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compliance; implementing mechanisms for systematically violations, whereby you must submit Audit Policy disclosures
assuring policies are being met (e.g., monitoring); training; via EPA’s online system and certify that you are in compliance
establishing appropriate incentives and disciplinary mech- with the Audit Policy requirements. New owners continue to
anisms; and implementing procedures to ensure prompt submit disclosures to EPA directly in writing, not via the online
corrective actions and correction of deficiencies in the compli- system. For more serious categories of violations, EPA will
ance management system. If you discover a violation outside review submissions for policy eligibility prior to offering penalty
of an audit or compliance management system, you can still mitigation. It is important to always keep in mind that EPA can
receive significant penalty mitigation (i.e., up to a 75 percent levy significant penalties for submitting false information in
reduction) if you meet the other conditions of the policy. connection with these disclosures.
2. VOLUNTARY DISCLOSURE. You cannot discover the viola-
tion as a result of legally-required monitoring, sampling, or State Self-Audit Laws and Policies
audits. State self-audit policies and penalty immunity laws vary by
3. PROMPT DISCLOSURE. The violation must be disclosed to state. Some contain requirements that are nearly identical to
EPA within 21 days of discovery, which is triggered when you EPA’s Audit Policy or New Owner Policy, while others have
have a reasonable basis for believing a violation occurred. distinct requirements. Unlike EPA’s policies, some state laws
4. INDEPENDENT DISCOVERY. Discovery and disclosure of the include audit privilege provisions that protect certain envi-
violation must be independent of the government or a third ronmental audit information from public disclosure in civil
party plaintiff, e.g., a government inspection. or administrative proceedings.
5. PROMPT CORRECTION. You must correct violations within Colorado, for instance, has enacted the Environmental
60 days after discovery (unless you request an extension). Audit Privilege and Immunity Law whereby all state civil and
6. PREVENT RECURRENCE. You must take steps to prevent the administrative penalties and all penalties for criminally neg-
violation from happening again. ligent violations may be waived if they are disclosed pursuant
7. NOT CLOSELY RELATED TO PAST VIOLATIONS. The violation to an audit. Colorado’s law is similar to EPA’s Audit Policy,
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cannot be the same as or closely related to a violation at although there are some notable differences, including a
the same facility within the past three years and cannot be “prompt disclosure” requirement (rather than within 21 days
part of a pattern of violations at multiple facilities owned or of discovery) and a two-year period to correct non-compliance
operated by the same entity within the past five years. (rather than within 60 days of discovery). 5
8. NO SERIOUS HARM. The policy excludes violations that result The decision of whether to conduct audits and disclose
in serious actual harm, present an imminent and substantial violations under a state law, EPA’s policies, or both depends on
endangerment, and violate the specific terms of an adminis- numerous case-specific factors, including whether federal or
trative or judicial order or consent agreement. state or both federal and state law has been violated, the scope
9. COOPERATION. You must cooperate with EPA and provide of the relevant audit laws or policies at issue, and whether states
the agency with information to enable it to determine if your or EPA have primary enforcement authority over the violations
violations qualify for penalty mitigation. in question. In many cases, states have delegated authority
from EPA to administer and enforce key federal environmental
Under its New Owner Policy, EPA applies a somewhat relaxed programs (e.g., for air emissions and wastewater discharges),
version of these requirements in the context of mergers and and in most cases, EPA declines to pursue enforcement if the
acquisitions. For the policy to apply, the violation must have state is taking the lead. It is important to consider these factors
originated with the seller, the buyer cannot previously have when deciding whether and how to self-report violations.
controlled compliance at the acquired company or facility, and
the buyer and seller cannot be closely related entities. Practice Tips
Due to the nature of transactions, EPA’s New Owner Policy Prior to commencing any self-audit, it is critical to care-
has adjusted the prompt disclosure condition to allow for disclo- fully consider who will conduct the audit and how and when
sure up to 45 days after closing or within 21 days of discovery, it will be conducted. Typically, facilities retain an environ-
whichever is longer. EPA also has adjusted the systematic discov- mental consultant to conduct audits because they provide
ery condition to include discovery of violations during the due “fresh eyes” to evaluate operations and good consultants can
diligence process. Companies qualify as “new owners” for nine provide helpful feedback on best management practices.
months after closing, so they can conduct self-audits during this Over the years, we have identified several additional consid-
post-closing period to take advantage of the policy. erations that companies should keep in mind when considering
In 2016, EPA implemented an online disclosure system for a self-audit:

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