The "Civil" Implications of Environmental Crimes

David T. Buente Jr., Thomas G. Echikson, and James L. Connaughton

Editors' Summary: Most federal environmental statutes allow the federal government to bring both civil and criminal enforcement actions against parties engaged in unlawful activities affecting the environment. Many of these statutes grant states concurrent enforcement authority, and many states have enacted environmental laws that give state officials both civil and criminal enforcement authority. As a result, a defendant in an environmental enforcement action may be subject to parallel proceedings under civil and criminal laws at both the federal and state levels. The implications of this situation are so significant that parties subject to environmental laws must consider them carefully.

In this Article, the authors analyze in depth the relationship between civil and criminal enforcement of environmental laws. They begin with a discussion of the generally favorable attitude that federal courts have taken toward parallel criminal and civil actions instituted by the federal government. They then examine the discovery process and discuss the federal government's ability to use material from a civil proceeding in a criminal action and material from a criminal action in civil litigation. They review EPA and DOJ policies on parallel proceedings and discuss the impact of the U.S. Constitution's privilege against self-incrimination and protection against double jeopardy on parallel proceedings. They also examine the overlap between civil remedies and criminal sanctions, with special emphasis on the treatment of corporate defendants under the U.S. Sentencing Commission's Guidelines Manual. Finally, they discuss the tax, securities, and insurance implications to defendants of criminal prosecution under environmental laws.

David T. Buente Jr. is a partner in the environmental group of Sidley & Austin in its Washington, D.C., office. Mr Buente was formerly Chief of the Environmental Enforcement Section, Environment and Natural Resources Division of the U.S. Department of Justice from 1985 to 1990. Thomas G. Echikson and James L. Connaughton are associates in the environmental group of Sidley & Austin in its Washington, D.C., office.

[23 ELR 10589]

Federal and state criminal, civil, and administrative authorities for environmental enforcement often overlap. This overlap can create significant collateral, civil consequences for environmental criminal enforcement that encompasses not only traditional environmental concerns, but also tax, securities, insurance, and other legal interests. Any defendant in an environmental criminal case must therefore consider more than the usual, burdensome aspects of appropriately responding to criminal prosecution, because the "civil" implications of environmental crimes are too pervasive and important to ignore.

Multiple Proceedings

The possibility of being subjected to multiple suits for the same activity is a major concern for environmental defendants. Most federal environmental statutes allow the federal government to conduct both civil and criminal investigations, initiate both civil and criminal proceedings, and seek both civil and criminal sanctions.¹ Many of the statutes also authorize states to administer federal regulations, thereby granting federal and state governments concurrent civil and criminal enforcement authority.² In addition, many states have enacted environmental laws that grant state officials both civil and criminal enforcement power,³ and certain environmental statutes and state common laws allow private plaintiffs to sue private parties for conduct that may be related to a public cause of action.⁴ The exercise of these authorities often subjects a defendant to parallel and successive proceedings that present significant substantive and procedural problems.

Parallel Proceedings: Law and Policy

In its narrowest sense, the phrase "parallel proceeding" refers to concurrent civil and criminal proceedings, including both preindictment and postindictment activity, brought by the same governmental entity against the same defendant [23 ELR 10590] for the same conduct. A broader reading of the phrase encompasses concurrent state/criminal-federal/civil proceedings and federal/criminal-state/civil proceedings. The most complex parallel proceedings include concurrent government proceedings in both federal and state forums, plus ongoing private-party civil claims arising from the same facts. Large-scale environmental incidents such as the Exxon Valdez oil spill typically lend themselves to this possibility.⁵

While no appellate case law directly addresses the legality of parallel proceedings under federal environmental law, the federal courts have generally considered it appropriate for the federal government to institute parallel criminal and civil proceedings to enforce certain broad-based regulatory schemes.⁶ These courts have acknowledged that at times it may not be feasible or desirable to wait until completion of a criminal investigation before attempting to obtain civil remedies. For example, in United States v. Kordel,⁷ the U.S. Supreme Court approved of dual enforcement under the Food, Drug, and Cosmetic Act.⁸ The Court held that the public interest in protecting consumers from misbranded drugs justified the enforcing agency in taking prompt action to obtain a civil seizure of "the offending product" — an action that should not have to await consideration of the fuller record required for criminal enforcement.⁹ According to the Court, law enforcement would be unduly stultified if an agency was forced to choose one type of investigation over another, or to defer one action pending final conclusion of the other.¹⁰ Thus, particularly where circumstances require immediate relief not ordinarily available as a criminal remedy, Kordel highlights why the government might deliberately and justifiably wish to supplement a criminal proceeding with a civil action.¹¹ The U.S. Environmental Protection Agency (EPA or the Agency) has indicated that for this reason there is a high probability of parallel proceedings occurring in environmental cases.¹²

Courts also have generally approved the legality of "over-filing" in environmental cases, whereby the federal government decides to file an enforcement action when a state has already acted to enforce the same requirements.¹³ As a matter of policy, the federal government will elect to overfile a case when it decides that the state has failed to take what the government deems to be "timely and appropriate action."¹⁴ In most instances, the decision will turn on whether the relief requested and penalties to be assessed by the state comport with EPA's oversight policies on enforcement response and penalty amount.¹⁵

Often, however, the circumstances giving rise to parallel proceedings may be more serendipitous than deliberate. One typical pattern occurs when the investigation of a civil action produces information that noncompliance stems from a willful decision by corporate officials to ignore the law, warranting referral of the matter for criminal investigation.¹⁶ At other times, EPA may be engaged in routinely gathering information pursuant to statutory authority, while the U.S. Department of Justice (DOJ) is conducting a criminal investigation on its own involving the same subject. Other cases may arise when a state agency, acting under its delegated or independent civil authority, is in contact with a [23 ELR 10591] violator concerning matters about which state or federal prosecutors are also interested.¹⁷

Although dual enforcement strategies or coincidental parallel actions are not ordinarily objectionable under the jurisprudence, courts have recognized that such proceedings may undermine certain fundamental and procedural rights unless some form of corrective action is taken. The concern derives from the conflicts between the relative scope of criminal and civil discovery, the procedural barriers imposed by Rule 6(e) of the Federal Rules of Criminal Procedure, and the protection afforded by the Fifth Amendment to the U.S. Constitution. Although these considerations have received serious attention, the degree of protection afforded the "doubly-pursued" environmental defendant is unlikely to be significant, except for an individual's ability to benefit from the Fifth Amendment's privilege against self-incrimination.

Criminal and Civil Discovery. The Federal Rules of Criminal and Civil Procedure, in effect, require that criminal discovery be restrictive and civil discovery be expansive.¹⁸ Criminal defendants subject to parallel proceedings therefore face the troubling prospect of the government using civil discovery to obtain what it could not secure through criminal procedure. Yet, much to their dismay, little recourse is available where Congress established a broad-based dual enforcement scheme and investigatory authority.

In United States v. LaSalle National Bank,¹⁹ the Supreme Court affirmed the prohibition against exploitation of civil discovery for criminal purposes. Nonetheless, as a general rule, information gathered through civil discovery may be used by the government in a parallel criminal investigation, so long as the civil discovery is pursued in good faith and not exclusively for the purpose of furthering the criminal investigation.²⁰ That rule is based in part on the fact that "the strict limitations on discovery, embodied in Federal Rules of Criminal Procedure 15-17, do not take effect until after a grand jury has returned an indictment."²¹ This rationale suggests that although the civil and criminal arms of the government may share preindictment discovery, courts may consider imposing certain corrective measures to avoid the clearer postindictment prejudice that may result from the discovery rules. Although an outright stay of any civil or administrative proceeding is one possibility, given judicial approval of concurrent proceedings, the more likely course for a court to take is the entry of a protective order simply to limit (or possibly preclude) the civil authorities from sharing the fruits of their discovery with the criminal prosecutors.²²

Significantly, the target of a criminal investigation is not ordinarily afforded the same discovery leeway as the government. When the situation is reversed, and a party to a civil action seeks discovery that relates to an ongoing criminal proceeding involving related facts, courts generally have elected to stay the use of otherwise permissible civil discovery techniques pending disposition of the criminal matter.²³ The court's opinion in United States v. Hugo Key & Son, Inc.,²⁴ a Clean Air Act case, provides an example of the commonly accepted analysis.

In Hugo Key, the U.S. District Court for the District of Rhode Island granted a government motion for a protective order staying proceedings in a civil case it had brought until the disposition of a criminal investigation and any criminal proceeding that might result. Balancing the relative interests of the government and the defendant, the court observed that "[j]udicial discretion and procedural flexibility should be utilized … to prevent the rules and policies applicable to one suit from doing violence to those pertaining to the other."²⁵ Accordingly, the court concluded that the defendant's asserted interest in expeditious determination of his civil liabilities was outweighed by three factors of paramount importance to the government. First, liberal civil [23 ELR 10592] discovery rules "would undermine the traditionally narrow scope of discovery in a criminal action [and] would expose the strategy of the prosecution and possibly result in defendant's perjury and manufacturing of evidence."²⁶ Second, "it cannot be doubted that the discovery of the identity of confidential government informants would provide an opportunity for the intimidation of prospective witnesses." Finally,

the liberal discovery policies of the Federal Rules of Civil Procedure, while permitting defendant broad scope would not be available to the the government should defendant be charged and the corporate veil pierced because defendant could then assert his privilege against self-incrimination. This procedural asymmetry would offer the defendant the opportunity to surprise the prosecution at trial while withholding that same opportunity from the prosecution.²⁷

Private litigants therefore will be denied the benefit of the countervailing rationale that permits the federal government to employ civil discovery methods to further its criminal investigations — namely, that the Federal Rules of Criminal Procedure do not take effect until after a grand jury has returned an indictment.

[] Rule 6(e). While the civil implication of the discovery conflict derives from the opportunity for criminal litigants to gain advantage from civil discovery, Federal Rule of Criminal Procedure 6(e) raises the opposite concern: the possible abuse of the criminal grand juryprocess for civil use. Rule 6(e) governs the circumstances under which grand jury material may be disclosed, thus affecting the extent to which civil enforcement authorities may obtain information from grand jury proceedings to pursue a civil case. Rule 6(e) mandates that "matters occurring before the grand jury other than its deliberations and the vote" must not be disclosed absent a court order. Relevant exceptions apply when (1) disclosure is made to other government attorneys in the performance of their duties or to personnel whose assistance is necessary to further the enforcement of federal criminal law,²⁸ or (2) when disclosure is "directed by a court preliminary to or in connection with a judicial proceeding."²⁹ The automatic disclosure available under the first exception is limited to those attorneys and personnel who conduct the criminal enforcement action to which the grand jury materials pertain.³⁰ That limitation, however, does not prevent the government attorneys conducting the criminal action from making continued use of grand jury materials in the civil phase of the same dispute without first obtaining a court order.³¹ Further, even though attorneys in the DOJ's civil litigating components and agency attorneys may not automatically obtain grand jury materials, disclosure may be obtained under the second exception based on a demonstration of "particularized need" that outweighs the policy of secrecy.³² Such a showing may not be too difficult to make where disclosure only involves government attorneys because the "concerns that underlie the policy of grand jury secrecy are implicated to a much lesser extent" in such an instance.³³

In addition to the exception to the secrecy protection afforded by Rule 6(e), a private litigant should be aware that the rule is inapplicable to information that is not properly classified as "grand jury material." For example, the criminal prosecutor and the civil staff may exchange general investigative material assembled outside the grand jury process.³⁴ Further, since Rule 6(e)'s secrecy obligation binds only government personnel and jurors connected with the grand jury proceeding, a witness called before a grand jury is free to discuss what she said. Also, the rule does not apply to witness interview reports prepared outside the grand jury, even if that testimony is later reported to the grand jury by an investigator or repeated by the witness.³⁵ Finally, documents, books, or records will not be subject to Rule 6(e) if the government otherwise has an independent right to the documents, as for example under the administrative discovery and subpoena powers of the various federal environmental laws.³⁶

[] Fifth Amendment. The Fifth Amendment privilege against self-incrimination raises the next group of concerns for defendants subject to parallel proceedings. It is well-established that the Fifth Amendment not only protects an individual from compulsory self-incrimination at a criminal trial in which he is a defendant, but also "privileges him not to answer official questions put to him in any other proceeding, civil or criminal, formal or informal, where the answers might incriminate him in future criminal proceedings."³⁷ As with Rule 6(e), however, the effective benefits of the protection may be illusory in many circumstances.

