American Recycler: NewsVoice of Salvage, Waste and Recycling

February 2006

It's Not The Act - It's The Cover-Up!

The natural tendency when we see a police car parked by the side of the road is to let up on the gas. If we are stopped by the officer and asked if we know what we did, again, the natural tendency is to say “No,” even if we know we were going 20 miles per hour over the posted speed limit. The common experience with that tactic leads to the conclusion that bending, misstating or just plain not telling the truth, rarely works to avert a subsequent ticket for exceeding the posted speed limit. In dealing with environmental regulations, attempting to intentionally bend or misstate the facts, or simply not being truthful when asked about a potential violation of some regulatory requirement, may result in a criminal conviction. The underlying and often hidden lesson is that, in many cases, the criminal conviction is not for the actual regulatory violation, but for trying to cover up the violation by misleading the regulatory agency.

That recognition echoes in the guilty verdict by a jury in a U.S. District Court in Minnesota in March 2005. The tortured road to the guilty verdict in U.S. v. Heroux, 2005 U.S. Dist. LEXIS 4468 (2005), began with an inspection of a company called Hardcoat, Inc. and its owner, Kenneth Heroux, by the Hennepin County Department of Environmental Services [HCES].

The inspection by HCES was the first ever of Hardcoat and was unannounced. Subsequent to the inspection, HCES required Hardcoat to perform a camera inspection of the sewer line used to discharge its industrial waste. The purpose of the inspection was to discover any breaks in or damage to the sewer line that would allow the company’s discharge to contaminate the surrounding soil. The company that performed the inspection discovered two breaks in the sewer line and that part of the line had completely rotted away. Understandably, Hardcoat had the contractor excavate and repair the damaged sewer line. However, Heroux then told HCES that the contractor had found nothing wrong. He also later claimed during the criminal investigation that he didn’t know the problem with the sewer line was anything more than a blockage, despite the fact the contractor had extensively discussed the sewer line problems with him. Heroux was convicted of two charges that consisted of making false statements to the HCES and U.S. EPA investigators.

The moral of this story – honesty is the best policy – is applicable to all businesses dealing with a regulatory agency that performs facility inspections and requests operational information from the company. Just because an inspection or follow-up to an agency information request discloses a potential regulatory violation, panic that results in a knee-jerk reaction should never be allowed to set in. A calm, rational response with appropriate legal guidance to correct problems and provide the relevant information to the regulatory agency can avert potential legal problems in the criminal sphere to the greatest extent possible. Being prepared with a plan long before the regulatory agency knocks on the door for the first time is crucial to responding appropriately in such a situation.

A company should have a plan in place dictating how to respond to any type of inspection by a regulatory agency, announced or unannounced. This plan should:

• Include training all employees on how to respond to requests from agency personnel during inspections;
• Organize personnel into teams that are designated to interact with agency personnel and answer questions during an inspection;
• Specify an area to review documents requested during an inspection;
• Include action items such as a procedure for responding to the discovery of a violation, whether the violation is discovered prior to or during an inspection;
• Establish a communications policy or procedure that identifies who will communicate with the relevant agency and ensures accurate and relevant information is communicated. This aspect is critical to avoiding the type of criminal liability that befell Heroux and his company since the charges in that case make it clear that it was the selective nature of what they communicated and failed to communicate to the environmental agency about the violations and not the actual violations that led to their legal demise.

There is no formula for preparation that will fit every company. To the contrary, advance preparation for an inspection that will satisfy an agency that its authority is taken seriously by the company and, at the same time, protects the legal interests of the company requires a carefully tailored approach. The key is to have an appropriate plan in place before you need it.