Beveridge & Diamond
Related Practices
Related Practices

EPA Releases Interim Approach to Applying the Audit Policy to New Owners

Beveridge & Diamond, P.C., August 4, 2008

On August 1, 2008, EPA released its “Interim Approach to Applying the Audit Policy to New Owners” (“Interim Approach”).  The text of the Interim Approach and additional information is available at:  The Audit Policy currently offers reduced penalties to companies that voluntarily discover noncompliance at their facilities, promptly disclose and correct any violations discovered, and take steps to prevent future violations.  

According to EPA, the Interim Approach is designed to provide further incentives for new facility owners to address noncompliance that began prior to acquisition.  EPA will begin applying the Interim Approach immediately, while concurrently evaluating its effectiveness.  To be eligible for the Interim Approach, an owner must certify that: (a) the owner was not responsible for the facility that is the subject of the disclosure and did not cause the violations in question; (b) the violation originated with the prior owner; and (c) neither the buyer nor the seller had the largest ownership share of the other entity, and they did not have a common corporate parent.  An owner may qualify as “new” if it discloses the violations or enters into an audit agreement with EPA within nine months after the transaction closing. 

The incentives that EPA is providing for eligible new owners include no economic benefit or gravity-based penalties for the period before the acquisition.  EPA also will not assess post-acquisition economic benefit penalties for delayed capital expenditures or unfair competitive advantage if the violations are corrected within the Audit Policy timeframe. 

In addition to the reduced penalty incentives, EPA has relaxed some of the Audit Policy eligibility criteria in the context of new owners.  First, EPA may allow pre-closing due diligence to qualify as a “systematic discovery,” even though it would not meet the “periodic” requirement under the Audit Policy, as long as it meets the other criteria.  Clean Air Act violations that are discovered during Title V compliance review are generally not considered “voluntary” under the Audit Policy.  However, EPA is providing a limited exception for new owners that disclose such violations in writing before the first annual compliance certification under new ownership. 

EPA is also providing more flexibility for the timely disclosure requirement, allowing that violations may be disclosed either 21 days after discovery or 45 days after closing, whichever is longer.  Finally, regarding violations that gave rise to serious environmental harm, absent a fatality, community evacuation, or other catastrophic event, EPA will not exclude from Audit Policy eligibility such violations that occurred under prior ownership. 

Over the next ninety days, EPA will accept comments on the Interim Approach.  EPA will also be evaluating the program on an ongoing basis.  Some of the indicators that EPA plans to measure include: the number of new owner disclosures resolved; pounds of pollutants estimated to be reduced; and dollars invested in environmental improvements.  EPA will also observe the number of newly acquired facilities whose owners chose not to take advantage of the Interim Approach. 

For more information, please contact David Friedland at or (202) 789-6047, or Bethany French or (202) 789-6042.