, their aggressiveness, and really,
I think if you look at the people who have to provide the informa-
tion to the auditors, quite frankly, their concerns limit the ability
to get information during these audits, because of the chilling ef-
fects.
Let me pose another policy issue, or pose the issue in another
way. A manufacturer, university, governmental entity, hospital,
that aggressively audits, as well as their management and person-
nel, should not be placing themselves in the position of greater po-
tential liability than a company or entity that does not audit. Yet
this is exactly what is happening. Documents and information de-
veloped through voluntary self-evaluations can and are being used
against regulated entities and individuals in a variety of contexts.
The concerns of individuals and of companies is really heightened
by the massive potential civil penalties and very real possibility of
criminal convictions under the environmental laws for inadvertent
conduct. If time allows and the question is appropriate, I would
like to address the issue later of why the environmental area is dif-
ferent, Senator Baucus, than other areas.
I should also mention that seven years ago, in a bipartisan fash-
ion, in a statement of managers and the conference report for the
Clean Air Act amendments of 1990, when both you and Senator
Chafee, Senator Baucus, were very much involved, there was very
strong support given for environmental auditing, and mention of
33
the fact that the hope would be that these criminal provisions
would not interfere with that, and audits would not be misused.
Well, they have been. We support, NAM and CEEC support Fed-
eral legislation because we see a very important opportunity for the
environment. We hope this opportunity is not lost in rhetoric and
skepticism. We hope you will see through that.
The regulated community has no ulterior motive. It simply wants
to feel comfortable and wants its people to feel comfortableag-
gressively auditing facilities, correcting non-compliance, spotting
problem areas and improving operations. Its not fair to expose
those who do all that to enhanced potential liability.
I have to say that I am somewhat puzzled by EPAs position. The
agency has repeatedly emphasized that it is not going to go after
audit reports, it is not going to seek audit reports, and it has not
done that in the past. If thats the case, I dont understand how it
can impede its ability to enforce environmental laws not to get
these audit reports. EPA cannot have it both ways.
Id also like to say that the parade of horribles and the concerns
that have been identified, when you really analyze them, which I
think is important, we dont have specific examples from the oppo-
nents, and Id like to hear specific examples, because in my 20 odd
years of practice, I cant come up with them.
In fact, I think very clearly this is going to provide a greater
right to know than we would have now, because of the disclosure
requirements under the environmental laws. One of the attach-
ments in my written statement contains a full page listing of all
of the disclosure requirements where you are required to disclose
when you find out, for example, that theres been a release of re-
portable quantity that you may not have known about before.
That will get that information out to the public, to the neighbors.
It might not have been discovered before, inadvertently. Theres not
going to be blanket immunity, theres going to be no protections at
all for intentional bad actors. I think, as I said, theres not going
to be any secrecy.
I think its important, and I can give specific examples during
the questions as to how more additional information will get out.
I think the States have recognized the benefits, youve heard the
EPAs reaction. Im especially troubled because I see from a very
practical standpoint representing individual companies, and I see
it from NAM members and CEEC members, the concern that this
conduct is having on the regulated community. Theyre sort of a
pawn in the battle, in some respects, between the States and EPA.
EPA is sending letters, demanding a huge amount of production
of documents from those companies that do utilize the audit laws
in the different States. That has a very, very real chilling effect.
I frankly dont understand EPAs position with respect to the
State laws and Id just like to mention one point. EPA says that
they dont have access to audit reports, the State does not have an
adequate enforcement structure or an adequate enforcement au-
thority.
My question would be, what happens if no one in the State au-
dited? Does that mean that the State doesnt have adequate en-
forcement authority? Or if the companies in a State assert the attorney-
34
client privilege for their audits, which a lot do. Does that
mean the State doesnt have adequate enforcement authority?
The argument, upon analysis, really does not make sense.
Finally, with respect to the policy that EPA issued in December
1995, I do want to compliment the agency. Steve Herman in par-
ticular, I think hes worked very hard in terms of issuing that pol-
icy and implementing it. It is an important step forward. I think
industry recognizes that.
We respectfully disagree on the significance, however. It does not
eliminate the disincentives and obstacles to auditing and disclo-
sure. It does not create the certainty that we need to have the peo-
ple who provide the information. There are nine criteria in there
that you have to satisfy to meet the policy, for the policy to apply,
Senators. Those are very discretionary. You cannot be certain the
policy is going to apply.
It does not apply to individuals. The policy offers no protection
whatsoever to individuals. I could go through a number of other de-
ficiencies in the policy. But even if the policy were a perfect policy,
it would not supplant the need for Federal legislation. Because it
cannot, the agency does not have the authority to remove the ob-
stacles.
With that, Id like to say that both NAM and CEEC look forward
to working with the Congress in a bipartisan fashion to see if we
can fully explain the values of audit legislation and have them rec-
ognized, and hopefully get a bill through thats good for the envi-
ronment.
Thank you.
Senator CHAFEE. Thank you very much for that testimony, Mr.
Wallach.
I would call Mr. Hermans attention to Mr. Wallachs testimony,
on page 18.
Senator BAUCUS. We have another witness here.
Senator CHAFEE. Yes, I know. Im going to get right to him.
Mr. Herman, if you would have your folks take a look at page
18 where Mr. Wallach lists elements of this legislation. He says
theyre neither novel nor without precedent, and lists some other
outfits where these are taking place. I just thought Id forewarn
you that I will be asking you a question about that.
Now we have Mr. Mark Woodall from the Sierra Club. We look
forward to your testimony, Mr. Woodall.
STATEMENT OF MARK WOODALL, CHAIR, LEGISLATIVE
COMMITTEE, SIERRA CLUB, GEORGIA CHAPTER
Mr. WOODALL. Thank you, Mr. Chairman and members of the
committee. I want to thank you for allowing me to make a state-
ment on behalf of over 500,000 members of the Sierra Club.
Im the chair of our legislative committee in the State of Georgia
and also the volunteer chair of our National Audit Privilege Task
Force. Im a commercial tree farmer by occupation.
Im co-submitting this testimony on behalf of U.S. Public Interest
Research Group. The Sierra Club and U.S. PIRG are organizations
that have brought numerous citizen enforcement actions under our
national environmental laws, are committed to preserving the legal
tools that ordinary citizens have fought for and need to protect
35
themselves from harmful pollution in their communities. This is

one of the many reasons that Sierra Club and PIRG and over 100
other public interest groups, both national, local and State, are bit-
terly opposed to the creation of any secrecy privilege or broad im-
munity rights for institutes who undertake environmental self-au-
dits at either the State or Federal level.
In particular, we strongly oppose S. 866, as well as any other bill
that would restrict our Federal EPA from its ability to administer
delegated programs in States with these audit privilege immunity
laws. As you heard earlier, the District Attorneys Association has
written to you and in the past that the adoption of such a privilege
is an extreme measure, far beyond any remedy necessary. We
would say it is a radical measure that would create a vast dumping
ground for corporate dirty secrets.
I think we need to take a look, as we observe the 25th anniver-
sary of the Clean Water Act, and think about why it is that we
have made progress. What are the current incentives under our
present legal system. We believe that the reason that people just
dont dump it in the river, whether its a Federal facility or corpora-
tion or whatever, is because they fear liability, they fear enforce-
ment, both of Federal, citizen or State enforcement. Certainly,
theyre concerned about the public right to know, as Senator Lau-
tenberg pointed out. We have the public right to know, which is
often followed by the public pressure to clean up these neighbor-
hoods.
Those are the current incentives that really drive whats going on
in the United States. What were talking about here is directly op-
posite, its a direct attack on the incentives that we had in place.
What were talking about here is turning the right to know into the
right to know nothing, or the right to keep dirty secrets. What
were talking about here is hurting real people. The experience
weve had out there, weve already found, I think, the kind of mis-
chief thats going to come up with these laws, which will be even
worse with a Federal law.
I would call your attention to the testimony written by the folks
in Cincinnati, Ms. Briscoe and Reverend Lundy in Cincinnati. They
submitted this testimony so you could see the experience theyve
had with a giant corporation, and their use and abuse of audit
privilege.
The lessons they want to share here were learned in attempting
to find out about toxic landfill gas next to a waste management
landfill in Cincinnati. They say they were forced to organize to pro-
tect themselves because time and again, local and State authorities
did not protect them. They were willingly or carelessly misled by
Waste Management, Inc.
Now, this landfill has operated since 1973 in the midst of a
densely populated area of Cincinnati, thousands of people living
within a short distance of the landfill. What they had is landfill gas
migration. They say its robbed those of us who live near the land-
fill of the use of our yards, the ability to have our windows open
in summer, and has eroded their quality of life. They believe they
had a right to know about this gas exposure years ago.
But if you follow what has gone on, first there was an adminis-
trative proceeding when Waste Management wanted to expand this
36
landfill. At that time, Waste Management said its internal audits

were confidential and privileged and hid the information, therefore,
from the community. After numerous motions to compel disclosure,
some of this information came across. But then, Waste Manage-
ment said they had a pending Ohio audit privilege bill and started
holding documents back.
So the folks blocked the expansion in this administrative proce-
dure. Then the Ohio legislature actually passed the audit privilege
bill. Waste Management had the brass, I guess you would call it,
to call up the EPA in Ohio, Ohio EPA, and say, give us our audits
back, we passed a State law making that privileged.
Then the citizens went to Federal court, Federal citizens suit, to
try and get them to do what they should have done, and they knew
they should have done, to mitigate this landfill gas. Now, thats on-
going, and Waste Management has tried to block discovery, block
the truth about this, from Federal court, based on the States audit
privilege law.
I would say to you that this is a fine example and I think there
are more coming of the kind of mischief were going to get into.
They asked some questions here which I think are very relevant.
If one of the national architects of this audit privilege movement
around the States is capable of making this use of just a pending
bill, since a company will apply pending legislation to audits prior
to the passage of a bill, what basis is there to believe that other
polluters will act any differently?
They also ask, how will anyone know if when a polluter has se-
cretly slipped the truth about its pollution into a file which the pol-
luter has labeled audit. I think thats one thing, as we study whats
going on in State laws, I noticed in Colorado the headline was, pol-
luters get off scott free, in the Denver paper.
The thing you need to understand is, these folks can set up a file
cabinet and just start stuffing documents in there that they dont
want to see the light of day. To make all this information privi-
leged, secret from judges and juries, is just a terrible threat to the
health and human environment here in the United States. We urge
you to strongly oppose this reckless proposal.
Senator CHAFEE. All right, thank you, Mr. Woodall.
Now, Mr. Herman, youve heard the presentations here of the
others. It seems to me it boils down to, I dont want to get back
and forth on the privilege business, but it seems to me the prob-
lems that the others raise is the indefiniteness that comes up
under EPA, that if a company goes ahead and has an audit, does
the right thing, and reports it in advance, has the audit, discovers
certain things, takes actions to correct those, everything that wed
want a company to do, theyre not sure that EPA will not be able
to come in with considerable force later on and slap them with a
great big fine.
Now, I must say, Mr. McBee, I think it was he that said he
wasnt, Texas didnt really want the fine to include monetary ad-
vantage that the company had achieved over its competitors as
being part of the fine. I may be misquoting you there, but we can
get to that in a minute.
But I must say, I think that any advantage that a company had
gotten because it was a bad actor should be included in the damages
37
allowed. But what do you say? You say youve got a policy, but
they, the opponents, Mr. Enzi, and so forth say, well, that isnt
enough. You folks can change a policy. I think Ms. Bangert said
that. Then leave the company that made all this effort high and
dry.
What do you say to that?
Mr. HERMAN. Well, Senator, I think theres two parts. One is, I
think certainty and consistency are both important and should be
expected. I think what we have publicly stated, were abiding by
our policy. I set up a group, made up of regional and headquarters
personnel, to review every single audit submission.
We have had, and I mention this again, over 600, or its over 700,
I think, facilities come in to us and we have processed these mat-
ters. Over 95 percent, I think, have resulted in no penalty.
Let me make one thing clear, I think there has been consistency
and there is certainty. Why no Federal legislation? I think for a
couple of reasons. One is, were dealing with a very new area. We
have not had evaluations in this area and to go in and legislate
now, and I think potentially tie the hands and limit the discretion
of law enforcement personnel, regulatory personnel, is not the most
constructive thing. You have not been faced with abuses, certainly,
in the Federal implementation of the policy.
With regard to the policy, let me make one thing very clear. We
are 100 percent in favor of audits, of self-audits. We are 100 per-
cent in favor of self-policing. We are 100 percent in favor of giving
incentives to businesses that take it upon themselves to self-audit.
What we are not for, and what we dont think should be overlaid
on our public policy is secrecy and immunity. Those have no place
in good public policy. We have established privileges. They did de-
velop in the common law. They are very special. I dont think that
there is a reason to establish privileges in this area.
The fact is, thousands of companies are auditing. The fact is, ac-
cording to a survey that was taken, the fact that there isnt a privi-
lege doesnt dissuade them. Youve heard conflicting things here
about some States are being chilled while others arent.
But the fact is, we think audits are good. We think companies
are doing them, and we know that theyre coming in and disclosing
problems. I think were dealing with them fairly.
Senator CHAFEE. Some are suggesting that if you dont have a
statute, at least have a rule under the Administrative Procedures
Act. But you havent even done that. You have this policy. If I get
the complaint, its that you say its definite, the others say no, its
not definite. Thats the hitch.
Mr. HERMAN. I dont know that, I think even if you have a rule
or you have a statute, there is going to be some amount of flexibil-
ity for, and I assume you want flexibility for your assistant attor-
ney general, your assistant U.S. attorney, your EPA attorney, to
implement these regulations and laws. Each case has some dif-
ferent factors.
One thing I would say is, certainly we are evaluating our policy.
There are others evaluating the State laws. At this point, to lock
something in, in stone, just seems very, very premature to me.
Senator CHAFEE. My times up. Senator Baucus.
38
Senator BAUCUS. I wonder whether Mr. McBee, Mr. Wallach or

Ms. Bangert have examples of where the EPA has left a self-audi-
tor out to hang and dry because EPA has changed its policy.
Mr. WALLACH. Senator, do you mean are there examples where
EPA has requested audit reports?
Senator BAUCUS. No, its where a company has relied on EPA
policy and then conducted the self-audit and then EPA has changed
its mind and is much more strict with respect to that audit than
the company was led to believe when it conducted the audit. I was
looking for examples. The nature of the charge is, its discretionary,
it can change. Im looking for examples where there has been
change.
Mr. WALLACH. I would like to answer your question, and go back
one step, though. Because with all due respect, I think its a mis-
take to just focus on the EPA policy and the question of the indefi-
niteness or lack of indefiniteness.
Senator BAUCUS. Oh, Im not going to just focus on that. I have
many focuses. Thats my one focus right now.
Mr. WALLACH. All right. The answer is yes, but its very difficult
to provide them, because theyre essentially pending, theyre either
pending cases, the EPA has, I think, resolved for the audit policy
a number of cases. I personally would categorize them as some of
the easier cases. Others might disagree with me.
I think some of the more complicated cases are still pending. I
cant tell you whether the company is going to be left high and dry
or not. Clearly, some of the individuals involved in that, that pro-
vided the information, received no protections whatsoever.
Senator BAUCUS. What about Mr. Hermans point that this is
really an evolving area? Isnt it premature for Congress to pass a
statute?
Mr. WALLACH. I think Oregon passed its law in 1993.
Senator BAUCUS. Sorry?
Mr. WALLACH. Oregon passed its law in 1993.
Senator BAUCUS. Thats true, but each State has different ap-
proaches. There are all kinds of different self-auditing laws that
States pass.
District courts have, I dont know if this is the case, but I would
assume have different views on all this, too. Were really in a new,
evolving area here.
Mr. WALLACH. But Congress, as you know, has acted, in the
Equal Credit Opportunity Act there was a privilege.
Senator BAUCUS. Thats true, in a few cases. But the general rule
is, Congress does not create privileges, evidentiary privileges.
Thats the general rule.
Mr. WALLACH. Thats correct. We feel that the public policy rea-
sons in this area are important enough that as the environmental
protection goals are important enough that thats an issue Con-
gress should consider.
Senator BAUCUS. Mr. McBee, Im just curious, hasnt it worked
out pretty well, in the final analysis, the Texas self-audit provi-
sions, after working on it, the negotiations with EPA? I say that
because I was astounded when you said that the earlier Texas ver-
sion gave immunity to criminal
Mr. MCBEE. Not complete immunity to criminal violations.
39
Senator BAUCUS. But still partial.

Mr. MCBEE. For criminal negligence.
Senator BAUCUS. For criminal. Thats a bit much. Youre getting
to intent there, which is an area that I dont know should be pro-
tected. Im glad that Texas has changed its statutes.
Mr. MCBEE. Senator, there are certain changes we made in
Texas.
Senator BAUCUS. Didnt it work out OK?
Mr. MCBEE. We made some changes to the Texas law that I
think, from a personal standpoint, improved the law. I have said
that previously. What I think, well, two comments.
We have not yet seen if it has worked out these issues of delega-
tion that I raised as what propelled us to come to the negotiating
table are not yet resolved. There are petitions still pending against
the States delegated programs that have not been yet withdrawn
by EPA. There are proposed programs for delegation that we have
not received decisions on.
So I dont know yet if its been adequately resolved in my view.
That statute has been passed and we reached some accommoda-
tions. My view is, I would have preferred not to have been com-
pelled to the negotiating table to take what EPA handed me, essen-
tially, and to instead let State legislatures across the country ex-
periment, if you will, to do what Mr. Herman said.
Senator BAUCUS. But what if the result of those State legisla-
tures is significant reduction of environmental law enforcement?
Doesnt the Federal Government have a responsibility to see that
the Federal environmental laws are adequately enforced?
Mr. MCBEE. But its my respectful view that what we have seen
in Texas from 1995 onward was not a dilution of the enforcement
capabilities of our State.
Senator BAUCUS. Immunity from criminal prosecution?
Mr. MCBEE. But again, Senator, the law in Texas was drafted to
allow for any reckless conduct, any intentional conduct, to still be
pursued in a criminal fashion. We were looking at a narrow range
of criminal negligence. Again, that is, from a personal perspective,
one of the changes in the Texas law that I believe improved our
law.
Senator BAUCUS. But which EPA insisted upon.
Mr. MCBEE. They did. But there are other provisions, for exam-
ple, the requirement to disgorge economic benefit that we dont find
anywhere in statute or regulation at EPA that was also thrust
upon the State of Texas. That is one, for example, where I have a
different view as to whether thats absolutely the appropriate pol-
icy.
Senator BAUCUS. But do all three States, Mr. Wallach, would
agree that the States should restore, the company should restore
all economic gains derived from pollution? That is, I guess EPAs
policy has non-gravity penalties, as I understand it. A fancy term,
as I understand it, that is, penalties not above but the lost eco-
nomic benefit.
Ms. BANGERT. Economic benefit, though, can be a policy decision
as much as a legal decision. Whether a company has gotten any
competitive advantage can very much be a policy determination,
and a factual determination where the
40
Senator BAUCUS. Well, Im just talking about the general prin-

ciple. Im not going to get into each case, but just as a general prin-
ciple.
Ms. BANGERT. What we found in a couple of the over-filings is
that EPA has over-filed on the stated ground that the penalty was
not high enough to deter future violations. Thats a policy decision.
Its also a decision that the State should determine, and not the
people from Washington.
Senator BAUCUS. Mr. Herman, I thought EPA policy and its pen-
alty policy was not deterrent but rather compensation, to make
whole again. Did EPA level a fine above the economic loss in order
to deter?
Mr. HERMAN. Not under the audit policy, Senator. No. What Ms.
Bangert may be referring to is differences we had in other cases
where, in Colorado, where we have over-filed and its because we
determined that the penalty was not appropriate.
Let me give you one example. One involved the Public Service
case. There you had your opacity violations not corrected by the
State, and the State allowed the company to gain an economic ad-
vantage worth several hundred thousand dollars.
The State assessed a fine of $4,000, and did not get any injunc-
tive relief to ensure that the violations do not recur. The Sierra
Club had filed a citizens suit alleging 19,000 violations over a 5-
year period. We joined the lawsuit, we obtained a $2 million cash
penalty and $2 million in supplemental environmental projects,
which meant that the money went to make environmental improve-
ments that actually went beyond compliance. That was not an
audit case, but thats an over-filing case.
Senator BAUCUS. I see my time has expired. Thank you.
Senator CHAFEE. Senator Sessions.
Senator SESSIONS. Mr. Wallach, is it fair to say that the average
business man or woman in America today does have fear about re-
porting, fear that the EPA will not be kind and gentle, but will uti-
lize that information to disrupt their business and be very aggres-
sive in punishment?
Mr. WALLACH. Senator, I think there are a lot of people that
have that fear. Im not sure I can say that the average person does.
I think, for instance, EPA has not been entirely unreasonable in
every enforcement situation weve seen. I think Steve Herman and
the people hes brought in have tried to moderate it to some extent.
But you also have citizen suits, you have mass toxic tort actions,
you have a whole spectrum of other things. So I think, yes, people
do have that fear, and perhaps its second only to the IRS in some
respects. I think the more informed people have that fear even
greater than the people who have been involved with it before, and
the average businessman.
Senator SESSIONS. Im not suggesting, I have a sense that if a
government entity, city or whatever, reports, theyre likely to get
a fair hearing when its all said and done. But Im not sure they
believe that. I think this legislation would help allay fears and give
some certainty and confidence that would result in more audits and
self-reporting. Is that your position?
Mr. WALLACH. I absolutely agree with that. I think the percep-
tion out there, in terms of Senator Baucus question before, is that
41
unlike most Federal laws, and I was a prosecutor, a number of en-

vironmental laws, especially as interpreted by prosecutors, do not
require specific intent or willful action. I think there is a tremen-
dous concern out there by the regulated entities and the individ-
uals in the front lines, even if it hasnt always happened, that
thats going to happen to them.
So youre absolutely right.
Senator SESSIONS. Mr. McBee, let me raise this issue. I think
fundamentally that the best argument we have against this bill is,
maybe we ought to wait a bit and see how these laws work out.
Second argument could be that there could be some technical im-
provements in it. Setting aside the first argument, let me ask you,
Mr. Herman, would you be willing to review the bill for technical
improvements and help make it a viable bill that you could sup-
port?
Mr. HERMAN. Senator, let me say this, because I have not seen
Senator Enzis bill yet. But let me say, I think there are other prob-
lems that are very fundamental. One of them is privilege and put-
ting an overlay of secrecy.
Senator SESSIONS. Lets talk about that. What is being kept se-
cret? Other than the internal work product that goes into the audit
that wouldnt have been available if they hadnt reported the viola-
tion anyway, presumably. Its not a major secrecy benefit. The em-
ployees would still be subject to deposition. They would still be sub-
ject to being interviewed by EPA and FBI and other investigators.
So the only thing is that just that work product within the audit,
is there anything else?
Mr. HERMAN. It is the material thats there, and it can go to in-
tent. You can have a situation where a farmers groundwater, for
instance, is damaged, is polluted. You find out that the next door
neighbor, who was some regulated entity, knew that there was a
problem because they had an audit 2 years before, but for economic
reasons or some other reasons, they decided not to fix it. They de-
layed their trying to fix the problem.
You also have a situation in some of the statutes where, if some-
body does an audit, they come in and then they go home. Theyre
free. They dont have a penalty. They are immunized. I think thats
very dangerous. It takes away accountability and responsibility.
The other thing I would urge you to do, because I know that you
are a very, very experienced prosecutor, is look at these bills and
see the machinations that you have to go through. I know that
when I put together a case, I dont know exactly where the trail
will lead.
Senator SESSIONS. I agree with that. One thing you said, you
have to prove beyond a reasonable doubt that it was voluntarily
disclosed. I think thats too high a burden on a prosecutor. It turns
into a trial of a trial of a trial.
I have some technical concerns about it. I would just make this
point. Youve mademy times upyou made four points in
opposing this legislation. Almost all of them deal with secrecy. I
think thats overblown. I think you can still interview every em-
ployee of that company, cant you, Mr. McBee? Still take their
depositions?
42
Mr. MCBEE. Under the Texas law, Senator, materials required to

be kept are not going to be privileged, nor is in-person observation
of the violation privileged.
Senator SESSIONS. I dont think its that big a deal. I think you
could work something out we could live with that would perhaps
further the improvement of the environment if we put our mind to
it.
Senator Lautenberg.
Senator LAUTENBERG. Thanks very much, Mr. Chairman.
I want to ask you, Mr. Herman, does the right to know law that
weve made frequent reference to and everybodys familiar with, is
the information that the companies produce for the public record,
is that material available for prosecution?
Mr. HERMAN. Yes, it is.
Senator LAUTENBERG. It is. So that we get very good response
rates from companies, I know that weve seen it in New Jersey and
I know thats also true across the country.
Mr. HERMAN. Yes.
Senator LAUTENBERG. Do you think, have there been cases
brought, to your knowledge, under the right to know law against
companies, citizen suits or otherwise, as a result of the revelation
of information that theyve put out?
Mr. HERMAN. I am aware weve had cases against companies
that have not reported. We could certainly look into it. None come
to mind.
Senator LAUTENBERG. Id be interested in that. Because I won-
der, especially Mr. Wallach here, an attorney with a distinguished
background, you made the statement about the fact that under en-
vironmental law, there is less of a standard for willfulness conduct
than there is under other laws. Did I understand you correctly?
Mr. WALLACH. That willful and intentional are not required for
criminal convictions under the environmental laws, Senator.
Senator LAUTENBERG. Right. Is that true, Mr. Herman?
Mr. HERMAN. There are not always specific provisions. But I
think if you look at how the law has been applied by Federal pros-
ecutors around the country, only the most egregious cases have
been brought as criminal actions. I dont know that the standard
the prosecutors use is any different.
Senator LAUTENBERG. Mr. Wallach, do citizen suits represent a
danger to business in our country?
Mr. WALLACH. I dont think the concept of the citizen suit, Sen-
ator, represents a danger to the business. But I think the purpose
for which they were originally created and the nature of the envi-
ronmental arena has changed. I think there are a lot of abuses
right now in the citizen process. In fact, theres a case before the
Supreme Court thats dealing with the question of citizen suits and
whether they can sue for wholly past violations under statutes
other than the Water Act, such as the TRI issue that they tried to
take up there.
Id like to get back to the one question you raised, though, which
I think is critically important. The right to know law that you were
so much involved in is a very, very important law. I think it has
the benefits that you identified.
43
I think the concern that, as an example I wanted to give, if you