First, a corporate defendant should not rely on the Fifth Amendment to shield possibly incriminating evidence from disclosure. Regardless of the forum in which the matter is being compelled, corporate entities are not afforded Fifth Amendment protection.³⁸ And under certain circumstances, even individuals will not be permitted to invoke the privilege. For example, an individual author of a document that was prepared in the course of a company's business cannot prevent its production on Fifth Amendment grounds even though it may be personally incriminating.³⁹ Neither can a record custodian of a corporate entity seek to excuse non-compliance [23 ELR 10593] with a subpoena on Fifth Amendment "act of production" grounds, such as where the act of producing documents itself implies incriminating testimony that the documents were in the individual's possession.⁴⁰

Second, even though it is well-known that an individual's invocation the Fifth Amendment cannot be used against him in a criminal proceeding, the fact finder in a civil proceeding is entitled to draw an adverse inference from the individual's failure to testify. Some courts have elected to stay a civil proceeding where dual enforcement forces a defendant to choose between jeopardizing his civil/administrative case or providing information that may be used against him in the criminal action.⁴¹ Other courts have sympathized with the defendant but refused to provide a stay, protective order, or other relief despite the Fifth Amendment concerns.⁴²

Third, the unwary defendant in a civil case may find himself inadvertently waiving the privilege. The familiar Miranda warnings, which include notice that "anything you say may be used against you in a court of law," need only be given when the investigation takes place in a "custodial setting."⁴³ As a general rule, the government is therefore under no affirmative obligation to provide Miranda warnings when a person who is currently the object of a civil proceeding is also the target of a criminal investigation. Further, notice that a criminal investigation has commenced or that a referral for criminal prosecution has been made is not a legal requirement. Thus, even where an agency's silence regarding the potential for criminal action has been found to be a form of deception, a defendant's mistaken belief that cooperation in a civil action will preclude criminal action will not shield any incriminating statements made in the civil case from being used against him in a subsequent criminal case.⁴⁴

Finally, where a criminally culpable employee's testimony may also be central to the liability of corporation, a company should not expect to be sheltered by the individual's invocation of the Fifth Amendment. One possibility is that the individual may strike a deal with the prosecution to testify against the company in return for immunity from, or reduced charges in, a criminal prosecution. Another, less frequent possibility is that the government may unilaterally grant the individual immunity, in which case the Fifth Amendment will no longer be applicable, and the individual may be compelled to testify. In such an instance, the individual also remains at risk, since the government may compel answers from the individual that may be used against him in a civil case, thereby possibly obtaining a civil penalty similar to that which the government might otherwise have sought in a criminal action.

[] The DOJ's and EPA's Policy. Taking into account these considerations, EPA and the DOJ have issued similar enforcement policies relating to the conduct of parallel proceedings.⁴⁵ Both policies recommend that a criminal proceeding should generally be brought and resolved before a civil action. The policies also provide guidance on how to maximize the sharing of evidence between criminal and civil authorities without running afoul of the limited constraints imposed by Rule 6(e), the criminal discovery rules, and the Fifth Amendment.

In particular, the DOJ policy advises that "where possible, evidence should be obtained by methods other than grand jury subpoena … until other avenues have been exhausted" so that "[d]ivision criminal prosecutors may share all relevant information with federal or state officials pursuing related civil investigations."⁴⁶ The DOJ's policy further counsels that evidence obtained through civil or administrative discovery or investigation may be shared with federal and state criminal authorities, so long as the evidence is not used exclusively to further a criminal proceeding. Finally, the policy observes that Miranda warnings are unnecessary during civil discovery and accordingly instructs that if a civil attorney is asked about the possibility of criminal liability by a civil witness, the attorney should respond that "the United States is free to choose civil, criminal or administrative enforcement and any decision to take one type of action does not preclude another type of action."⁴⁷

Successive Proceedings: Collateral Estoppel and Double Jeopardy

The impact of parallel proceedings is greatest when one of the cases reaches final judgment. At that point, the preclusion principle of collateral estoppel and the Double Jeopardy Clause of the Fifth Amendment may significantly affect the outcome of any successive proceeding.

[23 ELR 10594]

[] Collateral Estoppel. The traditional common-law doctrine of collateral estoppel embodies the fundamental principle that "once a right, question, or fact has been put in issue and decided by a court, the same parties or their privies cannot relitigate the same right, question or fact in a subsequent lawsuit."⁴⁸ Simply defined, collateral estoppel precludes a party from relitigating an issue in a different action, when the issue was actually and necessarily determined by a final judgment in a prior action.⁴⁹ The doctrine is generally applicable to final judgments under both federal and state environmental statutes.⁵⁰

In the context of successive criminal/civil environmental proceedings, collateral estoppel (alternatively referred to as "issue preclusion") most often will serve the government's, rather that the environmental defendant's, preclusive needs.⁵¹ In the most elemental scenario, where only purely federal actions are involved, once the federal government has obtained a guilty plea or secured a criminal conviction at trial, in any pending or subsequent civil action involving the government and the criminal defendant, the court is almost certain to preclude the defendant from relitigating issues that were necessary to the determination of his guilt in the criminal proceeding.⁵²

In addition to the common-law collateral estoppel, a defendant convicted of a federal environmental offense may also be subject to a statutorily mandated collateral estoppel. Subsection 3580(e) of the Victim and Witness Protection Act of 1982⁵³ (VWPA) provides that a defendant convicted of an offense for which restitution has been ordered shall be estopped from denying the essential allegations underlying the criminal conviction in a subsequent federal or state proceeding brought by the victim. This provision codifies the common-law rule that facts fully and fairly litigated at a criminal trial or stipulated through a guilty plea may be used as conclusive proof of the same issues in subsequent civil litigation.⁵⁴

The VWPA's application to subsequent proceedings brought by third parties (i.e., "victims") is not unusual, but simply reflects a particular aspect of the procedure already recognized by the common law as "nonmutual offensive" use of collateral estoppel.⁵⁵ Thus, where a state or federal civil proceeding follows a federal or state criminal proceeding, collateral estoppel may be employed notwithstanding the fact that the civil enforcement entity was not a party to the criminal action.⁵⁶ Only the party against whom collateral estoppel is asserted must be a party or privy to the first suit.

A party convicted in a criminal action may also be subject to collateral estoppel's "nonmutual defensive" application.⁵⁷ For example, in United States v. Ward,⁵⁸ a corporation and an individual filed third-party civil claims for indemnity and contribution against private third-party defendants in a Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) action relating to the disposal of polychlorinated biphenyls (PCBs). The defendants moved for summary judgment on the ground that the individual and corporate plaintiffs possessed no right of contribution because the plaintiffs' conduct giving rise to the underlying action was willful, a fact that the plaintiffs denied. The U.S. District Court for the Eastern District of North Carolina ruled, however, that the individual plaintiff was estopped from denying his willful participation in PCB dumpings for which he had previously been criminally convicted under the Toxic Substances Control Act.⁵⁹ Further, even though the corporation was not a defendant in the criminal action, the court held that it likewise was estopped on the ground that "a close corporation in privity with its dominant officers may be bound by the acts of its officers for the purposes of collateral estoppel."⁶⁰

Unfortunately for the defendant acquitted in a criminal [23 ELR 10595] case, collateral estoppel is not ordinarily available as a defense to the government's relitigation of common questions in a subsequent civil action.⁶¹ An acquittal is regarded "merely … [as] an adjudication that the proof was not sufficient to overcome all reasonable doubt of the guilt of the accused."⁶² Thus, an acquittal does not resolve whether the matter could be proved under the lesser burden of proof required in subsequent civil actions. By the same logic, however, the government will not be able to offensively assert a civil finding of liability as conclusive evidence of guilt in a criminal proceeding. So too, a civil judgment on the merits that a defendant is not liable should preclude a finding of liability in a subsequent criminal proceeding on issues adjudicated in the civil suit.⁶³

Federal Rule of Criminal Procedure 11(e) and Federal Rule of Evidence 410 provide an additional, though limited source of relief from preclusion. These rules render inadmissible in a subsequent civil or criminal proceeding (1) a guilty plea that was later withdrawn, (2) a plea of nolo contendere, and (3) related statements regarding those pleas or made in the course of plea discussion.⁶⁴

[] Double Jeopardy. The Double Jeopardy Clause⁶⁵ protects against three distinct abuses: a second prosecution for the same offense after acquittal, a second prosecution for the same offense after conviction, and multiple punishments for the same offense.⁶⁶ The last of these, the "multiple punishments" component, is of predominant concern in the environmental context, though the first two present tangentially significant issues as well.

The Supreme Court's recent decision in Halper v. United States⁶⁷ highlights the multiple punishments issue facing a litigant in a parallel proceeding. In Halper, the manager of a Medicare provider was convicted in a criminal action of submitting 65 false claims under the federal criminal false claims statute. The trial court sentenced him to prison and fined him $ 5,000. Based solely on the facts established by his criminal conviction (i.e., by collateral estoppel), a district court subsequently granted the government's motion for summary judgment in its suit against the manager under the civil false claims statute. Under the strict terms of the statute's remedial provisions, the manager was therefore additionally liable for a civil penalty of $ 2,000 on each of the 65 false claims, as well as for twice the amount of the government's actual damages of $ 585 and the costs of the action. That exposed the manager to a penalty of more than $ 130,000, a sum that was more than 220 times the government's measurable loss.

