New York State Department Of Environmental Conservation Initiates Audit And Penalty Waiver Policy

by Manatt, Phelps & Phillips, LLP
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The New York State Department of Environmental Conservation ("DEC") has issued a new Environmental Audit Incentive Policy (Commissioner Policy No. 59) that is intended to encourage regulated entities to audit their practices and operations and to remedy any environmental protection violations discovered as part of that process or implement management systems to prevent violations. Significantly, the Policy will allow regulated entities to report discovered and remedied violations to the DEC in order to avoid certain fines and penalties. The Policy can be found here. It will take effect on November 18, 2013.

The Policy expressly states that "The Department will encourage compliance with environmental laws, as well as advance the use of environmental management systems and pollution prevention, by reducing or waiving civil penalties for eligible violations discovered by a regulated entity through an environmental audit, compliance assistance or pollution prevention."

Violations that are subject to the penalty reduction or waiver are those of New York law and regulations discovered by the regulated entity during an environmental audit or by the DEC, its contactors or other state, federal or local governmental agencies during pollution prevention or compliance assistance.

There are several key restrictions and requirements associated with the Policy, including:

  • Regulated entities will not be eligible if they, within the past 5 years:
    • Received a Notice of Violation, Environmental Conservation Appearance Ticket, Notice of Hearing and Complaint, administrative or judicial order, or were subject to a penalty demand; and
    • Were "uncooperative" in remedying past violations (i.e., failing to respond to DEC correspondence, failing to take good faith steps to remedy violations, etc.).
  • Violations will not be eligible for penalty reduction or waiver if an entity received:
    • A penalty waiver for a violation of the same requirement within the past 5 years;
    • A violation of an administrative or judicial order;
    • A violation of the terms or any response, removal or remedial action covered by a written agreement;
    • A violation that involves alleged criminal conduct;
    • A violation discovered through the Department's inspection activities;
    • A violation reported to a governmental agency by a member of the public or a "whistleblower" employee;
    • A violation required to be self-reported pursuant to federal or state statute, regulation, permit or order;
    • A violation resulting in a natural resource damage claim, serious actual harm, or one that may have presented an imminent and substantial endangerment to human health or the environment;
    • A violation characterized as Significant Non-Compliance pursuant to the National Pollutant Discharge Elimination System program or the Resource Conservation and Recovery Act program; a High Priority Violation under the Federal Clean Air Act may be excluded.

Disclosure must be expeditiously provided to the DEC in writing and otherwise in accordance with time frames provided for in statute or regulation or, if none, no later than 30 days after discovery. Violations must be corrected expeditiously, in accordance with time frames provided for in statute or regulation or, if none, no later than 60 days after disclosure to the DEC.

The amount of the penalty waiver will generally include an amount representing the gravity of the violation and an amount equal to the economic benefit for delayed compliance, up to $5,000. Economic benefit above that $5,000 may be reduced by the DEC in an amount equal to an entity's investment in pollution prevention. Violations discovered and disclosed by entities engaged in environmental audits and environmental management systems during the normal course of business or pursuant to an agreement will be considered for additional penalty reductions.

Entities that receive penalty mitigation must identify measures to ensure future compliance and state that such measures will be implemented and maintained.

The Policy additionally details incentives to regulated entities that enter into environmental audit agreements and implementation of environmental management systems including:

  • Eligibility for a cost share of up to 50% for audit activities through the New York State Energy Research and Development Authority's Flexible Technical Assistance (Flextech) program.
  • Priority for assistance from the Small Business Environmental Assistance program, administered by the Environmental Facilities Corporation, and the Small Business Ombudsman program, administered by the Empire State Development Corporation.
  • Not being prioritized for inspection by the DEC during the limited audit period, unless a complaint is received.
  • Entities that enter into an audit agreement or implement an environmental management system that has an agreed scope covering "all significant aspects of the entity's operations, integrates a compliance audit and identifies opportunities for pollution prevention will additionally receive a waiver of any payable economic benefit with any penalty arising out of disclosure that is committed to pollution prevention at the facility."

During a recent discussion with business groups, the DEC senior staff acknowledged the need to overcome regulated entities' skepticism related to this Policy. Accordingly, the agency is actively engaged in conversations with several companies that have expressed an interest in implementing audit programs and disclosing discovered violations. Further, while the DEC recognizes that the U.S. Environmental Protection Agency ("EPA") would not be bound by this Policy related to violations within its jurisdiction, the DEC would seek to coordinate with the EPA on any dual jurisdictional issues and to take the lead, as has generally been accorded by the EPA.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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