do an aggressive audit and you miss something on a form that you
submitted, but you do an aggressive audit, you go back and you
find out it was entirely inadvertent. We had a malfunction in
equipment, we didnt pick up that there was this release of com-
pound of a quantity. It did go out into the neighborhood.
As soon as you find that out during your audit, you have a statu-
tory obligation to report it. You cannot keep it privileged. The right
to know law is not impacted whatsoever unless a company wants
to willfully and intentionally go out and violate the law. Youre not
going to stop those people no matter what you do.
So I think this is going to get a lot more information out to the
public. Because youre going to have companies aggressively pursu-
ing every nook and cranny, and the individuals, more importantly,
pursuing every nook and cranny. Inadvertent things will get out to
the community.
Senator LAUTENBERG. There is that possibility. On the other
hand, theres a distinct possibility that the privilege opportunity
could be easily misused. I dont want to try to teach a law course
here, Im not a lawyer and I wouldnt have very good students out
there. Considering the source of the information, I wouldnt expect
them to be.
But weve seen cases now where attorney-client privilege has
been extended far more than that. It appears in the discussions
about tobacco that there was a refuge for data that wasnt to be
released to the public that was cloaked under the attorney-client
privilege statutes. So its an easy place to conceal information, I
think. I could be persuaded more if I thought that that information,
maybe, and here Im stepping into dangerous territory, maybe not
available for prosecution, although as I understood it, the trail
thats offered is often a very valuable asset in prosecution, if that
condition could be developed where the information couldnt be
used for further prosecution if the company voluntarily released it.
Would that then take away the need to cloak it under a privi-
leged position?
Mr. WALLACH. That is one approach if it cannot be used at all
for that. I think on the other hand, you could have other uses for
it. If you are talking about all uses, citizen suits, mass tort actions
and things like that, but thats something else I think that could
be explored. Our position is for the very limited privilege, the quali-
fied privilege, which is not very different in some respects from the
deliberative process privilege that the Congress gave the Govern-
ment under FOIA. So you have free flow of communications from
within the Government and within regulated entities.
On the other hand, it would have significant benefits. It would
really increase environmental protection.
Senator Enzi.
Senator ENZI. Thank you, Mr. Chairman.
I appreciate that youre allowing me to have access to the testi-
mony and to be able to ask a few questions. Its very kind of you.
Senator CHAFEE. Go to it.
44
Senator ENZI. Mr. Herman, you mentioned that there were some
762 audits so far that have been agreed to. Can you give me any
kind of an indication of how many of those were small business?
Well use maybe 100 employees as small business. Thats very
rough, so you can be very rough on the answer.
Mr. HERMAN. It is very rough. What I do know isI will get
you that information with preciseness for the record following the
hearing. But my understanding and my review is that there is a
good mix of both Fortune 500 companies and small companies.
I would also just point out that a couple of years ago, one of the
first things I did after meeting with representatives of small busi-
ness associations in Washington, they were brought in by our small
business ombudsman at EPA, was to promulgate a policy for small
business, which basically waives penalties when a small shop or
whatever comes in and seeks assistance from us.
We have also set up compliance assistance centers in the print-
ing sector, metal finishing, auto repair and agriculture, where
small businesses can call in, get information. Weve done this in co-
operation with the trade associations. So the point Im trying to
make is that we are reaching out and we are trying to accommo-
date just the kinds of fears or injustices that I know youre con-
cerned about.
Senator ENZI. I think I was rather complimentary to the agency
when I started my statement and mentioned that you are doing a
good job and that theres two and a half decades of good work. Your
Web page is, incidentally, to be congratulated too. It has a lot of
excellent help for small businesses again.
How many enforcement people do you have, roughly?
Mr. HERMAN. Roughly, across the country, including lawyers,
criminal investigators, inspectors, scientists, its probably 3,000 or
so.
Senator CHAFEE. What did you say?
Mr. HERMAN. Three thousand. That includes Superfund.
Senator ENZI. How many of those would be inspectors?
Mr. HERMAN. A relatively small percentage. An unfortunately
small percentage.
Senator ENZI. Earlier, in response to one of Senator Sessions
questions, you mentioned the person who had damaged a water
well and then didnt disclose it. Wouldnt that be a criminal action?
I note that under the bill as I have proposed it, that would be
criminal action. So there would be nothing privileged in that case.
Mr. HERMAN. I dont know whether or not it would be criminal.
There certainly would be, if you had a suit by the farmer, forget-
ting about regulatory, but a result of some of these privilege laws
is that if you had a suit of the individual farmer against the person
who polluted his groundwater, certainly many lawyers would claim
privilege as to the audit, which might show when the polluter knew
that he was polluting. That could cause a problem.
Excuse me, if I could make just one other point, its opening up
a whole other area to litigation. In other words, everybodys con-
cerned about the amount of litigation we have. This opens a whole
new element to it, whether its in camera proceedings or otherwise.
Thats one of the things I think we should try and guard against.
45
Senator ENZI. In the proposal that I have, of course, any informa-

tion thats required to be given anyway has no privilege. Could you
go into a little bit more explanation of what you mean by in camera
doesnt help?
Mr. HERMAN. What I meant by, my concern about in camera is
a couple of fold. No. 1, its another proceeding that a prosecutor or
a lawyer will have to go through to break through to get to see
whether or not information is one, validly privileged once the privi-
lege is claimed, No. 2, anybody thats been involved, Ive been in-
volved in some huge lawsuits. When you get into the discovery
process, it can take, well, it can take months and months if not
years.
This is something else. I think it was Senator Lautenberg who
said about the use of the attorney-client privilege in the tobacco
context. It is not that unusual. Now, we do, as Mr. Wallach said,
you could use attorney-client privilege and it has been used in the
environmental context. I dont think thats particularly good.
But attorney-client is at least a well established privilege, estab-
lished over centuries. This, were going into uncharted territory. I
dont think, I guess
Senator ENZI. Attorney-client is primarily available to those big
companies. As Senator Sessions mentioned, what were talking
about is if the companies dont do an audit at all, theres no infor-
mation available. We dont even know if theres a problem.
I see my time has expired, and I thank you, Senator Chafee.
Ms. BANGERT. Could I just add one thing?
Senator CHAFEE. Sure.
Ms. BANGERT. I want to add one thing about the poisoned well
situation. Thats ridiculous. Under Colorado law, if somebody
poisoned a well and they did not correct that right away, the privi-
lege wouldnt be available in the first instance. Disclosure immu-
nity would not be available. I think thats carried through in Sen-
ator Enzis bill.
Also just for the honor of Colorado, Mr. Herman mentioned the
Public Service Corporation case. I think its much more complicated
than what he mentioned. I think the State had brought a case
against Public Service under certain, for certain violations. I think
EPA brought a case for other violations completely. So were really
comparing apples and oranges here when we do the 4,000 and the
1 million.
The State participated in the negotiations that got the $1 million
fine. But I can give you more information.
Senator CHAFEE. Well, lets not debate the Colorado case here.
Senator, if youve got a couple more questions, you go to it.
Senator ENZI. I appreciate the time. Thank you.
Senator CHAFEE. Ive got a question here that Im asking the
panel. Im going to read it.
One of the more serious charges leveled is that EPA is using in-
formation provided in State audits to target reporting companies.
On page 6 of Mr. Hermans testimony it says, The reality is that
neither EPA nor the Department of Justice seeks audit reports as
a means of identifying targets for civil or criminal prosecution. Fur-
ther, Im not aware of any case which a voluntary audit has been
used to enforce, I presume to enforce means to bring an enforcement
46
action, against the company that discovered a violation on its

own, disclosed and promptly corrected it.
Now, thats pretty definite. Both Mr. McBee, on page 6 of his tes-
timony, and Ms. Bangert, on pages 10 and 11 of her testimony,
seem to refute EPAs claim. I would assume they have used the in-
formation thats been brought forward.
Could you please try to explain the apparent discrepancy of the
legitimate, non-audit reasons for Federal enforcement of these
sites? Ill let you go first, Mr. Herman.
Mr. HERMAN. OK, Ill start with the definite statement that I
made, which came as a result of basically the 19-month review that
we did when we were formulating our own policy.
Mr. Wallach and Ms. Bangert participated actively in our delib-
erations as we got views from many different interests. We asked
for examples, because we did a search of our files and we asked the
Justice Department to do a search of their files to see whether or
not we used audits, basically whether we went after the low-hang-
ing fruit to see whether or not we should prosecute. There were no
examples of that.
This is what we have said, and thats the basis of that statement.
With regard to targeting companies that perform audits under the
State audit laws, our policy is the same. It is not to target compa-
nies that do audits. However, it is not not to target them. In other
words, they are not immune from review.
We do have a legitimate interest in seeing how States are admin-
istering their laws. Are they getting an appropriate penalty? Are
they getting a correction of the environmental problem? Are they
recovering in some cases the economic benefit? Was there a crimi-
nal violation?
Weve done this in States that have and dont have audit stat-
utes.
Senator CHAFEE. Mr. McBee.
Mr. MCBEE. Senator, it may be a question of semantics, to some
extent, how we define target. The experience in Texas was while
we were in the midst of these delicate negotiations between EPA
and the State, as I noted in my testimony, letters were sent to five
companies with respect to six facilities.
Those letters were, if you will, mirror images of what had been
disclosed as a result of those companies audits in the State of
Texas. I interpreted that as a targeting of companies that had done
audits and it was very easy to follow along. What was sought by
EPA mirrored again exactly what was being conducted by the com-
panies.
They did not, if I recall, did not ask for the audit reports them-
selves. But it was very clear what they were about, for whatever
reasons they might have wished to explore that particular area. In
Texas, those cases have not been brought to closure yet, although
it is my understanding that penalties are being considered against
one of the companies, which in my mind is the classic situation of
why we need audit legislation in Texas and nationally.
This was a company that acquired this particular facility. Being
I think a very good corporate citizen, came in and conducted a very
aggressive audit to find the problems, and to fix those problems as
they commenced operations at a new facility. I think that is good.
47
That is what we at the Federal and State level should induce and
commend. Yet that company now, in my view, has faced targeting
by EPA, and they face the possibility of penalties from EPA.
Senator CHAFEE. Ms. Bangert?
Ms. BANGERT. I return again to the Denver Water Board case.
We had minor hazardous waste violations in the Denver Water
Board case. We had discharges that were stopped immediately. We
had structural changes made to the facility. We had long-term
changes that went way, way, way beyond what EPA or the State
could ever have ordered.
I cant imagine that EPA doesnt have better things to do with
its time than to target a company in that situation.
Senator CHAFEE. All right, final word, Mr. Herman.
Mr. HERMAN. Thank you, Mr. Chairman. I would just say that
there are two sides to every story, while the Denver Water Board
case is an open matter, I would just say that I would not nec-
essarily accept all of Ms. Bangerts characterizations of the facts in
that case, and that theyre being reviewed for the reasons that Ive
stated.
Senator CHAFEE. All right. Fine.
I want to thank all the witnesses very much. Youve come some
distance, several of you, and we appreciate the advantage of your
testimony.
That concludes the hearing.
[Whereupon, at 12 noon, the committee was adjourned, to recon-
vene at the call of the chair.]
[Additional statements submitted for the record follow:]
PREPARED STATEMENT OF HON. MICHAEL B. ENZI, U.S. SENATOR FROM WYOMING
Mr. Chairman, I want to first thank you for giving me the opportunity to testify
today on the issue of environmental audits. I have worked closely with this issue
for many years. I was the prime sponsor of the Wyoming audit law that passed our
State Legislature in 1995 by over a two-thirds majority, and it was a bipartisan
vote. I am sure my friend and colleague from Wyoming who sits on this committee,
Senator Thomas, recalls the vigorous debate that occurred in our State at that time.
When I got to Washington, several States that had audit laws were meeting with
the EPA. The EPA was using threats of overfiling and delaying approval of State
enforcement programs because of the State laws. Overfiling means the EPA could
come in and use audit information as a road map for prosecution and levying fines.
They can do this after a person has conducted an audit according to a State law
after a business has taken on the expense and exposure in order to be sure they
are not harming the environment. The EPA wanted us to change the Wyoming
lawin spite of repeated assertions from our own State Attorney General that the
law did not compromise our enforcement authority.
I want to point out that the Wyoming law is not extreme. In crafting it, I studied
examples and results from other States that had gone through the process. I worked
closely with our State Department of Environmental Quality and with members of
the regulated community. I worked with various resource and conservation groups
in Wyoming and we crafted a bill that provides very reasonable incentives for people
to review their operations and cleanup the problems they find. We provided no
criminal immunity or criminal privilege. We deferred to Federal laws wherever con-
flicts existed. And there was a consensus.
Not only did people have a chance to be involved in the process, but the debate
itself raised the importance of a cleaner environment. It forced people to focus on
the fact that our objective is to have a cleaner, safer environmentnot to levy big
fines.
Wyomings scenario is not unique. It has happened in many other States and that
has led me to offer this piece of legislation.
I do want to thank you, Mr. Chairman, and the Environment and Public Works
Committee for holding this hearing today because the issue deserves congressional
48
attention. To date, twenty-four States have chosen to enact some form of environ-
mental audit law and legislation is pending in sixteen other State legislatures. I
would point out that eleven members who sit on this Committee come from States
that have enacted audit laws. Another five members come from States where some
form of legislation is pending.
Mr. Chairman, I did not want to spend a lot of time explaining the intricacy of
audit laws because you have an expert panel of witnesses here today who can do
a good job of that. But I do need to outline the process so I can discuss concepts
for resolving the problems.
The purpose of audit laws are to provide incentives for regulated entities to search
for and disclose environmental violations and to clean them up. The EPA argues
that these entities are already required to be in compliance so we should not offer
them incentives to clean up their violations. The point is that people conducts audits
to find things they do not already know about. Many of them will never look for
problems if they are threatened with fines for their good will.
Entities that can conduct audits range from businesses to schools, to hospitals,
towns, and counties. The incentives can range from relief from penalties to protec-
tion of voluntarily gathered information. It is important to keep in mind a carefully
crafted audit law ensures that audit protections apply only to good faith efforts
efforts that are voluntary, or above and beyond what is otherwise required by law.
If we ensure that, then any disclosures are a net gain above traditional enforcement.
They are a net gain for a safer, cleaner and healthier environment.
Consider for a moment the decisions a small business faces with regard to its en-
vironmental performance. Many small businesses are already required to monitor
and report certain emissions. Audit protections do not cover those reports because
they dont apply to any monitoring that is required by law. But consider a business
that is not on an inspection schedule and has no required emissions reporting. If
that entity wants to review its environmental performance, it would have to conduct
a study. It would have to pay an auditor to come in and review its operationsthat
would be voluntary and it costs money. If it finds a violation, it must pay to clean
it up. (Because if they find it and dont clean it up, they risk criminal activity). Once
they report it, without audit protections, they could be fined and even taken to
court.
So in deciding to conduct an audit, a person takes on a big risk. It is big enough
so that most small businesses wont voluntarily undertake it. These folks choose in-
stead to take their chances and wait for the inspectors. After all, only 2 percent
of all regulated entities are on inspection schedules anyway. Just 2 percent, Mr.
President.
How do we encourage the other 98 percent to really think about their environ-
mental performance when we reward good will with fines?
That is the principle of audit laws. They recognize good faith efforts to make a
cleaner, healthier environment. They encourage people to look for problems and
know with certainty that they wont be penalized for their efforts.
The EPA has formulated an environmental audit policy that is working for some
very large companies. It works well for companies with big legal departments that
are used to negotiating with the EPA. It is often far easier for big business to use
EPAs audit policy than to negotiate consent agreements, besides many of these
companies use audits anyway. In fact, the EPA often cites the widespread use of
audits as one of the reasons why we dont need State audit incentives. But they are
missing the point. The objective of State audit laws is to increase the use of audits
to make them worthwhile for small entities as well as large ones.
The fact is, that small businesses and towns wont use the EPAs audit policy be-
cause it provides no certainty. Small businesses cannot afford costly environmental
litigation from the EPA. (And I define small businesses as those with less than 100
employees). These people dont trust the EPA. They see the EPA Office of Compli-
ance Assistance trying to help them out, while Criminal Enforcement across the hall
is concocting ways to put them in jailand they think those offices work together!
The principle of audit incentives is simple and reasonable. It is no surprise to me
that so many State legislatures have chosen to enact some form of audit legislation.
It is a positive tool that helps people understand and comply with environmental
laws. It gives people a chance to ask questions without being penalized. It gives
them the chance to figure out what they are doing wrong and fix itwithout adding
steep penalties to the cost of compliance.
Mr. Chairman, small business owners dont take time to read the thousands of
pages of Byzantine regulations constructed here in Washington. They dont have
time to read every law. They try to do what is right and avoid doing what is wrong.
I know because my wife and I were small-business owners for twenty-six years. In
49
a small business, the owner is the same one who counts the change, helps the cus-
tomers and vacuums the floor.
He or she has to stay in business, make payroll, and keep up with constantly
evolving mandates from a never-ending supply of Federal attorneys. And while the
small business owner has many jobs, these attorneys have only one job, to create
and modify mandates and to investigate citizens. There are over 17,000 employees
at the EPA and now, in spite of the rhetoric about reinventing regulations, the EPA
wants funds for another 200 enforcement police.
We dont need more police to improve compliancewe need translators to inter-
pret the regulations.
I would like to take a minute to explain my approach to the issue. The legislation
I have introduced would provide a safe-harbor for State laws that fit within cer-
tain limits. It would not give authority to any State unless they go through the full
legislative process, including all of the local discussion and debate that entails. That
is a critical part of this process and something of value we should recognize. Keep
in mind that State legislators and their families live in the places these laws will
affect.
This bill would allow Congress to set the boundaries of the safe-harbor and de-
termine what State laws may provide, such as:
Limited protection from discovery for audit informationbut only information
that is not required to be gathered. All legal reporting requirements and permitting
disclosures remain in effect and could not be covered by an audit privilege.
A State audit law may provide limited protection from penalties if violations are
promptly disclosed and cleaned up. Note, the protection will not cover criminal ac-
tions, and the law must preserve the ability of regulators to halt activities that pose
imminent danger to public health.
Third, if a State law falls within the safe-harbor, the EPA would be prohibited
from withholding State enforcement authority or overfiling against individuals sim-
ply because of the States audit law.
Lastly, the bill would require an annual State performance report that will help
measure the success of different laws, so we can see what works and what does not.
I want to point out that this legislation will not dilute enforcement. There are
safeguards to ensure that State audit laws always act to supplementnot to sup-
plant existing enforcement. It is important to note that. Audits are an affirmative
tool. Used properly, they can only be used to achieve an environment that is safer
and healthier than the status quo. They do not protect any entity from regular in-
spection, sampling requirements or monitoring.
Some form of Federal legislation is necessary to provide the certainty our State
laws need to be effective. I think it is a tragedy that the EPA has been so obstruc-
tive in giving States a chance to test reasonable and innovative solutions to a clean-
er environment. Instead of promoting reinvention, the EPA is perpetuating an envi-
ronmental race to mediocrity.
PREPARED STATEMENT OF STEVEN A. HERMAN, ASSISTANT ADMINISTRATOR, OFFICE

OF ENFORCEMENT AND COMPLIANCE ASSURANCE, ENVIRONMENTAL PROTECTION
AGENCY
I. INTRODUCTION
Thank you, Mr. Chairman, for the opportunity to testify on the topic of environ-
mental auditing. Last summer, I testified before this committee on the Environ-
mental Protection Agencys (EPAs) overall enforcement and compliance assurance
program and EPAs enforcement relationship with the States. I am pleased that to-
days hearing provides an opportunity for me to testify in greater detail about EPAs
self-disclosure policy, EPAs relationship with the States regarding State audit laws,
and proposed Federal audit legislation. I firmly believe that EPA is pursuing the
right course in this area.
I want to make three points today:
(1) EPA supports environmental auditing and other forms of self-policing and has
an effective policy in place to encourage such conduct.
(2) Audit privilege and immunity legislation is not only unnecessary, but it is un-
wise because it undermines law enforcement, impairs protection of human health
and the environment, and interferes with the publics right to know of potential and
existing environmental hazards.
(3) EPA has been and is working with States to ensure that at least the statutory
minimum enforcement and information gathering authorities are maintained by all
States implementing a Federal environmental law.
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II. EPA SUPPORT FOR ENVIRONMENTAL AUDITING AND OPPOSITION TO AUDIT PRIVILEGE
AND IMMUNITY LAWS
EPA strongly supports environmental auditing and use of compliance manage-

