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EPA grants amnesty on chemical effects reporting.

Mary Catherine Fish is an analyst and Jeffrey H. Schwartz is co-founder and principal of Jellinek, Schwartz, Connolly & Freshman Inc., a Washington, DC-based consulting firm specializing in chemical use management and environmental compliance.

by Mary Catherine Fish and Jeffrey H. Schwartz

Companies facing up to $25,000 per day in penalties for each violation of a little-known reporting requirement of the federal Toxic Substances Control Act "TSCA) may have a chance for "amnesty" under a program recently announced by the Environmental Protection Agency.

Although the deadline to sign up for the TSCA Section 8(e) Compliance Audit Program is May 2, many companies using chemicals in manufacturing durable or consumer goods are still unaware that TSCA applies to them and that the potential for penalties is enormous.

TSCA applies not only to chemical manufacturers but also to many other companies that handle chemicals during routine operations, including manufacturing, importing, reformulating, blending, repackaging and distributing. Section 8(e) requires businesses to immediately file a written report with the EPA whenever new information is obtained that "reasonably supports the conclusion that a chemical substance presents a substantial risk of injury to health or the environment."

Although TSCA does not define "substantial risk," the EPA has interpreted it as a risk of considerable concern because of the seriousness of an observed effect or the probability of its occurrence. Human health effects that indicate a substantial risk include cancer, birth defects, mutagenicity, death or serious or prolonged incapacitation. Environmental effects include accidental contamination of environmental media such as water or soil, bioaccumulation and changes in species' interrelationships.

Substantial risk information can include toxicological studies, epidemiological studies, health or environmental effects data, records of employee allegations of health effects, medical and occupational health surveys and reports of emergency incidents of environmental contamination. The EPA considers the information "new" if it has not been reported under mandatory requirements of other environmental laws or has not been published in the scientific literature and referenced by specified abstract services.

The EPA has interpreted "immediately" to mean that a company must file a report within 15 working days of obtaining the information. The 15-day clock starts when any person in a company who is capable of appreciating the significance of the information comes into possession of it or knows of it.

The EPA has warned companies against further evaluating information on serious health effects with methods such as "weight-of-the-evidence" risk assessment. Information that reasonably supports a conclusion of substantial risk must be submitted. Companies are not permitted to withhold information until its conclusions are verified.

Failure to inform the EPA immediately can subject a company to penalties up to $25,000 per day per violation. Because the EPA regards reporting failures as continuing violations, companies that several years ago-perhaps as far back as 1977 when TSCA went into effect-filed away a reportable study or studies may face huge penalties.

The EPA has aggressively enforced Section 8(e) for more than a year using its TSCA subpoena and enforcement powers. It has sought penalties in the millions of dollars for violations. Negotiation has reduced some fines to several hundred thousand dollars.

The Feb. 1 edition of the Federal Register informs companies that should have filed Section 8(e) reports of an opportunity to minimize their potential civil liabilities. Under the Compliance Audit Program, a company agrees to voluntarily audit its files for reportable information. Any company entering into an agreement by May 2 may limit the civil penalties for uncovered violations to $15,000 for any study or report that the company submits involving effects in humans; $6,000 for any other submitted study or report (for example, animal studies); and $1 million total limit for all violations reported during the audit. The compliance audit must be completed and all studies submitted by Oct. 29.

Decision to Participate

There are significant costs, risks and uncertainties for a company that signs up for the Compliance Audit Program. Participating in the program will result in fines that will equal $15,000 or $6,000 per violation uncovered, with a total maximum penalty of $1 million. If a company does not participate and the EPA learns of a Section 8(e) violation, penalties per violation could be assessed at up to $25,000 a day for every day that the information has gone unreported. There is no maximum penalty. Furthermore, if one violation is found, the EPA is likely to look for other violations either by using its subpoena and enforcement powers or by requiring an audit as part of a settlement agreement.

For most companies, the number of violations that might be uncovered during an audit is unknown. The probability that the EPA would learn of a violation is also an important unknown. However, the agency has stated that it intends to actively use its subpoena and enforcement powers to discover and penalize violators. The seriousness of its intent is evident in stepped-up enforcement over the past year. The EPA also might learn of violations in the course of enforcing other TSCA sections or while conducting inspections under other environmental or occupational health and safety laws.

While participating in the program could significantly limit civil penalties, the expected cost of penalties is only one of the factors to consider in deciding whether or not to participate. One reason to participate is that doing so could reduce future enforcement risk. High visibility chemical user companies that choose not to participate will be likely targets for EPA investigation and subpoenas.

Participation also can limit potential personal or criminal liability for employees. Creating an effective corporate mechanism for Section 8(e) reporting can relieve individuals of personal responsibility to report directly to the agency. Finally, participating may demonstrate good faith efforts to the EPA, employees and the public.

On the other hand, there are notable risks associated with participating in the program. The agreement requires that a company waive its rights to a judicial or administrative hearing on any issues of law or fact that may arise during the conduct of the audit. Also, depending on the terms of the final audit consent decree, submissions under the audit may constitute admitted violations of TSCA.

Another risk is that, while civil penalties are limited, the agreement offers no protection from criminal liability. There are also no limits on civil or criminal liability for violations of other TSCA sections or environmental statutes.

Conducting an audit could pose a significant management challenge for large and midsize companies. Demands on personnel could be significant given the short time frame for deciding to sign up and then for conducting the audit and submitting a final report. In addition to allocating resources, management challenges may include deciding how to coordinate efforts of multiple facilities or departments; defining the scope and focus of an audit; garnering appropriate technical, legal and regulatory expertise; scheduling and monitoring the audit; working with the EPA during the process; evaluating complex information; and appropriately packaging the final report.

There is little time in which to weigh the pros and cons. For those choosing to conduct an audit, careful planning about how to design and manage the process will be necessary to ensure that it is cost-effective and thorough.
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Title Annotation:Environmental Protection Agency
Author:Fish, Mary Catherine; Schwartz, Jeffrey H.
Publication:Risk Management
Date:Apr 1, 1991
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