key federal and state enforcement trends impacting
TRANSCRIPT
ITI Environmental Leadership Council Spring Meeting
Key Federal and State Enforcement Trends Impacting Electronics Companies
Sara V. Mogharabi
March 13, 2018
Overview
• B&D prepares with ITI an annual Enforcement Report (to be circulated in June)
• Highlights environmental, health and safety enforcement actions and initiatives
− United States
− Latin America
− European Union
− Asia-Pacific
• Trends to watch- lessons learned
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Today’s Agenda: Enforcement Trends
United States: Federal
•Current priorities
•Trump Administration guidance
•Reduced federal resources?
United States: States
•Active states step up enforcement
• Hazardous waste laws
•Actions against e-waste recyclers, retailers
•Product regulatory regimes
Global Updates
•Global crackdown on e-waste mismanagement
•EU: continued enforcement of chemicals regulations
•Continued vigilance by non-profits
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Distribution of Enforcement Cases
Criminal
Civil
Administrative
State & Local
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U.S. Enforcement: Federal
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EPA National Enforcement InitiativesThe National Enforcement Initiatives (NEIs) are a mechanism for strategically prioritizing compliance and
enforcement resources. The NEIs are considered every three years – the NEIs for 2017-2019 are:
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Reducing air pollution from the largest sources
Cutting hazardous air pollutants (expanded initiative for FY17-19)
Ensuring energy extraction activities comply with environmental laws
Reducing risks of accidental releases at industrial and chemical facilities (new initiative for FY17-19)
Reducing hazardous air emissions from hazardous waste facilities (new initiative for FY17-19)
Keeping raw sewage and contaminated stormwater out of our nation’s waters
Preventing animal waste from contaminating surface and ground water
Keeping industrial pollutants out of the nation’s waters (new initiative for FY17-19)
U.S. EPA Enforcement Results (FY 2017)
Value of commitments by private parties to
clean up sites increased more than $1.2 billion
Superfund and RCRA Corrective
Action enforcement
commitments to address an
estimated 20.5 million cubic yards of contaminated
soil and 412 million cubic yards of contaminated
water
Environmental criminals required to pay a total of $2.98 billion in
fines, restitution and mitigation,
and were sentenced to over 150 years in jail
($2.8 billion came from VW)
Civil enforcement actions resulted in requirements for
companies to invest nearly $20 billion in actions
and equipment to control pollution
EPA assessed nearly $1.6 billion
in federal administrative and
civil judicial penalties
(including a $1.45 billion Clean Air
Act penalty in the VW case)
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Privileged & Confidential | Attorney-Client Communication 8
Trump Administration Changes Affecting Enforcement
Limitations on Use of Agency GuidanceTwo Key Memos Limiting Use of Guidance
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November 16 2017 Memo
Agencies may issue guidance, but . . .
• Not a substitute for rulemaking
• Cannot create binding standards for determining compliance
• Must self-identify as guidance, disclaim force of law
• Cannot require companies to go beyond the required law
• “Guidance” broadly defined
January 25 2018 Memo
DOJ may not:
• Use guidance as basis for Affirmative Civil Enforcement (“ACE”) cases
• Effectively convert guidance into binding rules through enforcement
• Prove violations of law by non-compliance with guidance
New Tax Rules Affecting CD Negotiation
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Before:
Fines and penalties not deductible as ordinary and necessary business expenses. Tax. Code. § 162(f).
Amended Tax Code § 162(f) (26 U.S.C. § 162(f)):
• Any amount paid or incurred in relation to violation not deductible
• Except restitution or amount to come into compliance with law
• Tax payer identifies amount of restitution or coming into “compliance with the law”
• Settlement identifies amount of restitution or coming into “compliance with the law”
• Government files a report with IRS; distributed to Parties (26 U.S.C. § 6050X)
• (Excludes reimbursement to government for investigation or litigation)
*CONSULT YOUR TAX ATTORNEY*
New Emphasis on Federal-State Cooperation
• January 22, 2018 Interim Guidance
• Emphasis on “Cooperative Federalism”
− EPA to defer to state as primarily responsible for day-to-day implementation and enforcement
− Exceptions for state inaction/deficiency, multi-state or national issues (e.g., National Enforcement Initiatives), criminal investigations or emergency situations
− Disputes to be resolved by OECA
• Enhanced Federal-State Planning
− Regions/states to hold joint planning sessions to discuss state’s needs, state and Regional priorities, inspections, etc.