ment systems by regulated entities to improve compliance and prevent and reduce
pollution. Self-auditing can result in the prompt detection and correction of viola-
tions as well as the identification of potential future violations that can be averted
through preventative measures. Companies that conduct audits or use compliance
management systems thus safeguard and improve public health and the environ-
ment. In addition, because government compliance and enforcement resources are
limited, maximum compliance cannot be achieved without active efforts by the regu-
lated community to police itself. Where more companies find and correct their own
violations, scarce government resources may be focused on higher risk violators.
Accordingly, it is important for government to encourage environmental auditing,
but it must do so without compromising the integrity and enforceability of our envi-
ronmental laws. Approachesincluding legislationthat guarantee amnesty for en-
vironmental violators and promote the secrecy of environmental compliance infor-
mation damage the credibility and effectiveness of the Nations environmental en-
forcement program, are unnecessary and, in the final analysis, undermine the integ-
rity of incentives for responsible business.
EPAs approach to environmental auditing is designed to further some key prin-
ciples of this Administrations environmental enforcement program.
First, industry and government both bear certain responsibilities in achieving
compliance. Industry has a responsibility to stay in compliance with the law. Gov-
ernment must maintain an enforcement program that punishes wrongdoers, deters
potential violators, brings violators into compliance, and ensures that damage to the
environment is rectified. Government should give credit to industrys good faith ef-
forts to comply, but it must do so without compromising its ability to enforce envi-
ronmental obligations firmly and fairly. The public and law-abiding regulated enti-
ties rightly expect EPA to take strong enforcement action against polluters.
Second, business earns the public trust by being open with government and the
public at large. Openness is an essential component of corporate accountability.
Third, EPA fully recognizes that it shares with all levels of government a common
interest in environmental protection and compliance with environmental require-
ments. The Federal and State relationship must be guided by recognition of the del-
egated States primary responsibility for running a strong enforcement program and
the benefits of a well-defined Federal role as national environmental steward. In its
Federal role, EPA safeguards the national standards for environmental protection
for all citizens and also maintains a level playing field for law abiding companies
regardless of their location.
Fourth, environmental compliance incentives must reflect the legitimate interests
of the public, the regulated community, and local, State, and Federal officials who
enforce the law. Incentives in the form of legislative privilege and immunity have
proved divisive and are opposed by many local, State, and Federal prosecutors, envi-
ronmental agencies, and citizens concerned about environmental pollution.
A. EPAs Self-Disclosure Policy
In 1995, EPA issued its policy, Incentives for Self-Policing: Discovery, Disclosure,
and Correction and Prevention of Violations (60 Fed. Reg. 66706 (Dec. 22, 1995)).
The policy was the result of an intensive eighteen-month public process designed to
identify the best way to encourage companies to police themselves while preserving
fair and effective enforcement and the publics access to information. EPAs policy
reflects input from State attorneys general and local prosecutors, State environ-
mental agencies, the regulated community, public interest organizations, and the
Department of Justice. It has won praise from industry and environmental groups,
and from local, State, and Federal law enforcement officials. Eighteen State attor-
neys general and environmental commissioners declared their support because
EPAs policy effectively encourages self-policing while maintaining safeguards to
protect the public and the environment. See Exhibit 1.
How does EPAs self-disclosure policy work? It carefully balances auditing incen-
tives with protections for law enforcement, human health and the environment, and
community right-to-know. Where violations are discovered through an environ-
mental audit or compliance management system and the full conditions of the policy
are met, EPA will: (1) eliminate gravity-based civil penalties (i.e., the penalty
amount over and above the companys economic gain from non-compliance); and (2)
not recommend criminal prosecution so long as there is no high-level corporate in-
volvement or a prevalent management practice to conceal or condone violations. In
51
addition, EPA commits not to make requests for audit reports to initiate civil or
criminal investigations.
EPAs conditions for granting these benefits are based on common sense and
sound public policy. For example, companies must promptly disclose and correct the
violation, prevent recurrence of the violation, remedy any environmental damage,
and provide such information as is necessary and requested by EPA to determine
the applicability of the policy. Exceptions for individual criminal conduct, repeat vio-
lations, violations of consent orders or agreements, and violations that present an
imminent or substantial endangerment or result in serious harm protect human
health and the environment. EPA retains its discretion to recover economic benefit
gained as a result of noncompliance so that companies will not obtain an economic
advantage over their competitors by delaying their investment in compliance.
Business has been receptive to the EPA self-disclosure policy and has come for-
ward, rectified problems, and avoided prolonged and expensive litigation. To date,
more than 225 companies have disclosed and corrected violations under the policy
at more than 700 facilities. Disclosing companies run the gamut, ranging from large
Fortune 500 companies to small businesses, from a wide variety of industrial sec-
tors. See Exhibit 2.
Earlier this month, the agency and GTE Corporation reached an agreement under
the policy, resolving 600 Emergency Planning and Community Right to Know Act
(EPCRA) and Clean Water Act Spill Prevention Countermeasure and Control
(SPCC) violations at 314 GTE facilities in 21 States. Correction of these violations
will protect communities and firefighters, police, and others in the event of a chemi-
cal spill or release, and will help to lessen the likelihood that hazardous chemicals
will pollute our waterways. The company will pay a $52,264 penalty, equal to the
amount of money saved during its period of non-compliance. Because the company
voluntarily disclosed and corrected the violations, EPA waived another $2.38 million
in assessable penalties. After discovering non-compliance at several facilities, GTE
promptly notified EPA of the violations pursuant to EPAs self-disclosure policy and
undertook a company-wide audit at 10,000 sites nationwide. This settlement dem-
onstrates the self-disclosure policys broad scope in promoting compliance at facili-
ties nationwide.
In addition, States including California, Connecticut, Delaware, Florida, Mary-
land, North Carolina, Oklahoma, Pennsylvania, Tennessee, Vermont, and Washing-
ton, have designed their own self-disclosure policies, thereby providing incentives
while maintaining enforcement authority.
B. EPAs Opposition to Audit Legislation
Let me now turn to the topic of audit legislation. As I have stated on many occa-
sions, EPA strongly opposes audit privilege and immunity legislation. Audit privi-
lege and immunity laws restrict governments ability to obtain injunctive relief and
penalties to address violations affecting human health and the environment, and to
obtain evidence necessary for enforcement. Audit privileges invite secrecy, com-
plicate criminal and civil discovery and trials, and impede public access to informa-
tion. Let me explain.
While EPA supports penalty mitigation as an incentive for voluntary disclosure
and correction of violations, EPA believes that immunizing violationsincluding se-
rious violationsdiscourages companies from making the investments in pollution
control necessary to prevent such violations. We also oppose immunity because it
undermines deterrence and the rule of law. Strong environmental enforcement pro-
vides an incentive for responsible behavior, not immunizing violations.
EPA opposes audit privileges for a number of reasons. First, such privileges invite
secrecy, instead of the openness needed to build public and government trust in in-
dustrys ability to self-police to protect human health and the environment. Second,
audit privileges weaken law enforcement necessary to protect human health and the
environment by making relevant information unavailable to government prosecutors
and civil enforcers, and by erecting procedural barriers to access this information.
Audit privileges, particularly when law enforcers may be legally constrained from
using any evidence derived from the audit report, interfere with the investigation
of environmental crimes. Why should we make it easier for violators and harder for
our local, State, and Federal law enforcement officials?
Third, audit privilege laws impede public access to information concerning envi-
ronmental hazards. Such laws undermine one of this Administrations priorities
public right-to-know. When informed, the public can actively and intelligently par-
ticipate in its own environmental protection.
Fourth, some audit privilege laws penalize employees who report known or poten-
tial environmental concerns to law enforcement authorities. Such sanctions conflict
with Federal laws preserving employees rights, have a chilling effect on employee
52
disclosures of illegal conduct, and hamper enforcement. Why would we want to dis-
courage the disclosure of illegal activity?
Yet another reason why EPA opposes audit privilege is that it is simply unneces-
sary. Environmental auditing has increased to the point where it is already stand-
ard practice for 75 percent of corporations responding to a 1995 survey by Price
Waterhouse, and is growing among the remaining 25 percent as well. Most compa-
nies do not view privilege as a precondition to conducting auditingthey see good
business reasons for auditing. A privilege is unnecessary.
Businesses also view the types of incentives in EPAs self-disclosure policy as ef-
fective in motivating auditing. Of respondents to the 1995 Price Waterhouse survey,
over 40 percent said that penalty mitigation for self-identified, reported, and cor-
rected violations would encourage the company to conduct more auditing. About the
same number viewed a presumption against corporate criminal prosecution as en-
couraging auditing. In the same survey, 96 percent of the corporate respondents
who conduct audits said that one of the reasons that they did so was to find and
correct violations before they were found by government inspectors. Thus, legislation
that impairs enforcement, like audit privilege legislation, may actually decrease the
amount of auditing, as well as decrease the incentives for prompt correction of viola-
tions.
Finally, proponents of audit privilege legislation sometimes contend that compa-
nies need an audit privilege to protect them against overzealous environmental law
enforcement. The reality is that neither EPA nor the Department of Justice seeks
audit reports as a means of identifying targets for civil or criminal prosecution. Fur-
thermore, I am not aware of any case in which a voluntary audit has been used
to enforce against a company that discovered a violation on its own, disclosed, and
promptly corrected it.
These are among the many reasons why audit privilege is so adamantly opposed
by a bipartisan coalition of State attorneys general that includes Republicans like
Grant Woods of Arizona and Dennis C. Vacco of New York, as well as Democrats
like Scott Harshbarger of Massachusetts and Christine O. Gregoire of Washington.
No wonder the Governor of New York has announced his opposition this year to en-
vironmental audit privileges, and the Governor of Idaho has announced that he will
allow that States privilege and immunity law to expire at the end of this year. The
National District Attorneys Association, the California District Attorneys Associa-
tion, and the New York State District Attorneys Association have long expressed op-
position to audit privilege and immunity legislation. I strongly encourage you to so-
licit the views of the broad range of local, State, and Federal law enforcement and
environmental officials who oppose enactment of audit privilege and immunity legis-
lation. See Exhibit 3.
III. EPA-STATE DIALOGUE
The Federal environmental statutes recognize the necessity and importance of the
Federal Governments role in ensuring that baseline national standards established
by the environmental laws to protect human health and the environment are imple-
mented and enforced fairly and consistently in all States. To reinforce that goal,
Federal law also authorizes citizens to petition EPA to review or withdraw State
programs on the grounds that the States lack the enforcement authority necessary
to meet federally established standards.
EPAs opposition to the enactment of State audit privilege and immunity laws is
based on policy considerations as well as law. On the policy level, EPA strongly op-
poses enactment of audit privileges because they shield evidence of wrongdoing and
run counter to the State and Federal partnership in encouraging the kind of open-
ness that builds trust between regulators, the regulated community, and the public.
EPA opposes immunizing violations disclosed in audits because they discourage in-
vestment in pollution control and undermine deterrence.
As to the legal issue, EPA must ensure that the enactment of State audit laws
does not impair the States ability to adequately enforce its environmental laws and
to gather information necessary to monitor and ensure compliance, and that such
laws do not interfere with the publics access to information. EPA may not approve,
delegate, or authorize any new Federal program unless it determines that such au-
thorities are adequate.
These requirements are not new, and were not developed just to oppose audit
laws. They have been part of the program approval process for many years.
Federal statutes and regulations require States and the public to have access to
environmental compliance information. A State must have the ability to obtain in-
formation needed to identify and assess noncompliance and criminal conduct, and
ensure correction of violations.
53
Public access to information must be preserved and remain consistent with the
provisions of Federal statutes granting citizens the ability to participate in permit-
ting and enforcement proceedings to ensure adequate environmental protection. The
State also may not sanction whistle blowersemployees who divulge information
about a companys noncompliance.
Federal statutes and regulations require that States maintain authority to obtain
injunctive relief and civil and criminal penalties for any violation of Federal pro-
gram requirements. As reflected in the Statement of Principles, which was issued
by EPA on February 14, 1997, EPA is particularly concerned with whether a State
has the authority to obtain immediate and complete injunctive relief; to recover civil
penalties for significant economic benefit, repeat violations and violations of judicial
or administrative orders, serious harm, and activities that may present an imminent
and substantial endangerment; and to obtain fines and sanctions for criminal
conduct.
Although EPA strongly believes that environmental audit privilege and immunity
laws can only impair the governments and citizens ability to monitor and enforce
the laws and to protect communities from environmental threats, the agency has
worked with States to modify their State audit privilege and immunity statutes to
meet the minima necessary to comply with Federal laws designed to ensure a floor
of enforcement and public access to information. For example, EPAs discussions
with the States of Utah and Texas have resulted in changes to their laws that were
acceptable to those States and that also met the minimum Federal requirements for
enforceability and public access. We are ready to do the same with other States as
well. However, EPA will continue to oppose enactment of State audit privilege and
immunity laws because of their adverse impacts on State environmental enforce-
ment and community right-to-know.
IV. NEW PROJECTS EVALUATING THE EPA SELF-DISCLOSURE POLICY
AND STATE AUDIT LAWS
I am pleased to announce that EPA has initiated two new projects to evaluate
the effectiveness of various State audit laws and policies, and the EPA self-disclo-
sure policy. The time line for completion of both projects is one year to eighteen
months. These projects should form a valuable information base from which to
evaluate EPAs experience to date under its self-disclosure program and whether
any Federal legislation is needed.
EPA recently awarded a grant to the National Conference of State Legislatures
(NCSL) to conduct surveys of State officials and facility owners and operators to ob-
tain objective data on the amount and type of audit activity being performed in
States with audit laws, audit policies, or neither a law nor a policy.
In addition, EPA will soon begin compiling information to prepare a report on the
effectiveness of the EPA self-disclosure policy. The report will evaluate the effective-
ness of the policy in encouraging regulated entities to voluntarily discover, disclose,
correct, and prevent violations of Federal environmental requirements.
V. FEDERAL AUDIT LEGISLATION
I strongly believe that Federal audit legislation will not strengthen Americas en-
vironmental programs at this time. As described above, audit privilege and immu-
nity laws encourage secrecy, impede environmental law enforcement, and limit pub-
lic access to environmental hazard information.
There is no real need for Federal audit legislation of any kind. Environmental au-
diting is already widespread and is growing without Federal audit legislation. Abu-
sive use of audits in enforcement just does not exist. Finally, as I have suggested
throughout my testimony, EPAs self-disclosure policy reflects the proper balance of
incentives for auditing and protections for human health and the environment. It
is clearly appropriate to analyze each case individually to determine what type of
enforcement action, if any, is appropriate for a given violation. It is impossible to
categorize all the possible factors in advance through legislation. Attempting to do
so will only create litigation burdens in those enforcement actions brought to protect
human health and the environment.
S. 866, an audit privilege and immunity bill introduced in this Congress, reflects
many of the serious problems with audit privilege and immunity legislation which
Ive outlined today and in previous testimony. If enacted, the bill would weaken law
enforcement, promote secrecy at the expense of the publics right to protect itself,
endanger human health and safety, and erode environmental protection. Let me ex-
plain.
How does S. 866 weaken law enforcement? The bill generally conceals from law
enforcers information placed in an audit report and testimony about an audit. This
54
privilege would hamstring effective law enforcement, especially criminal investiga-
tions and prosecutions. The privilege and immunity provisions would apply even to
criminal conduct, and violations causing an imminent and substantial endanger-
ment or serious actual harm. The bill would also make it harder to prosecute crimi-
nals by requiring the government to prove that the defendant had the specific intent
to violate or disregard the law. Congress has not required a specific intent standard
throughout our existing environmental laws.
S. 866s repeat violation exception to immunity gives multiple bites at the compli-
ance apple. A company must violate the same requirement repeatedly over a three-
year period and each time incur an enforcement action to be excepted from blanket
immunity. Given the speed with which courts operate and the fact that most viola-
tions are resolved without resort to formal enforcement, this is no exception at all.
In addition, under S. 866, regulated entities receive amnesty for violations that are
required to be monitored and reported. This effectively writes prompt compliance
with these provisions out of the environmental laws, and deprives the State and the
public of the information they need to ensure compliance.
How does S. 866 promote secrecy at the expense of the publics right to protect
itself? The bill fails to protect public access to information. Citizen plaintiffs seeking
to enforce environmental laws or obtain a remedy for a toxic release will not have
access to needed information. In fact, information will not be available to the public
even if it is the only evidence of the cause of an environmental problem or the ex-
tent of environmental harm (like fish kills, groundwater contamination, or contami-
nated soil).
How would S. 866 endanger human health and erode environmental protection?
The bill allows privilege and immunity regardless of the seriousness of the environ-
mental or human health harm caused by failure to comply. It grants a privilege and
provides immunity from prosecution even if the violations are not actually corrected.
Under the bill, compliance with applicable environmental requirements is not re-
quired, only initiation and pursuit of efforts to comply. There is not even an explicit
obligation imposed on regulated entities to remedy any environmental or human
harm caused by the underlying violations.
Most significantly, this bill encourages States to lower environmental standards
to compete for business at the expense of human health and the environment. S.
866 endorses State privilege laws, with the sole specified exception of making the
privilege inapplicable to violations required to be disclosed. This could mean that
many violations, regardless of whether theyve been corrected, caused environmental
harm, were intentional, or went uncorrected for months or even years, could be kept
secret from law enforcers and the public. S. 866 also endorses State immunity laws
without specified exception. States could immunize criminal conduct, ongoing viola-
tions, even environmental catastrophes, and still receive Federal program approval
and Federal dollars. Under S. 866, a company also retains any amount of economic
benefit gained from noncompliance. Adherence to the law is directly undermined by
provisions like these.
Human health is also jeopardized under the bill because the default provision in
S. 866 not only gives immunity for violations causing serious actual harm, but also
gives immunity to all violationsno matter how egregiousif the government fails
to challenge a disclosure within 60 days.
The bill offers plenty of work for lawyers at the potential expense of taxpayers.
Law enforcement personnel will be forced to litigate ambiguous definitions and
standards for application of privilege and immunity, delaying or preventing impor-
tant decisions that impact human health and the environment.
Let me suggest just a few concrete examples of how S. 866 would seriously erode
our environmental enforcement efforts.
Scenario One: An audit reveals that the plant manager submitted falsified
monitoring reports to an environmental agency. The company submits a cor-
rected report. Result: Evidence of past criminal conduct in the audit would be
inadmissible in an action against the plant manager as would testimony con-
cerning the findings in the audit.
Scenario Two: An audit recommends replacement of aging equipment. The
company fails to act on the recommendation. The equipment breaks down and
releases hazardous waste into the environment. A neighboring farmers well is
contaminated. Result: The companys failure to act would not be available as
evidence in an enforcement action to determine the cause of the problem or the
extent of the harm nor would it be available to the farmer whose groundwater
was contaminated by the release. Citizens would not be allowed to use this evi-
dence to recover damages, regardless of the harm to them and their families.
The government also could not use the information in an enforcement action,
55
despite the fact that the company had sufficient knowledge to prevent the harm,
but simply ignored it.
Scenario Three: A criminal investigator receives a tip that waste is being dis-
posed of illegally. Result: If the investigator follows up and finds out that the
informant received the information from an environmental audit, the midnight
dumpers may be able to escape prosecution altogether because of the tainted
evidence or some of the most damaging evidence could be excluded from the
trial. Even if a company finds a longstanding violation that it could have and
should have avoided using available pollution control equipment, it can disclose
that violation and receive amnesty.
Tragically, some of the concerns about how audit laws would endanger human
health and the environment expressed in the three scenarios may be found in actual
cases. In Arkansas, in a suit brought by citizens, the El Dorado Chemical Company
attempted to use the State audit privilege law to shield environmental impacts in-
formation from local citizensincluding childrenwho allegedly suffered numerous
respiratory ailments when subjected to repeated contamination from ammonia, sul-
furic acid, and other air pollutants. Similarly, at a landfill near Amarillo, Texas,
Browning-Ferris, Inc. (BFI) succeeded in persuading a State administrative law
judge to prevent disclosure of two environmental audits that local citizens were
seeking in order to document an alleged imminent and substantial endangerment
as a result of contaminated groundwater.
Such cases must not occur in Federal proceedings due to enactment of Federal
audit legislation.
VI. CONCLUSION
In conclusion, I urge that the current Federal approach to environmental auditing

be allowed to continue. Under the EPA self-disclosure policy, EPA gives credit to
good faith efforts to comply, without compromising fair and effective enforcement or
jeopardizing government and public access to crucial compliance information. Recent
GTE disclosures illustrate how the policy makes good environmental and business
sense. We support the States efforts to promote compliance and innovation, but we
also must work to ensure that States maintain effective enforcement programs
which accommodate the interests of allbusinesses; local, State, and Federal regu-
lators; and citizensand which ensure a level playing field for law-abiding compa-
nies nationwide.
Thank you again for the opportunity to testify before your committee. I would be
happy to answer any questions.
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PREPARED STATEMENT OF BARRY R. MCBEE, CHAIRMAN, TEXAS NATURAL RESOURCE
CONSERVATION COMMISSION
I. INTRODUCTION
My name is Barry R. McBee and I am the Chairman of the Texas Natural Re-
source Conservation Commission (TNRCC). The TNRCC is a multi-media environ-
mental agency covering all air, water, and waste-related activities. One of the
TNRCCs guiding principles is To promote and foster voluntary compliance with en-
vironmental laws. To further this goal, we pursue an effective and efficient compli-
ance and enforcement program that maximizes voluntary compliance, ensures that
potential polluters are informed of their environmental responsibilities and compels
compliance through legal action when necessary. The TNRCC believes that strong
traditional enforcement of environmental laws is necessary to guarantee that public
health and the environment are protected. To improve the condition of our environ-
ment while our populace and economy thrive, we must have compliance with gov-
ernmental requirements enacted by State and Federal legislatures.
This opportunity to provide testimony to the United States Senate Committee on
Environment and Public Works regarding privilege and immunity provisions of envi-
ronmental self-audit legislation and the differences between Federal and State ap-
proaches to these issues comes at a critical time for the future course of the State-
Federal relationship. EPA Administrator Carol Browner has said that she views the
relationship between the Federal and State environmental agencies much like a
marriage. Based on my experience, EPA sees us in the light of a paternalistic par-
ent-child relationship, a relationship that is not healthy and that we must both
work to change.
In the 1970s State environmental agencies may have been immature, inexperi-
enced and, dare I say it, problem children. But we are in the 1990s now, 30 years
into the era of active governmental environmental protection. The States have ma-
tured and proven that they can and are willing to meet the shared goal of the Fed-
eral and State governments to protect the environment and public health.
It is time for Washington and the EPA to cut the cord and give States the inde-
pendence and flexibility they need to meet each States needs. States want, and de-
serve, as you heard a witness from the Department of Justice state in her testimony
before your committee in June of this year, to be partners with the Federal Gov-
ernment, independent and responsible partners, with a greater role in the decisions
that affect our States, our people, our environments and our livelihoods.
On May 23, 1995, Texas enacted the Environmental, Health, and Safety Audit
Privilege Act (the Audit Act). This legislation provides limited immunity and privi-
lege for the results of environmental self-audits. A law that promotes a spirit of co-
operation between the regulator and those we regulate in achieving what we all
wantclean air, clean water and safe landis beneficial to all citizens of Texas.
Providing entities an incentive to do their own self-analyses, to prevent pollution be-
fore it happens, and to promptly correct any problems they discover is a sound and
reasonable approach. However, not everyone agrees with the fundamental basis of
this laweven though 23 States to date have adopted laws encouraging this type
of partnership. The practical reality is that the field of environmental regulation has
evolved significantly over the past twenty years, moving consistently away, and
rightfully and properly so, from the gotcha mentality toward the type of coopera-
tion embodied in environmental self-audit laws.
Rather than embracing these innovative State approaches and providing Federal
support, however, EPA has been a persistent antagonist. Delegation to Texas of
Federal environmental programs has been threatened, and ultimately Texas was
forced to compromise by amending its audit law to address some of EPAs concerns
in order to get delegation back on track.
The Audit Act provides a limited privilege for certain information that is gen-
erated through a voluntary environmental audit and that is properly included in the
audit report. It also provides immunity from administrative and civil penalties. Be-
fore its recent amendments, the Audit Act provided a limited immunity from pen-
alties for a small subset of criminal violations, while specifically not extending the
immunity to intentional and reckless conduct. It is important to highlight that the
Audit Act never provided immunity from enforcement of environmental laws, but
merely from the end product of that enforcementthe imposition of penalties. Prob-
lems or threats would be corrected through injunctive relief and similar tools.
Among the conditions for penalty immunity is the requirement that the auditing en-
tity must cooperate in the agencys investigation of the disclosed violations, and
must initiate and complete corrective actions within a reasonable amount of time.
Thus the Audit Act provides streamlined enforcement approach that fully addresses
83
violations that might never otherwise come to light. Normal agency enforcement ef-
forts proceed at full force, unaffected by these additional disclosures.
There are essentially two underlying facts that make it eminently sensible for us
to promote self-policing by regulated entities. First, the complexity of modern envi-
ronmental regulation makes it extremely difficult for a regulated entity to be in
compliance and to know whether it is fully in compliance. Second, the limitation on
State enforcement resources found throughout the country, coupled with the immen-
sity of the regulated community, makes it quite possible that, left to a traditional
enforcement schedule, violations will go undetected and thus uncorrected. By provid-
ing a limited privilege and immunity for voluntary environmental audits, Texas is
able to encourage self-evaluation and compliance while maintaining its diligent tra-
ditional enforcement efforts. Thus, the voluntary disclosures by entities that conduct
audits and promptly correct violations to receive immunity from penalties enhances
the results of our enforcement activities.
II. THE STATE-FEDERAL RELATIONSHIP UNDER STRAIN
State environmental agencies, not the EPA, conduct the vast majority of inspec-
tions to check for compliance with both Federal and State environmental laws and
are primarily responsible for enforcement in most instances. Nine out of ten enforce-
ment actions in this country are brought by State environmental agencies.
States have an adequate and talented pool of environmentally educated and
trained engineers, technicians, lawyers and public policy experts. In fact, according
to former EPA Administrator William Ruckelshaus, State environmental protection
programs have grown to employ 54,000 men and women, versus 18,000 for the EPA.
Where in the past States may have had to rely on EPA for human resources that
were in short supply, States now have good, sophisticated and knowledgeable per-
sonnel.
As the Texas Legislature was analyzing its pending self-audit bill in 1995, the
Clinton Administration declared that the adversarial approach that has often char-
acterized our environmental system precludes opportunities for creative solutions
that a more collaborative system might encourage. President Clinton and Vice
President Gore, Reinventing Environmental Regulation, Inside EPA Weekly Report:
Special Report, March 16, 1995. The Texas Legislature approved the Audit Act in
May 1995, believing that it had, in line with and supportive of the Presidents dec-
laration, provided the regulated community with a tool to achieve and monitor com-
pliance in cooperation with the TNRCC, so that they might be enabled to start
thinking beyond compliance in just such a collaborative system.
The EPA did not provide Texas with guidance regarding the potential impact of
the Audit Act on the delegation of Federal environmental programs until well after
the law was passed by the Texas Legislature. Oregon had passed the first environ-
mental self-audit law in July 1993. However, EPA did not issue its guidance, State-
ment of Principles: Effect of State Audit Immunity/Privilege Laws On Enforcement
Authority for Federal Programs, until February 1997. Memorandum from Steven
A. Herman, Asst. Administrator, EPA, et al. to EPA Regional Administrators (Feb.
18, 1997).
The first indication of the potential for Federal objection to the Audit Act came
after the EPA raised issues related to the Idaho environmental self-audit statute in
the context of Idahos application for approval of Clean Air Act Title V delegation.
A simple memorandum from EPA Headquarters to the EPA Region X Regional
Counsel in April 1996 announced the beginning of the debate. Memorandum from
Steven A. Herman and Mary Nichols, Asst. Administrators, EPA to Jackson Fox,
EPA Regional Counsel, Region X (April 5, 1996) (Effect of Audit Immunity/Privilege
Laws on States Ability to Enforce Title V Requirements). This occurred almost one
full year after the Texas law was enacted. Shortly after the April 1996 memoran-
dum, EPA raised similar issues in the context of Texas application for approval of
its Title V program.
The debate escalated shortly thereafter as the Environmental Defense Fund of
Texas (EDF) petitioned EPA to withdraw delegation to the State of Texas of the Un-
derground Injection Control program, based in part on the opposition to environ-
mental self-audit laws that EPA had expressed in the April 1996 Title V memoran-
dum. The EDF petition is still pending.
The Texas Senate Natural Resources Committee held hearings in September 1996
on the implementation of the Act. It found that the majority of concerns about the
Audit Act focused on the potential for withholding of delegation, not about lack of
protection for our citizens. Texas Senate Natural Resources Committee, Interim Re-
port to the 75th Legislature, Effectiveness of the Environmental Audit Legislation
(Sept. 1996).
84
As Texas struggled for clear guidance from EPA regarding which specific provi-
sions of the Audit Act EPA considered in conflict with regulations controlling delega-
tion, some States, such as Utah, received specific recommendations from EPA on
statutory changes that would pass EPA muster.
In November 1996, 15 State environmental commissioners officially requested a
meeting with EPA Administrator Carol Browner to seek a way to cooperatively ad-
dress this issue. The request went unanswered until Administrator Browner finally
agreed to a meeting in early March of this year, shortly before the National Gov-
ernors Association was to meet in Washington. At that time, a coalition of more
than ten States met with Administrator Browner and her staff and presented what
was thought to be a reasonable compromise that the EPA would grant a 2-year eval-
uation period of State environmental self-audit laws to States whose attorney gen-
eral had certified that the State had the necessary regulatory authority to carry out
any new or existing program. Administrator Browner rejected the proposal outright,
telling States there would be no moratorium and the only way to resolve dif-
ferences would be for each State individually to enter into a negotiation with EPA
officials in which they would be told what changes would be necessary for their
States law to be deemed acceptable by EPA for purposes of retaining or achieving
delegated programs.
Shortly after that meeting, EPA Assistant Administrator for Enforcement and
Compliance Assistance, Steve Herman and former EPA Region VI Regional Admin-
istrator Jane Saginaw, in a meeting with Governor George W. Bush, assured Texas
that there were only a few changes needed to the Audit Act, that the negotiations
would be quick, and that if successful, the Audit Act would no longer be a barrier
to delegation. In that meeting the Governor made it abundantly clear, having been
involved in similar negotiations with another Federal agency over welfare reform
and State flexibility, an initiative that was derailed by the Clinton Administration,
that he had grown tired of the State negotiating against itself. He made it clear that
if we took steps in Texas to address this issue to EPAs satisfaction, he expected
no more issues to be raised, for petitions challenging our existing program delega-
tion to be dismissed, and for programs that we desire to have delegated to us to
be delegated.
Texas came to the table with proposed revisions addressing the specific concerns
EPA had voiced, such as removing the privilege from criminal proceedings, and
which we agreed would improve our law. On the eve of the legislative filing deadline
for the Texas Legislature in March 1997, high level negotiations between EPA and
Texas officials resulted in a compromise being reached, and specific legislative
changes were drafted. These changes were passed into law and became effective on
September 1, 1997. Tex. Rev. Civ. Stat. Ann. art. 4447cc (Vernons) (as amended by
House Bill 3459, 75th Legislature).
Although these high level negotiations ultimately proved fruitful, a closer look at
the delegation debate shows how the EPA has stretched the common and clear
meaning of the words of its regulations to impose its philosophies and policies on
the States. EPAs opposition to the Audit Act focused on the requirement in Federal
delegation regulations that State civil penalties must be appropriate to the viola-
tion. See, e.g., 40 C.F.R. 145.13. EPA took the position that the State must con-
sider certain criteria, the same criteria contained in EPAs Audit Policy, before ar-
riving at appropriate penalties. For example, EPA maintains that a State must
recoup the economic benefit of non-compliance as specified in EPAs environmental
audit policy. This is a new interpretation of the Federal regulations and one that
conflicts with EPAs expressed interpretation at the time it promulgated those regu-
lations. EPA is in essence applying its own recently developed audit policy as a new
minimum requirement for appropriate penalties under 40 C.F.R. 145.13(c).
This approach has been described as blackmailing the States into adopting EPAs
Federal policy on environmental auditing. Timothy A. Wilkins and Cynthia A.M.
Stroman, Washington Legal Foundation, Working Paper Series No. 69, Delegation
Blackmail: EPAs Misguided War on State Audit Privilege Laws (August 1996). At
the very least, this approach is an improper form of informal rulemaking not in-
tended by Congress.
EPA has also actively pursued its opposition to the Audit Act outside the delega-
tion context. In December 1996 and January 1997, five Texas companies that had
taken advantage of the Audit Act and voluntarily disclosed violations to the TNRCC
were confronted with threatening EPA letters of inquiry regarding those same viola-
tions. These companies today remain under EPA investigation, although they have
cooperated with TNRCC in addressing the disclosed violations. This interference by
EPA in the Texas self-audit program was intentional and without warning to the
State. Companies that had relied in good faith on the provisions of State law are
85
experiencing first hand the problems associated with a conflicting philosophy at the
State and Federal level.
III. THE TEXAS AUDIT ACT
A. The Texas Audit Privilege