In affirming the district court's finding that such a penalty would violate the Double Jeopardy Clause, the Supreme Court held that "the Government may not criminally prosecute a defendant, impose a criminal penalty upon him, and then bring a separate civil action based on the same conduct and receive a judgment that is not rationally related to the goal of making the government whole."⁶⁸ In reaching this conclusion, the court rejected the labels "criminal" and "civil" as not being of paramount importance to the question whether a defendantis placed in jeopardy of receiving multiple punishments.⁶⁹ The Court reasoned that "a civil sanction that cannot be said solely to serve a remedial purpose, but rather can only be explained as also serving either retributive of deterrent purposes, is punishment, as we have come to understand the term."⁷⁰

Accordingly, the Court held that where it appears such a circumstance exists, a defendant is entitled to an accounting of the government's damages and costs (1) to determine if the penalty sought in fact constitutes a second judgment and (2) to ascertain how much of the civil sanction the government may receive without crossing the line between remedy and punishment.⁷¹ Acknowledging that in many cases the precise amount of the government's damages and costs may be difficult to determine, the court noted that rough remedial justice is sufficient. Thus, reasonable liquidated damages or forfeiture clauses may be upheld as remedial relief, and in the ordinary case, a fixed penalty-plus-double damages provision will be viewed as doing no more than making the government whole.⁷²

Notwithstanding the Halper decision's notable recognition that a civil penalty imposed subsequent to a criminal sanction may give rise to a claim of double jeopardy, the practical impact and scope of the decision remains unsettled. The Halper court believed that the decision's application would be limited to the "rare case … where a fixed-penalty provision subjects a prolific but small-gauge offender to a sanction overwhelmingly disproportionate to the damages he has caused."⁷³ The court further downplayed the significance of its decision by emphasizing that it does not preclude the government from assessing full civil penalties against an offender who has not been criminally prosecuted. [23 ELR 10596] Nor does the decision limit private-party suits seeking compensatory damages. The Court further observed that the decision does not "prevent the government from seeking and obtaining both the full civil penalty and the full range of statutorily authorized criminal penalties in the same proceeding."⁷⁴ Of course, although that suggestion clearly would limit the impact of the decision, the procedural difficulties inherent in combining actions would be immense, which compels the conclusion that the government is not likely to try such an approach.⁷⁵

Broadly construed, however, the Halper opinion may have further reaching consequences.⁷⁶ Since the Double Jeopardy Clause applies to the states through the Fourteenth Amendment, Halper may be invoked as a bar to a subsequent state proceeding seeking to impose a punitive sanction.⁷⁷ Further, although in the past, an acquittal typically has not been held to bar the government from bringing a subsequent civil case for the same conduct, the logic of Halper may be employed to prevent the government at least from pursuing penalties in the civil case that might have been obtained in the criminal case — i.e., a second "prosecution" following an acquittal.

Conceivably, the same logic might support a claim seeking to prohibit the government from criminally prosecuting a defendant who had previously been penalized in an earlier civil action — i.e., a second prosecution following a "conviction."⁷⁸ This prospect was one of several significant double jeopardy issues arising in State v. Ciba-Geigy Corp.⁷⁹ The centerpiece of the double jeopardy question was a 1985 administrative consent order that Ciba-Geigy signed in connection with paying a $ 1.45 million dollar civil penalty to settle various state solid waste disposal and clean water act violations. Concluding that the findings and analysis of the trial court were inadequate on appeal with respect to the applicability of Halper, the New Jersey appellate court remanded the case to the trial court for consideration of the following issues:

1) whether the civil penalty was punishment in the Halper sense; and if so,

2) whether Ciba-Geigy waived its right to assert the defense of double jeopardy by essentially "agreeing" that the civil penalty imposed was remedial and not a settlement of any criminal liability (in spite of provisions in the administrative consentorder that stated that nothing in the order constitutes a waiver of any defense that Ciba-Geigy may have in any civil or criminal proceeding);

3) whether the fact that the civil penalty was imposed first in this case (whereas in Halper the criminal proceedings came first) affects the applicability of the Halper decision to this case; and

4) whether the assertion of double jeopardy is premature since only the punishment prong (as opposed to the "multiple prosecution" prong) of double jeopardy is implicated.⁸⁰

The issues raised by this case should be of particular concern when agreeing to language in any administrative or judicial civil consent orders.

"Civil" Criminal Sanctions

Just as the government's criminal and civil environmental enforcement agendas have been permitted to overlap, the distinct realms of criminal sanction and civil compensation have likewise become blurred. The courts' sentencing authority now permits them to order criminal defendants to provide restitution to "victims" of their crimes, arguably to pay natural resource damages, and to remedy the environmental damage caused by the crime. Courts even have the discretion to order an audit of a defendant's facilities to ensure that the condition underlying the conviction is remedied and to require that the defendant implement a system to detect and remedy future noncompliance. This trend toward awarding such "civil" relief when sentencing persons or companies convicted of environmental crimes will likely continue and expand, as evidenced by bills proposed in Congress seeking to make audits mandatory upon conviction for certain types of environmental crimes.

An environmental conviction also may result in a collateral "civil" sanction. For example, under certain statutes, EPA is required to "blacklist" individuals and companies convicted of environmental crimes under these statutes, barring them from entering into contracts with the federal government. Moreover, Congress has proposed legislation that would extend such mandatory blacklisting, to prohibit EPA from awarding permits or other types of "benefits" to persons convicted of certain environmental crimes. This section will discuss the power of federal courts to impose "civil" criminal sentences, the collateral "civil" sanctions resulting from criminal convictions, and steps companies can take to reduce the likelihood and severity of these criminal sanctions.

[23 ELR 10597]

"Civil" Criminal Sentencing

Historically, punishment resulting from a federal criminal conviction typically resulted in monetary fines and, for individuals, imprisonment or probation. The Sentencing Reform Act of 1984 (Title II of the Comprehensive Crime Control Act of 1984)⁸¹ and subsequent amendments substantially modified the federal criminal sentencing process. The Act established the U.S. Sentencing Commission and directed it to develop numerical "sentencing guidelines" that would detail the types of criminal sanctions (including restitution and conditions of probation) that federal courts may impose.⁸² The Act thereby substantially limited judicial discretion by requiring courts to apply these sentencing guidelines.⁸³ The courts' general statutory power to order "civil" relief, and the Sentencing Commission's implementation of its authority under the Act are discussed below.

As a condition of probation for environmental crimes, courts may order a defendant to provide restitution to any person "directly harmed" by the defendant's criminal conduct.⁸⁴ A court may order restitution for both property damage and bodily injury.⁸⁵ For property damage, the amount of restitution is measured by the greater of (1) the value of the property on the date it was damaged or (2) the value of the property on the date of sentencing less the value of any part of the property returned.⁸⁶ For bodily injury, restitution is measured by the cost of medical and rehabilitative services and lost income.⁸⁷ The court may also consider various other factors including the financial resources of the defendant and the needs of the defendant and the defendant's dependents.⁸⁸ Courts are required to resolve disputes concerning the amount of restitution based on the preponderance of the evidence, with the burden on the government to prove the amount of the victim's loss.⁸⁹ A court, however, may decline to order restitution if it determines that fashioning such an order would so complicate and prolong the sentencing proceeding as to outweigh the need to provide restitution.⁹⁰

The Sentencing Commission has implemented these statutory provisions in its Guidelines Manual⁹¹ (Sentencing Guidelines) by requiring courts to provide for restitution as a condition of probation unless restitution has already been made or if fashioning a restitution order would overly complicate or prolong the sentencing proceedings.⁹² Moreover, the Sentencing Guidelines provide that, at least when sentencing individuals, a court's authority to deny restitution is limited: "Even 'in those unusual cases where the precise amount owed is difficult to determine, section 3579(d) authorizes the court to reach an expeditious, reasonable determination of appropriate restitution by resolving uncertainties with a view toward achieving fairness to the victim.'"⁹³ Moreover, in the context of sentencing organizations, the Sentencing Commission recommends that, in addition to restitution, courts issue remedial orders to "remedy the harm caused by the offense and to eliminate or reduce the risk that the instant offense will cause future harm," to the extent not addressed by a restitution order.⁹⁴

In the environmental context, these restitution and remedial provisions raise several troubling issues. Determining the value of property damaged by the release of a pollutant or the appropriate remedial measures is typically difficult and time-consuming, and probation officers and judges will probably not have the appropriate expertise or resources to resolve such issues. In addition, neither the statute nor the Sentencing Guidelines provide a right to present experts to challenge a proposed restitution award. Although the statute and the Sentencing Guidelines state that a court can decide not to order restitution because, on balance, it would complicate and prolong the sentencing proceeding, the court's authority under this provision is apparently quite limited.⁹⁵ Moreover, although the restitution order (and the valuation given to the damage) are not statutorily deemed to have collateral estoppel effect in a future civil proceeding, courts will likely give valuations deference in such proceedings.⁹⁶ As a result, the power to award restitution or order remediation may have a profound impact on future civil proceedings.

The courts' options with respect to probation conditions are not limited to restitution and remediation. Courts are also authorized to order the defendant to pay a fine, and to place employment and business restrictions on the defendant or any other condition the court may decide is appropriate.⁹⁷ Other conditions might include, in the context of environmental crimes, payment of natural resource damages, compliance with the provisions violated, and completion of audits of facilities at which the violations occurred. Indeed, the Sentencing Guidelines' provisions applicable to organizations⁹⁸ (Organizational Guidelines) authorize courts, as a condition of probation, to require that an organization institute an "effective program to prevent and detect violations [23 ELR 10598] of law."⁹⁹ Defendants have agreed to many of these same sanctions in the context of "global settlements" resolving both criminal and civil violations.¹⁰⁰

In sum, courts have broad authority to order, as conditions of probation, "civil"-type relief in the criminal context. Indeed, the Sentencing Guidelines direct courts to award restitution, and possibly remediation, in almost all cases.¹⁰¹ Defendants are not assured of some of the procedural safeguards normally associated with such relief in the civil context. Moreover, it is possible that in the environmental context, Congress may expand judicial authority to order independent audits or implementation of detailed compliance plans in response to criminal violations.¹⁰² Later in this section, means to avoid or mitigate these consequences are discussed. Before that, we review other collateral civil effects of criminal sanctions, including the contractor listing authorities under the Clean Air Act and the Federal Water Pollution Control Act (FWPCA).

Collateral "Civil" Sanctions

Both the Clean Air Act and the FWPCA contain provisions that prohibit the federal government from entering into contracts with any person convicted of certain crimes under these Acts.¹⁰³ A recent congressional proposal would expand this authority to prohibit EPA from awarding any permit or other "benefit" to persons convicted of certain environmental crimes.¹⁰⁴ These collateral "civil" effects of environmental crimes are discussed below.

As originally written, Clean Air Act § 306(a)¹⁰⁵ made persons convicted of § 113(c)(1) crimes (i.e., knowing violations of Clean Air Act standards or limitations) ineligible to enter into federal contracts until the "condition giving rise to the violation" was corrected. The 1990 Clean Air Act Amendments extended this mandatory prohibition to all crimes under § 113(c).¹⁰⁶ Similarly, FWPCA § 508(a)¹⁰⁷ extends the mandatory prohibition to persons convicted of any crime under FWPCA § 309(c).¹⁰⁸ While the prohibition under the FWPCA extends only to the facility at which the violation giving rise to the conviction occurred and applies only if the convicted person owned, operated or supervised that facility, the 1990 Clean Air Act Amendments give EPA the discretion to extend the listing to other facilities owned or operated by the convicted person.¹⁰⁹ No similar provision exists in the FWPCA.

