Senator Tom Niehaus has introduced S.B. 372 bill to extend the effectiveness of Ohio’s Environmental Audit Privilege law for another five years. The law is set to expire on January 1, 2009. It was a hard fought battle for businesses to get the Audit Privilege law on the books in the late 90’s. While the law was watered down to address U.S. EPA concerns, it remains a valuable tool for some businesses. The law is intended to reward those companies that proactively evaluate their compliance with environmental requirements.
What is the Ohio Environmental Audit Privilege law? It is provides immunity from civil penalties if a company voluntarily discloses environmental violations to the appropriate State Agency that were uncovered as a result of an environmental compliance audit. Note: a civil penalty can still be assessed even after a valid disclosure if the company enjoyed a "economic benefit" as a result of the violation, meaning delayed compliance gave it a competitive advantage.
As a further incentive to utilize the law, the content of an environmental audit report is privileged and not admissible as evidence in a civil or administrative proceeding. (See R.C. §3745.71(C) for exceptions to the privilege provisions) This provision is meant to reduce exposure to third party suits as a result of environmental violations.
How frequently do businesses use the Audit Privilege Law? In my experience the law has been used infrequently by Ohio businesses. During my time at the Ohio EPA, I oversaw the processing of Audit Privilege disclosures. I would estimate that the Agency received, on average, around four or five disclosures per year during my tenure.
Why isn’t the Audit Privilege Law used more frequently? I was always puzzled why more companies did not take advantage of the Audit Privilege law. Some may believe it is better to correct the violation and wait and see if it is discovered by the Agency. With so many entities to inspect, some companies think it is better to take this risk the violation is discovered than have their disclosure denied for a technical flaw and face an enforcement action.
Other companies may think the administrative costs of performing an audit are too high. Or some may be under the mistaken belief that Ohio’s five year statute of limitations on environmental enforcement actions provides a better shield from penalties. Just keep in mind that the trigger for the statute of limitations in R.C. §3745.31 is when the Agency "actually knew or was informed" of the violation. So the Agency must be aware of the violation for the clock to run.
What are some of the reasons a request for coverage is denied? The disclosure must be voluntary, which means it must not be required by some environmental law. During my time at Ohio EPA, by far the most frequent reason a company was denied coverage was the disclosure of the violation was required by some other environmental law. Of those companies denied coverage for this reason, most were Title V permitted sources under the Clean Air Act. Title V sources are required to disclose violations as part of their permit terms and conditions. However, even in these cases, the Agency frequently reduced penalties to reward the early disclosure of violations.
Here are additional requirements to be deemed a voluntary disclosure (See R.C.§3745.72(B)):
- Prompt disclosure
- Reasonable effort to achieve compliance as quickly as practicable
- Cooperate with the State Agency who is charged with investigating the disclosure
- Disclosure not required by law, prior litigation, or a prior order
- The company disclosing has no knowledge or reason to know of an Agency had previously commenced an investigation or enforcement action regarding the violations
What is involved in filing a disclosure to the appropriate state agency? Unlike environmental permitting or grant applications, the submission to Ohio EPA to receive coverage under the Audit Privilege law is actually pretty minimal. R.C. §3745.72(C) requires that all disclosures must be in writing, dated, and hand delivered or sent by certified mail to the Director. The written disclosure must include the following information:
- the name, address, and telephone number of the owner or operator of the business making the disclosure;
- the name, title, address, and telephone number of one or more persons associated with
the owner or operator who may be contacted regarding the disclosure;
a brief summary of the alleged violation of environmental laws, including, without
limitation, the nature, date, and location of the alleged violation to the extent that the
information is known by the owner or operator; and
a statement that the information is part of an environmental audit report and is being
disclosed under R.C. §3745.72 in order to obtain the immunity provided by that section.
Are there good reasons to use Ohio’s Environmental Audit Privilege Law if it is renewed? Yes. During my tenure, I was not aware of any enforcement action that was pursued against a company that made a valid and voluntary disclosure. Just make sure you are not required to report by some other environmental law.
I think the law may be ideal for companies that recently purchased a new facility or company. Performing an environmental audit after such an acquisition is an excellent way to ensure your house is order.
Also, the audit is a good way to have a third party to evaluate your compliance status. You can always choose to not file the disclosure if you think its not to your advantage for some reason.