The Texas audit privilege attaches automatically to a report generated pursuant
to a voluntary environmental audit. The scope of the privilege is broad and extends
to all materials created in the course of an environmental self-evaluation and prop-
erly included in the audit report. However, there are three major caveats to this
protection from discovery: (1) the privilege does not extend to any information re-
quired to be collected, developed, maintained, or reported under State or Federal
law; (2) the privilege does not extend to any observation of the actual physical
events of violations; and (3) the privilege may be overcome in an administrative,
civil or criminal context where a tribunal determines that the privilege has been as-
serted for a fraudulent purpose or that appropriate efforts to achieve compliance
were not promptly initiated and pursued with reasonable diligence after discovery
of the violation. Therefore, the Texas privilege is appropriately qualified and lim-
ited. A regulatory agency or a third party has potential access to the broad range
of information that would normally be available without this legislation.
Whereas the privilege under the original Audit Act extended to criminal proceed-
ings, the amended Audit Act provides for a privilege only in civil and administrative
contexts. The original Audit Act included the safeguard that where there was evi-
dence of criminal conduct, an audit report could be reviewed in camera.
EPAs fundamental objection to the audit privilege is difficult to reconcile with the
privileges potential to stretch Federal and State resources and to enlist the regu-
lated community in a cooperative enforcement effort, a creative solution in a more
collaborative system, to again use President Clintons words. It is interesting to
note that the concept of a self-audit privilege is not foreign to the Federal Govern-
ment. The Economic Growth and Regulatory Paperwork Reduction Act of 1996
amended the Equal Credit Opportunity Act and the Fair Housing Act to provide a
limited privilege for information generated in a self-test conducted to determine
compliance. This legislation recognizes the wisdom of enlisting the regulated com-
munity in the effort to achieve greater compliance. Where compliance is a matter
that affects the public health and environment, the need to optimize cooperation is
even greater.
B. The Texas Self-Disclosure Immunity
Immunity under the Texas Audit Act provides for relief from any punitive sanc-
tion, but not from all enforcement actionessentially it is a limited penalty mitiga-
tion. As a precondition to immunity, the disclosing entity must cooperate in the
agencys investigation of the violation and must demonstrate correction of the viola-
tions within a reasonable time. When injunctive corrective provisions are deemed
appropriate by the agency, a self-disclosed violation may be pursued through an en-
forcement order or civil proceeding.
As a further condition to immunity, a disclosing entity must provide to the agency
a written disclosure as well as pre-audit notification, both of which are publicly
available. Thus the immunity provision of Texas law competes in some measure
with the privilege gained, and the publics right to information is protected. Further-
more, voluntarily disclosed violations must be recorded in an entitys compliance
history maintained by the agency.
Despite EPAs opposition to the Texas Audit Act, the scope of the immunity provi-
sion has always been appropriately limited, particularly in the criminal context.
Only a narrow range of criminal violations were eligible for immunity under the
original law. Violations that resulted from reckless, intentional, or knowing conduct
were never eligible for immunity. As a result of the compromise with the EPA,
criminal violations are no longer eligible for immunity, without regard to their
significance.
The Audit Act contains several additional limitations on the availability of immu-
nity from penalties. For example, violations that result in substantial harm to per-
sons, property, or the environment have always been ineligible for penalty immu-
nity. As a result of the compromise with the EPA, immunity has been further re-
stricted such that violations that result in risk of injury and violations that result
in a significant economic benefit that results in an economic advantage are no
longer eligible.
C. Texas Experience
Texas now has almost 212 years of very positive experience implementing the
Audit Act. TNRCC enforcement (data demonstrate that despite the existence of
86
audit privilege legislation, TNRCC has maintained its rigorous enforcement stand-
ards. The audit privilege has shifted part of the burden to the regulated community
to fund their own compliance rather than keeping it on the State to fund more in-
spections. As the following figures demonstrate, the TNRCC has maintained a
strong inspection/enforcement presence to police the regulated community and to
provide a disincentive to fraudulent misuse of the audit legislation.
Fiscal year 1994 Fiscal year 1995 1 Fiscal year 1996 Fiscal year 1997
Total Inspections 2 ................................. 42,611 34,305 39,031 41,803

Notices of Violation Issued 3 ................. 5,297 13,412 13,433 12,129
Formal Enforcement Actions Initiated ... 711 618 621 907
Orders Issued ......................................... 346 795 666 664
Monetary Penalties Due ......................... $5.03 million $5.03 million $6.87 million $4.05 million
Audit Disclosures ................................... NA 1 44 53
1 The TNRCC Fiscal Year runs through August. The Audit Act was enacted May 23, 1995.
2 Includes regularly scheduled facility inspections as well as complaint investigations.
3 Fiscal year 1994 figure includes only notices of violation issued by the central office. The other figures include notices issued by TNRCC
field offices.
Although the number of disclosures is not large relative to the number of tradi-
tional enforcement actions, it is a positive number, reflecting improved environ-
mental conditions, improved compliance status, and heightened managerial environ-
mental responsibility. And this number has been achieved despite the unnecessary
cloud of uncertainty created by EPAs position regarding self-audit legislation.
As of this date, the TNRCC has received approximately 650 notifications of intent
to conduct a voluntary environmental audit. Participants include: municipalities;
universities; navigational districts; the United States Air Force; newspapers; filling
stations; food and food products companies; barge and ship cleaning operations; the
United States Department of Energy; paper and paper products manufacturers;
automobile manufacturers; computer and computer parts manufacturers; electric
utility services; cement manufacturers; metal manufacturers; waste disposal compa-
nies; petroleum refineries; petrochemical plants; and chemical manufacturers. These
entities range from small businesses to billion dollar corporations.
A majority of the notices indicate that the audits will be multi-media covering all
environmental regulations and permits. Therefore, through use of the environmental
audit tool, multi-media evaluations, which are encouraged by EPA and the TNRCC;
but which we have limited resources to conduct through inspections, are signifi-
cantly enhanced.
Approximately 100 of these audits have resulted in voluntary disclosures of dis-
covered violations. A total of 430 individual violations have been disclosed, and
these either have been or are in the process of being diligently corrected. The major-
ity of violations are air violations, ranging from record-keeping problems to
exceedences that necessitate permit amendments or reevaluation of grandfathered
exemptions. Several companies have reported inadequacies with air emissions in-
ventories and toxic release inventories. Others have reported inadequacies with spill
prevention and countermeasure containment plans, contingency plans, and person-
nel training programs. In one case a company reacted quickly to the discovery of
falsified operating log entries by firing the responsible employee and retraining the
other employees involved in data entry.
Simply put, many of these violations would not have been detected in a routine
compliance inspection. Voluntary stack tests and other expensive sampling protocols
which go above and beyond the regulatory requirements are the foundation for
many of these disclosures. Erroneous log or other data entry problems are difficult
to detect through any means other than a self-audit. In addition, a number of the
audits investigated historical compliance for periods extending more than a decade.
Although not hindered by a statute of limitations, the TNRCC and other Texas
agencies would not normally review records of this vintage when conducting inspec-
tions.
All of these disclosures have occurred without disruption of the normal enforce-
ment process. We have conducted our inspections as scheduled; brought enforcement
actions where appropriate using required reports and our own information; and dili-
gently scrutinized the regulated community as our statutes and delegation authority
require. Yet, without regard for our real-life results and Texas general enforcement
record, EPA threatened withholding of delegation of Federal regulatory authority,
claiming that the Texas Audit Act results in inadequate enforcement authority.
87
IV. CONCLUSION: THE NEED FOR FEDERAL LEGISLATION
The lack of Federal cooperation in the implementation of State self-audit laws has
created needless tension and uncertainty that hampers State efforts to experiment
with innovative enforcement tools and deters regulated entities from utilizing them.
Federal legislation expressly allowing States authority to pursue such innovations
would be a welcome development.
EPAs policy on environmental auditing states, As always states are encouraged
to experiment with different approaches that do not jeopardize the fundamental na-
tional interest in assuring that violations of Federal law do not threaten the public
health or the environment, or make it profitable not to comply. 60 Fed. Reg. 66706,
66710 (Dec. 22, 1995). The Audit Act has always satisfied these conditions.
It appears that Federal legislation is necessary to restore the States ability to
pursue innovative enforcement that differs from EPAs preferred policies. United
States Senate Bill 866 explicitly preserves the rights of the States to enact audit
privilege and immunity laws and does not preempt State law in State actions
brought under Federal laws for which the State has been delegated primary enforce-
ment authority. Furthermore, S. 866 contains several admonitions to Federal agen-
cies to preserve the intent of State audit laws.
Next week, EPAs Office of the Inspector General will be visiting the TNRCC to
begin an investigation of our implementation of the Texas Audit Act. We hope the
visit is used as an opportunity to understand the benefits Texas has derived from
the use of this enforcement tool, to finally recognize its merits, and to prepare for
implementation of the Federal environmental audit privilege and immunity legisla-
tion that we hope will be enacted during this congressional session.
PREPARED STATEMENT OF PATRICIA S. BANGERT, DIRECTOR OF LEGAL POLICY,

ATTORNEY GENERALS OFFICE, STATE OF COLORADO
My name is Patricia Bangert. I am the Director of Legal Policy for the Attorney
Generals Office in Colorado. I am submitting this testimony on behalf of Gale Nor-
ton, the Attorney General of the State of Colorado. We appreciate the opportunity
to address the important subject of State voluntary audit laws.
INTRODUCTION
We want to accomplish three things in this testimony. First, we want to clear up

some misconceptions about our State voluntary audit law. Second, we want to tell
you about some problems weve been having in fully implementing the law. Third,
we want to urge you to take legislative action.
Colorado had one of the first voluntary audit laws in the country. Under the audit
law, businesses, individuals, and other regulated entities may claim a privilege from
disclosure in civil, administrative and criminal matters for voluntary self-evalua-
tions if violations found in the evaluation are corrected. A voluntary self-evalua-
tion is a self-initiated assessment, audit or review, not otherwise expressly required
by law, performed for a company or person to determine whether the entity or indi-
vidual is in compliance with environmental laws.
The Colorado law was also the first to grant a limited immunity from fines for
disclosures of violations discovered in audits. Specifically, the law grants businesses,
individuals, and other regulated entities immunity from fines for civil, administra-
tive and negligent criminal violations when a violation is discovered in a self-audit
and corrected. Colorado legislators were careful to craft exceptions to both privilege
and immunity provisions so that the provisions could not be misused. I will explain
some of those exceptions below.
MYTHS AND REALITIES
We think that our law is a positive step forward in protecting the environment
of Colorado. Others, however, oppose our statute and the voluntary audit laws of
other States. We think that much of this opposition is based upon some basic mis-
understandings of the language and effects of the statutes. We want to mention here
three basic misunderstandings and attempt to correct them. These myths and the
realities are as follows:
1. Myth: The audit law allows companies to hide information from regulators. Re-
ality: Audit laws do not in any way affect the ability of regulators to get information
necessary to determine compliance with the laws. In fact, audit law encourages the
creation of information and the undertaking of analyses that would not otherwise
be available to a company or regulator.
88
The Colorado voluntary audit law applies to voluntary self-examinations. The
statute does not allow companies to hide information that is required to be reported
to regulatory agencies. The law does not allow companies to shield factual informa-
tion necessary to determine compliance with the environmental regulations. Federal
and State environmental regulators have no less authority to inspect and monitor
facilities under the audit law than they did before its passage.
What the audit law does, in reality, is to encourage companies and other regu-
lated entities to develop information that neither they nor the regulators had before
the law was passed, specifically, to encourage companies to voluntarily examine
their own environmental compliance and to correct any deficiencies. This is espe-
cially important for small businesses. Large companies can protect audits through
the privilege accorded attorney-client communications. Small companies often can-
not afford to hire attorneys, and, thus, need the ability to voluntarily evaluate their
compliance with environmental laws without providing regulators a blueprint for
enforcement action. This is accomplished in the audit law through the privilege pro-
visions. The immunity provisions of the audit law encourage both large and small
businesses to report violations discovered and work with the State Department of
Public Health and Environment to correct them.
2. Myth: The audit law would result in greater environmental degradation by al-
lowing companies to commit violations of the environmental laws and then hide the
violations. Reality: The audit law represents a positive environmental gain because
it results in violations being discovered and corrected, violations that probably
would not have been found absent an audit.
The Colorado audit law applies only if violations discovered in a voluntary self-
audit are corrected. The privilege does not apply if a company finds a violation and
that violation is not corrected. In addition, immunity will not be granted if the viola-
tion reported is not corrected. In short, there is a positive environmental gain from
the voluntary audit law. Self-examinations that would not otherwise be done are
being done; violations that would not have been discovered are being discovered and
corrected.
3. Myth: The audit laws away the authority of regulators to prevent harm to the
public and the environment. Reality: Regulators have ample authority under the
audit law to prevent abuses or harm to the public and to the environment.
A court or administrative law judge can order the disclosure of an audit if any
person can show: (1) that the person or entity seeking the privilege is not acting
to correct violations found in the audit; (2) that compelling circumstances require
the audit to be disclosed; (3) that the privilege is being asserted for a fraudulent
purpose or that the audit was done to prevent disclosure in an ongoing or imminent
investigation; or (4) that information in the audit shows a clear, present and im-
pending danger to the public health or environment outside of the facility. Further,
the privilege from disclosure granted in the audit law does not apply to any informa-
tion or documents required to be maintained, reported or available to regulators
under any law or regulation; information acquired independently by regulators; or
documents prepared before or after the audit.
In addition, disclosure immunity may not be granted for violations not corrected,
or for disclosures required to be made under an entitys permit; or to entities with
a history of violations. Finally and most important, disclosure immunity goes only
to fines for civil, administrative and negligent criminal penalties. The regulators re-
tain full authority to issue compliance orders, to get injunctive relief, to secure any
remedy other than fines, and to prosecute criminally those who blatantly violate the
environmental laws.
THE COLORADO EXPERIENCE
From the passage of the Colorado audit law to this date, 25 entities have made
28 disclosures and requests for immunity under the law. (Some companies made
more than one disclosure and request for immunity.) The Department of Public
Health and Environment granted 17 of these requests in whole, 1 request in part,
and denied 5 requests. Five requests are still pending. The violations involved the
following programs: water (5 disclosures), air (15 disclosures), and waste (8 disclo-
sures).
Of the disclosures made, many have led to actions that will provide long-term en-
vironmental benefits and will enhance compliance. These benefits include: conduct-
ing staff training in environmental procedures; modifying company practices that re-
sult in violations; and discontinuing certain emissions entirely. In addition, disclo-
sures were received from at least nine companies or emission sources that were not
known to the States regulators because they were operating without certain per-
mits, and were not likely to have been discovered independently by State inspectors.
89
These self-identified companies are now in the system and their compliance can
be tracked by regulators. In fact, many of the violations reported would not have
been found by regulators under the States present regulatory scheme, or by com-
pany officials, absent a self-evaluation.
Colorados voluntary audit law, then, has resulted in positive environmental
gains. More could be done, however. There are thousands of permitted facilities in
Colorado. Twenty-eight voluntary disclosures constitute a very low percentage of
regulated entities. We believe that more persons and entities would utilize the pro-
visions of the audit law if not for independent action and threats of action by the
Environmental Protection Agency against companies utilizing the audit laws.
EPA INTERFERENCE AND THE POTENTIALLY FAILED EXPERIMENT
Another aspect many people fail to understand about the Colorado voluntary
audit law is that it is an experiment. Many years ago, Justice Holmes described the
States as the laboratories for democracy. The audit laws are perfect examples of
States experimenting with a concept that may potentially result in significant envi-
ronmental gains. The command and control method of environmental regulation
has proven to be less than totally effective in promoting compliance with environ-
mental laws. For one thing, we simply do not have the resources to do all the in-
spections and monitoring that would be needed to get 100-percent compliance. Ev-
eryone now agrees that something more is needed to encourage companies to volun-
tarily look at their own compliance and correct deficiencies. Many States are experi-
menting with audit laws to determine whether those laws may be part of that
something more.
Colorados voluntary audit law applies only to audits, and, thus, to disclosures
arising from those audits performed before June 30, 1999. Our lawmakers gave the
audit experiment five years to prove itself or fail. Because of interference by a Fed-
eral agency, that experiment may never be fully completed. Specifically, the Envi-
ronmental Protection Agency appears to be doing its best to ensure the failure of
the audit experiment.
We would point to two principal ways in which EPA is thwarting State initiatives
in the voluntary audit area:
1. Requiring States to change their audit laws by utilizing the power to revoke
State delegations under the environmental statutes; and
2. Threatening or taking actions against companies who utilize audit laws under
the Agency authority to overfile and request information.
The Environmental Protection Agency has made no secret of its dislike for State
audit laws. We have no doubt that the Agency truly believes that its position on
those laws is the correct one. The problem this presents for the States, however, is
that the Agency is utilizing its various authorities under the environmental laws to
compel States to change their audit statutes and to discourage companies from uti-
lizing those laws.
First, EPA has successfully intimidated several States into amending their audit
laws. As you know, EPA has the authority to delegate, and the authority to revoke
delegations of authority to carry out many of the environmental laws to the States.
For several years, EPA has threatened to revoke delegations under the Clean Water
Act, the Clean Air Act and RCRA in States with audit laws.
Of late, the Agency has embarked upon a course of negotiating individually with
States to address issues with delegated programs. The results of the negotiations,
not surprisingly, have been that the States are required to change their laws so that
their provisions are satisfactory to the Federal agency. Also not surprisingly, the
new State statutes look very much like EPAs own audit policy. For example, in
Texas, the EPA required the State, among other changes, to eliminate the applica-
tion of immunity and privilege provisions to criminal actions and to eliminate im-
munity where a violation results in a serious threat to health or the environment
or where the violator has obtained a substantial economic benefit from the violation.
What is left in the Texas statutea privilege in civil actions and immunity from
the gravity component of civil and administrative fineslooks very much like the
EPA Final Policy on Environmental Audits. In short, EPA has embarked upon a
campaign to make State audit policys mirror images of its own. It is truly a sad
state of affairs when a Federal agency can dictate the contents of legislation to a
sovereign state.
Several months ago, EPA began negotiations with Colorado State officials regard-
ing our audit law. The Agency required negotiations after receiving a petition from
a citizen group requesting the Agency to revoke the States delegation under the
Clean Water Act. Those negotiations are ongoing and we would be happy to keep
you informed about their progress.
90
The second way in which EPA is thwarting State initiatives in the audit area is
by discouraging companies from utilizing audit laws. The Agency has successfully
done this by taking actions, or threatening action, which appears to retaliate
against companies that do not use the provisions of the audit law. These actions in-
clude overfilings and burdensome requests for information. Our experience in Colo-
rado has been that EPA has dramatically increased actual and threatened overfil-
ings. From October 1995 through September 1996, EPA overfiled in only two cases
in the entire United States. In the first 4 months of this year, EPA overfiled in
three cases in Colorado alone and has threatened to overfile in at least 10 more.
In each instance in which EPA has overfiled, violations were corrected and there
was no continuing harm to the public or the environment. The EPA brought its case
solely because it disagreed as a policy matter with the amount assessed in fines by
the State against the violator. Following are the companies against which EPA
overfiled and the fines sought by the State and by EPA:
Company State Fine EPA Fine
Denver Radiation ............................................................................................................................. $160,000 $466,000

Conoco ............................................................................................................................................. 33,000 666,771
Platte Chemical ............................................................................................................................... 400,000 1,200,000
In addition, EPA has specifically threatened to overfile against three entities re-
garding disclosures made under Colorados audit law: the Denver Water Board,
Total Petroleum, and Western Mobile. Perhaps as a prelude to an overfile, the Agen-
cy has burdensome requests for information to at least one of these entities.
The Denver Water Board, a quasi-governmental entity supplying water to Denver
residents, voluntarily audited its environmental compliance in 1995. During the
course of that audit, it found several violations of the Colorado Water Quality Con-
trol Act and hazardous waste requirements for small quantity generators. Imme-
diately following its discovery of the violations, the Water Board began to take cor-
rective action. All violations were corrected to the satisfaction of the State Depart-
ment of Public Health and Environment and the Board requested immunity from
fines. That request is presently under consideration by the Health Department. In
all probability, none of the violations discovered in the Boards audit would have
been found by regulators or the Board absent the voluntary self-evaluation.
The EPA rewarded the Water Board for its initiative by requesting hundreds of
pages of documents from the Board regarding the violations. Nothing can be more
intimidating to companies wanting to use the audit law than the EPA actions.
Under the States audit law, information disclosed by a business or person seeking
immunity from fines becomes public upon disclosure. This information may then be-
come a blueprint for enforcement actions by EPA if it wishes to overfile or seek fur-
ther information. Potential Federal action, then, discourages the use of the audit
law. In fact, I have personally spoken to several attorneys representing Colorado
companies and they have indicated that they would not advise their clients to utilize
the audit law because of the threat of Federal action. These companiesspecifically
those large enough to hire experienced environmental counselwill simply protect
audits under attorney-client privilege.
What is lost under the present state of the laws is the means and incentive for
small companies to do audits and for all companies to voluntarily disclose and cor-
rect violations. This brings us to the subject of Federal legislation.
THE NEED FOR FEDERAL LEGISLATION
We believe that some type of Federal legislation is required in order to fully carry
out the audit experiment. As you know, there have been numerous bills introduced
in the past several sessions of Congress, ranging from a Federal audit privilege and
disclosure immunity bill to legislation simply prohibiting Federal action against an
entity utilizing a State disclosure immunity provision. We do not comment here on
which type of bill might be preferable. Because of the real and perceived threat of
Federal action against companies and persons utilizing audit laws, we would urge
you to consider at least some legislation protecting entities who disclose violations
to State regulators.
The Department of Justice and EPA have argued that EPAs Final Policy State-
ment on Environmental Audits is sufficient to provide businesses and individuals
with the protection they need under Federal law. But EPAs policy is just that
a policy that can be changed at will, and on a case-by-case basis, by the Agency.
The Final Statement says:
91
The policy is not final agency action, and is intended as guidance. It does not
create any rights, duties, obligations, or defenses, implied or otherwise, in any
parties.
In light of that disclaimer, the promises contained in the Policy do not carry a
lot of weight. The EPA Policy, then, is insufficient to provide the type of protection
that is needed to make the State audit experiment successful. Unfortunately, the
EPA will not voluntarily stop its aggressive war on State audit programs. Federal
legislative action, then, is needed to bring about a cease-fire.
IN CONCLUSION
On behalf of Gale Norton and myself, we again thank you for this opportunity to
testify regarding State audit laws. We would be happy to offer any help that we
can provide in securing legislative solutions to the problems outlined here.
PREPARED STATEMENT OF PAUL G. WALLACH, ESQ., SENIOR PARTNER, HALE AND