Clean Air Act § 306(c) and FWPCA § 508(c) (as originally written) required the President to issue an executive order setting forth the procedures and other provisions necessary to carry out the prohibition requirement, in order to "implement the purposes and the policy" of the prohibition. Executive Order 11738 implements these provisions by delegating responsibility for the listing program to the EPA Administrator.¹¹⁰ Most importantly, the executive order adopts the goals spelled out in the statutory provisions by making it the policy of the federal government to ensure that its grant, loan, and contract activities will "result in effective enforcement" of the Clean Air Act and FWPCA.¹¹¹ Relying on this executive order and the language of Clean Air Act § 306(c) and FWPCA § 508(c), EPA asserts the authority to list, at its discretion, facilities at which civil violations have occurred or which have been subject to a successful state criminal prosecution under these statutes, an interpretation that courts have universally upheld.¹¹²

EPA administers the Clean Air Act and FWPCA provisions together. Under existing regulations and guidance, a facility will be automatically listed on conviction of the owner, lessee, or supervisor under Clean Air Act § 113(c)(1) [23 ELR 10599] or FWPCA § 309(c).¹¹³ In addition, in the criminal context, EPA will exercise its discretionary listing authority if it determines that there is a "record of continuing or recurring noncompliance" with Clean Air Act standards and a state or local court convicts a person of a criminal offense on the basis of noncompliance with Clean Air Act standards if that person owns, leases, or supervises the facility.¹¹⁴

A facility subject to mandatory listing will remain on the list until the assistant administrator for enforcement certifies that the condition giving rise to the violation has been corrected or the conviction is overturned, in which case the facility is automatically removed.¹¹⁵ EPA has interpreted the term "condition giving rise to the conviction" to mean the specific statutory violation(s) for which the person was convicted. The "condition" also is presumed to include the environmental harm resulting from the violation when that harm is:

* readily identifiable and demonstrable;

* directly susceptible to remedial action;

* demonstrably linked to the violation(s) which gave rise to the listing; and

* segregable from other environmental damage not related to the instant violation.¹¹⁶

Moreover, EPA has stated that it will almost always require independent verification that the condition has been corrected, which usually means an inspection by EPA, a state, or an independent, credible third party.¹¹⁷

EPA recently identified one last factor in determining whether to remove a mandatory listing in a guidance memorandum entitled EPA Policy Regarding the Role of Corporate Attitude, Policies, Practices, and Procedures, in Determining Whether to Remove a Facility From the EPA List of Violating Facilities Following a Criminal Conviction (EPA Delisting Policy).¹¹⁸ In this document, EPA states that a facility's corporate attitude, policies, practices, and procedures will be relevant to EPA's determination to remove a facility from the list in certain cases depending on the degree of intent involved in the violation.¹¹⁹ The effect of this policy is to make corporate attitude a part of "the condition giving rise to the conviction." The criteria for demonstrating a change in corporate attitude are taken almost verbatim from the definition of an "effective program to prevent and detect environmental problems and violations of law" found in the Organizational Guidelines.¹²⁰ These factors include the following:

* the organization has written policies defining the standards and procedures to be followed by its employees and agents;

* the organization has specific high-level personnel responsible for and with authority to ensure compliance with standards and procedures;

* the organization has communicated its standards and procedures to employees through training programs and dissemination of publications;

* the organization has established an effective program to enforce its standards (e.g., monitoring and auditing methods designed to prevent and detect compliance);

* the organization consistently enforces its standards through appropriate disciplinary mechanisms; and

* the organization has taken immediate, appropriate steps to correct the condition giving rise to the listing and to prevent further similar violations.¹²¹

A facility that has been listed under EPA's discretionary authority may be delisted for the following reasons:

(1) the conviction, decree, order, or judgment that formed the basis for the listing is reversed;

(2) the assistant administrator for enforcement determines that the facility has corrected the condition(s) giving rise to the listing;

(3) automatically after one year if the listing was a criminal conviction in a state court or a court order in a civil enforcement action; or

(4) the assistant administrator for enforcement has approved a plan for compliance which ensures correction of the condition(s) which gave rise to the listing.¹²²

A person against whom EPA exercises its discretionary listing authority may request an administrative hearing challenging EPA's action. Similarly, to obtain removal from the list, the owner, operator, or supervisor of the facility may submit a request for removal to the Assistant Administrator for Enforcement. Both these proceedings are informal hearings in which the person requesting such a proceeding may be represented by counsel; present oral and written evidence; and, in the sole discretion of the case examiner, call, ask, and cross-examine witnesses.¹²³

It is possible that the contractor debarment scheme will be expanded in the future. On August 2, 1991, and again on February 16, 1993, Rep. Bill Paxon (R-N.Y.) introduced a bill that would disqualify any person or business who is [23 ELR 10600] "convicted" of violating a "federal environmental law" from receiving certain "benefits" from EPA, including any permit, grant, or loan issued by the Agency for a period of 10 years.¹²⁴ Patterned after similar legislation in New Jersey, the potential effect of this bill, if enacted, is obviously quite broad.¹²⁵

Under the proposed legislation, when applying for a permit or other EPA benefit, a "person" must disclose a variety of information about past violations and convictions not only of the business itself, but also of any related business entities; any business entities that own an equity or debt interest in the business; and the corporate officers, directors, partners and "key employees" (managers or supervisors) of the business. If that person has either been convicted of violating a "federal environmental law" or has been found by EPA to hold or previously to have held a "beneficial business interest" in any business concern listed on a "disclosure statement" that has been convicted of violating such a law, he would be ineligible for the EPA benefit for a period of 10 years. EPA would be permitted to remove this disqualification if the person could demonstrate by "clear and convincing evidence" that he has been "rehabilitated." Factors to be considered (which have evidently been removed from some other statute not particularly relevant to environmental law) would include (1) the nature and responsibilities of the position held by the person, (2) the nature and seriousness of the offense, (3) the circumstances under which the offense occurred, (4) the date of the offense, (5) the age of the person when the offense was committed, and (6) whether the offense was an isolated or repeated incident.¹²⁶

The disclosure statement accompanying the application for the EPA benefit would be available to the public (except for certain trade secret information) and would include voluminous information about the individual or business making the disclosure (the "discloser"), including:

(1) the name of officers, directors, partners or key employees of the discloser and other listed business concerns and all individuals and business concerns holding any equity in or debt liability of the discloser (or if it is publicly traded, all persons or business concerns holding more than 5 percent of the equity in or debt liability of the business concern);

(2) the name of any business concern which collects, transports, treats, stores or disposes of any solid or hazardous waste in which the discloser holds an equity interest and the experience of the discloser (and any key employee, officer, director, or partner) in such activities;

(3) all notices of violations, prosecutions, administrative orders or license or permit revocations issued by any state or federal authority in the 10 previous years, which are pending or have resulted in a finding or a settlement of a violation of any law rule, or regulation related to the collection, transportation, treatment, storage, or disposal of solid or hazardous waste by the discloser (or any key employee, officer, director, or partner); and

(4) all judgments of liability or convictions under any state, federal, or local statute or ordinance against the discloser (or any key employee, officer, director, or partner).

If enacted, EPA could enforce these provisions by using the disclosure statements or by entering and inspecting the relevant facilities. The bill would also give EPA sweeping authority to enter such facilities. Persons deemed ineligible would be given an opportunity for a hearing.

The bill raises some unanswered questions, such as whether the "benefit" bar applies to civil violations or only criminal convictions, whether it applies to violations of EPA-approved state programs, whether it applies to bar state-issued permits under EPA-approved state programs, and whether it applies to violations of or permits issued pursuant to the FWPCA.

Mitigating Factors

There are several methods available to an organization to reduce the likelihood of a criminal prosecution inthe first instance, to reduce the severity of the criminal sanction once convicted, and to lay a foundation for removing any contractor-listing sanction as quickly as possible. The DOJ, EPA, and the Sentencing Commission all have provided incentives for organizations to implement auditing and compliance programs and to disclose to relevant governmental authorities any violations of environmental laws detected under such programs. For example, as noted above, EPA will examine whether the organization has implemented an "effective program to prevent and detect violations of law" when deciding whether to "delist" a contractor.¹²⁷ The DOJ has also issued a policy stating that it will look favorably on such programs and disclosure of violations when exercising its criminal enforcement discretion. Finally, the Organizational Guidelines allow courts to reduce the amount of a fine based on the implementation of such auditing and disclosure programs. Details concerning these programs are discussed below.

One way to avoid criminal prosecution is to implement an auditing and disclosure program. The DOJ, in a policy that discusses how it will exercise its criminal environmental enforcement discretion, has stated that a company's "self-auditing, self-policing and voluntary disclosure of environmental violations" will tip the balance from criminal prosecution to civil enforcement.¹²⁸ Although the policy states that there is no definitive checklist of auditing requirements, it provides three basic factors that the DOJ will consider in exercising its prosecutorial discretion:

(1) The voluntary, timely and complete disclosure of the matter under investigation. Consideration is given to whether the disclosure "substantially aided" the government's investigation and whether it occurred [23 ELR 10601] before a law enforcement or regulatory authority knew about the violation. Disclosures required by law are not considered voluntary.

(2) The degree and timeliness of cooperation by the person. Consideration is given to the violator's willingness to make all relevant information available to the government.

(3) The existence and scope of any regularized, intensive, and comprehensive environmental compliance program, including an environmental compliance or management audit. Consideration will be given to whether regular procedures were in place to evaluate, detect, prevent and remedy circumstances like those that led to the noncompliance, whether the auditor's recommendations were implemented in a timely fashion, and whether adequate resources [were] committed to the auditing program and to implementing its recommendations.¹²⁹

Additional factors to be examined include the pervasiveness of noncompliance, effective internal disciplinary action, and efforts to remedy ongoing noncompliance promptly and completely.

Auditing and disclosure programs are also beneficial should an organization be convicted, because the Organizational Guidelines direct courts to reduce the base fine if such programs have been implemented.¹³⁰ Under the Organizational Guidelines, a court first sets an organization's fine by determining the "base offense level," which varies depending on the type of crime committed. A court can then modify this base offense level by examining the "seriousness of the crime" (which can modify the base sentence upwards) and the "culpability of the organization" (which can modify the base sentence either upward or downward). Most importantly, the culpability factor allows courts to reduce a base fine if the organization has (1) developed "an effective program to prevent and detect violations of law" and (2) reported any misconduct to the government promptly, cooperated in the investigation, and taken affirmative responsibility for the criminal conduct.

The Organizational Guidelines define in detail what constitutes an "effective program to prevent and detect violations of law." The failure to prevent or detect the violation itself does not mean the program was not effective; rather the critical inquiry is whether the organization exercised "due diligence" in its efforts. Due diligence requires at a minimum the following:

(1) establishing compliance standards and procedures for employees and other agents that are reasonably capable of reducing the prospect of criminal conduct;

(2) assigning to high-level personnel the responsibility to oversee compliance;

(3) being careful to not delegate substantial discretionary authority to individuals whom the corporation knows or should know have a propensity to engage in illegal activities;

(4) communicating the corporation's standards and procedures to employees through training programs and other similar methods;

(5) taking reasonable steps to achieve compliance with its standards, utilizing such things as monitoring and auditing methods designed to detect criminal conduct;

(6) consistently enforcing the standards through appropriate disciplinary mechanisms; and

(7) after detecting an offense, taking all reasonable steps to respond appropriately to the offense and to prevent further similar offenses.¹³¹

Other factors to be considered in determining whether the organization has an effective program to prevent and detect violations include (1) the organization's size (the larger the organization, the more formal it should be), (2) the likelihood that certain offenses may occur because of the nature of the organization's business, and (3) the organization's prior compliance history (both criminal and civil).¹³²

The Organizational Guidelines also provide guidance on how a corporation can demonstrate that it has promptly reported the violation, cooperated with the government and taken affirmative responsibility to reduce its culpability.¹³³

The Guidelines allow a corporation a reasonable period of time to conduct an internal investigation, and do not require reporting if the corporation reasonably concludes, based on the information then available, that no offense was committed. A corporation has disclosed all pertinent information if law enforcement personnel are able to identify the nature and extent of the offense and the individuals responsible for the criminal conduct. Moreover, if because of the lack of cooperation of particular individuals, neither the organization nor law enforcement personnel are able to identify the culpable individuals within the organization despite the organization's efforts to cooperate fully, the court may still give the organization credit for cooperating with the government.