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EPA Budget & Staffing (FY 2019)
• President’s FY 2019 budget proposal allocates $6.1 billion to the EPA
− 23% reduction from the 2018 annualized continuing resolution level of about $8 billion
• Also proposes cutting full-time equivalent staffers from 15,408 to 12,250 –lowest level since 1984
− 400 have already accepted early employee buyouts
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U.S. State Enforcement
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California: Haz. Waste Enforcement
• Active enforcement against violators of CA Hazardous Waste Control Law
• Common targets:
− E-waste recyclers
− Retailers
• Often paired with enforcement of state Unfair Competition Law
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California: E-Waste Recyclers
Oct. 19, 2017: DTSC inspections led to enforcement action
against California Electronic Asset Recovery
* illegal treatment, storage, and disposal of hazardous waste containing lead, cadmium,
copper and zinc
Penalty: $390,000
Dec. 8, 2017: DTSC and Sims Recycling Solutions reached
an agreement to resolve violations from 2011-2015 site
inspections at electronics shredding facility
* illegal treatment, storage, transportation, and disposal of
hazardous waste containing mercury, copper, lead, nickel,
and zinc
Penalty: $400,000
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Beyond California: E-Waste Recyclers
•Mismanagement of nearly 17M pounds of CRTs/other electronics sitting in stockpiles since 2013.
•State is also seeking $5k per day fine against owner of the company and repayment on a state loan.
Iowa/Nebraska: Recycletronics
•Seattle-based processor fined over $675,000 by Washington and Oregon regulators for exporting e-scrap (mercury and lead-containing flat-screen devices) to China.
•Illegally stored mercury-containing flat-panel monitors on Seattle’s Harbor Island.
Washington/Oregon: Total Reclaim
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Retailer Enforcement
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Why Enforcement Against Retailers?• Retailers are less than 1% of the nation’s
hazardous waste stream, but are increasingly targets of enforcement actions. Why?
− Enforcement against retailers can be a significant source of state revenue, since penalties can be multiplied by the number of retail sites.
− Some states do not have a significant manufacturing base, so they have nobody else to focus on.
− Rules were not designed with retail in mind, so there are more opportunities for noncompliance.
− Retailers have only limited knowledge about the potential hazards of the products they sell.
− Hazards of retail wastes are easy to overlook since they are the same wastes generated by households.
− Retailers employ large numbers of low-skilled workers with high turnover, complicating compliance programs.
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Example: Home Depot
• Investigators rummaged through dumpsters at 45 locations over 2.5 years.
• March 8, 2018: Home Depot settled with the state over allegations that it violated California’s Hazardous Waste Control Law and Unfair Competition Law by illegally disposing of waste batteries, aerosol cans, paints, and electronics.
• Agreed to pay $27.84M total
− $16.6M in civil penalties to 22 DA’s offices
− Over $2.5M in environmental projects
− $6.84M on extra environmental compliance
− $1.85 million for law enforcement & costs
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Retailer Enforcement Cases in California: Allegations• Failed to determine if items are wastes, of if they
are hazardous, in the stores.
• Failed to handle hazardous wastes properly in the stores.
• Returned hazardous items to a reverse distribution center, rather than shipping them to a hazardous waste facility using a hazardous waste transporter.
• Placed hazardous items into dumpster/compactor.
• Failed to ensure that hazardous items are not getting into the dumpster/compactor from parking lot trash, tenant operations, etc.
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Penalties Are Just the Tip of the Iceberg
Costs of new compliance programs can be much greater
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State EPR Regimes
• Many states are continuing to implement or expand EPR laws for products
− Electronic waste
− Batteries and battery-containing products
− Thermostats
− Carpets
− Paint
− Unused medicines
• Emerging area of enforcement
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California: EPR Enforcement
• California continues active enforcement of product regulatory regimes.
− Carpets: Proposed $1M penalty against Carpet America Recovery Effort, the carpet stewardship organization for the CA Carpet Stewardship Program since 2011.
− Thermostats: Thermostat Recycle Corporation under consent decree for failing to comply with recycling responsibilities under CA law.
− More state EPR enforcement to come?
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California: Tesla
• Electric carmaker Tesla will pay a nearly $140k penalty to the Bay Area Air Quality Management District to settle air quality violations at its Fremont plant.
• Allegations included malfunctioning burners on several pieces of equipment that emitted higher levels of nitrogen oxide than allowed by the facility permit from 2013 to 2016.
• Tesla will install a 9-kilowatt photovoltaic rooftop solar panel at a local charity.
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Nationwide: E-scrap Fraud
• Wisconsin: Sterling Kienbaum, owner of Fox Valley Iron and Metal, pleaded no contest to charges that he defrauded Sadoff Iron and Metal Co. of an estimated $14 million between 2008 and 2015.
• California: Carl Means, employee at AMG Resources Corp. pleaded guilty to covertly transferring raw material from employer’s facility to different recycler for personal payments of $455,00 or more in 2014-2016.
• North Carolina: Robert Boston, co-founder of recycling company Zloop, Inc. found guilty of conspiracy, wire fraud, securities fraud and money laundering, in total duped investors, lenders, and franchisees out of $25 million.
• New Jersey: Craig Cinelli pled guilty to conspiracy to commit wire fraud in connection to his part ownership of Cinelli Iron & Metal Co. Cinelli and his partner defrauded customers out of millions of dollars over 17 years.