DORR, LLP; ON BEHALF OF THE NATIONAL ASSOCIATION OF MANUFACTURERS
(NAM) AND THE CORPORATE ENVIRONMENTAL ENFORCEMENT COUNSEL (CEEC)
Mr. Chairman and members of the Committee, my name is Paul Wallach. I have
practiced environmental law for some 20 years and am a senior partner in the
Washington, DC, office of the law firm of Hale and Dorr, LLP. I have prepared a
longer written statement and respectfully request that it be entered into the record.
I am here today on behalf of the National Association of Manufacturers (NAM)
and the Corporate Environmental Enforcement Council, Inc. (CEEC). NAM is the
Nations oldest and largest broad-based industrial trade association. Its more than
14,000 member companies and subsidiaries, including approximately 10,000 small
manufacturers, are in every State and produce about 85 percent of U.S. manufac-
tured goods. Through its member companies and affiliated associations, the NAM
represents every industrial sector and more than 18 million employees.
CEEC is an organization of 22 diverse major companies with a strong commit-
ment to the environment and environmental compliance programs. CEEC is com-
prised of senior environmental managers and corporate counsel from a wide range
of industrial sectors. It focuses exclusively on civil and criminal environmental en-
forcement public policy issues, and the overall need to ensure that environmental
enforcement serves the goal of environmental protection. I have also brought with
me a copy of CEECs recently issued Platform for Effective Environmental Compli-
ance and Enforcement which includes a review of the importance of and the need
to eliminate obstacles to auditing, and respectfully request that it also be entered
into the record on behalf of CEEC.
NAM and CEEC appreciate the opportunity to testify today. Both organizations
have carefully considered the issues relating to auditing and voluntary disclosure.
Without question, the failure to have in place adequate and certain protections for
voluntary audits has created strong disincentives and obstacles to auditing. In the
face of these obstacles many regulated entities have chosen to audit, but the current
lack of protection for these audits has a very real chilling effect, which often limits
the utility, intensity and scope of audits that are undertaken. These obstacles im-
pede our ability to achieve the overriding goals set by Congress in enacting our envi-
ronmental lawsthe protection of human health and the environment.
Those environmental goals will not be realized, however, unless the environ-
mental regulatory system is structured to promote voluntary compliance. Members
of the regulated community must be able to fully implement voluntary programs to
candidly assess, prevent, detect, and correct violations of a regulatory requirement,
as well as situations which have the potential to threaten the environment or public
health and safety. Yet, the system in place creates obstacles and disincentives for
such programs, and for auditing in particular. Thus, we believe that properly-crafted
Federal legislation is long overdue and urgently needed. It is about moving into the
future, or as some may say the bridge into the 21st century of environmental protec-
tion.
Mr. Chairman, let me pose the policy issue another way. A manufacturer, univer-
sity, governmental entity, hospital, or any other responsible regulated entity that
aggressively auditsas well as their management and environmental personnel
should not be placing themselves in a position of greater potential liability than
those who do not. Yet, that is exactly what is happening today under our current
system. Documents and information developed through voluntary self-evaluations
can be and are used against regulated entities in a variety of contexts, including
enforcement actions, citizen suits or third-party tort actions. The concerns are
92
heightened by the massive potential civil penalties and the very real possibility of
criminal convictions of regulated entities and individuals for inadvertent conduct.
Indeed, overcriminalization of our environmental laws in a fashion not intended by
Congress presents substantial policy issues which we believe Congress should sepa-
rately consider.
Over the past decade we have witnessed tremendously proactive and environ-
mentally positive actions by the regulated community, including the development
and use of sophisticated voluntary environmental auditing programs and compliance
management systems. This has resulted in substantially higher rates of compliance
and improved environmental performance. In a bipartisan fashion Congress itself
recognized the substantial benefits of voluntary auditing, for example, when it
strongly encouraged the practice in the Conference Report for the Clean Air Act
Amendments in 1990. Yet, because of the extraordinary potential liabilities, many
regulated entities remain reluctant to proceed with aggressive auditing programs,
and those who do take steps to protect themselvesranging from not putting spe-
cific findings in writing, to utilizing the attorney-client privilegewhich greatly re-
duce the utility and benefits of audits that are undertaken.
NAM and CEEC support Federal legislation because they see a very important
opportunity for the environment. We are here today with the hope that this oppor-
tunity is not lost in a cloud of rhetoric and skepticism. The regulated community
wants to voluntarily audit their facilities, correct noncompliance and improve their
operations. However, it is not fair, much less good policy, to expose those who do
so to enhanced potential liability. Thus, it is important to consider carefully and
parse the rhetoric of those who oppose even thoughtfully crafted legislation. Perhaps
most puzzling is the position of EPA. Although the Agency has repeatedly empha-
sized that it never seeks to obtain audit reports, it claims that the failure to allow
it to obtain these reports will create secrecy and impede its ability to enforce the
environmental laws. EPA cannot have it both ways.
And upon analysis, it can be seen that the parade of horribles that opponents
of Federal legislation have identified cannot be substantiated, unless one exagger-
ates both the nature and scope of responsible Federal audit legislation. There would
not be blanket immunity. Nor would intentionally bad actors receive any protec-
tions for criminal violations. Nor will environmental protection suffer. To the con-
trary, aggressive auditing will uncover previously unknown deficiencies which must
then be quickly corrected. Nor would an audit law result in secrecy. Much of the
underlying information contained in an audit is available elsewhere in the broad
range of information that is required to be collected and disclosed under environ-
mental laws. Information that would otherwise not have been known would be made
routinely available as a result of the disclosure requirements.
Looked at from another perspective, EPA should be asked how legitimate a case
is if the Agency can only pursue it because a regulated entity voluntarily reported
a violation and promptly corrected it. What purpose does enforcement serve in that
situation? Isnt the public policy issue of compliance better served by encouraging
self-assessment and timely correction than by gratuitous enforcement? And, more
importantly, isnt the environment better served by encouraging early detection of
problems and immediate correction?
In a resounding recognition of the many benefits, 23 States have enacted legisla-
tion offering qualified protections for audit reports and/or voluntary disclosures, or
both. Oregon enacted the first such statute in 1993. Rhode Island enacted its law
in 1997.
While EPA has also repeatedly recognized the benefits of and need to remove ob-
stacles to auditing and voluntary disclosure, it has to date not been willing to sup-
port the legislative actions at the Federal or State level necessary to do so. In fact,
the Agency has vigorously opposed Federal legislation and brought extreme pressure
to bear on those States that have adopted or considered itby threatening with-
drawal of delegated programs, as well as by extraordinary scrutiny of regulated en-
tities that have utilized State laws. This EPA conduct is especially troubling be-
cause it so directly impedes the ability of these State laws to achieve their goals
and because EPA has not pointed to an actual case where the legislation inhibited
State enforcement in any fashion.
EPA did issue a Policy in December 1995, entitled Incentives for Self-Policing;
Discovery, Disclosure, Correction and Prevention of Violation (Policy). EPA should
be commended for this very positive step. The Policy, however, is only a long over-
due penalty mitigation policy for voluntary disclosures. It does not eliminate the
various disincentives and obstacles to auditing and voluntary disclosure that we pre-
viously discussed. Indeed, even if the Policy were perfect, EPA simply does not have
the authority to eliminate the key obstacles and disincentives to auditing. Rather,
only Congress has that power, and, thus, there is a need for Federal legislation.
93
I. AUDITING IS CRITICAL TO THE ACHIEVEMENT OF THE NEXT LEVEL
OF ENVIRONMENTAL PROTECTION
In recent years the use of environmental audits has grown both in terms of com-
prehensiveness and sophistication. Although there are many different types of envi-
ronmental audits, EPA has defined environmental auditing as the systematic, docu-
mented, periodic and objective reviews by regulated entities of facility operations
and practices related to meeting environmental requirements.
Both EPA and the regulated community have long recognized that environmental
auditing leads to significantly higher levels of overall compliance, improved environ-
mental performance and reduced risk to human health and the environment.1 Au-
diting can also be used to review a companys environmental management structure
and resources. By way of example, audits often are used to:
Assess and reduce environmental health and safety risks, both as required by
regulation and on a voluntary basis that goes beyond compliance.
Anticipate upcoming regulatory requirements (which enables facilities to man-
age pollution control in a proactive manner).
Prioritize pollution prevention activities.
Help management understand new regulatory requirements and establish cor-
porate policies.
Assess internal management and control systems.
Measure progress toward compliance.
Improve expeditious communication regarding environmental developments to
facility personnel and, where appropriate, ensure effective communication with gov-
ernment agencies and the public.
Assure that capable and properly trained personnel are available at all times
to perform emergency and other environmental functions.
Evaluate causes for environmental incidents and determine procedures to avoid
recurrence.
Assure sufficient budgeting for environmental concerns.
Provide a means for employee training and performance evaluation.
Maximize resources through recycling, waste minimization, and other pollution
prevention measures, including process changes, that may benefit the environment.
Fulfill various other obligations, such as providing appropriate disclosure to
other agencies (e.g., the SEC), and evaluating the environmental aspects of cor-
porate or real property transactions.
Industry and other members of the regulated community have been extremely
progressive with respect to auditing and the establishment of environmental pro-
grams. Many commentators have predicted that the next generation of environ-
mental compliance will rely on regulatory self-evaluation systemsday-to-day man-
agement systems that include auditswhich will lead to enhanced compliance and
improved environmental performance. We believe that voluntary Environmental
Management Systems (EMS) are important for all entities because they establish
a systematic mechanism to analyze environmental impacts of operations, set goals
for improvement, monitor activities and make adjustments for continued improve-
ment. EMS also provide for integration of environmental concerns into the daily
business operations.
Environmental audits themselves are becoming more sophisticated. Audits have
also been increasingly affected by the needs of multinational corporations and the
desire for consistency among the environmental standards of different countries. Au-
diting techniques are constantly improving as well and are increasingly being in-
cluded as part of value-added business programs. Companies are also utilizing en-
vironmental life-cycle audits to determine the totality of impact that products and
services may have on the environment.
1 Although Congress has not yet protected environmental audits in legislation, it considered
such protection in the context of the Clean Air Amendments of 1990. The Statement of Man-
agers contained the following language:
Voluntarily initiated environmental audits should be encouraged and, in the course of exercis-
ing prosecutorial discretion under the criminal provisions of subsection 113(c), the Administrator
and the Attorney General of the United States should, as a general matter, refrain from using
information obtained by a person in the course of a voluntarily initiated environmental audit
against such person to prove the knowledge element of a violation of this Act if(1) such person
immediately transmitted or caused the transmission of such information to the Administrator
or the State air pollution control authorities, as appropriate; (2) such person corrected or caused
to be corrected such violation as quickly as possible; and (3) in the case of a violation that pre-
sented an imminent and substantial endangerment to public health or welfare or the environ-
ment, such person immediately eliminated or caused the elimination of such endangerment to
assure prompt protection of public health or welfare or the environment. 136 Cong. Rec. S16951
(Oct. 27, 1990).
94
II. THE TENSION BETWEEN AUDITING AND FEDERAL ENFORCEMENT IS GROWING
In recent years, we have witnessed an unfortunate and unintended, but very real,
tension between enhanced auditing and other innovative environmental manage-
ment programs and the significantly enhanced potential liability for regulated enti-
ties and individuals under our environmental laws. Today, the vast majority of regu-
lated entities are managing themselves in an environmentally responsible manner,
with only a handful operating outside the system. Yet, given the unparalleled com-
plexity and lack of clarity of the unique multi-statute environmental scheme and the
myriad applicable regulations, 100-percent compliance is extremely difficult, if not
impossible. The complexity, lack of clarity and vastness of the regulatory scheme
cries out for aggressive auditing and the resulting candid discussions and self-criti-
cal analysis within a regulated entity by the very individuals responsible for envi-
ronmental compliance. However, the very real potential that such auditing can lead
to enhanced liability in specific situations has limited its use.
The primary concern with conducting an audit is the enhanced liability threat.
Federal and State enforcement officials, citizens groups, and third-party litigants
(including plaintiffs in toxic tort actions) may seek, in the course of litigation, to dis-
cover environmental audits as a means of finding a road map for every environ-
mental concern the company may have had and may then misuse the information
to create claims against the company. Even this threat has a substantial chilling
effect. It has led to a reluctance to aggressively audit by many members of the regu-
lated communityparticularly small businesses. For others, we have seen extreme
caution in the scope of audits that are undertaken, frequent use of attorney-client
privilege to protect audits, the writing of non-specific reports and a variety of other
practices that greatly reduce the value of audits to a company and, more impor-
tantly, the benefit to the environment.
I have seen companies using caution repeatedly in my practice, and it has been
consistently underscored by the many representatives of the regulated community
who spoke to EPA during the Audit Policy dialogue. It was also confirmed by Price-
Waterhouse in a surveyThe Voluntary Environmental Audit Survey of U.S. Busi-
ness, 28 (March 1995). According to Price Waterhouse, 75 percent of the corporate
respondents had some sort of environmental auditing program. Yet, the survey also
indicated that there is still a perceived reluctance to expand audit programs, in the
face of possible enforcement. Price Waterhouse noted that when these companies
were asked what factors detract from their willingness to expand their environ-
mental auditing program, more than 45 percent of the respondents stated that
information could be used against them in citizens suits, toxic tort litigation, civil
enforcement actions or as a road map to establish knowledge in a criminal enforce-
ment action. In addition, nearly two-thirds of the companies that perform environ-
mental audits stated that they would expand their programs if penalties were elimi-
nated for problems that the companies themselves identified, reported, and
corrected.
The Price Waterhouse survey also indicated that 81 percent of the companies that
audit try to protect their audits from disclosure pursuant to some sort of privilege,
usually the attorney-client privilege. This necessarily increases the cost and com-
plexity of audits, making them less useful, and often undermining what could have
been a truly constructive effort. It also means that the specific information obtained
by auditing, as well as the attendant learning, is not making their way through the
company, especially to the facility personnel who have the greatest need for the in-
formation, because widespread dissemination is not consistent with the attorney-
client privilege.
III. THE STATES SHOULD BE COMMENDED, NOT CRITICIZED, FOR TAKING THE INITIATIVE
Following careful review of the significant environmental benefits to be gained

from auditing and voluntary disclosure, and with an understanding of the disincen-
tives and obstacles, various States moved to enact legislation protective of audit re-
ports or disclosures, or both. Oregon enacted the first audit protection statute in
1993. Since then, 22 other States have enacted legislation, including Alaska, Arkan-
sas, Colorado, Idaho, Illinois, Indiana, Kansas, Kentucky, Michigan, Minnesota, Mis-
sissippi, Montana, Nevada, New Hampshire, Ohio, Rhode Island, South Carolina,
South Dakota, Texas, Utah, Virginia, and Wyoming. Even in the face of EPA pres-
sure, other State legislatures are or are expected soon to be considering similar leg-
islation. As you have heard from other witnesses today, to the extent EPA has al-
lowed them to function, these laws have had a strong and positive impact. But these
State laws obviously do not reduce the need for action at the Federal level, as only
Federal legislation can:
provide a qualified privilege under Federal law;
95
provide limited protections under Federal law for environmental violations dis-
closed to EPA and expeditiously corrected; and
prevent voluntarily disclosed information from being used as a road map for liti-
gation against the disclosing entity in governmental enforcement actions, citizen
suits, or toxic tort litigation.
NAM and CEEC have been and remain extremely concerned about EPAs contin-
ued critical and threatening position with respect to Federal enforcement and the
delegation of Federal programs in those States whose legislatures have made the
decision to foster environmental protection and improve compliance by enacting leg-
islation that provides qualified protection for audits and/or voluntary disclosures.
NAM and CEEC do not believe that EPA should be overriding State laws in this
fashion, nor should EPA be compelling States into revoking or severely changing
their audit laws (or intimidating regulated entities that chose to utilize these laws).
Congress intended that the States take the lead and be responsible for implement-
ing most of our environmental laws, and in doing so simply wanted to ensure that
the States had adequate authority to take enforcement actions which they believed
were appropriate. Congress did notas EPA suggestsrestrict the States by requir-
ing them to impose a penalty every time a violation occurs. Nor did Congress intend
for EPA to use its program approval authority to coerce State legislatures if they
deviated at all from EPAs preferred approach.
Stated another way, the States are capable of enforcing environmental laws and
applying legal accountability and compliance assurance in their policies and actions.
The States have demonstrated their commitment to environmental compliance and
enforcement and their innovative legislative programs must be allowed to go
forward.
IV. EPAS POLICY IS A STEP IN THE RIGHT DIRECTION, BUT IS NOT SUFFICIENT
The Policy is not final agency action, but is intended solely as guidance. It is not
intended, nor can it be relied upon, to create any rights enforceable by any party.
Office of Enforcement and Compliance Assurance.
Over the past several years, CEEC has worked closely with senior personnel from
the Office of Enforcement and Compliance Assurance (OECA) on a number of key
enforcement policy issues. We have appreciated the openness of senior officials in
OECA, and especially Assistant Administrator Steve Herman, and the dialogue that
we have developed on enforcement policies and issues. CEEC and NAM also recog-
nize and appreciate the willingness of EPA to consider new and creative approaches
to environmental compliance and enforcement, through its Policy,2 as well by other
activities such as OECAs ongoing evaluation of its performance measures.
At the same time, NAM and CEEC have believed for several years that Federal
audit protection and voluntary disclosure legislation is necessary because EPAs Pol-
icy cannot, by definition and as a result of limitations on the Agencys authority,
eliminate all of the obstacles to self-policing. For example, EPAs policy cannot im-
pact prosecutions by the Department of Justice or other Federal agencies, citizen
2 We note that other Federal agencies and departments have voluntary disclosure and am-
nesty programs. For instance, the FAAs voluntary disclosure policy was instituted in 1990 after
the agency realized that air carriers and [others] could do more to monitor their own regulatory
compliance. In implementing the policy, FAA officials emphasized that because the air carriers
have far greater resources than the FAA and because the issue of air safety is of paramount
importance * * * they should have in place a procedure whereby internal compliance audits are
performed. The policy was designed to provide incentives for deficiencies to be identified and
corrected by the companies themselves, rather than risk air safety by awaiting the results of
an FAA inspection. FAA officials also emphasized that:
the enforcement program is not an end, but is rather a means to achieve compliance with the
Federal Aviation Regulations * * * the FAA believes that aviation safety is best served by in-
centives * * * to identify and correct their own instances of noncompliance and invest more re-
sources in efforts to preclude recurrence, rather than paying penalties.
Federal Aviation Administration, Compliance and Enforcement Bulletin No. 906, March 29,
1990. In addition, the U.S. Occupational Safety and Health Administration (OSHA) first an-
nounced its Voluntary Protection Programs (VPP) in 1982. This program allowed businesses
with exemplary worker protection programs to enjoy a special regulatory relationship with the
agency. The most advanced of the VPPs, the Star Program is available to companies that meet
certain criteria, which establish management systems for preventing or controlling hazards, and
which have a demonstrated history of compliance. In exchange for the company assuming pri-
mary responsibility for compliance monitoring at its facility, OSHA agrees to remove it from
OSHA enforcement inspection lists and offer priority in variance requests and technical compli-
ance assistance.
96
suits, toxic tort actions or State prosecutions. Stated another way, the EPA Policy
is not a substitute for Federal legislation.
During the dialogue on the Policy, many in the regulated community discussed
with EPA why the failure to have in place adequate and certain protections for audit
reports and voluntary disclosures created obstacles to environmental auditing and
had a strong chilling effect which severely reduced the utility of audits that are un-
dertaken. They emphasized that a responsible regulated entity that audits should
not be in a position of greater liability than an entity that does not audit. Nor
should its management or environmental personnel be put at greater risk.
In issuing the Policy (60 Fed. Reg. 66706, December 22, 1995), EPA reiterated
that voluntary auditing and disclosure (i.e., self-policing) by the regulated commu-
nity wereespecially with EPAs limited resourcescritical to achieving environ-
mental protection goals. Although it is still in need of revision, we commend EPA
for improving and clarifying the availability of penalty mitigation for responsible en-
tities. Yet, the penalty mitigation of the Policy falls short of the environmental pro-
tections EPA could have achieved through the adoption of a broader policy. For
example:
A regulated entity that uncovers through auditing and promptly discloses and
corrects a violation and satisfies all of the criteria set forth in the policy still faces
potentially severe penalties.
The Policy does not apply to individuals, who are left entirely unprotected and
as a result will not be encouraged to aggressively identify environmental issues.
The Policy provides EPA with substantial discretion as to whether the various
applicable prerequisites are satisfied, thereby failing to provide the certainty nec-
essary to promote candid, self-critical analyses.
The Policy does not protect information provided to EPA from disclosure to
other government agencies or third-parties, nor does it adopt an alternative ap-
proach that would allow such a disclosure but provide limited protection to those
who disclose.
The limited nature of the Policy, coupled with its exclusive focus on penalty miti-
gation, only underscores the need for comprehensive Federal and State legislation
if we are to achieve the environmental benefits that EPA seeks.
V. WHY FEDERAL LEGISLATION IS IMPORTANT
As discussed above, an EPA policy is not an adequate substitute for Federal legis-
lation. Similarly, the protections offered by the States that have adopted audit laws
are not enough. Moreover, in light of EPAs ongoing campaign against these laws,
there is an increasing need for Federal legislation to clarify the rights and roles of
States in developing audit laws without EPAs undue interference, in addition to es-
tablishing a Federal law that goes beyond the necessarily limited protections State
laws offer.
We are not suggesting that Federal legislation should take away the States rights
to develop their own programs. However, Congress needs to build on the States pro-
gramsas it has in so many other areas where the States are the initial proving
groundsto further Federal policy. Thus, Federal legislation should ensure that
State programs are allowed to develop.
It should also be noted that the elements of the legislation we support are neither
novel nor without precedent. For example, as part of the budget package passed last
year, Congress amended the Equal Credit Opportunity Act (ECOA) and the Fair
Housing Act (FHA) to provide for a privilege for information developed in audits
conducted to determine compliance with the ECOA and FHA. See 15 U.S.C. 1691c
and 42 U.S.C. 3614 note. The Federal law governing skilled nursing facilities clearly
prohibits a State or the Federal Government from requiring disclosure of the records
of a quality assessment, which every nursing home receiving Medicare or Medicare
funds is required to establish. See 42 U.S.C. 1396r(b)(1)(B). In addition, protections
have long been provided for certain disclosures pursuant to the Comprehensive
Emergency Response, Compensation and Liability Act (42 U.S.C. 104(e)(7)(E)) and
the Clean Water Act (33 U.S.C. 1318(b)).
VI. RESPONDING TO CRITICS OF FEDERAL LEGISLATION
NAM and CEEC recognize that Federal legislation needs to be carefully crafted,
and that it should include safeguards to preclude abuse of its limited protections.
Critics of Federal legislation have consistently made a series of generalized charges
to support their concerns about the legislation. These chargeswhile perhaps creat-
ing attractive sound bitesare unsupported, and take aim at hypothesized dangers
and imaginary legislation that does not provide the safeguards that responsible
members of the regulated community so strongly support. These charges include:
97
1. Federal legislation would amount to blanket immunity.
Proposed Federal legislation has not provided for blanket immunity. But it has
proposed to provide environmentally responsible entities with a qualified protection
if the entity establishes that the violation was promptly corrected and disclosed to
the appropriate governmental agency, and the entity provided all further relevant
information requested by the agency. In addition there is no qualified immunity for
repeated violations.
2. The legislation would protect bad actors and promotes secrecy.
Bad actors who intentionally violate environmental laws do not typically take
the time to conduct voluntary self-audits, much less undertake the costly steps re-
quired to comply with environmental requirements in a timely fashion. In any
event, it was never the intention of any Federal legislation to protect willful and
intentional violators, and the pending bills do not do that. Nor will that legislation
in any way restrict EPA s (or the publics) ability to obtain the broad array of docu-
ments, data and other information that is currently available. To the contrary, fol-
lowing enactment of self-disclosure legislation, EPA and the public will have more
information, as much of the information identified by an environmental audit may
be disclosed pursuant to one or more of the many disclosure requirements that are
at the heart of our environmental regulatory system. A list of many of those report-
ing requirements is attached to this statement.
3. Environmental protection will suffer as a result of the legislation.
No basis for this assertion has been seriously suggested, and once again the oppo-
site is true. The limited protections offered by the legislation do not affect the gov-
ernments ability to issue an order or obtain any injunctive relief necessary to pro-
tect public health or the environment. Moreover, effective environmental auditing
typically is more probing and thorough than a regulatory compliance inspection, and
therefore is more likely to uncover deficiencies or instances of environmental non-
compliance than a government inspection. In order to benefit from the voluntary
disclosure component of proposed Federal legislation, an entity must act quickly to
correct any non-compliance. For this reason too, increased environmental auditing
will result in increased compliance with environmental requirements, and ulti-
mately improved environmental protection.
In addition, we believe that environmental protection will be enhanced as the reg-
ulators will be provided with more extensive information about regulatory compli-
ance. As regulators are presented with this increased information about how the
regulations do and do not work in the real world, they will be able to improve upon
existing regulations.
4. The legislation will not impact the behavior of regulated entities.
We do not believe that this is correct. Audit protection/voluntary disclosure legis-
lation will remove obstacles to the voluntary self-auditing process in several ways.
First, entities and individuals that already perform voluntary environmental audits
will be able to do so more candidly and thoroughly and thereby auditing will be
more useful. Second, more entities and individuals will be encouraged to perform
voluntary environmental audits, and to do so aggressively. Third, more companies
and individuals will go beyond compliance, undertaking evaluations that are not
required.
5. The legislation protects factual information about environmental violations from
regulators.
This argument ignores the very narrow scope and qualified nature of the protec-
tions. Protection is not extended to any of the information that is required to be col-
lected under environmental laws. Stated another way, the qualified privilege does
not cover routine sampling or monitoring data or information obtained from an inde-
pendent source. Nor does it restrict the governments ability to use its broad author-
ity to investigate and obtain information related to the underlying facts.
Moreover, as noted previously, such qualified protection will encourage and in-
crease the free flow of information, enhancing the information available to the gov-
ernment and the public. Absent protection for audit reports and related disclosures,
information will not be internally communicated as openly, nor will it all be avail-
able for release. Indeed, neither regulated entities nor individuals will not have the
incentive to aggressively seek to uncover additional information in the first place,
much less disclose it.
98
6. Federal legislation would impede the governments ability to bring environmental
enforcement actions.
Because enforcement officials will continue to have access to all of the information
that regulated entities are required to maintain and disclose and because EPA re-
tains its full inspection and information gathering authorities, qualified audit pro-
tection will not have any effect on the ability of EPA or any regulatory agency to
establish nonconformance with a regulatory requirement. Enforcement officials will
continue to be able to inspect, sample and monitor an entitys compliance under ex-
isting environmental laws, and entities will still be required to comply with all ex-
isting recordkeeping and reporting requirements.
CONCLUSION
Removing the obstacles and providing the proper types of incentives and protec-
tions for voluntarily conducted environmental audits and related disclosures will
only serve environmental goals. Administrator Browner to her credit often cites the
need to use a Common Sense approach to development of effective environmental
policy. Providing incentives and qualified protections for those in the regulated com-
munity that are good citizens and are doing the right thing by trying to find, re-
port and fix any actual or potential environmental problem is Common Sense. Mr.
Chairman, NAM and CEEC look forward to working with Congress in a bipartisan
fashion so Federal audit legislation that is good for the environment can be enacted.
EXAMPLES OF REPORTING OBLIGATIONS TO FEDERAL AND STATE REGULATORY AGENCIES
Clean Water Act

Permit Applications
Spill Plans
Discharge Monitoring Reports
Excursion and Release Reports
Resource Conservation and Recovery Act (and State Analogs)
Permits (Part A & B)
Manifests
Quarterly, Annual and Biennial Reports
Exception Reports
Closure Plans
Emergency & Spill Plans
Underground Storage Tank Registration Release Reports
Clean Air Act
Permits
Release Reports
Monitoring Reports
Excursion Reports
Annual Compliance Certification
SIP-Specific Reporting
NSPS Reports
Emergency Planning and Community Right To Know
LEPC/SERC
Material Safety Data Sheet
Emergency and Hazardous Chemical Inventory Forms
Annual Toxic Chemical Release Forms
Release Reports
Superfund Site Plans
Facility Reports
Toxic Substances Control Act
Registration and Notices for Manufacturing, Processing and Importation of Chem-
ical Substances
Submission of Test Data and Health and Safety Studies
Chemical Information Reporting Requirements
Reporting of Information Relating to Chemicals Posing Substantial Risks
Safe Drinking Water Act
Certification Reports
Under Ground Injection Permits
Under Ground Injection Reports
99
Federal Insecticide, Fungicide, & Rodenticide Act
Registration Reports
Compliance Reports
Occupational Health and Safety Act
OSHA 200 Logs
MSDS
Incident Reports
Securities Requirements
10K Environmental Disclosures
10Q Environmental Disclosures
State-Specific Reporting Requirements (Examples)
Massachusetts Toxic Use Reduction Act Reporting
New Jersey Industrial Site Recovery Act Reporting
California Proposition 65 Reporting
CORPORATE ENVIRONMENTAL ENFORCEMENT COUNCIL, INC.

