Last year, Covington predicted an increased focus on environmental enforcement under the Biden Administration.  Recent statements by key environmental leadership have confirmed this, further sharpened Administration priorities, and track renewed focus by DOJ more broadly on combating corporate malfeasance.  In the coming year, regulated entities should prepare for increased criminal enforcement, including consideration of conduct within their supply chains.  They should also expect increased scrutiny of their environmental compliance programs, including the potential for corporate monitorship if DOJ deems a company’s compliance program to be inadequate.

Emphasis on criminal enforcement

Regulated entities should expect an uptick in criminal prosecutions for environmental violations, including for individuals.

In end of year remarks, Assistant Attorney General Todd Kim, confirmed over the summer to be head of DOJ’s Environment and Natural Resources Division (ENRD), stated that “enforcement of the criminal provisions of the environmental laws is a priority,” stressing that criminal prosecutions are “critical to the proper functioning of the overall enforcement scheme.”  He articulated a focus on individual prosecutions specifically as a way of ensuring corporate accountability, stating  that “only individuals can go to jail,” and that a “genuine threat of criminal prosecution can and will change the conduct” of corporations.  Deborah Harris, chief of DOJ’s Environmental Crimes section within ENRD, made similar statements at the same event, noting how “prosecutions declined over the course of the last four years,” but that the Department will be “head[ing] more to vigorous enforcement as opposed to just aiming for compliance.”

The emphasis is also evident in President Biden’s nomination of David Uhlmann to head EPA’s Office of Enforcement and Compliance Assurance.  Uhlmann, whose nomination has already received Senate committee approval, is also a former chief of the Environmental Crimes section, and has similarly raised awareness of declining environmental criminal prosecutions.

Consideration of supply chain misconduct

Consistent with President Biden’s “whole of government” approach to addressing climate change, DOJ may seek to expand prosecutions into new areas.  Harris stated that prosecutors are actively working with agencies beyond ENRD’s traditional clients, including Customs and Border Protection, the Departments of Homeland Security, Agriculture, Labor, and Transportation, OSHA, and the SEC.  AAG Kim mentioned the use of broadly applicable white collar criminal provisions such as fraud, conspiracy, false statements, and obstruction of justice to target additional conduct.

One area that should be carefully watched is culpability for corporations who fail to exercise diligence over how inputs to their products are sourced.  AAG Kim made clear that failure to exercise “due care” to discover criminal conduct in a supply chain, including potentially conduct outside the jurisdiction of the United States, could be held against a regulated entity.  This idea tracks a broader trend within environmental law, particularly surrounding disclosure requirements, that corporations should be responsible for the environmental effects of their entire value chain, not just the portion they directly control.  This is especially relevant for entities that import into the United States, who must often certify the legality of their products upon entry into the country, and risk making a false statement if they have not carefully examined their suppliers.

The importance of compliance in meeting DOJ expectations

DOJ’s message is clear:  Companies should take proactive steps to prioritize environmental compliance, and create structures that identify, resolve, and, if appropriate, self-report environmental violations.

AAG Kim offered concrete suggestions for an environmental compliance program, including:

  • Establish a “corporate culture that fosters strict attention to law.”
  • Develop a “strong internal infrastructure that supports future environmental compliance” so that, “if environmental problems arise, your company has systems in place to investigate, determine, and document what went wrong, and why.”
  • The “heart of this infrastructure is a commitment to undertake comprehensive, periodic environmental audits of business operations.”
  • “[K]eep track of the compliance steps you take” so that, in the event of an enforcement action, a corporation can demonstrate to DOJ that penalties are unwarranted.
  • Finally, “establish and enforce systems of accountability all the way up the corporate chain for environmental issues.”

These recommendations track broader guidance DOJ has issued to assess compliance programs.

The potential rewards of a robust compliance program are significant:  Effective compliance structures will make it easier to detect violations before they become serious, identify and address problematic behavior by employees, and proactively remediate any environmental harm.  And, in the event the government initiates an enforcement action, they will make it easier to cooperate and provide required information, and take advantage of potentially powerful self-disclosure incentives.

Continued Emphasis on the Corporate Monitor

By contrast, companies that fail to establish adequate environmental compliance programs may have one imposed on them, in the form of a consent decree that includes a corporate monitorship.

Monitors evaluate the effectiveness of the company’s controls and recordkeeping as they relate to a company’s ongoing compliance with a plea agreement or settlement with the United States.  They can be a costly multi-year commitment.  Monitors are an appealing tool for DOJ given the intricate technical complexity of some environmental law compliance obligations, creating challenges to verifying compliance for those lacking necessary background.

AAG Kim stated that monitors “increase the likelihood of compliance with consent decree obligations,” and that ENRD “will continue to use” them in both civil and criminal cases.  This renewed interest in monitors tracks Department-wide guidance issued last fall encouraging prosecutors to consider them where a corporation’s compliance program and controls are “untested, ineffective, inadequately resourced, or not fully implemented at the time of a resolution.”