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U.S. Enforcement: DOT Rules for Batteries
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Lithium Batteries
• Exploding batteries, product recalls• Rising consumer concern for battery
safety• Evolving transportation requirements• Increased attention and action by
federal regulatory agencies
Transport of Dangerous Goods
Increased DOT enforcement of existing rules for lithium batteries
• ICAO: April 2016 & January 2017 changes
• DOT/PHMSA: March 2017 update – new labeling requirements
• USPS: February 2017 proposed to prohibit the shipment of certain lithium shipments
Key developments:
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DOT Enforcement & Related
• Dec. 8, 2017: FAA $1.1 M civil penalty against Braille Battery Inc. for alleged HMR violations.
− 24 volt lithium ion batteries caught fire and destroyed FedEx truck after traveling by air
− Batteries did not meet testing standards by UN and US HMR, not in proper condition for shipment
• FAA, DOT (HMR) issued final rules in April 2017 to raise civil penalties for violations of rules; FRA has done the same for rail; PHMSA expected to follow suit.
• Consumer Product Safety Commission: CPSC directed staff in 2017 to perform additional work to address the emerging and ongoing hazards associated with “high energy density batteries” (e.g., lithium batteries); stay tuned!
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U.S. Enforcement: Energy Efficiency
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CA Battery Charger Guidance
• Enforcement risk related to new CA guidance on battery chargers.
• Feb. 1, 2018: Guidance to manufacturers of battery chargers on how to comply with Cal. Title 20 Appliance Efficiency Regulations.
• Manufacturers of battery chargers must still comply with state regulations, 20 Cal. Reg § 1602(w), even after federal regulations go into effect on June 13, 2018, 10 C.F.R. § 430.23(z)
• Guidance raises preemption concerns, because federal law clearly preempts states. See Energy Policy and Conservation Act, 42 U.S.C. §6297(a).
• Manufacturers should continue to comply with state regulations until this is resolved or face possible enforcement by the state.
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European Union: Key Enforcement
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EU: REACH Enforcement
• Feb. 2018: EU ECHA (European Chemical Agency) released enforcement report that identifies non-compliance related to restrictions in the EU-market.
− 29 countries participated by testing products on the market against REACH Annex XVII material restrictions.
− Over 5000 products tested; 18% noncompliant.
◦ Polycyclic-aromatic hydrocarbons (PAHs): 8%
◦ Phthalates in toys: 10-20% (depending on phthalate)
◦ Metals in jewelry: 7-12% (varied by metal)
• Compliance monitoring of REACH Annex XVII is active and likely to stay that way.
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Sweden: Chemicals
• Many Swedish companies reported to state prosecutors for violations of chemicals regulations, many of them in electronic products.
− Companies had been warned that certain products imported were not in compliance with Swedish and EU chemical rules, but they continued to import the products
− 16/19 companies inspected in 2017 sold noncompliant articles
− One quarter of inspected products, many of them electronics, contained substances at concentrations above the applicable limits
• Swedish Chemicals Agency to seek additional enforcement powers, including right to impose sanctions directly, without state prosecutor.
− Industry isn’t fighting this proposal – wants level playing field for imports that are part of manufacturing supply chain.
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Asia-Pacific: Key Enforcement & Trends
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Hong Kong: EPD E-Waste Enforcement
• Increased enforcement of e-waste violations by Hong Kong Environmental Protection Department (EPD)
− Importers who illegally imported hazardous electronic waste from United Arab Emirates and Vietnam convicted and fined $70,000 for violating the Waste Disposal Ordinance
− An e-waste collector, recycling site operator, and two traders who illegally collected, handled, imported or exported hazardous e-waste convicted and fined a total of $96,000 for violating the Ordinance
− EPD installing surveillance cameras to combat illegal waste disposal
− EPD conducting blitz operations to combat illegal activities at recycling sites
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India: E-Waste Enforcement
• Jan. 2018: 12 locations in Kochi and Kolkata raided by Central Bureau of Investigation in suspected illegal e-waste importation
• Oct. 2017: 200 companies that manufacturer electronics were served notices by the Central Pollution Control Board for not complying with e-waste procurement requirements that went into effect in May 2017
• Some regional governments also imposing fines to stop illegal burning of e-waste
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E-waste Export: NGO Vigilance
• Continued pressure by the Basel Action Network (BAN) related to the export of E-Waste in violation of the Basel Convention
• In 2016, BAN published an expose entitled Scam Recycling report detailing how it used 205 GPS devices in e-waste shipments to find out what happens to it.
− Of 69 trackers that left U.S., 66 were illegal shipments
− 53 to mainland China, Hong Kong, or Taiwan
• Update #1 (2017): 16 more instances involving 7 companies that claim to not export electronic wastes that they process in fact sent those materials to developing countries.
• Update #2 (2018): identified 6 new chains of export, involving printers and LCDs by 6 new US recycling companies.
Companies contracting for collection and recycling/final disposal of e-waste must perform adequate due diligence on collectors and recyclers.
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Questions?
Thank you!
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Sara MogharabiAssociate
Washington, DC
202.789.6044