CORPORATE ENVIRONMENTAL ENFORCEMENT COUNCIL PLATFORM FOR EFFECTIVE
ENVIRONMENTAL COMPLIANCE AND ENFORCEMENT
The Corporate Environmental Enforcement Council (CEEC) is an organization

of diverse major companies with facilities throughout the United States and across
the globe. Member companies share a strong commitment to the environment. They
are supportive of aggressively set environmental goals consonant with a modern
economy. Our members also support proactive, contemporary environmental stew-
ardship dedicated to effective environmental protection and prudent use of re-
sources. We believe such stewardship encompasses a number of elements beyond the
traditional compliance/enforcement approach, including compliance education, pro-
motion of voluntary actions beyond compliance, and a recognition of the importance
of the competitive market place for driving environmental stewardship.
At the same time, CEEC recognizes the need for a strong environmental compli-
ance program and a strong enforcement program that identifies and penalizes sig-
nificant violators who have not availed themselves of compliance options, as well as
those who willfully and intentionally violate our environmental laws. Unfortunately,
in many respects, the current compliance and enforcement programs are neither
properly balanced nor focused.
When the environmental laws were first being implemented in the 1970s, not ev-
eryone moved quickly to adopt their operations and practices to the new environ-
mental requirements, even those for which compliance was not difficult. At that
juncture, well-publicized enforcement was often beneficial, sending the message to
the regulated community that compliance with the new environmental legal struc-
ture was mandatory.
Now, however, the vast majority of the regulated community has demonstrated
its strong commitment to operating within the regulatory structure. Compliance is
the rule, not the exception. The tremendous improvement in the attitude of the reg-
ulated community with respect to environmental protection and compliance prac-
tices has been widely recognized.
EPAs and DOJs approach to environmental compliance and enforcement needs
to more fully evolve to keep up with these changes. As we have found better ways
to achieve our environmental goals, CEEC believes that a new construct for environ-
mental compliance and enforcement is long overdueone that reflects the current
compliance realities; that ensures that sufficient and proper resources are devoted
to environmental compliance; and, that, while a strong enforcement presence is
maintained, enforcement actions are properly directed. We also believe that innova-
tive solutions should be recognized and rewarded and that science, technology and
collective goal-setting should be the tools used to improve environmental perform-
ance. To that end, CEEC has adopted the following set of principles for an effective
environmental compliance and enforcement program:
CEEC PRINCIPLES
The States should be the primary focus for implementation and enforcement of
environmental programs.
While maintaining a strong and focused enforcement program, Agency efforts
and resources should primarily be devoted to compliance.
100
Environmental compliance and enforcement efforts must be directed at achiev-
ing desired environmental goals.
Environmental enforcement should be prioritized at all levels based on the seri-
ousness and the nature of the violation.
Prosecution of environmental criminal violations should be based on intentional
violations of clearly enunciated standards that are interpreted and applied in a con-
sistent manner.
Self-assessment, as well as a qualified immunity where appropriate for vol-
untary disclosures, should be encouraged as the most effective way of achieving our
environmental goals.
The States should be the primary focus for implementation and enforcement of
environmental programs.
As an initial matter, CEEC believes it is time for an immediate and substantive
change in the roles of the various government regulatory agencies.
EPAs Role: EPA should focus on the implementation of environmental statutes,
in particular on the achievement of environmental goals, and not on the specific
method to achieve the goals. With regard to compliance, EPAs policies should focus
on the actual performance result that is wanted and the environmental performance
metrics that will be used to judge the success of compliance with those goals. EPA
should then coordinate and ensure that its policies are uniformly understood by the
States, thereby providing a national baseline as to what environmental result is de-
sired. Enforcement should become principally a State function, with EPA maintain-
ing a strong presence and the ability to step in if a particular State has demon-
strably failed to enforce the environmental laws. EPA should not reflexively consider
a drop in enforcement cases as a sign of failure or a signal that there is something
wrong with a State program. Rather, EPA needs to acknowledge that an increase
in compliance rates is compatible and should necessarily result in a downward turn
in enforcement.
The Role of the Regions: As EPAs relationship with the States changes, the role
of the EPA regional offices would also need to be reexamined. In particular, we be-
lieve that the regional offices are best suited to providing compliance and technical
assistance. In essence, the offices should act as technical consultants to States on
how to best achieve environmental performance results. Any regional policymaking
role should be returned to EPA Headquarters. All unused resources in the Regions
should be transferred to the States to bolster the manpower of the agencies who are
actually implementing and operating the environmental programs. Finally, the Re-
gions should assist EPA Headquarters in policing overall State efforts.
The States Role: The States would then have the primary responsibility for the
implementation of the operating programs and the resulting enforcement programs.
The States would have to commit not only to implementing the programs, but also
to actual environmental results, which results would be consistent across the coun-
try. In this way, CEEC believes that States would be the better arbiters and imple-
menters of how to achieve the national environmental goals.
DOJs Role: Finally, DOJs role, too, needs to be reevaluated. The application and
implementation of all of CEECs Principles for Effective Environmental Compliance
and Enforcement apply to both EPA and DOJ, in their respective roles. However,
with regard to DOJs role in particular, CEEC believes that DOJs resources need
to be redirected to working with EPA to pursue those regulated entities clearly oper-
ating outside the system. In addition, DOJs focus with respect to environmental
crimes should be on those criminal cases that reflect intentional and willful conduct.
While maintaining a strong and focused enforcement program, Agency efforts and re-
sources should primarily be devoted to compliance
Environmental laws and regulations continue to expand in number and complex-
ity at a rate which exceeds most other regulatory areas. Agency interpretations of
these rules are often difficult to ascertain and may vary over the years and through-
out EPAs regions. Moreover, implementation of environmental laws through thou-
sands of pages of regulations and variable guidance, interpretations, and policy
statements makes 100-percent compliance impossible all of the time. EPA needs to
recognize this and work with the regulated community to help achieve the highest
possible level of compliance and better protection of the environment.
In a mature regulatory program, continually increasing enforcement suggests that
there is something wrong with the system. Enforcement should be a tool that is em-
ployed only when a regulated entity is not working to come into compliance. EPA
and the regulated community should be proud of the increased compliance rates and
take credit for their respective roles in achieving them. However, EPA needs to
work on increasing compliance and technical assistance to all regulated entities, not
just small businesses. By way of example, CEEC believes that an expansion of the
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Small Business Assistance Policy that was put into place in 1996 would maximize
environmental benefits for all.
Environmental compliance and enforcement efforts must be directed at achieving the
desired environmental goals
As an initial matter, CEEC believes that environmental protection must be the
overriding goal of all environmental regulation and environmental programs. Like-
wise, the compliance expectations of agencies should be tailored to the achievement
of that goal and to allow the necessary flexibility to achieve it. Thus, CEEC believes
that ultimately environmental regulations should be recast to focus on the goal of
environmental protection, instead of the current focus on the process or method to
achieve that goal. However, until that time, we must work incrementally to change
the enforcement policies and procedures that have evolved as a result of an over-
emphasis on enforcement.
One method of refocusing EPAs current compliance and enforcement program
would be to adjust the goals and measures of the program to assure that EPA does
not reward the pursuit of enforcement for enforcements sake, but instead encour-
ages systematic and creative compliance with environmental laws in ways that
achieve the greatest environmental benefit. Individual noncompliance problems are
less important to society than achieving the goals of lessened pollution, lessened ex-
posures and lessened ecological impacts. Thus, the success of a compliance program
should be measured incrementally by the number of noncompliance problems that
an organization detects, corrects and reports to a government agency. Alternatively,
a measurement of the success of a compliance program could focus on the numbers
of training and outreach person-hours, the extent of private self-auditing, and the
measurable ambient environmental improvements, such as stream water oxygen
levels.
Companies also routinely provide incentives and measure employee activity for
the completion of the more difficult environmental compliance tasks. Likewise,
CEEC believes EPA should measure its success by the ways in which it encourages
its employees to properly value and take credit for compliance-oriented activities, to
pursue the truly difficult or serious enforcement cases, and not simply to go after
the easy inadvertent violations.
Environmental enforcement should be prioritized at all levels based on the serious-
ness and nature of the violation
CEEC members support an effective environmental enforcement program aimed
at identifying and punishing those who lack the commitment to comply, as well as
those who willfully and intentionally violate environmental laws. At the same time,
CEEC believes an enforcement-first mind-set is counterproductive. EPA and DOJ
enforcement must recognize a distinction between the truly serious and non-serious
violation in terms of whether an enforcement action should be pursued at all.
Enforcement, whether civil or criminal, should be seen as a last resort to be used
when regulated entities do not make good faith efforts and fail to manage and con-
trol environmental issues. EPAs enforcement goal should be to take no enforcement
actions for minor outages or mistakes, in light of outstanding corporate perform-
ance. Playing gotcha by finding technical violations at a facility is not productive;
enforcement should focus on violations that actually harm the environment.
EPA and DOJ need to make clear distinctions in terms of the seriousness of the
compliance lapse and its impact on ambient environmental conditions. This is espe-
cially true in the multimedia enforcement context, where a handful of minor viola-
tions can be packaged into a major enforcement action. EPA should explain the
process by which decisions are made to take enforcement actions, and ensure that
the criteria are consistent with overall environmental goals. While a companys re-
sponsible actions may be taken into account in the penalty phase (or in the sentenc-
ing context in a criminal case), the drive for enforcement for enforcements sake
often effectively precludes consideration of those factors as part of the decision to
pursue a case.
At a minimum, EPAs screening methodology should ensure that enforcement is
not the first resort in gray areas: such as where a regulation is ambiguous, or a
member of the regulated community did not have fair notice of the interpretation
that EPA is seeking to enforce. Unfortunately, punitive enforcement measures have
been taken where the regulations are unclear or where an unpublished agency in-
terpretation is inconsistent with the meaning of the regulation. These kinds of en-
forcement actions have diverted significant compliance and production resources and
negatively impacted our ability to achieve statutory environmental goals.
102
Prosecution of environmental criminal violations should be based on clearly enun-
ciated standards that are interpreted and applied in a consistent manner
Despite the ever-improving performance of the regulated community, there has
been an increasing overcriminalization of environmental statutes, as civil cases have
been elevated to criminal ones and misdemeanor cases to felonies. Discovery and
prosecution of criminal activities is in general a laudable goal; however, CEEC be-
lieves the severity of the actions being punished should be commensurate with the
punishment itself. Thus, there should be a clear distinction between a civil and a
criminal environmental violation. Criminal enforcement should only be used in egre-
gious cases where there is a knowing or willful intent to violate, such as midnight
dumping, intentional or long-term noncompliance with a permit or standard, or fal-
sification of records.
CEEC believes that there must be a bright-line standard concerning the actions
or mental state that transforms a civil regulatory violation into an object of criminal
investigation and prosecutionthat is, the use of a specific intent standard. If spe-
cific intent is not a required element of a crime, well-intentioned but misguided or
uninformed persons can be subject to felony sanctions. Application of the specific in-
tent standard for the initiation of a criminal environmental case would not diminish
the effectiveness of the governments enforcement efforts. Criminal penalties would
be reserved for those recalcitrant individuals and organizations who flout their envi-
ronmental obligations, while EPAs broad civil enforcement powers would be applied
to those individuals and organizations who made other than acceptable good-faith
efforts to comply.
Additionally, the severity of the penalty for an environmental crime should be
closely related to the culpability of the violator, and mitigating factors (especially
compliance programs) should result in meaningful penalty reduction. CEEC believes
that the penalty setting mechanism of the Federal Sentencing Guidelines, Chapter
8Sentencing of Organizations should be expanded to include environmental
crimes, should recognize and accommodate the wide variability of environmental
crimes, and should take into account that small businesses have fewer compliance
resources. Finally, the sentencing guidelines should reflect the strong societal inter-
est in encouraging regulated entities to protect the environmentand encourage,
not punish, self-policing and self-correction of environmental deficiencies.
Self-assessment, as well as a qualified immunity where appropriate for voluntary
disclosures, should be encouraged as the most effective way of achieving our en-
vironmental goals
CEEC believes that most of the regulated community is committed to environ-
mental compliance. One way the regulated community has already demonstrated its
commitment is through self-auditing and detection and correction of mistakes early
on. CEEC believes that self-auditing must be encouraged and obstacles removed, so
that entities are able to ensure that they are complying to the fullest extent without
enhancing their potential liability.
Moreover, CEEC believes that corporate environmental programs could be even
more successful absent the unintended chilling effects of the current enforcement
program. Instead of being commended for voluntarily collecting more data and at-
tempting to put it to good use, many regulated entities have watched their own
datawhich they voluntarily collected and analyzed to identify problems and im-
prove performanceput to use against them in enforcement proceedings. Any en-
forcement program must be structured so that those entities who move forward with
these innovative activitiesand the individuals who implement themdo not ex-
pose themselves to more liability than those that take no action.
Thus, CEEC supports a three-pronged approach. First, there is a need for legisla-
tive action to encourage self-auditing and self-correcting by providing a qualified im-
munity that protects the self-auditing volunteer from unfair prosecution or civil
suits based on the results, so long as there are good faith efforts to correct the prob-
lems found and the corrected problems are reported promptly. Second, as EPA does
not have the resources to inspect every facility, or pursue endless enforcement ac-
tions, CEEC believes EPA should encourage the self-policing efforts by the regulated
community, and count with pride the guidance and technical assistance it provides
that allows members of the regulated community to correct and/or avoid compliance
issues. Third, CEEC believes that the States should be encouraged to experiment
with legislation and/or other flexible methods to provide incentives for self-auditing
and self-correction programs that produce positive compliance efforts among the reg-
ulated community.
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PREPARED STATEMENT OF MARK WOODALL, CHAIR, SIERRA CLUB, GEORGIA CHAPTER
I. INTRODUCTION
Mr. Chairman and members of the committee, thank you for allowing me to make
a statement on behalf of the 550,000 members of the Sierra Club. My name is Mark
Woodall and I serve as the volunteer chair of the Georgia Chapters Legislative
Committee and as chair of the Sierra Clubs Audit Privilege Task Force. Im a com-
mercial tree farmer by occupation. I am also co-submitting this testimony on behalf
of the U.S. Public Interest Research Group (U.S. PIRG).
The Sierra Club and U.S. PIRG, as organizations that have brought numerous cit-
izen enforcement actions under our national environmental laws, are committed to
preserving the legal tools ordinary citizens have fought for and need to protect
themselves from harmful pollution practices in their communities. That is why Si-
erra Club and U.S. PIRG bitterly oppose the creation of any secrecy privileges or
immunity rights for entities undertaking environmental self-audits, at either the
State or Federal level. In particular, we strongly oppose S. 866, as well as any bill
that would restrict the U.S. Environmental Protection Agencys (U.S. EPAs) ability
to administer its delegated programs in States with audit privilege and immunity
laws.
II. S. 866 HURTS OUR RIGHT TO KNOW AND UNDERCUTS ENFORCEMENT
The creation of a Federal audit privilege is a radical measure that would create
a vast dumping ground for corporate polluters dirty secrets. Allowing polluters to
withhold vitally important information on pollution practices that effect the health
and property rights of their neighbors, and letting environmental law breakers es-
cape accountability for serious, chronic, and even criminal violations is bad policy:
it would undermine the publics right to know, tie the hands of law enforcement offi-
cials, eviscerate the right of citizens to protect themselves, and silence whistle blow-
ers. What is more, Sierra Club and U.S. PIRG are not alone in our opposition to
S. 866; last month 120 environmental, public interest, labor, and business groups,
representing millions of Americans, sent a letter to every U.S. Senator denouncing
S. 866. That letter is attached to my statement as Appendix II.
III. STATE SECRECY AND IMMUNITY LAWS ARE HAVING A NEGATIVE IMPACT, AND A
STRONG EPA OVERSIGHT ROLE MUST BE MAINTAINED
Many of the arguments we offer against Federal pollution secrecy and immunity
proposals apply also to similar proposals enacted at the State level: they hurt our
right to know, undercut enforcement, infringe on citizen enforcement rights, silence
whistle blowers, allow lawbreakers to escape accountability and keep the profits
they have gained from avoiding compliance, and disadvantage regulated entities
that take their environmental responsibilities seriously. For these reasons, citizen
groups in Idaho, Ohio, Colorado, Michigan, and Texas have petitioned the U.S. EPA
to withdraw these States authority to enforce Federal environmental laws in light
of the obstacles these audit laws pose to enforcement, right to know, and victim
compensation.
Nonetheless, U.S. EPA has entered into agreements with the States of Texas and
Michigan, and is pursuing similar agreements in Ohio and other States, that have
led to improvements in the respective States self-audit laws, but, in the end, have
given EPAs blessing to the existence of corporate secrecy rights in a State civil pro-
ceeding. In our view, the Texas and Michigan deals have the alarming result of al-
lowing those States to continue implementing Federal programs despite serious con-
straints on the ability of the State and citizens to enforce those programs. Grass-
roots letters to EPA Administrator Carol Browner and President Bill Clinton outlin-
ing concerns with EPAs policy and recommending additional steps the administra-
tion should take are attached as Appendix III.
Although we are not satisfied with EPAs position regarding these States audit
laws, we strongly assert that there, is, nevertheless a critical need to preserve a
Federal oversight role for EPA. The safe harbor concept that Senator Enzi is pro-
posing would unduly limit EPAs authority to oversee its programs and would sub-
stantially undo many of the improvements EPA succeeded in obtaining from Michi-
gan and Texas. Most notably, pursuant to agreements with EPA, Texas and Michi-
gan have amended or agreed to amend their laws to ensure that secrecy privileges
or immunity are not available with respect to criminal violations. Under Senator
Enzis approach, the standard for environmental criminal liability would be com-
promised, and reckless environmental violations currently considered criminal
would be potentially subject to audit privilege and immunity protection.
107
In addition, the Enzi approach is misguided because it ties EPAs hands. As these
new laws are played out in the courts, their impact on citizen suit rights and law
enforcement will become more clear. EPA needs the flexibility to revisit its agree-
ments regarding State audit laws into order to ensure the integrity of the programs
it administers.
IV. INDUSTRY WANTS POLLUTION SECRECY AND IMMUNITY RIGHTS IN ORDER TO AVOID
LIABILITY, NOT AS AN INCENTIVE FOR VOLUNTARY COMPLIANCE
As we observe the 25th anniversary of the Clean Water Act, we should consider
the motivation for its passage and the passage of the other landmark environmental
and health laws. These laws were not established because industry was doing a
great job of voluntarily finding and eliminating pollution. These laws passed be-
cause the Cuyahoga River burned. The air in Chattanooga was not safe to breathe,
the drinking water of New Orleans was filled with carcinogens and the people of
Love Canal were sickened by toxic waste.
So why is it today that pollution is rarely just dumped untreated into rivers or
unlined pits? After all, it is cheaper in the near term for a corporation or Federal
facility to just dump its effluent and thereby externalize its disposal costs. We main-
tain, therefore, that it is fear of liability, fear of enforcement (Federal, State or citi-
zen) and fear of adverse publicity that drives corporate behavior in the area of pub-
lic health and the environment.
Our understanding of the current incentives which tend to keep corporations from
just dumping it in the river is confirmed by the words of industry lawyers. An Ar-
thur Anderson survey of corporate counsel published in the National Law Journal
in 1992 states the relatively new threat of jail for corporate executives for environ-
mental violations is an overwhelming concern for general counsel.
Likewise, the advent of environmental pollution secrecy and immunity rights rep-
resents a sophisticated and superficially appealing new way to evade the threat of
enforcement and avoid liability. Proponents of these new rights claim they provide
necessary incentives to encourage companies to conduct internal audits of their en-
vironmental performance. However, as industry lawyer Roger Marzulla stated at a
recent seminar on environmental crime hosted by the publication Corporate Crimes
Reporter, the (real) purpose of self-audit laws is to provide an obstruction to pros-
ecution.
A. The Waste Management, Inc. Cincinnati Case
Industrys arguments in favor of corporate pollution secrecy and immunity rights
are all based upon an assumption of corporate good faith. They ignore the vast po-
tential for abuse inherent under rules that encourage concealment of information.
The story of a small, Cincinnati, Ohio community groups fight to protect themselves
from toxic gas emissions emanating from a nearby landfill operated by the corporate
giant Waste Management, Inc. presents a compelling example of the various ways
a corporation can and will attempt to use and abuse the right to withhold self-audit
information under an audit privilege law. That story, as told by two community
members who have led the fight against Waste Management, is attached as Appen-
dix I.
B. Corporations Have Historically Used Attorney-Client and Work Product Doctrines
To Hide Information and Escape Liability
The concept of the environmental audit privilege, then, emerges from industry
think tanks and corporate law firms, not as an innovative compliance tool, but as
a means of hiding the balla tactic that industrial polluters, especially large cor-
porations that can afford extensive litigation, have pursued for years. Corporations
have long attempted, with little success, to use the doctrines of attorney-client privi-
lege and attorney client work product as a means of shielding themselves from ac-
countability for activities harmful to the environment and public health. However,
the courts have placed limitations on concealment via these doctrines, in order to
safeguard the publics recourse. Now, the trend toward environmental privilege
seems to be designed to open the door to many more environmentally important doc-
uments becoming concealable.
The attorney-client privilege relates to communication made by the client (or the
clients agent) to an attorney, in confidence, for the purpose of obtaining legal ad-
vice. The privilege allows the client (either individually, or through his attorney) to
decline a forced disclosure. The work-product doctrine protects against forced disclo-
sure materials prepared specifically in anticipation of litigation. However, in such
a case, the party seeking discovery may gain access if it can demonstrate a substan-
tial need for them and inability to obtain the substantial equivalent elsewhere with-
out undue hardship.
108
Corporations have often attempted, especially in recent cases, to stretch these doc-
trines so as to conceal factual information from those seeking accountability in en-
forcement cases and other contexts. The environmental audit laws represent an op-
portunity for corporations to conceal much more information, by characterizing a
great many of the studies they wish to conceal, not as legal advice, but as environ-
mental audits. There are numerous examples of corporations attempting to stretch
attorney client doctrines to avoid environmental accountability. A look at just a few
examples demonstrates how much is at stake with environmental audit privilege:
Phelps Dodge Corporation. Phelps Dodge Inc. sold property to the U.S. Postal
Service in Maspeth (Queens), New York, in the mid1980s for construction of a
postal distribution building. Phelps Dodge agreed to clean up the former copper re-
fining site, but as the cleanup process continued it became apparent to Phelps
Dodge and its contractors that heavy metal contaminants onsite(e.g. arsenic, cad-
mium and lead) were more widespread and it would be much more expensive to
clean up the site than anticipated. In response, Phelps Dodge officialsunder the
leadership of the company presidentapparently employed a strategy of conceal-
ment to attempt to strap the Post Office and the U.S. taxpayers with the costs of
cleanup. One major strategy was to claim attorney-client privilege for extensive
studies conducted by consultants documents revealing information relevant to the
extent of contamination and costs of cleanup. In 1994 the court reviewed these at-
torney-client privilege claims, document by document, and found that about 80 per-
cent of the documents were ineligible for such treatment. The court issued an ex-
plicit ruling, with a six page long list showing the numerous studies, letters and
evaluations that the company inappropriately attempted to keep out of government
hands.
The lengthy list of documents which the company had attempted to cover as priv-
ileged included many documents which had merely been copied to attorneys, and
others in which attorneys had no real role. U.S. Postal Service v. Phelps Dodge Re-
fining Corp. 852 F Supp. 156 (E.D.N.Y. 1994). The court noted that the data were
generated through studies and collected through observation of the physical condi-
tion of the Property . . . Such underlying factual data can never be protected by
attorney-client privilege and neither can the resulting opinions and recommenda-
tions.
In contrast, many of the State environmental audit laws allow precisely such on-
site observations, resulting opinions and recommendations to be given privileged
treatment at great detriment to public accountability. Had these documents re-
mained out of public view in the Phelps Dodge matter the government may have
been incapacitated from winning the later court decision, in 1997, finding that
Phelps Dodge had breached its contract with the U.S. Postal Service by delaying
and declining its contractual responsibility to excavate all of its contamination. The
court might not have had enough information before it on the scope of contamina-
tion to rescind the contract, ordering the corporation to take back the tainted prop-
erty sold to the Postal Service. U.S. Postal Service v. Phelps Dodge refining Corpora-
tions 950 F Supp. 504 (E.D. NY, 1997).
Summitville Mine. Summitville Consolidated Mining Company filed for bank-
ruptcy in 1992, leading to an emergency takeover of cleanup of its cyanide leach
gold mine near Del Norte, Colorado by the U.S. EPA. After the Federal Environ-
mental Protection Agency (EPA) examined the situation, the site became the States
best known Superfund cleanup project. According to an article in the Denver Post
on May 15, 1997, some of Summitvilles officers filed a lawsuit in Canada to keep
about 1,800 documents related to the operation of the Mine from a grand jury,
claiming the cover of attorney-client privilege. The documents sought include details
of discussions with regulators and mine consultants, records discussing drainage,
flows, discharges, seeps, spills or runoff as well as finances. At stake is liability for
an estimated $120 million cleanup.
Tobacco Cases. Outside of the environmental field, we can see the damage that
audit privilege could do in the high profile tobacco cases. In those matters, attor-
neys attempted to bring all potentially damaging internal scientific documents
under attorney work product and attorney-client privilege to avoid discovery. One
witness reported that Brown and Williamsons assistant general counsel routinely
marked scientific research papers attorney work product even when they had not
been created for use in litigation.
Finally, some other examples of demonstrating the history of corporate attempts
to withhold information regarding environmental problems include:
According to the August 22, 1995, Columbus, Georgia, Ledger-Enquirer, The
DuPont Co. was slapped with sanctions totaling almost $115 million on Monday by
U.S. District Judge K. Robert Elliott of Columbus, who ruled the chemical company
systematically lied, cheated and withheld evidence in efforts to protect itself during
109
lawsuits over its fungicide Benlate. Unfortunately, Judge Elliott was reversed on
appeal and the growers are still fighting to recover.
According to the Associated Press on July 15, 1997, the man investigating the
Texaco tapes said Monday he found a filecarefully labeledcontaining documents
company executives allegedly withheld from lawyers in a race discrimination case
. . . the folder had a yellow note on it labeled documents withheld from legal.
C. Editorial Boards, District Attorneys, and Others Oppose Secrecy and Immunity
Laws As Industry Campaign To Hide Dirty Secrets
Most people who review this corporate campaign for secrecy and immunity see it
for what it really is. Dozens of editorial writers have railed against the concept call-
ing it a Polluter Protection Act, Polluters Relief Act, Dirty Secrets and the Bho-
pal Bill. A few of those editorials are included in Appendix IV.
In a June 7, 1996 letter, to Congressman Condit, the Co-Chairs of the National
District Attorneys Association wrote, it is our view that the adoption of a self-audit
privilege is an extreme measure far beyond any remedy necessary. Furthermore,
that if the Congress enacts a self-audit privilege you will be doing a vast disservice
to law enforcement efforts not only in the realm of environmental law, but across
the spectrum of white collar crime.
The Charleston, West Virginia Gazette observed, more than 4,000 people were
killed in Bhopal, India by a leak at the Union Carbide plant in 1984. If such a trag-
edy ever occurred at a Carbide plant in West VirginiaGod forbidwere sure the
company would loved to be able to hide information about conditions leading up to
the accident.
Stephanie Kessler of the Wyoming outdoor Council said, This bill is about big
companies that already do environmental audits to now legally hide the information
they discover from the public . . . They get the privilege even if they dont do a
thing. Jack McGraw, acting EPA Regional Administrator in Denver, The Colorado
bill is the worst of the worst. It has all kinds of abuse.
D. Pollution Secrecy and Immunity Laws Are Completely Unnecessary To Accomplish
Their Purported Goals
Finally, having shown that bad actors can and will abuse environmental audit
privileges and immunity rights, it worth noting in conclusion that the legitimate
purported goals of these audit privilege proposalsnamely to encourage self-audits
and voluntary compliance while providing some measure of protection for those who
self-disclose violationsare already being accomplished by EPAs self-audit/self-po-
licing policy with notable success. EPAs policy, which was the developed through
a lengthy and exhaustive multi-stakeholder process, contains NO secrecy privilege,
NO immunity for criminal violations, and NO automatic immunity for civil viola-
tions, but does allow for significant mitigation of civil penalties for self-disclosed vio-
lations in appropriate cases. Under the policy, hundreds of companies have disclosed
violations, and EPA has waived penalties in most cases.
V. CONCLUSION
Thus, the conclusion is clear. Pollution secrecy and immunity laws are an unnec-
essary attack on environmental law enforcement and the publics right to know
about pollution. Such proposals present numerous opportunities for abuse, and law-
breaking companies have a demonstrated track record of using any and every tool
available to hide information and avoid responsibility. Therefore, Sierra Club and
U.S. PIRG strongly urge members of the Senate to oppose S. 866 and any proposal
that would limit EPAs oversight authority with regard to State pollution secrecy
laws.
Thank you for the opportunity to testify today.
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PREPARED STATEMENT OF ROBERT C. BUNDY, U.S. ATTORNEY, DISTRICT OF ALASKA,
AND LOIS J. SCHIFFER, ASSISTANT ATTORNEY GENERAL, ENVIRONMENT AND NATU-
RAL RESOURCES DIVISION, U.S. DEPARTMENT OF JUSTICE
I. INTRODUCTION
We are submitting the views of the Department of Justice on audit and self-disclo-
sure policy issues because of the great importance of these issues to effective law
enforcement. Our statement briefly outlines the Departments concerns. Although
the Department of Justice was not invited to testify at this hearing, we would wel-
come the opportunity to address these issues in greater depth.
Many prosecutors at the local, State and Federal levelsincluding United States
Attorneys across the Nationhave grave concerns that laws creating an evidentiary
privilege for environmental audits, and bestowing immunity on violators who vol-
untarily disclose their violations, seriously threaten our ability to protect the public
through the enforcement of the environmental laws. While the Department of Jus-
tice fully supports the use of self-auditing as a means to ensure compliance with
environmental laws, we strongly oppose audit privilege and disclosure immunity leg-
islation such as S. 866.
II. AUDIT PRIVILEGE AND DISCLOSURE IMMUNITY LAWS ARE NOT NEEDED TO
ENCOURAGE ENVIRONMENTAL AUDITING AND COMPLIANCE
The Environmental Protection Agency (EPA) and the Department of Justice