An example can best demonstrate how these mitigating factors work. Assume that a convicted corporation is assigned an initial culpability score of "five." If the corporation had an effective program to detect violations in place, its score would be reduced by three. A court would reduce the organization's score by five if the corporation reports the misconduct, cooperates with the government, and accepts responsibility for the crime. Other factors can raise the culpability score.¹³⁴ If the offense level were 17, the base fine would be $ 250,000. If no reductions in the culpability score were available, the fine could range from $ 250,000 to $ 400,000. If on the other hand, the score were reduced to 1, the potential fine could range from $ 50,000 to $ 100,000, a significant reduction in the fine.

EPA's delisting policy, the DOJ's enforcement policy, and the Organizational Guidelines thus have important [23 ELR 10602] "civil" implications because they encourage a corporation to institute auditing and disclosure programs. They all contain some similar features, so it is possible to implement a program that satisfies them all. Such a program must include clear policies guiding environmental compliance, high-level employees responsible for assuring compliance, a regular method of assuring compliance (e.g., auditing), follow-up on any areas of noncompliance discovered during the compliance audits, and consistent and firm disciplinary action against employees found to have violated the company's policies. Details for such programs will vary depending most importantly on the nature of a company's business and the size of the company (i.e., the number of employees and facilities). Nonetheless, these policies make it clear that all companies should consider developing and implementing such programs.

Other Impacts

All of the "civil" concerns surrounding environmental criminal proceedings described thus far arise within the general environmental enforcement framework and therefore may be regarded as more readily foreseeable. The "civil" reach of the criminal prosecution of environmental laws, however, extends beyond that framework, bearing on a defendant's tax, securities, and insurance status.

Federal Tax Consequences

The two primary tax law ramifications of environmental criminal liability relate to the deductibility of any monetary assessments imposed by the court and the deductibility of attorneys fees. Section 162(a) of the Internal Revenue Code of 1986,¹³⁵ generally allows the deduction of all ordinary and necessary business expenses. Section 162(f), however, denies a deduction for any fines or similar penalty paid to a government for the violation of any law.¹³⁶ The applicable regulations, in relevant part, expand on this prohibition by defining a "fine or similar penalty" as an amount (1) paid pursuant to a criminal conviction or plea of guilty or nolo contendere¹³⁷ for any crime, (2) paid as a civil penalty, (3) or paid in settlement of actual or potential liability for a fine or penalty.¹³⁸ The regulations further provide that amounts collected by the government for compensatory or remedial purposes do not constitute fines or penalties for tax deduction purposes.¹³⁹ Simply put, payments must be analyzed to determine if they more resemble fines or penalties, or if they more resemble ordinary business expenses or compensatory damages.¹⁴⁰

The various criminal fines set forth in the federal and state environmental laws present the easiest case. Such fines are clearly nondeductible.¹⁴¹ Beyond that, however, confidence in applying the analysis quickly diminishes.¹⁴² As our discussion in the previous section indicates, judges are empowered, and indeed encouraged, to creatively impose many forms of "civil" sanctions in the sentencing context. Thus, it would not be uncommon for a judge to impose a fine, suspend a portion of it, and then order the defendant, as a condition of probation, to incur remedial costs or to make a restitution payment to the government (e.g., "natural resource damages") or to a third party, based on the judge's belief that the money would be better spent in such a fashion rather than going into the federal treasury's coffers. Whether, and under what other circumstances, such a payment is deductible is far from settled.

Beginning with the regulations governing § 162(f), a literal construction of the first definition of "fine or similar penalty" as an amount paid pursuant to a criminal conviction would appear to preclude any argument of deductibility for court-ordered expenditures. Yet, in evaluating a Wisconsin state court's sentence that imposed restitution as a condition of parole, the U.S. District Court for the Eastern District of Wisconsin in Spitz v. United States allowed a deduction for the payment on the ground that it was not a penalty, but rather was "payment of an amount due and owing."¹⁴³ The court observed that unlike other cases in which state policy clearly evidenced that a particular payment was punitive in nature, and hence, nondeductible,¹⁴⁴ restitution was not a fine specifically imposed by the Wisconsin legislature.

Disavowing Spitz, however, the U.S. Tax Court in Waldman v. Commissioner,¹⁴⁵ denied the deductibility of restitution payments required as a condition of staying execution of a term of imprisonment. Acknowledging that a restitution payment ultimately serves the twin goals of law enforcement and compensation, the court viewed its task as having to determine which primary purpose the payment was designed to serve.¹⁴⁶ The court concluded that the purpose of criminal restitution under the California system was rehabilitation and deterrence of future criminality.¹⁴⁷ In addressing the question the Spitz court did not consider — whether [23 ELR 10603] the fine was "paid to the government" for the purposes of the regulations governing § 162(f) — the Waldman court found the fact that the payments went to private parties to be of no consequence.¹⁴⁸ The court viewed the matter simply as a court-controlled diversion of money that was otherwise due the state in satisfaction of the criminal liability.¹⁴⁹

Subsequent to Waldman, however, the U.S. Court of Appeals for the Second Circuit in Stephens v. Commissioner, held that "[t]o the extent that Waldman may be interpreted as suggesting that a restitution payment, ordered in addition to punishment and paid directly to a victim, would not be a deductible loss, we respectfully disagree."¹⁵⁰ In other words, the court reasoned that if an order of restitution was imposed in addition to, rather than in lieu of, a specific fine or sentence of imprisonment, then its primary purpose must be deemed to have been remedial, notwithstanding its "origin in a criminal proceeding." Accordingly, in allowing a deduction for the restitution payment in its case, the Stephens court placed primary emphasis on the intent of the sentencing judge with respect to the punitive or compensatory nature of the relief. The court concluded that, after settling on a five-year prison term and fine as an appropriate punishment, the sentencing judge's primary purpose in adding a suspended five-year term was to get the victim's money back and not to punish the defendant further.¹⁵¹

The recent decision by the U.S. Court of Appeals for the Sixth Circuit in Kraft v. United States,¹⁵² however, is wholly at odds with Stephens. The taxpayer in Kraft had pled guilty to illegal distribution of controlled substances and mail fraud in connection with his embezzlement of funds from Blue Cross/Blue Shield. The plea agreement required the taxpayer to pay restitution to Blue Cross/Blue Shield, which authorizes a court to order restitution "in addition to … any other penalty authorized by law."¹⁵³ Notwithstanding the fact that the taxpayer paid restitution and was ordered to serve a prison sentence and pay a fine, the Sixth Circuit ruled that the payments were not deductible because they arose out of criminal proceedings.¹⁵⁴

Another recent decision with troubling implications for environmental criminal defendants is Allied-Signal, Inc. v. Commissioner,¹⁵⁵ in which the Tax Court interpreted Waldman somewhat expansively as standing for the proposition that a payment, even if it is not ordered by a court, may be a "fine or similar penalty" if it is paid involuntarily. The Tax Court characterized an involuntary payment as one made with the expectation of a quid pro quo. Thus, the court ruled that an $ 8 million payment to a nongovernmental environmental fund was not voluntary, and therefore nondeductible, because it was made on the understanding that the judge would reduce a criminal fine for the violation of environmental laws from $ 13.24 million to $ 5 million.¹⁵⁶ The Tax Court concluded that the record belied the taxpayer's claim that the payment was voluntary.

These examples highlight, rather than resolve, the issue of deductibility of payments that are not strictly fines under the environmental statutes. If legislative policy is to be the guide, much of the purpose of allowing a broader array of "civil" relief with respect to federal sentences in the environmental context is to promote swifter remediation and compensation, and to reduce the need for additional multiple actions.¹⁵⁷ For defendants required to provide such relief under state sentences, a case-by-case assessment as to how a federal court is likely to construe the penological policy of the state of conviction must be undertaken. Notably, if the origin of the payment — i.e., a criminal conviction — is all that matters, then from a financial standpoint, a defendant may prefer to be involved in parallel criminal/civil proceedings. So engaged, the defendant may be able to petition a sentencing court to allow any restitutionary or remedial claims to be resolved in the civil action, where they are more likely to be deductible. Prior to conviction a defendant might also attempt to obtain a global settlement of the matter. Even then, however, to the extent any payment may be regarded as having been made as a trade-off for, or "in lieu of," a purely punitive criminal penalty, there remains the possibility of a disallowance of the deduction.¹⁵⁸ If a defendant decides to take a deduction for certain payments, additional and possibly more complex issues concerning the timing of the deduction should be considered.¹⁵⁹

These issues are likely to receive renewed judicial and legislative attention in the near future as a result of Exxon's restructured global settlement of its federal and state, criminal and civil liabilities for the Exxon Valdez incident. The settlement reportedly had been restructured to allow more money to go toward restitution and restoration and thereby provide for favorable tax treatment of the amounts expended, a matter that will likely be litigated. Exxon's taxbased motivation has incensed certain federal lawmakers, with the result that two bills were introduced seeking to drastically curtail the circumstances under which even remedial expenses may be deducted.¹⁶⁰ Although the measures [23 ELR 10604] did not pass, given the publicity surrounding the Exxon settlement, the prospect for passage of such legislation should be taken seriously.

