Now It's Personal

Let's assume that your waste company — by virtue of its operations — is a risky business. Potential environmental liability lurks everywhere.

Not too many years ago, state and federal regulators were content to target corporations for environmental criminal investigations. Today, however, their focus is on individual responsibility. The prospect of jail time and steep personal fines can be an effective deterrent. Prosecutors are ready and anxious to “get personal” as they pursue senior management — the higher up the corporate ladder, the better. And it makes no difference whether the company itself may have pleaded guilty to substantially the same offenses.

Court decisions have made it easier for prosecutors to seek charges against individuals. Several years ago, the Justice Department or a state attorney general needed to prove gross negligence or reckless disregard. Thus, a culpable defendant had to have actual knowledge that a company activity or practice violated the law and failed to prevent or correct the action despite having the authority to do so.

That's not the case any more. Nowadays, corporate officials are routinely prosecuted in federal and state courts based on ordinary negligence. To be sure, senior managers in companies with moderate to high environmental exposure can't completely eliminate the chances of being singled out for criminal prosecution. But they can take measures to reduce the risk or minimize the consequences.

First, companies need to implement a program “reasonably capable of reducing the likelihood of criminal conduct,” according to the U.S. Sentencing Guidelines Manual. That means, among other things, budgeting enough money for compliance officers who have clout within the organization to get the job done.

An effective plan also includes a periodic audit of company operations and practices followed by an examination to assure corrective actions were taken or to fully explain why the audit findings were not addressed. For example, corrective action would not be initiated when the targeted process or operation has been eliminated.

If a company learns about apparent misconduct, the CEO or the board may decide to order an internal investigation. The composition of the investigative team will become critical. Before assigning company personnel, a company should consider how an inquiry would be viewed by outsiders, particularly regulatory agencies and prosecutors. A team of officials from outside the organization more likely would be viewed as unbiased and independent versus one that is composed of people from within the company.

Finally, a company must seriously weigh the pros and cons of disclosing the results of an internal probe to the government. Firms should know that prosecutors consider cooperation to be very important. Until recently, cooperation often meant waiving the attorney-client and other legal privileges as well as refusing to reimburse culpable employees, managers and executives for their legal fees. After a vigorous lobbying campaign by business groups and bar associations, the U.S. Sentencing Commission recently voted to delete language in the sentencing guidelines that all but forced defendants to waive these privileges. Reimbursement restrictions may be the next barrier to fall.

The prospect of full disclosure can be painful, but executives should remember that anything less allows the government to consider charging the company and its executives with obstructing justice. Talk about a whole new level of agony!
— Barry Shanoff
Legal Editor
Rockville, Md.