have adopted and implemented policies designed to encourage both compliance au-
diting and candid disclosure of identified violations. Those policies are working. Nei-
ther the Department nor EPA routinely requests audit reports from a regulated en-
tity until there is an independent basis for believing that a violation of law has oc-
curred; and when companies do perform audits, disclose the existence of violations
uncovered by those audits, and correct those violations, the Departments enforce-
ment record over many years demonstrates our commitment to give such actions
great weight when deciding the appropriate government response. While proponents
of audit privilege and disclosure immunity law have argued that legislation is need-
ed to ensure that environmental audits performed by well-meaning companies are
not misused by government agencies and Federal prosecutors, the fact is that such
laws are not only unnecessary; they are bad public policy that will hinder enforce-
ment of the law and interfere with the publics right to know about threats to
human health and the environment.
A. Justice Department Policies
In order to encourage audits and compliance, in July 1991 the Department of Jus-
tice issued a guidance memorandum for prosecutors making decisions involving en-
vironmental crimes. In making such decisions, prosecutors are to consider whether
there has been: (1) prompt and complete disclosure; (2) cooperation; (3) preventative
measures and compliance programs; and (4) correction of the violation. The basic
message of the guidance is that good-faith efforts by a violator to identify and pre-
vent problems, report them, and promptly fix them, should be among the factors
taken into account in prosecutorial decisionmaking (the other factors including State
of mind, duration of the violations, human health or environmental effects, and
whether the violations reflected a common attitude within an organization). Such
efforts may even have a mitigating effect sufficient to convince prosecutors that a
case should not be brought criminally at all.
This Department of Justice policy is yielding positive results. When the Potomac
Electric Power Company (PEPCO) determined that pollutants had been unlawfully
discharged for years from one of its facilities in Maryland, it disclosed that fact to
the Federal Government and cooperated with authorities. As a result, PEPCO was
not prosecuted criminally, but the person actually responsible for the violations was
charged.
A case from Alaska similarly illustrates the favorable treatment that a forthright
and cooperating company can receive under the Departments 1991 policy. When
Russell Metals, Inc. learned that managers of recently acquired corporate subsidi-
aries, the White Pass Alaska companies, were under investigation for trying to cover
up a large oil spill into the Skagway River, it cooperated with the Alaska United
States Attorneys Office by fully disclosing the circumstances of the oil spill, the
cover-up, and other of the White Pass companies environmental violations. The
White Pass companies CEO and a contractor were prosecuted, as were the White
Pass companies. But as a result of Russell Metals cooperation and disclosure, Rus-
sell Metals was not prosecuted at all.
130
Likewise, in a South Dakota case involving a meat-packing plant, when a parent
corporation, Chiquita Brands, learned from an internal investigation that its sub-
sidiary, the John Morrell Company, was repeatedly violating the Clean Water Act
by dumping slaughterhouse waste into the Big Sioux River and deliberately submit-
ting falsified reports to conceal its crimes, Chiquita forced Morrell to disclose the
violation to Federal authorities. Morrell and several employees, who had known of
the violations for years but had done nothing to correct or stop them, were pros-
ecuted for the violations, but Chiquita was not.
These examples demonstrate the effect that the Justice Departments policy is
having in prosecutions around the country. When companies work to identify and
prevent non-compliance through audits, come forward promptly when they do dis-
cover violations, and quickly correct the violations, the Departments prosecutors
take those actions into account in making decisions about charging and sentencing.
Forthright and responsible companies receive appropriate consideration from the
government, but prosecutors are not hampered in their ability to go after the people
and entities that need to be pursued.
B. EPA Policies that the Justice Department Applies
In 1995 EPA took another important step toward encouraging compliance audits
when it published its Incentives for Self-Policing: Discovery, Disclosure, Correction
and Prevention of Violations, which addresses how the Agency will treat both com-
pliance audits and self-disclosure of violations. 60 Fed. Reg. 66706 (Dec. 22, 1995).
In that statement EPA explained that, if certain specified conditions are met, it:
will not seek penalties or, under specific circumstances, will seek only reduced levels
of gravity-based penalties (i.e. penalties based on the seriousness of the violation),
while retaining the ability to recover financial gains that otherwise would give viola-
tors an economic advantage over their law-abiding competitors; will not refer viola-
tions to the Justice Department for criminal prosecution if the violations did not in-
volve either managerial concealment of offenses or high level involvement in, or
blindness toward, violations (while reserving the ability to proceed against respon-
sible individuals); and will not routinely request audit reports at the onset of its
civil or criminal investigations. We concur with Assistant Administrator Steven Her-
man that that policy is working. It provides the appropriate level of incentives for
companies to audit and report the results of audits, without jeopardizing the ability
of the government to protect the public from threats to human health and the envi-
ronment, and to ensure that the environmental laws are enforced effectively around
the country.
III. STRONG, FAIR ENFORCEMENT ENCOURAGES AUDITING AND COMPLIANCE
The available evidence demonstrates that what actually encourages auditing is

strong enforcement. As the Federal and State governments continue to vigorously
enforce the environmental laws, more companies are performing audits all the time,
and companies that conduct audits are expanding and improving those programs.1
A survey of trends in corporate environmental auditing, Price Waterhouses Vol-
untary Environmental Audit Survey of U.S. Business (March 1995), found that 75
percent of the companies surveyed have existing auditing programs, and that 13 of
those companies without an existing auditing program plan to develop one. And one
of the primary reasons for the increase in auditing in recent years is the strength
of the current environmental enforcement program, a principal component of which
is the civil and criminal prosecution of environmental violations by the Depart-
ment.2 Companies perform audits and correct violations found in those audits be-
cause they know that if they do not, they may be subject to civil penalties, criminal
sanctions, the cost of remediation of environmental harm, tort liability, and litiga-
tion costs. If increased environmental auditing is truly the goal, we should be foster-
ing strong environmental enforcement, not hamstringing that enforcement by allow-
ing companies to hide their violations and escape punishment for them.
IV. ENVIRONMENTAL AUDIT PRIVILEGES ONLY CONCEAL FROM CITIZENS AND GOVERN-
MENT OFFICIALS INFORMATION VITAL TO HUMAN HEALTH AND THE ENVIRONMENT
Indeed, there is little or no reason to believe that environmental audit privileges

increase the amount or the quality of environmental auditing. Among the companies
1 See, Note, Environmental Criminal Enforcement and Corporate Environmental Auditing:

Time For A Compromise?, 31 Am. Crim. L. Rev. 123 (1993), citing a 1992 Arthur D. Little, Inc.
survey for Fortune 100 companies in which 80 percent of respondents stated that they planned
to expand their corporate environmental auditing programs.
2 The Arthur D. Little, Inc. study also found that, among the primary reasons for the expan-
sion of audits, is the existence of significant penalties for non-compliance.
131
responding to the Price Waterhouse survey, the most important reason given by
those that do not currently audit for not doing so was a belief that their products
and processes have insignificant environmental impacts. A concern that audit infor-
mation could be used against them for any purpose was identified by slightly fewer
than one in five respondents. For those companies unwilling to expand an existing
auditing program, limited company resources was the principal reason identified.
Even among companies currently performing audits, audit privileges only reduce
the effectiveness of the audits that are conducted. The existence of an audit privi-
lege diminishes the incentive to correct violations promptly, and reduces the ur-
gency to identify violations before enforcement authorities do. With the veil of se-
crecy that an audit privilege provides, unscrupulous companies may believe that
they are be able to conceal from both the regulators and the public both the viola-
tions themselves and the environmental harm resulting from the violations.
It is simply common sensenot to mention the empirical conclusion of enforce-
ment and regulatory efforts generally, both in the environmental context and in
such other contexts as securities and food safety regulationthat public and govern-
mental scrutiny of corporate behavior increases the level of responsible behavior.
Corporate secrecy does not. And an environmental audit privilege would allow pol-
luters to hide their activities from the government and the public. This is true
whether the privilege is created by Federal law or State law. While the States may
be excellent laboratories for change in many circumstances, environmental audits is
not one of those circumstances. The problems are too obvious and the risks are too
great. The Federal environmental laws were established to ensure that all Ameri-
cans, wherever they live, will be protected from the threats posed by pollution. The
creation of environmental audit privileges jeopardizes that protection. For the same
reasons, we also oppose legislative proposals that would make Federal enforcement
subject to State audit privilege or disclosure immunity laws.
Moreover, aside from any direct concerns about enforcement and compliance, com-
munity residents have a right to know about environmental hazards that may pose
a threat to their community. The entire system of environmental regulation is built
on self-reporting and on government and public scrutiny of information relating to
the handling of environmental contaminants. Citizens and government agencies use
such information to make reasoned judgments regarding steps to protect human
health and the environment and to fashion appropriate responses to violations. An
environmental audit privilege runs directly counter to this most basic premise of the
environmental regulatory system, and represents the first time that Federal envi-
ronmental legislation will have acted to limit the availability of information to the
public, rather than to expand it. That is not the direction that we should be taking
the environmental laws.
Now, some have tried to analogize the privilege created by environmental audit
legislation to the self-test privilege to be established by regulation under the Fair
Housing and Equal Credit Opportunity Acts. The analogy does not hold. As an ini-
tial matter, as members of the Department and other prosecutors have frequently
stated, any new evidentiary privilege impedes the truth-finding process so critical
in enforcement of our nations laws, and allows violations and violators to go unde-
tected and unpunished. The Attorney General has enumerated a number of the De-
partments concerns in regard to audit privileges in her letter to Administrator
Browner, dated April 6, 1995, which we have attached to this testimony.
When the bill creating a privilege in the lending context was being considered,
the Department likewise opposed creation of a broad privilege because of the threat
such a privilege would have posed to effective enforcement of the anti-discrimination
laws. Indeed, in that context, the Justice Department supported only a very narrow
privilege centered on matched pair testing, a technique especially suited to fair
housing and fair lending issuesand one that has no real analogue in almost any
other area of law, including environmental law. Matched pair testing allows a lend-
er to gauge the inclination of its employees to violate the lending discrimination
statutes without running the risk of depriving an actual applicant of a loan. Thus,
matched pair testing really creates a new opportunity, which would not have existed
but for the matched pair test itself, to examine whether the employees of the com-
pany performing the test are violating the law through discrimination; yet the per-
formance of the test does not result in a bona fide borrower being denied a loan ap-
plication. In contrast, the privilege that some recent State legislation creates for en-
vironmental audits shields from disclosure past and even ongoing environmental
violations that can pose a real and present risk to human health and the environ-
ment. We cannot support the creation of such a privilege.
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V. AN ENVIRONMENTAL AUDIT PRIVILEGE WOULD IMPAIR ENFORCEMENT AND DRIVE UP
LITIGATION COSTS
The impediments that an audit privilege would create for civil and criminal en-
forcement are profound. As just one example, many criminal investigations begin
with a tip from a company insider who is disturbed by illegal activities he or she
has observed and notifies authorities, often providing written corroboration of the
violations. In the face of an environmental audit privilege, an investigator may be
unable to pursue that tip effectively because the investigator would not know
whether the corroboration provided by the whistle blower came from an environ-
mental audit report. Even the whistle blower might not know whether the document
was originally created as part of an audit.
If the investigation proceeded despite such uncertainty and it was later deter-
mined that the corroborative document was protected under the audit privilege law,
all subsequently obtained evidence could be suppressed as fruits of the privileged
document, even if that evidence demonstrated criminal conduct. At the very least,
important information which could corroborate the testimony of the whistle blower,
whose credibility would almost inevitably be strongly attacked by the companys
lawyers, would be withheld from the jury.
To prevent such a result, prosecutors will frequently be forced very early in an
investigation to initiate an in camera proceeding before a court. Aside from taking
scarce court time, such a proceeding will require notification of the company being
investigated, and may thereby cutoff the investigative phase of the case pre-
maturely. The result could very well be that the investigation will be so hobbled
that charges will not be able to be pursued. Criminal activity would thus go
unpunished and environmental violations unaddressed.
Even after a prosecution is initiated, litigation over audit privileges diverts scarce
judicial and prosecutorial resources from quickly and efficiently concluding environ-
mental litigation and remedying threats to human health and the environment.
Time must be spent on litigating in detail, every time the privilege is invoked,
whether such new and legally untested privileges apply, rather than on trying to
resolve the substance of the matter as expeditiously as possible. And the disputes
over the applicability of the privilege will recur throughout the litigation, always
consuming more and more of the courts time. It would be a poor lawyer, indeed,
who could not delay investigations or trials for weeks or months in litigating the
complicated claims of privilege that inevitably arise under environmental privilege
statutes. This drain on courts resources and the associated escalation of govern-
ment resources and private lawyers fees that will have to be spent on environ-
mental casesnot to mention the delay that will result in addressing environmental
threatssimply is not in the public interest, and cannot be justified.
VI. IMMUNITY FOR SELF-DISCLOSED VIOLATIONS WOULD DIRECTLY INTERFERE WITH
FAIR AND EFFECTIVE ENFORCEMENT OF THE LAW
In addition to the problems created by an audit privilege, statutory grants of im-

munity for voluntary disclosures like those contained in S. 866 raise additional prob-
lems. Such immunity provisions allow violators, including those engaged in criminal
violations of environmental statutes, to go unpunished. In essence, such immunity
for criminal violations is like allowing anyone who confesses to robbing a bank to
escape prosecution, so long as the person apologizes and promises to give the money
back.
Environmental crimes are real crimes, with real impacts on communities. Imagine
the public outcry if, following an environmental violation that caused death, serious
bodily injury, or major environmental harm, the government were prevented from
prosecuting those responsible because of an immunity law. Indeed, in the wake of
the Exxon Valdez disaster, Congress amended the immunity provision in the oil
spill reporting requirements of the Clean Water Act to ensure that the government
would not be prevented from utilizing an oil spill notification against a corporation
or responsible parties other than the natural person actually providing the notice.
Providing immunity for violations voluntarily disclosed to the government frus-
trates legitimate enforcement efforts and discourages regulated entities from taking
sufficient precautions to avoid committing violations in the first instance. Currently,
the law sends a powerful message that those who are in a position to prevent or
to remedy a violation must do so, or bear the consequences. An immunity provision
sends a different message: it tells those same people that there is no need to take
a proactive approach to environmental management because the company employ-
ing those people can immunize itself from civil and criminal penalties even after it
has caused serious environmental problems. All it has to do is conduct an audit, dis-
close its violations, and only then, when the harm is already done, initiate action
133
to correct those problems. The only thing companies would make sure to do prompt-
ly in such a regime is invoke the protections of the immunity statute.
VII. CONCLUSION
The voluntary disclosure policies of the Department of Justice and EPA are a fair
and balanced approach to handling audits and self-disclosure, and they are working
well. They achieve the results that proponents of audit privilege and disclosure im-
munity legislation say they are trying to achieve, without adversely affecting envi-
ronmental enforcement and compliance, or the publics right to have access to infor-
mation about threats to their health and their environment. The Department there-
fore opposes the enactment of audit privilege or immunity legislationat the Fed-
eral level and at the State level. Such legislation is bad for enforcement, bad for
the environment, and bad for human health and the environment.
OFFICE OF THEATTORNEY GENERAL,

Washington, DC, April 6, 1995.
Hon. CAROL M. BROWNER,
Administrator, U.S. Environmental Protection Agency, Washington, DC.
DEAR MS. BROWNER: At our meeting in December, 1994, we discussed the issues
raised by proposed legislation that would create an evidentiary privilege for environ-
mental audits, or bestow immunity on violators. We also discussed our belief in the
importance of voluntary compliance to environmental protection. I appreciate EPAs
significant efforts, working cooperatively with the Department, to re-examine its
policies on environmental audits and voluntary disclosure, especially the work of As-
sistant Administrator Steve Herman and his stiff in gathering a wide range of infor-
mation and views on this topic.
Having looked closely at this issue, and having heard many views, I have reached
several conclusions. First, as a former prosecutor, I oppose the creation of a new evi-
dentiary privilege, or an immunity law, be cause such legislation would reduce our
ability to enforce the environmental laws that protect the publics health and safety
and our precious natural resources. In a recent meeting with State and local pros-
ecutors we discussed this topic, and I advised them of my views on this matter. I
note that my objection is to the creation of a new evidentiary privilege for environ-
mental self-evaluations. I am not addressing existing privileges, such as attorney-
client and work product, to the extent that those privileges may apply to certain
environmental audits. Second, I believe there are positive measures that can be un-
dertaken to encourage voluntary compliance without resorting to a problematic stat-
utory solution.
The legislative push for a privilege began with allegations that the government
used environmental audits unfairly to punish those attempting to comply with the
law. EPAs review, and a review of our own cases, have shown that allegation to
be criminal cases and found no instance where a company voluntarily disclosed en-
vironmental violations discovered by an audit and was subsequently prosecuted as
a result of its disclosure. What has emerged from this review is a picture of sound
enforcement practices that have substantially improved environmental compliance.
In fact, it appears that the effect of our joint enforcement program has been to in-
spire more companies to undertake audits in order to discover and correct violations.
While proponents have failed to demonstrate the need for an audit privilege, such
a privilege would carry a very heavy cost. Environmental protection has improved
under the environmental laws based on a system of openness and self-reporting.
Yet, an evidentiary privilege statute would be tantamount to an environmental se-
crecy act, shielding information about environmental violations and environmental
harm. Moreover, a privilege could serve to confuse the regulated community about
their existing legal obligations to report violations. An audit privilege would con-
stitute a major step away from corporate accountability. I would restrict the truth-
finding process and limit our ability to seek relevant evidence on the publics behalf.
In addition, a privilege statute would mire federal enforcement efforts in a morass
of litigation over the applicability and reach of the privilege and the scope of exemp-
tions. Crucial terms in the various audit privilege statutes are broad or ill-defined,
and there are no established definitions or standards for environmental audits. This
would allow violators to claim the privilege for a wide range of internal activities
and communications, while agents in the field would lack clear guidance on how to
proceed with their investigations. At worst, environmental violations would go unde-
tected and environmental criminals unpunished. At best, the privilege statutes
would introduce new layers of litigation, including pre-indictment and pretrial mo-
tions and in camera hearings.
134
This added litigation would consume scarce judicial, prosecutorial and investiga-
tive resources, and the resulting delays would sometimes leave underlying health
and environmental problems uncorrected and the public unprotected. I note that
these are among the reasons why all Federal, State and local prosecutors whose
views have been communicated to the Department, uniformly oppose statutes that
would establish an evidentiary privilege for environmental law violators.
An environmental audit privilege would be especially susceptible to abuse. Pro-
posed legislation cannot be analyzed solely on the model of the good environmental
citizen, since that person is not likely to be an enforcement target. We must also
consider environmental violators who are willing to break the law to save money,
and who, as recent prosecutions have demonstrated, will lie to government officials
to conceal their actions. We can expect that a privilege would be raised, often on
frivolous grounds, just to interfere with the enforcement process. An audit privilege
could be used to shield serious continuing violations and criminal conduct.
Proponents of an audit privilege mistakenly claim that the privilege would reduce
the involvement of lawyers and thereby make audits more affordable for small busi-
nesses. To the contrary, in order to ensure that statutory privileges cover their ac-
tions, businesses would have to involve lawyers in the audit process at least as
much as they already do, thus diverting funds to lawyers rather than to environ-
mental compliance.
Some State statutes and proposed Federal legislation provide immunity under cer-
tain circumstances to those who voluntarily disclose their violations to the govern-
ment. These unprecedented immunity provisions have the potential to allow serious
environmental criminals and other violators to escape responsibility for their acts
when, after the fact and when the harm is done, they elect to come forward and
reveal their action. These immunity provisions require enforcement to focus on a
single factorself-disclosureand ignore all the other considerations that should in-
form prosecutorial decisionmaking, such as the duration and seriousness of the
harm.
For all these reasons, the damage to environmental protection by such laws would
far outweigh any speculative gains they might accomplish.
I am convinced that we can take additional affirmative steps to encourage self-
audits, self-correction and voluntary disclosures. Among the steps that the Depart-
ment would support are the following:
Expansion of EPAs program of compliance assistance and penalty mitigation
for small businesses regulated by the clean Air Act to other environmental statutes.
A broader compliance assistance program might be specially beneficial to small busi-
nesses, although great care must be taken in expanding an amnesty provision to
regulatory programs that are far from new. If budgetary constraints limit expansion
of this assistance program, the Department is willing to work with EPA to find
methods of supplementing the Agencys resources.
Modification of current EPA penalty policies to give substantial penalty mitiga-
tion for efforts at self-evaluation and self-disclosure. In particular, where a company
with a comprehensive management system in place, discovered, reported and swiftly
corrected the violations, and no harm to the public or the environment resulted from
the violation, EPA could elect to forego the gravity component of a penalty calcula-
tion. However, no company should be able to benefit financially from breaking the
law, thereby gaining an unfair competitive advantage.
Expansion of the Environmental Leadership Program into a broad-based stand-
ardized program for environmental leaders. Such a program would recognize those
companies that demonstrate truly excellent environmental management.
Clarification of EPAs practice of not requesting audits during routine inspec-
tions, and of the Departments practice of not utilizing audits as a means of initiat-
ing cases. We should publicly adopt these practices as the Departments and EPAs
policy, with the proviso that, once a civil or criminal investigation begins based on
independent information of violations, it is appropriate to obtain all relevant infor-
mation, including audits or other self-evaluative reports.
Announcement of the Departments intention to view the use by organizations
of effective programs to prevent and detect violations of law, as well as self-report-
ing, cooperation and acceptance of responsibility as mitigating factors in the sen-
tencing phase of environmental criminal cases against corporations.
Development of an acceptable standard definition of the term environmental
audit and to crate a generally accepted set of standards for conducting such audits
in conjunction with the efforts of private standard-setting entities.
These approaches, coupled with our shared commitment to tough yet fair enforce-
ment against those who seek an unfair advantage by avoiding the costs of compli-
ance, will encourage environmental compliance auditing, voluntary disclosure, and
greater compliance with the environmental laws.
135
In conclusion, I ask you to join me in vigorously opposing Federal legislation that
would create an evidentiary privilege for environmental audits or bestow immunity
on violators. Working together we can take steps that will encourage compliance
without weakening the enforcement of our Nations environmental laws.
Sincerely,
JANET RENO.
PREPARED STATEMENT OF AIRPORTS COUNCIL INTERNATIONAL-NORTH AMERICA AND

AMERICAN ASSOCIATION OF AIRPORT EXECUTIVES
Dear Mr. Chairman and Members of the Committee: The Airports Council Inter-
nationalNorth America (ACINA) and the American Association of Airport Execu-
tives (AAAE) appreciate the opportunity to submit written comments for the record
of the hearing on liability from voluntary audits, held on October 30, 1997.
ACINAs members are the local, State and regional governmental entities that
own and operate commercial service airports in the United States and Canada.
ACINA member airports serve more than 90 percent of the U.S. domestic sched-
uled air passenger and cargo traffic and virtually all U.S. scheduled international
travel. AAAE is the professional organization representing the men and women who
manage the primary, commercial service, reliever and general aviation airports
which enplane 99 percent of the passengers in the United States.
ACINA and AAAE appreciate your taking the initiative to provide a forum for
Congress, the Administration, and industry to examine this issue. In particular, air-
ports support passage of S. 866, the Environmental Protection Partnership Act, in-
troduced by your colleague, Senator Kay Bailey Hutchison. The bill would prevent
certain voluntary disclosures of violations from being subject to investigatory proce-
dure or admitted into evidence during a judicial or administrative proceeding. As
part of general pollution prevention and environmental planning efforts, airports
often employ self audits to ensure that all activities undertaken on airport property
comply with environmental laws and regulations.
Periodic voluntary audits allow airport management to identify potential environ-
mental problems, to evaluate current pollution prevention and control technologies,
and to develop more effective methods for future use. However, airport operators
have been discouraged from continuing or expanding this practice, in the face of
EPAs requirement that they disclose this information as a matter of public record,
subject to enforcement action and penalties.
The airport community believes that self-policing can play a crucial role in find-
ing, correcting and preventing violations. The current EPA-imposed policy effectively
penalizes airport operators who attempt to monitor their own activities and activi-
ties of their tenants in an effort to ensure environmental compliance. Ironically, the
EPAs policy requiring full disclosure of self-audit ultimately creates a disincentive
for airports to do everything possible to ensure compliance with environmental laws
and regulations.
On behalf of U.S. airports, thank you for holding todays hearing on this very im-
portant issue.
PREPARED STATEMENT OF THE AMERICAN FARM BUREAU FEDERATION