Regarding legal fees, it has long been recognized that legal expenses for defending criminal charges against an employee arising out of business activities are also deductible by the corporation because such expenses are deemed to benefit the corporation.¹⁶¹ As to legal fees that a defendant may incur on its own behalf, although in the past, deductions from an unsuccessful defense of a criminal action were generally not allowed for public policy reasons, the Supreme Court held in Tellier v. Commissioner that amounts expended for legal services in defense of criminal charges arising out of a taxpayer's trade or business are deductible regardless of outcome.¹⁶²

SEC Disclosure

Under a cooperative agreement, EPA and the U.S. Securities and Exchange Commission (SEC) have enhanced their level of communication in an attempt to ensure accurate company disclosure of environmental liabilities to investors.¹⁶³ Last year EPA began implementing a system of quarterly reports to the SEC, which include concluded criminal cases, pending and concluded cases for the Resource Conservation and Recovery Act and CERCLA enforcement, enforcement penalties from civil judicial cases, companies barred under contractor listing, and potentially responsible parties at Superfund sites. EPA also engages in cooperative reviews of disclosure statements in order to ferret out suspected violations for its own enforcement efforts. Therefore, it is incumbent on a corporation to know when disclosure of an environmental crime or conviction may be independently necessary as part of a public corporation's financial reporting.¹⁶⁴

Beginning in 1971, the SEC has issued guidance and regulations that specifically address the circumstances under which companies must disclose environmental liabilities. In the earliest of the interpretive releases on the subject, the SEC stated that existing general disclosure requirements mandated disclosure of, among other things, material "proceedings" arising under environmental laws.¹⁶⁵

In 1973, the SEC issued specific requirements with respect to the reporting of "proceedings," which have since been modified and incorporated in the current SEC Regulation S-K, Item 103 (Legal Proceedings).¹⁶⁶ That regulation mandates disclosure of a pending administrative or judicial proceeding, or one that is known to be contemplated by the government arising under environmental laws. The regulation applies to any proceeding to which the registrant or any of its subsidiaries is a party, or to which any of their property is the subject, in any one of three circumstances.¹⁶⁷ First, disclosure is required if the proceeding is material to the registrant's business or financial condition. Second, disclosure is necessary if the proceeding involves "primarily a claim for damages, or involves potential monetary sanctions, capital expenditures, deferred charges or charges to income and the amount involved, exclusive of interest and costs, exceeds 10 percent of the current assets of the registrant and its subsidiaries on a consolidated basis."¹⁶⁸ Third, disclosure is mandated if a governmental authority is a party, and "such proceeding involves potential monetary sanctions, unless the registrant reasonably believes that such proceeding will result in no monetary sanctions, or in monetary sanctions, exclusive of interest and costs, of less than $ 100,000."¹⁶⁹

Obviously, a criminal conviction and sentence and possibly the pendency of a criminal proceeding are matters that could be "material" to many companies' business or financial conditions under the first criterion. Further, criminal environmental cases can well have the potential for monetary sanctions so that such cases would satisfy either the second or third criteria. Therefore, even though SEC reporting of this kind can have a significant negative impact on share value, a criminal target or defendant subject to these requirements must avoid failing to make disclosure where warranted, as such failure may only compound total liability. The penalties under the securities laws for failing to comply with the disclosure requirements can be severe. In addition, for certain violations, the securities laws permit the imposition of penalties not just against the company, but also against its directors or others who participate in the activity. Further, investors who are harmed by inadequate disclosure may sue the corporation and these individuals for damages.¹⁷⁰

A more problematic issue arises with respect to assessing when a criminal proceeding that is "known to be contemplated" should be reported. Given the secrecy surrounding a criminal investigation, all that a company is usually able to learn is that an investigation is occurring and possibly that either the company or its employees are "targets." Thus, a company may have great difficulty knowing the extent to which a contemplated proceeding may be material to its business or financial condition under the first criterion. Moreover, for that very reason, disclosure might appear to be mandated routinely under the third criterion. Since presumptively a target must regard the potential seriousness of a criminal matter as great, the lack of concrete information to the contrary arguably makes it hard to establish a reasonable [23 ELR 10605] belief that potential monetary sanctions will be less than $ 100,000.

Perhaps the greatest area of concern, however, derives from the May 1989 publication of an interpretive release¹⁷¹ concerning the disclosure required in Management's Discussion and Analysis of Financial Condition and Results or Operations (MD&A) in the SEC filings.¹⁷² The MD&A is a narrative discussion of the registrant's financial condition. In addition to requiring a review of historical financial results, the MD&A requires discussion of "known trends … events or uncertainties that … are reasonably likely" to have a material impact on liquidity, capital resources, or operating results. The SEC instructs registrants that the MD&A should "focus specifically on material events and uncertainties known to management that would cause reported financial information not to be necessarily indicative of future operating results or future financial condition."¹⁷³ Assuming that criminal liability would be deemed to have a "material" effect, disclosure under these rules might arguably be warranted, unless the corporation determined that the potential for such an event "is not reasonably likely to occur."¹⁷⁴ Thus, where a company has discovered a violation which could give rise to criminal liability, and where it appears likely that enforcement authorities will discover and prosecute the violation, disclosure may be required at some point. That imposes on a company the Hobson's choice of either disclosing the environmental violation only to ensure the onset of the enforcement agencies, or not disclosing and facing potential penalties for failing to disclose.¹⁷⁵

Insurance Coverage

The effect of a criminal conviction on the availability of insurance to pay off claims relating to an environmental violation could be devastating. A defendant who has been convicted of a knowing violation of an environmental law need not be concerned with the intricacies of the ongoing debate over whether various permutations of comprehensive general liability (CGL) policies were intended to cover any of a variety of civil environmental claims. Knowing behavior will almost invariably negate coverage at the threshold.

First, the defendant will not be able to obtain reimbursement for any fine he may be required to pay. Under the standard CGL policies, an insurer ordinarily will only pay sums that the insured shall become legally obligated to pay as damages because of bodily injury or property damage. Fines and penalties are not considered "damages" within the definitions and coverage clause of most CGL policies.¹⁷⁶

Second, the defendant will most likely be denied coverage in connection with any civil claims brought against it seeking reimbursement for damages resulting from the violation. The CGL policy provides coverage only if the damage was caused by an "occurrence" or was the result of a "sudden or accidental discharge." Whether a particular event may fit either of those categories such that the insured would be entitled to coverage turns in relevant part on whether the insured knew or should have known of the events causing the damage. The basic principle is that coverage "will not be provided for intended results of intentional acts but will be provided for the unintended results of an intentional act."¹⁷⁷ Accordingly, a criminal conviction for knowing behavior will estop the defendant from asserting a lack of knowledge. Even in the insurance-related context of third-party contractual or equitable indemnity claims, as a matter of public policy, both common law and state statute will bar a person from seeking contribution or indemnity for acts for which he has been held criminally liable.¹⁷⁸

Notably, one of the pieces of proposed tax legislation mentioned above¹⁷⁹ contained a provision that was designed to impose the additional tax burden associated with the disallowed deductions on an affected taxpayer who would otherwise not suffer any detriment from the disallowance due to insurance. The provision would have required the taxpayer to include as gross income any insurance proceeds paid with respect to costs for which a deduction is disallowed. Of course, if enacted, this provision would be important only where a party found guilty of an environmental crime was able to obtain coverage.

Evidentiary Use in Subsequent but Unrelated Proceedings

One final consequence of a criminal conviction that may be of concern to an environmental defendant arises under Federal Rules of Evidence 404 and 609. Rule 404 provides that evidence of the prior crime may be used against the defendant in any subsequent proceeding to prove elements of the case such as the absence of a mistake or accident. This is particularly germane to corporate defendants who may be subject to multiple actions over a period of time regarding their environmental compliance. Rule 609 provides that if the conviction was for a crime punishable by imprisonment in excess of one year (as many of the environmental statutes are), the conviction may be used to impeach an individual's credibility as a witness should he appear to testify in any subsequent federal proceeding, regardless of its nature.

Conclusion

Environmental criminal proceedings involve much more than meets the eye. Infusing the process is an extensive matrix of overlapping enforcement mechanisms, increasing availability of traditionally civil relief as part of a criminal sanction, and myriad private and public collateral consequences of a conviction. These combine to make handling an environmental criminal matter an undertaking that requires a highly sophisticated understanding of its "civil" implications.

1. See Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), 7 U.S.C. §§ 136-136y, ELR STAT. FIFRA 002-034; Toxic Substances Control Act (TSCA), 15 U.S.C. §§ 2601-2671, ELR STAT. TSCA 003-056; Federal Water Pollution Control Act (FWPCA), 33 U.S.C. §§ 1251-1387, ELR STAT. FWPCA 13-110; Rivers and Harbors Act, 33 U.S.C. §§ 401-454 (1988 & Supp. III 1991); Marine Protection, Research, and Sanctuaries Act, 16 U.S.C. §§ 1431-1434, 33 U.S.C. §§ 1401, 1402, 1411-1421, 1441-1444 (1988 & Supp. III 1991); Resource Conservation and Recovery Act (RCRA), 42 U.S.C. §§ 6901-6992k, ELR STAT. RCRA 11-78; Clean Air Act (CAA), 42 U.S.C. §§ 7401-7671q, ELR STAT. CAA 19-194; Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. §§ 9601-9675, ELR STAT. CERCLA 7-61.

2. See, e.g., FWPCA § 402(b), 33 U.S.C. § 1342(b), ELR STAT. FWPCA 90; RCRA § 3006, 42 U.S.C. § 6926, ELR STAT. RCRA 32; CAA § 110, 42 U.S.C. § 7410, ELR STAT. CAA 32.

3. E.g., ILL. ANN. STAT. ch. 111 1/2, para. 1042-1045 (Smith-Hurd 1988 & 1991 Supp.).

4. See, e.g., CAA § 304, 42 U.S.C. § 7604, ELR STAT. CAA 143; CERCLA § 310, 42 U.S.C. § 9659, ELR STAT. CERCLA 54.

5. The federal government brought a criminal action and filed a number of civil claims in the federal court. The state of Alaska filed civil claims in the Alaska state courts and in federal court. Private suits were filed in both federal and state courts by numerous Alaska Native groups, as well as by countless individual plaintiffs. In addition, over 19,000 related claims were filed before the Trans Alaska Pipeline Liability Fund. In all over 266 lawsuits related to the spill. See Budgetary Implications of the Exxon Valdez Oil Spill Settlement: Hearings Before the House Comm. onthe Budget Task Force on Urgent Fiscal Issues, 102d Cong., 1st Sess. 71 (1991) (statement of Barry M. Hartman, Acting Assistant Attorney General, Environment & Natural Resources Division, Department of Justice).

6. United States v. LaSalle Nat'l Bank, 437 U.S. 298 (1978) (tax law); United States v. Kordel, 397 U.S. 1 (1970) (food and drug law); Standard Sanitary Mfg. v. United States, 226 U.S. 20 (1912) (antitrust law); SEC v. Dresser Indus., 628 F.2d 1368 (D.C. Cir. 1980) (en banc), cert. denied, 449 U.S. 993 (1980) (securities law).

7. 397 U.S. 1 (1970).

8. 21 U.S.C. §§ 301-392 (1988 & Supp. III 1991).

9. 397 U.S. at 11.

10. Id.

11. The U.S. Department of Justice (DOJ) has suggested the following other potentially pressing justifications: (1) the assets of the defendant are in danger of dissipation; (2) there is only a marginal relationship between the civil violations and the illegal conduct that is the subject of the criminal proceeding; and (3) there is an imminent statute of limitations deadline for the filing of a civil action. U.S. DOJ, GUIDELINES FOR CIVIL AND CRIMINAL PARALLEL PROCEEDINGS, DI>R. NO. 5-87 (Oct. 13, 1987), ELR ADMIN. MATERIALS 35159 [hereinafter DOJ GUIDELINES]. A more basic, and often only implicit justification is that the scope of a criminal investigation and subsequent charge might not encompass the full extent of violations that might be pursued civilly.

12. U.S. EPA, POLICY AND PROCEEDINGS AT THE ENVIRONMENTAL PROTECTION AGENCY 1 (Jan. 23, 1984). In practice, concurrent criminal and civil enforcement actions have not been all that common because EPA and the DOJ have adopted policies generally requiring deferral of a civil action pending the outcome of a criminal proceeding. DOJ GUIDELINES, supra note 11; U.S. EPA, REVISED GUIDELINES FOR PARALLEL PROCEEDINGS (June 21, 1989) (which includes GUIDELINES ON INVESTIGATIVE PROCEDURES FOR PARALLEL PROCEEDINGS AND EASY ACCESS TO PARALLEL PROCEEDINGS GUIDANCE BY FIVE RULES OF THUMB) [hereinafter EPA REVISED GUIDANCE].

13. See, e.g., United States v. ITT Rayonier, Inc., 627 F.2d 996, 10 ELR 20945 (9th Cir. 1980) (FWPCA overfiling); United States v. Cargill, Inc., 508 F. Supp. 734, 11 ELR 20649 (D. Del. 1981) (FWPCA overfiling); United States v. SCM Corp., 615 F. Supp. 411, 15 ELR 21007 (D. Md. 1985) (the Clean Air Act overfiling). Although the case law generally has concerned parallel state/civil-federal/civil filings, a criminal overfiling by the federal government would not appear to affect the statutory analysis. See United States v. MacDonald & Watson Waste Oil Co., 933 F.2d 35, 43-46, 21 ELR 21449, 21451-52 (1st Cir. 1991) (state-administered RCRA delegated program was no bar to federal criminal enforcement); see also U.S. EPA, GUIDANCE ON RCRA OVERFILING (May 19, 1986) (which includes EFFECT ON EPA ENFORCEMENT ACTION TAKEN BY STATE WITH APPROVED RCRA PROGRAM (May 9, 1986)).

14. EPA, GUIDANCE ON RCRA OVERFILING, supra note 13.

15. See U.S. EPA, IMPLEMENTING THE STATE/FEDERAL PARTNERSHIP IN ENFORCEMENT: STATE/FEDERAL ENFORCEMENT AGREEMENTS (June 26, 1984) [hereinafter STATE/FEDERAL POLICY]; EPA, ENFORCEMENT RESPONSE POLICY (Dec. 21, 1984).

16. Like the decision to supplement a criminal proceeding with a civil proceeding, the inverse decision to supplement a civil action with criminal enforcement also has advantages for the government. Criminal actions generally carry more substantial deterrent effects and punitive sanctions. They may also better address individual responsibility: a major strength of an environmental criminal case is its ability to reach beyond the corporation to individual actions. Finally, the judicial priority for criminal cases under the Speedy Trial Act, 18 U.S.C. §§ 3161-3174 (1988 & Supp. III 1991), may also result in quicker resolution of a civil case through use of the doctrine of collateral estoppel by applying a prior determination from the criminal case to narrow the civil case. See infra notes 48-63 and accompanying text.

17. See Daniel Riesel, Criminal Prosecution and the Regulation of Hazardous Substances, 21 CHEM. WASTE LITIG. REP. 964, 980 (1991).

18. Compare FED. R. CRIM. P. 15 & 16, with FED. R. CIV. P. 26.

19. 437 U.S. 298 (1978).

20. SEC v. Dresser Indus., 628 F.2d 1368, 1379 (D.C. Cir.) (en banc) cert. denied, 449 U.S. 993 (1980) (rejecting a challenge to the U.S. Securities and Exchange Commission's (SEC's) use of civil investigative warrants after the SEC had referred the defendant's file to the DOJ for criminal investigation); see also United States v. Kordel, 397 U.S. 1 (1970) (allowing the U.S. Food and Drug Administration to propound interrogatories in a civil action notwithstanding referral of the case to the DOJ for criminal proceeding); cf. Michigan v. Clifford, 464 U.S. 287, 294 (1987) (evidence obtained as a result of a fire marshall's administrative search warrant may be used in a subsequent criminal proceeding).

21. Dresser Indus., 628 F.2d at 1381. In LaSalle National Bank, the Supreme Court suggested a prophylactic rule barring the Internal Revenue Service (IRS) from exercising its administrative investigatory authority once the case was referred to the DOJ for criminal investigation. The court concluded that such a rule would be necessary because the close degree of cooperation between the IRS and the DOJ required by such proceedings would make it unrealistic to build a barrier to prevent the "fruits" of civil discovery methods from being used by the criminal authorities. 437 U.S. at 312. Dresser's allowance of shared discovery up to the time of indictment therefore established a much broader rule. The D.C. Circuit's grounds for distinguishing LaSalle National Bank, however, may be partially criticized as internally inconsistent. The Dresser court first concluded that, unlike the IRS and the DOJ, the SEC's and the DOJ's investigatory roles were not so inherently intertwined that civil discovery should be halted. 628 F.2d at 1379-80. Yet, in later justifying its rejection of a protective order that would prohibit the SEC from sharing its civil discovery with the DOJ after the criminal investigation had started, the court discussed at length the statutory mandate, congressional intent, and underlying policy which essentially dictates that the SEC and the DOJ work hand-in-hand. Id. at 1384-87.

For EPA's guidance after LaSalle Bank but prior to the broader decision in Dresser, see EPA, THE USE OF ADMINISTRATIVE DISCOVERY DEVICES IN THE DEVELOPMENT OF CASES ASSIGNED TO THE OFFICE OF CRIMINAL INVESTIGATIONS (Feb. 16, 1984).

22. See Dresser Indus., 628 F.2d at 1391 (Edwards, J., concurring) ("Once an indictment has issued, the policy interests expressed in [LaSalle National Bank], concerning the impermissibility of broadening the scope of criminal discovery through the summons authority of an agency, may come into play."); cf. D'Ippolito v. American Oil Co., 272 F. Supp. 310 (S.D.N.Y. 1967) (entering protective order to prevent disclosure of discovery from private civil action to government in pending criminal case).

23. See United States v. Mellon Bank, N.A., 545 F.2d 869 (3d Cir. 1976); Campbell v. Eastland, 307 F.2d 478 (5th Cir. 1962), cert. denied, 371 U.S. 955 (1963)(limiting civil discovery when a criminal proceeding is pending or about to be brought); Founding Church of Scientology v. Kelley, 77 F.R.D. 378 (D.D.C. 1977) (litigant could not propound interrogatories to government while he was target of grand jury investigation); SEC v. Control Metals Corp., 57 F.R.D. 56 (S.D.N.Y. 1972) (litigant could not take depositions while grand jury proceeding was pending and indictment was expected); United States v. Steffes, 35 F.R.D. 24 (D. Mont. 1964).

24. 672 F. Supp. 656, 18 ELR 20272 (D.R.I. 1987).

25. Id. at 658 (quoting Campbell, 307 F.2d at 487).

26. Id.

27. Id. (citing generally Developments in the Law — Discovery, 74 HARV. L. REV. 940, 1052 (1961)).

28. FED. R. CRIM. P. 6(e)(3)(A).

29. Id. at 6(e)(3)(C)(ii).

30. United States v. Sells Eng'r, Inc., 463 U.S. 418 (1983).

31. United States v. John Doe, Inc. I, 481 U.S. 102 (1987).

32. Sells, 463 U.S. at 443; Doe, 481 U.S. at 112.

33. Doe, 481 U.S. at 112. But cf., United States v. Baggot, 463 U.S. 476, 480-82 (1983) (agency investigation to determine civil liability through administrative channels is not "preliminary to or in connection with a judicial proceeding"; use must relate fairly directly to some identifiable litigation, pending or anticipated).

34. In re Jury Matter, 682 F.2d 61, 64 (3d Cir. 1982).

35. See In re Search Warrant for Second Floor Bedroom, 489 F. Supp. 207, 211 (D.R.I. 1980). It should be noted that Rule 6(e) would appear to bar the disclosure of statements or interviews that were given in lieu of an appearance before the grand jury. See In re Special February 1975 Grand Jury, 662 F.2d 1232, 1237-38 (7th Cir. 1981), aff'd on other grounds sub nom. Baggot, 463 U.S. 476 (1983).

36. See, e.g., CERCLA §§ 104(e), 122(e)(3)(B), 42 U.S.C. §§ 9604(e), 9622(e)(3)(B), ELR STAT. CERCLA 13, 44; CAA § 307(a), 42 U.S.C. § 7607, ELR STAT. CAA 145; TSCA § 11(c), 15 U.S.C. § 2611(c), ELR STAT. TSCA 024.

37. Lefkowitz v. Turley, 414 U.S. 70, 77 (1973).

38. Braswell v. United States, 487 U.S. 99 (1988).

39. Fisher v. United States, 425 U.S. 391 (1976).

40. Braswell, 487 U.S. 99. Since a corporation has no Fifth Amendment privilege and can only act through its agents, a custodian's act of production is not personal, but rather the act of the corporation. If the government later seeks to use an act of production against the individual personally, then the evidence matter may be subject to a motion to suppress. See also Shapiro v. United States, 335 U.S. 1, 32-33 (1948) (concerning the "required records" exception which eliminates even the individual claim of privilege). But cf. Baltimore City Dep't of Social Servs. v. Bouknight, 493 U.S. 549, 558 (1990) (dictum suggesting that "the ability to invoke the privilege is reduced" under the required records exception) (emphasis added).

41. See, e.g., Dienstag v. Bronsen, 49 F.R.D. 327 (S.D.N.Y. 1970); United States v. American Radiator & Standard Sanitary Corp., 272 F. Supp. 691 (W.D. Pa.), rev'd on other grounds, 383 F.2d 210 (D.C. Cir. 1967), cert. denied, 390 U.S. 922 (1968).

42. SEC v. Rubinstein, 95 F.R.D. 529 (S.D.N.Y. 1982).

43. See Minnesota v. Murphy, 465 U.S. 420 (1984).

44. See United States v. Fields, 592 F.2d 638, 643 (2d Cir. 1978), cert. denied, 442 U.S. 917 (1979) (holding that dismissing indictment was too severe a sanction; court merely chastised the SEC for its conduct and warned against such misleading silence in the future); see also United States v. Prudden, 424 F.2d 1021 (5th Cir. 1970); United States v. Tonahill, 430 F.2d 1042, 1044 (5th Cir. 1970).

Of related concern, the DOJ has proposed a rule that would permit its attorneys to communicate directly with persons known to be represented by counsel if such communication is made during the course of a law enforcement investigation. Communications with Represented Persons, 58 Fed. Reg. 39976 (1993) (to be codified at 28 C.F.R. pt. 77) (proposed July 26, 1993). The rule would generally prohibit such communications if they are made after formal criminal or civil proceedings have been instituted. This prohibition, however, would be limited only to contacts concerning the specific activity that is the subject of the formal proceeding. Further, the prohibition would not bar a DOJ attorney participating in a criminal investigation from directly communicating with a represented person involved in a pending civil proceeding. Id.

45. See DOJ GUIDELINES, supra note 11; EPA REVISED GUIDANCE, supra note 12.

46. Although these policies do not explicitly regulate how state authorities will conduct their affairs, the applicable concerns are generally the same under state laws, and therefore similar policies may be expected. Notably, in its policy framework relating to federal/state civil enforcement agreements, EPA recommends discussion with the states regarding affirmative plans for cross-referrals and cooperative criminal investigations. See STATE/FEDERAL POLICY, supra note 15, at 28.

47. See DOJ GUIDELINES, supra note 11.

48. See Montana v. United States, 440 U.S. 147, 153 (1979).

49. The term "final judgment" includes certain "adjudicatory" administrative determinations as well as unlitigated judicial consent decrees.