The American Farm Bureau Federation (AFBF) is the largest general farm orga-
nization in the nation. AFBF has affiliated State Farm Bureaus in all 50 States and
Puerto Rico, representing the interests of more than 4.7 million member families na-
tionwide.
We are pleased to submit this statement for the hearing record on the issue of
environmental audits. The debate on this issue is extremely important to farmers
and ranchers, because the way that the environmental audit issue is finally resolved
will go a long way toward determining how agricultural compliance with environ-
mental laws is finally achieved.
The American Farm Bureau Federation believes that the approach taken in Sen-
ator Hutchinsons bill, S. 822, offers the most promise, and we support its passage.
Senator Enzis bill, S. 1332, which would provide Federal recognition of the protec-
tions provided in State environmental audit legislation, is also on the right track.
We believe, however, that Federal legislation needs to do more than recognize State
audit laws.
Farmers and ranchers bring a different perspective to this issue than that pre-
sented at the hearing. Most of the testimony at the hearing focused on environ-
mental auditing by heavy industry or larger corporations. Farmers and ranchers fit
136
into neither category, yet they are subject to as many or more environmental regula-
tions. Just trying to keep up with all the new environmental regulations that impact
agriculture is a full-time job for most farm and ranch operations.
Unlike large corporations, farm and ranch operations do not have fully staffed en-
vironmental departments or divisions. Most farm and ranch operations do not have
the time or manpower to conduct their own thorough environmental audits, or rou-
tinely study all of the environmental rules and regulations that are promulgated.
But that does not mean that farmers and ranchers do not want to be in compliance
with environmental requirements.
Farmers and ranchers depend on the land for their food, fiber and livelihoods.
They have to take care of that land so it will continue to produce year after year.
An appropriate program of voluntary environmental auditing would go a long way
toward ensuring that farmers and ranchers are in compliance with the myriad envi-
ronmental rules and regulations that now confront them.
The debate on environmental audits strikes to the core of the purpose for environ-
mental rules and regulations. It requires an answer to these fundamental questions:
Is the goal of environmental laws and regulations to have people comply with their
provisions, or is it to provide a mechanism to punish those who do not? Is it the
role of the Environmental Protection Agency to bring about compliance with envi-
ronmental standards, or to punish those who do not? Are the general public and the
environment best served by people protecting or enhancing the environment, or by
punishing those who do not? Should the goal of environmental audit legislation be
to assist people to comply with environmental laws and regulations, or to assist the
EPA and other Federal agencies in identifying violations of environmental laws?
We believe that environmental goals can best be attained and the public better
served through compliance rather than convictions. We should not forget that these
statutes were enacted for the purpose of improving environmental conditions, not
as penal statutes. The best way to accomplish that goal is for as many people as
possible to comply with the standards set forth in those laws and regulations. We
promote the goal of full compliance with applicable environmental provisions in our
members farm and ranch operations.
Distressingly, the testimony of Steven Herman of EPA at the October 30 hearing
indicates that EPA views its primary mission as punishing those not in compliance
with environmental laws, rather than trying to achieve compliance. The testimony
evidenced a clear intent to not let violations go unpunished, even at the expense
of losing potential users of the voluntary audit program. The fundamental problems
with the EPA view are: (1) focus on punishment rather than compliance does not
improve environmental quality; (2) there are not enough enforcement personnel to
uncover and investigate all of the environmental violations; (3) to do an adequate
job of enforcement will take much more money and manpower that might be better
used to assist people to improve environmental quality through compliance with the
many and varied environmental laws and regulations; and (4) people who under-
stand their environmental conditions and what to do about them (as through results
of an environmental audit) and who want to take proper steps are likely to be more
successful in achieving the goals of environmental laws and regulations than those
who are punished for noncompliance.
The current command and control system of environmental compliance is not
working. The more enforcement role that EPA and other regulatory agencies as-
sume, the more inadequate existing enforcement resources are.
A voluntary environmental audit policy like the one embodied in S. 822 will assist
in promoting compliance with environmental rules and regulations and achieving
environmental protection. Given the inadequate resources for policing environ-
mental compliance, a system must be devised to encourage people to take steps to
assess their own situations and bring their operations into compliance with environ-
mental laws.
Most of the agricultural producers who might avail themselves of the environ-
mental audit procedure do not intentionally violating the law. Rather, of the viola-
tions of environmental laws that producers are likely to incur, the vast majority of
them are either accidental events, technical violations resulting from regulations
that are too complex, or are violations about which the producer has insufficient
knowledge. Environmental rules and regulations are so technical and complex that
it is not difficult to be in violation of some unknown regulation. One of the primary
uses of environmental audits is to determine whether an operation is in compliance
or in violation in the first place.
Another primary use of environmental audits is to discover ways that violations
might be corrected and ways that practices can be modified to prevent future viola-
tions. Operations that are not in compliance can be brought into compliance. The
137
environment is protected and enhanced, and both the producer and the public bene-
fit.
Everyone interested in protecting and enhancing the environment should support
the concept of environmental audits.
Farmers, ranchers and others would be very reluctant to conduct environmental
audits if the results of an audit could be used to convict them of environmental vio-
lations. This is especially true in cases where the producer is not sure whether there
is any violation, because in that situation doing an audit becomes roll of the dice
for stakes higher than most individuals are willing to accept. While this may be at-
tractive to larger corporations, the reduced penalties embodied in the EPA audit pol-
icy offer little or no inducement for farmers and ranchers to do environmental au-
dits. Asking people to voluntarily take actions so that the results of those actions
might be used to incriminate them in court is hardly an inducement.
But the government is not the only entity for farmers and ranchers to worry
about. The Clean Air Act, the Clean Water Act, the Endangered Species Act and
most other environmental statutes contain expansive citizen suit provisions, which
allow any person to bring a civil action against anyone suspected of violating envi-
ronmental laws. Certain entities have very aggressively used these citizen suit pro-
visions against farmers and ranchers. Opponents of environmental audit legislation
speak about the publics right to know information on environmental violations.
Does that right to know mean the ability to obtain information such as an envi-
ronmental audit to enable them to file citizen suits?
We believe that the approach taken in S. 822 solves this problem. The bill pro-
vides that a voluntary environmental audit report made in good faith shall not be
subject to discovery in any investigative proceeding, nor shall it be admissible in
any judicial or administrative proceeding. This immunity does not cover information
that is required to be reported, or information that is obtained by an agency from
independent sources.
The immunity does not extend to situations where (1) violations are intentional,
(2) where there is a pattern of violations by the entity, (3) where disclosure is made
with fraudulent intent, or (4) where any violations are not remedied in a timely
manner. The bill also does not prohibit the use of injunctive relief to remedy signifi-
cant environmental or human health and safety concerns that are discovered in the
course of an environmental audit. By these exclusions, the bill seeks to extend its
shield of protection only to those who are serious about assessing their operation
and correcting any problems that might be found.
S. 822 would not protect major polluters, as its critics claim. Nor will it allow peo-
ple to use the protections of S. 822 for dishonest purposes. Its narrow scope is lim-
ited to providing inducement to honest operators to voluntarily assess their own op-
erations and take corrective action where problems are discovered. If the goal of en-
vironmental legislation is to have everyone comply with their provisions, the ap-
proach taken in S. 822 is exactly what environmental audit legislation should accom-
plish.
We would like to also address the issue of State environmental audit laws. We
support the efforts of States to promote environmental awareness and protection
within their borders by passing legislation to encourage the use of environmental
audits. We also support the provisions of S. 822 and S. 1332 to federally recognize
State environmental audit laws and the inducements they provide. Farm Bureau
has long advocated that management at the State level is preferable to Federal leg-
islation in most cases.
In this situation, we believe that affirmative Federal recognition of environmental
audits is necessary, and that Federal legislation should go beyond the mere recogni-
tion of State laws. The heretofore heavy Federal presence in environmental matter
requires Federal legislation on the issue. Federal uniformity of inducements will
also resolve potential legal issues of which State law applies in cases where there
may be multi-State implications. that is not to say that States should not enact en-
vironmental audit legislation to protect the environment within their borders. We
just believe that the more complete approach in S. 822 will more likely resolve the
issues.
PREPARED STATEMENT OF ELIZABETH GLASS GELTMAN

HOW A FEDERAL AUDIT PRIVILEGE FURTHERS THE NEW AMERICAN
ENVIRONMENTALITY
Thank you for inviting me to testify today. A few years ago I had an opportunity
to visit Disney World in Orlando, Florida. Much to my familys chagrin, I didnt tour
138
the magic kingdom. Instead, I toured the facility co-generation plant, recycling sta-
tion and composting operations in order to view the environmental policies and
practices of the Disney enterprise. Disney called their environmental program
environmentality; and they dictated that all employees should be concerned with
environmental compliance matters.
I am here today to talk to you about what I call the New American
Environmentality and how you as senators have an opportunity to further this
environmentality at no cost to taxpayers, business or our communities. To the con-
trary, this low cost market based mechanism of encouraging environmental auditing
saves business money, makes our communities cleaner and greener and increases
government efficiency. Of course, I am talking about environmental audits and the
bill you are considering making environmental audit documents privileged under
certain circumstances.
As a people, Americans want environmental compliance. They want clean air,
clean water and green lands. They also want less government bureaucracy in accom-
plishing these goals.
Corporate America, working together with State regulators and the EPA regions,
has had incredible success in improving that air and water quality over the last 20
years. In many cases the air and the water are cleaner. In other cases, the air and
water are no dirtier than it was 20 years ago, notwithstanding the incredible devel-
opment and population increase in that time. These are successes to be proud of;
but we, as a nation, need to do more.
We need to improve the New American Environmentality to improve environ-
mental quality throughout the country. Government cannot do this alone. We do not
have enough regulators to enforce all violations of all environmental laws. Moreover,
we can not regulate all environmental matters. Many important issues, such as
nonpoint source runoff and fugitive emissions, remain unregulated. We have to work
together with industry and the American people to improve the quality of the Amer-
ican environment.
Enter environmental audits. Environmental audits are designed to identify envi-
ronmental problems that can become either a liability issue or a regulatory concern.
The goal of a well designed environmental audit is to check a facility and identify
potential problems and correct them. Industry uses audits to keep environmental
costs down as well as to avoid fines.
To date, sixteen (16) States have enacted environmental audit privilege or immu-
nity laws. The concept of environmental audit privilege is to encourage industry to
conduct audits candidly and proactively. Privilege allows regulated entities to look
for problems that they are not legally required to check. If the company fixes the
problem identified as problematic in the audit document, then the document itself
(and not the underlying data the document discusses) will be privileged from discov-
ery by enforcement authorities.
Note that the audit document is privileged ifand only ifthe regulated entity
fixes the problems identified in the audit. There is no privilege absent a correction
of the environmental problems identified in the audit. Hence, contrary to some as-
sertions by U.S. EPA and the U.S. Department of Justice respecting the privilege
of an audit document, industry cannot hide evidence of negligence. If the problem
is discovered in an audit and not fixed, then not only can a suit lie for common law
negligence (as well as the full panoply of environmental laws), but the audit docu-
ment would not be considered privileged because a critical element necessary to in-
voke the privilegecorrecting the problemhas not been met.
Which brings me to a second argument often made by U.S. EPA and the Depart-
ment of Justice: use of the audit document to prove the scienter (or knowledge) ele-
ment in a criminal prosecution. U.S. EPA and the Department of Justice consist-
ently argue that they will not routinely ask for audit documents, but reserve the
right to do so to prove scienter. This is bad policy. As I have already said, the must
important aspect of the privilege in most States is that it is absolutely conditioned
on coming into environmental compliance.
If a company does an audit, discovers a problem and corrects it before there is
any harm to the environment, then we as a society have accomplished the primary
goal of environmental lawsto keep society safe. If a company does an audit after
there has been an environmental disaster and tries to use the audit to deter the
effort the Justice Department, then the document would not be privileged. More-
over, if there is an environmental disaster there is likely to be a lot of independent
evidence of the environmental crime committed. Simply said, the audit document
itself would not be the only evidence of criminal conduct.
If on the other hand, an audit is conducted and environmental disaster is averted,
there may be no independent evidence of wrongdoing without discovering the audit
document. But do we really want to spend valuable enforcement resources prosecuting
139
people who found a problem, fixed it and averted environmental disaster?
Shouldnt we spend our scarce enforcement resources prosecuting those who cause
harm to the environment or who rountinely thumb their noses at environmental
rules and regulations? In other words, do we really want to criminally prosecute
parties where there is no harm to the environment and there is no independent evi-
dence of wrongdoing aside from the audit documentthe document which led to fix-
ing the problem? To me, the answer is clear: where environmental disaster has been
averted, we should be encouraging the efforts of industrynot threatening them
with criminal lawsuits. The goal is environmental compliance, not prosecution for
prosecutions sake.
I like to explain this principle to my law students by analogizing to my kids. We
have rules in our house and my two boys know that they are supposed to abide by
all the rules in the house all of the time. Sometimes, however, they forget. Or make
mistakes. The other day my sons were throwing a ball in the living room. Both boys
know they werent supposed to do so, but they were excited about the upcoming
Ravens/Redskins game (we follow both teams). While hiking the ball, one boy acci-
dentally knocked over a vase I had been given by a dear friend for my wedding.
My younger son looked at the breakage and immediately suggested that they hide
evidence of the crime. My older son (wiser than his years) told my baby that hid-
ing evidence of the damage was not a wise idea. He said they needed to tell me,
but he was sure Mommy would be fair. He knew it would be worse to lie by not
telling me of the problem. The boys, thus, ran to me apologetically, confessed theirs
sins and promised never to do it again. I admonished them for their errant behav-
ior, but did not ground them for the next 20 years. Balls havent been flying in my
house sincealthough I expect there may be mistakes in the future.
Industry is like children. The job of U.S. EPA and the Department of Justice is
that of a responsible parent. We can not possible police all industry for all environ-
mental compliance all the time. Even the best company will have problems and
make mistakes. If we punish them drastically, then they are unlikely to come for-
ward and confess the problems and work cooperatively with the agency. Instead,
they are more likely to hide the problems and let them fester until they become true
environmental disasters.
Americans want environmental compliance. Environmental audit laws encourage
environmental compliance by conditioning privilege on correcting problems identi-
fied in the audit. Many States have enacted audit privilege statutes to increase their
environmental compliance efforts. All preliminary data indicate that environmental
compliance (and beyond compliance environmental efforts) have increased in States
with privilege laws. Moreover, no State has indicated that the existence of an envi-
ronmental audit privilege law has interfered with the ability of the agency to pros-
ecute environmental matters any more than the attorney client privilege hinders
prosecution. Nor has the U.S. Department of Justice been able to point to any case
where the existence of any environmental audit privilege or immunity law has im-
paired prosecution beyond the discovery dispute normally occurring in, for example,
the attorney-client privilege context.
For these and many other reasons I have written on in the past, I believe the
passage of a Federal environmental audit privilege law would be good for the envi-
ronment, business and the public welfare. I urge you to carefully consider the legis-
lation before you; and I thank you for your time.
Appendix A
Table of Audit Privilege Laws By Date Enacted
Date Enacted 1994 (4) 1995 (5) 1996 (6) 1997 (2)
States .......... Arkansas, Colorado, Illinois, Indiana, Kansas, Michigan; New Hamp- Idaho (Revised); Michi-
Idaho, Kentucky. Minnesota, Mis- shire; Ohio; South gan (Revised).
sissippi, New Jersey, Carolina; South Da-
Oregon, Texas, Utah, kota; Utah.
Virginia, Wyoming.
140
Appendix B
Table of Audit Immunity Laws By Region
States with Proposed Audit Immunity Laws States with Neither Proposed Nor En-
Region States with Enacted Audit Immunity Laws (16) (24) acted Audit Immunity Laws (10)
1 ..... New Hampshire ....................................... Maine, Massachusetts, Rhode Island Connecticut, Vermont.
2 ..... New Jersey ............................................... New York ...........................................
3 ..... Virginia .................................................... Delaware, Maryland, Pennsylvania,
West Virginia.
4 ..... Kentucky, Mississippi, South Carolina .... Alabama, Florida, Georgia, North
Carolina, Tennessee.
5 ..... Michigan, Minnesota, Ohio ...................... None .................................................. Illinois, Indiana, Wisconsin.
6 ..... Texas ........................................................ New Mexico, Oklahoma.
7 ..... Kansas ..................................................... Iowa, Missouri, Nebraska ................. Arkansas, Louisiana.
8 ..... Colorado, South Dakota, Utah, Wyoming Montana ............................................ North Dakota.
9 ..... None ......................................................... Arizona, California, Hawaii ............... Nevada.
10 ..... Idaho ........................................................ Alaska, Washington .......................... Oregon.
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NEW YORK STATE,

DISTRICT ATTORNEYS ASSOCIATION,
Kew Gardens, NY, October 28, 1997.
Hon. JOHN H. CHAFEE,
Chairman, Environment and Public Works Committee,
U.S. Senate, Washington, DC.
RE: ENVIRONMENT AND PUBLIC WORK COMMITTEE HEARINGS ON
VOLUNTARY AUDITS TO BE HELD ON OCTOBER 30, 1997
DEAR SENATOR CHAFEE: Thank you for the opportunity to present written testi-
mony to the Environment and Public Works committee on behalf of the New York
State District Attorneys Association (NYSDAA) and the 62 elected district attorneys
whom it represents.
As President of the Association, I urge that the Committee carefully consider the
unintended consequences of the proposed Environmental Protection Partnership Act
(Senate 866). If enacted, the Act would, in our judgment, cause serious harm to
those whom it is intended to protect and would intrude upon the right of our States
to enact and enforce their own laws.
PROVISIONS OF THE ENVIRONMENTAL PROTECTION PARTNERSHIP ACT
(SENATE 866)
The proposed Environmental Protection Partnership Act (EPPA) has two major
components, each of which would shield criminal activity. Taken together, they
would create a haven for criminal conduct on the part of industry, environmental
service providers and even government employees.
Privilege Provisions
The first component of the proposed Act creates a very broad privilege for environ-
mental audit reports. In effect, it creates a corporate fifth amendment privilege in
the environmental arena. where no such Federal or State corporate privilege exists
in other areas. The Act makes audit documents inadmissible in evidence and ex-
empt from discovery. The privilege creates a cloak of secrecy around a host of items
which are not protected by any traditional privilege: personal observations, scientific
tests, field analysis, laboratory results, photographs, graphs, and other empirical
data; expert testimony and opinions; recommendations; and documents which de-
scribe the scope and methodology of the audit. The privilege also limits testimony
by those who participated in an audit.
The privilege cloak keeps government in the dark about an audit even if the com-
pany voluntarily shares that audit with a lender, buyer, potential business associ-
ate, or competitors. The privilege shield, with very limited exceptions, would equally
thwart efforts of prosecutors, grand juries, government lawyers, regulatory agencies,
citizens groups and next door neighbors to learn the truth about an environmental
violation.
Immunity Provisions
The proposed Act would grant criminal, civil and administrative immunity to com-
panies and officers without the consent of or notification to State or Federal pros-
ecutors. Any company which makes a prompt disclosure of a violation to a State
or Federal environmental agency, setting forth plans for any necessary remediation
would receive an automatic presumption of immunity from prosecution (disclosure
immunity).
If the regulatory agency does not dispute the disclosure immunity within 60 days,
the immunity is conclusive. In considering whether to dispute a disclosure immu-
nity, the agency has no right to see the audit documents giving rise to the disclosed
violation. Those documents, including the empirical data, remain privileged and in-
accessible except to the extent a company chooses to share it.
To dispute the immunity, the agency must establish that the company was repeat-
edly found guilty of distinct violations based on the exact same legal requirements,
with different underlying causes, during the three preceding years. Other criminal
acts or different environmental violations are not a basis for denying immunity.
Assuming a prosecutor learns about a disclosure, and convinces the agency to dis-
pute the immunity due to an ongoing criminal investigation, the question of immu-
nity cannot be resolved until the criminal charges are filed. In the criminal proceed-
ing, the prosecutor must prove to the court beyond a reasonable doubt that the de-
fendant was not entitled to immunity-by showing the same pattern of repeat viola-
tions, or an elevated intent to actually violate the applicable laws. The audit docu-
ments cannot be reviewed by the prosecutor to develop evidence of the enhanced in-
tent.
187
Background
In January 1995, the NYSDAA unanimously adopted a resolution opposing envi-
ronmental self-audit privilege and immunity laws. This resolution was adopted after
members of our Environmental Subcommittee had participated in formal working
groups negotiating sessions, debates and public hearings on voluntary audits and
compliance initiatives.
For more than 3 years, we have successfully opposed privilege and immunity leg-
islation introduced in New York State. New York State Governor George E. Pataki
and its Attorney General Dennis C. Vacco have also rejected such legislation. Meet-
ings with our State business community, professional auditing associations and
other privilege proponents have convinced us that there are more effective ways to
address industry complaints and encourage compliance.
THE FOCUS OF THE AUDIT PRIVILEGE/IMMUNITY DEBATE
Testimony favoring audit legislation in previous congressional hearings has fo-

cused on the complex, sometimes burdensome environmental regulations with which
industry must comply. Proponents have claimed unfair treatment by regulatory
agencies, and suggest that environmental violations in this era are largely technical
in nature. Privilege and immunity laws would offer companies protection from both
government enforcement actions and private party litigation.
The United States Department of Justice and the National District Attorneys As-
sociation have consistently opposed enactment of environmental self-audit privilege
and immunity laws. If Senate 866 were enacted it would shroud important evidence
in secrecy and shield from prosecution the most serious of offenders. These offenders
are not technical violators.
Throughout our State, drums of hazardous waste are dumped in our woods and
streams; stolen tractor trailers full of hazardous waste from other jurisdictions are
abandoned in our industrial parks; tanker trucks dump waste on our highways and
in our town landfills; generators pay unlicensed truckers cash to take their waste
without manifests; manufacturers intentionally dump industrial waste into cess-
pools and storm drains to leach into our water supplies; and greedy environmental
contractors defraud government of millions of dollars doing shoddy asbestos and
lead abatement in our poorest neighborhoods and schools.
These intentional violators are the most likely to perform sham audits, make self-
serving disclosures and benefit from both the privilege and immunity aspects of the
law.
THE UNINTENDED CONSEQUENCES OF SENATE 866
The Impact of Privilege on Public Safety

The privilege is too broad and the exceptions do not allow government access to
audit documents when they are needed to protect public health, safety and the envi-
ronment:
Emergency responders trying to contain an active spill or determine a cause of
physical injury would be denied access to documents necessary to limit environ-
mental depredation or save lives.
A grand jury or government agency conducting an investigation into workplace
injuries or fatalities would be denied access to documents which might reveal man-
agements knowledge of dangerous conditions. There is no provision in the Act to
balance public safety against rights of private parties, such as exist in other areas
of the law. For example, hospitals are encouraged to review deaths in their facilities
to improve procedures and prevent similar occurrences. Those reviews are not acces-
sible to plaintiffs suing for wrongful death, but are available to government agencies
which license doctors and hospitals and to grand juries investigating whether the
death constituted a homicide. Under the EPPA, evidence necessary for the govern-
ment to prevent future threats to public safety would remain secret.
The Privilege Exceptions are Too Narrow
Circumstances in which audit related documents are relevant to criminal inves-
tigations are not contemplated by the Act. This legitimate need for information does
not satisfy the narrow privilege exceptions.
When an environmental service provider such as a hazardous waste hauler de-
frauds an unsuspecting company by charging for lawful disposal services, and then
illegally dumps the companys waste, audit documents may be necessary to make
a criminal case against the hauler. The privilege exceptions do not allow the govern-
ment to obtain those documents to prove the hauler knew the waste it dumped was
hazardous.
188
When a business is investigated for its current illegal activities, any audit con-
ducted prior to the activities under investigation would be relevant to prove knowl-
edge and intent in the current case. The narrow privilege exception would not give
prosecutors access to those previously generated documents if the illegal acts were
discontinued when first discovered, even if the company consciously resumed illegal
dumping activities for financial motives after receiving immunity.
Audit documents from one company would not be available under the Act to
prove criminal activity of another company. Where there is hidden ownership or
where a shell corporation operates a facility, audit documents from any number of
companies may establish criminal intent of a particular individual. The limited
privilege exceptions would prevent government from piercing corporate veils to
prove an ongoing course of criminal environmental violations.
The privilege exceptions are applied on a case by case basis under the Act.
Where there is organized criminal activity, it is necessary to review patterns of ac-
tivity and develop circumstantial evidence of intent. The limited exceptions do not
allow a review of a companys ongoing course of conduct and do not make audit in-
formation available to prosecute crimes which may be peripheral to environmental
performance.
The Immunity is Too Broad
The prosecutors obligation to balance individual needs against public safety in re-
solving criminal cases is nullified by the automatic immunity provisions of the pro-
posed Act. The immunity provisions are too broad because they do not take into ac-
count any of the following:
The seriousness of the offense, extent of environmental damage, potential harm
to health of the community.
Whether remediation has been completed as planned by the company at the
time immunity was granted.
Whether the immunized activity was a major or minor violation, whether the
company violated other environmental laws in addition to the one for which a disclo-
sure immunity is claimed, or whether the management has committed other non-
environmental crimes such as perjury or defrauding the government.
Whether the company can benefit and is willing to participate in government
assisted compliance efforts to improve overall performance.
Whether the audit activity giving rise to the disclosure was appropriate to the
size and nature of the facility, professionally conducted, accurate in its findings and
likely to prevent future violations.
The Combined Impact of Immunity & Privilege Provisions
The sunset provision of the proposed Act suggests that the impact of EPPA would
be scrutinized by Congress before extending it. However, the secrecy and automatic
immunity provisions would prevent any scrutiny at all.
There is no way to measure whether a particular immunized act or the program
itself has actually helped or harmed public health, safety or the environment. There
is no means of determining whether remediation has been completed or future viola-
tions prevented.
There is no penalty for a company that hides evidence of undisclosed crimes,
and no way to revoke immunity if illegal conduct is resumed subsequent to the
grant of immunity.
Crucial evidence would not be available if a grand jury is investigating a public
servant for bribery or other misconduct in office. There is no way to scrutinize the
activities of regulators who administer the programs created by the proposed Act.
Once immunity is granted to the company even if the company bribed a regulator
not to dispute disclosure immunity-a grand jury cannot obtain copies of audit docu-
ments to indict, to determine where the process failed or even to recommend legisla-
tive change. This protects from scrutiny the very employees of regulatory agencies
who are charged with administering environmental programs, even if they are sus-
pected of unlawfully disclosing proprietary information from an audit document to
a companys competitors.
Because there is no review process, there is no incentive for companies to con-
duct good audits. In fact, the promise of immunity may well encourage sham audits
by criminally motivated manufacturers and unqualified or fraudulent auditors.
The District Attorneys of New York State are attuned to the needs of businesses
in our respective jurisdictions and like all elected officials we are interested in the
economic well-being and ability of those businesses to survive. We will work with
themand renew our commitment to work with youto devise solutions for some
of the very real problems raised by industry regarding how it is regulated. However,
our primary responsibility as prosecutors is to protect the health and safety of our
189
citizens. Enactment of environmental self-audit privilege and immunity laws, where
none exist with respect to other business relationships, will seriously impede our
ability to do so.
Very truly yours,
RICHARD A. BROWN,
President.
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S. HRG.

THE REVIEW OF ACTIVITIES BY THE FEDERAL GOVERNMENT CON-

OCTOBER 30, 1997

For sale by the Superintendent of Documents, Congressional Office

OCTOBER 30, 1997

THURSDAY, OCTOBER 30, 1997

OPENING STATEMENT OF HON. JOHN H. CHAFEE,

We look forward to the testimony from both Senators, and we

OPENING STATEMENT OF HON. JAMES M. INHOFE,

My first concern revolves around the core mission of the EPA. I

up the environment. Senator Inhofe has just pointed out a problem

we cannot limit spending on political campaigns, because money is

was in the Wyoming legislature at the time, and I watched these

Senator CHAFEE. I see.

privileged, civil rights or employment discrimination laws, OSHA

So in certain circumstances, it seems to me its just not nec-

penalize them, so that they dont produce that information. Its a

Senator SESSIONS. Well, I think that is a positive step. Because

So the employee reporting it to management is making manage-

But basically, Senator Enzi, thats what youre trying to do, is

and remedy any environmental damage, do not face gravity-based

and immunity legislation, including what we have been able to see

Senator Hutchison is here and we want to give her an oppor-

Mr. MCBEE. Thank you again, Mr. Chairman and members of

changes were adopted by our legislature this year, and became

Enforcement Council. As I believe you know, NAM is one

themselves from harmful pollution in their communities. This is

landfill. At that time, Waste Management said its internal audits

Senator BAUCUS. I wonder whether Mr. McBee, Mr. Wallach or

Senator BAUCUS. But still partial.

Senator BAUCUS. Well, Im just talking about the general prin-

unlike most Federal laws, and I was a prosecutor, a number of en-

Mr. MCBEE. Under the Texas law, Senator, materials required to

I think the concern that, as an example I wanted to give, if you

Senator ENZI. In the proposal that I have, of course, any informa-

action, against the company that discovered a violation on its

PREPARED STATEMENT OF STEVEN A. HERMAN, ASSISTANT ADMINISTRATOR, OFFICE

EPA strongly supports environmental auditing and use of compliance manage-

In conclusion, I urge that the current Federal approach to environmental auditing

A. The Texas Audit Privilege

Total Inspections 2 ................................. 42,611 34,305 39,031 41,803

PREPARED STATEMENT OF PATRICIA S. BANGERT, DIRECTOR OF LEGAL POLICY,

We want to accomplish three things in this testimony. First, we want to clear up

Company State Fine EPA Fine

Denver Radiation ............................................................................................................................. $160,000 $466,000

PREPARED STATEMENT OF PAUL G. WALLACH, ESQ., SENIOR PARTNER, HALE AND

Following careful review of the significant environmental benefits to be gained

EXAMPLES OF REPORTING OBLIGATIONS TO FEDERAL AND STATE REGULATORY AGENCIES

Clean Water Act

CORPORATE ENVIRONMENTAL ENFORCEMENT COUNCIL, INC.

The Corporate Environmental Enforcement Council (CEEC) is an organization

The Environmental Protection Agency (EPA) and the Department of Justice

The available evidence demonstrates that what actually encourages auditing is

Indeed, there is little or no reason to believe that environmental audit privileges

1 See, Note, Environmental Criminal Enforcement and Corporate Environmental Auditing:

In addition to the problems created by an audit privilege, statutory grants of im-

OFFICE OF THEATTORNEY GENERAL,

PREPARED STATEMENT OF AIRPORTS COUNCIL INTERNATIONAL-NORTH AMERICA AND