50. See William D. Benton, Application of Res Judicata and Collateral Estoppel to EPA Overfiling, 16 J. MIN. L. & POL'Y 199 (1988). Where a successive state criminal/federal civil proceeding is involved the doctrine of collateral estoppel also has a basis in the full faith and credit statute, 28 U.S.C. § 1738 (1988). See Benton, supra, at 261-62.

51. The related doctrine of res judicata, or "claim preclusion," is not directly relevant to the civil/criminal context because such actions generally are not construed as being the same "cause of action" — a prerequisite for the doctrine's operation. Multiple civil proceedings give rise to myriad preclusion issues, with the result that the scales may be better balanced between the litigants. For a comprehensive analysis of the issues relating to multiple civil suits, see Benton, supra note 50.

52. See, e.g., United States v. Killough, 848 F.2d 1523 (11th Cir. 1988).

53. 18 U.S.C. 3580(e) (1988 & Supp. III 1991). To prevent double recovery, the VWPA provides that an amount paid to a victim as restitution shall be set off against any compensatory damages later recovered in a civil proceeding. Id. § 3579(e)(2). The exercise of this "civil" authority in the context of imposing a criminal sanction is discussed below. See infra notes 84-96 and accompanying text.

54. It should be noted, however, that the provision does not apply to the facts that were only determined by a court at sentencing as supporting the restitution order — for example, the extent and nature of the victim's injury or the value of damaged property. United States v. Palma, 760 F.2d 475, 479-80 (3d Cir. 1985); United States v. Brown, 744 F.2d 905, 910 (2d Cir. 1984); United States v. Satterfield, 743 F.2d 827, 838 (11th Cir. 1984); see also Appley v. West, 832 F.2d 1021, aff'd, 929 F.2d 1176 (7th Cir. 1987).

55. Parklane Hosiery Co. v. Shore, 439 U.S. 322 (1979).

56. See Rodriguez v. Schweiger, 796 F.2d 930 (7th Cir.), cert. denied, 481 U.S. 1018 (1986). But cf. Benton, supra note 50, at 247-61 (the federal/state partnership established by the delegated authority provisions of many of the environmental statutes may in certain cases support a conclusion that the federal and state enforcement authorities are in privity). See also United States v. ITT Rayonier, Inc., 627 F.2d 996, 10 ELR 20945 (9th Cir. 1980). Note, however, that the United States disagrees with the Rayonier case, and it has not been followed in subsequent decisions. See Aminoil U.S.A., Inc. v. California State Water Resources Control Bd., 674 F.2d 122, 12 ELR 20594 (9th Cir. 1982).

Since state law will most often provide the rules of preclusion where successive federal/state actions are involved, a litigant should be alert to any variations from the general rules. For example, certain state criminal codes, such as New Jersey's, provide that a plea "shall not be used in an evidentiary manner in any civil proceeding." See N.J. CRIM. R. 3:9-2; see also United States v. Turner, 933 F.2d 240, 241 (4th Cir. 1991) (under Virginia law, criminal judgment has no preclusive effect in subsequent civil proceeding); State Farm Fire & Casualty Co. v. Miles, 730 F. Supp. 1462 (S.D. Ind. 1990), aff'd, 930 F.2d 25 (7th Cir. 1991) (under Indiana law, preclusive effect will be given to a prior criminal judgment only if conviction was for a felony; IND. CODE ANN. § IC 34-3-18-1 (Burns 1988)). In Illinois, while a guilty plea may be used as conclusive evidence in a subsequent civil proceeding, a conviction on the merits may be used only to establish a prima facie case. Rodriguez, 796 F.2d at 933.

57. See Blonder Tongue v. University Found., 402 U.S. 313 (1971).

58. 618 F. Supp. 884, 16 ELR 20127 (E.D.N.C. 1985).

59. Id. at 910-11, 16 ELR at 20139. The court, however, did not estop the plaintiff from denying his willful participation in dumpings as to which a conviction was not obtained, but for which the plaintiff sought contribution.

60. Id. at 911, 16 ELR at 20139.

61. See Helvering v. Mitchell, 303 U.S. 391, 397 (1938); United States v. One Assortment of 89 Firearms, 465 U.S. 354, 362 (1984); Traficant v. Commissioner of IRS, 884 F.2d 258 (6th Cir. 1989); United States v. Dunn, 802 F.2d 646, 647 (2d Cir. 1986), cert. denied, 480 U.S. 931 (1987) (allowing federal government to prosecute a civil forfeiture proceeding where prior criminal forfeiture was unsuccessful).

62. Helvering, 303 U.S. at 397 (quoting Lewis v. Frick, 233 U.S. 291, 302 (1914)).

63. See 1B JEREMY C. MOORE ET AL., MOORE'S FEDERAL PRACTICE, P0.418[1], 551-52 (2d ed. 1993). Where one of the aims of the civil proceeding was punitive, the argument is further bolstered by double jeopardy considerations. See infra notes 65-77 and accompanying text.

64. Although a plea of nolo contendere may be advantageous from a preclusionary viewpoint, a defendant should be mindful that the sanction resulting from such a plea may have detrimental tax consequences. See infra note 137 and accompanying text. In any event, U.S. attorneys are instructed not to consent to a plea of nolo contendere except in the most unusual circumstances, and then only after such a plea has been approved by the Assistant Attorney General responsible or a higher official. See 7 DEPARTMENT OF JUSTICE MANUAL § 9-16.010 (Prentice Hall 1991).

65. U.S. CONST. amend. V.

66. See, e.g., Halper v. United States, 490 U.S. 435, 440 (1989); North Carolina v. Pearce, 395 U.S. 711, 717 (1969).

67. 490 U.S. 435.

68. Id. at 451.

69. Id. at 447.

70. Id. at 448. Punitive versus remedial distinctions also play a central role in assessing tax consequences and insurance issues arising under dual enforcement schemes. See infra notes 135-62, 176-79 and accompanying text.

71. Halper, 490 U.S. at 449.

72. Id. Cf. Helvering v. Mitchell, 303 U.S. 399, 401 (1938) (holding that civil tax fraud penalty is not punitive in nature but rather is a remedy adopted "primarily as a safeguard for the protection of the revenue and to reimburse the Government for the heavy expense of investigation and the loss resulting from the taxpayer's fraud").

73. 490 U.S. at 449.

74. Id. at 450. According to the Court, "[i]n a single proceeding the multiple punishment issue would be limited to ensuring that the total punishment did not exceed that authorized by the legislature." Id.

75. See Comment, Civil Sanctions and the Double Jeopardy Clause: Applying the Multiple Punishment Doctrine to Parallel Proceedings After United States v. Halper, 76 VA. L. REV. 1251, 1280 (1990).

76. Id. at 1267-68, 1278-79.

77. Indeed, it is possible that EPA's practice of "overfiling" when a state does not secure an "adequate" penalty may be subject to double jeopardy challenge, in which case the logic of Halper might be extended to the imposition of successive civil penalties. Of course, such a claim would have to overcome the "separate sovereign" or "dual sovereign" doctrine, which holds that double jeopardy does not bar parallel or successive federal and state criminal prosecutions for the same conduct. See United States v. Louisville Edible Oil Prods., Inc., 926 F.2d 584 (6th Cir. 1991). Inasmuch as the doctrine is predicated on the notion that separate sovereigns may independently prescribe certain conduct to be an offense against the peace and dignity of each, United States v. Lanza, 260 U.S. 377, 382 (1922), it may not be applicable where a state prosecution is merely a "cover and tool of federal authorities," Bartkus v. Illinois, 359 U.S. 121 (1959), or in situations in which the state simply becomes empowered to try the defendant for a federally defined offense, id. at 130 (citing Houston v. Moore, 14 U.S. (5 Wheat.) 1, 28, 31, 35 (1820)).

78. Cf. United States v. Hall, 730 F. Supp. 646 (M.D. Pa. 1990) (finding government's attempt to assess a nonremedial civil penalty where defendant had previously plead guilty violated double jeopardy).

79. 600 A.2d 1230 (N.J. Super. Ct. App. Div. 1992).

80. One aspect of the case deserving particular emphasis is that two of the individual defendants were not allowed to raise Halper on appeal, because (1) they were not parties to the 1985 administrative consent order and therefore did not have standing to assert the order as grounds for their claim of jeopardy, and (2) their motion to dismiss the indictment in the trial court was not based on a claim of double jeopardy.

81. Pub. L. No. 98-473, §§ 211-239, 98 Stat. 1987-2040 (codified as amended in scattered sections of 18 U.S.C. and 28 U.S.C.).

82. 28 U.S.C. §§ 991-998 (1988).

83. 18 U.S.C. § 3553(b) (1988); 28 U.S.C. § 994 (1988).

84. 18 U.S.C. § 3663(b)(3) (1988 & Supp. III 1991).

85. Id. § 3663(b).

86. Id. § 3663(b)(1)(B).

87. Id. § 3663(b)(2).

88. Id. § 3664(a).

89. Id. § 3664(d).

90. Id. § 3663(d).

91. U.S. SENTENCING COMM'N, GUIDELINES MANUAL (Nov. 1992) [hereinafter U.S.S.G.].

92. U.S.S.G. §§ 5E1.1 (individuals), 8B1.1 (organizations). The Sentencing Commission has developed the Sentencing Guidelines over several years, and they become effective if, once proposed, Congress does not act upon them. 28 U.S.C. § 994(p) (1988 & Supp. III 1991). Chapter 8 of the Sentencing Guidelines applies specifically to organizations, while the remaining chapters apply to individuals. Although Chapter 8C (fines) does not yet apply to environmental crimes, the remaining portions of Chapter 8 (i.e., §§ 8A, 8B, 8D, and 8E) do apply to organizations. See U.S.S.G. § 8C2.1.

93. U.S.S.G. § 5E1.1 commentary (background) (quoting S. REP. NO. 532, 97th Cong., 2d Sess. 31 (1982), reprinted in 1982 U.S.C.C.A.N. 2515, 2537).

94. U.S.S.G. § 8B1.2 (policy statement). The Sentencing Guidelines also suggest creating a trust fund for remedial purposes if "the magnitude of future harm can be reasonably estimated. Id. The commentary to this suggestion, however, states that remedial orders may not be necessary where a governmental agency (e.g., EPA) can enter such orders.

95. 18 U.S.C. § 3663(d) (1988 & Supp. III 1991); U.S.S.G. § 5E1.1(b), commentary (background).

96. 18 U.S.C. § 3664(e) (1988 & Supp. III 1991). This provision only acts as estoppel on the "essential allegations" of the underlying criminal offense, not the findings of the restitution order. See, e.g., United States v. Satterfield, 743 F.2d 827 (11th Cir. 1984).

97. 18 U.S.C. § 3563 (1988 & Supp. III 1991).

98. U.S.S.G. ch. 8; see supra note 92.

99. U.S.S.G. § 8D1.1(a)(3); see also id. § 8D1.4(c) (policy statement). For a discussion of these programs in greater detail, see infra notes 120-21, 131 and accompanying text.

100. For example, Exxon agreed to pay a total of $ 1.025 billion to resolve all the civil and criminal claims of the United States and the state of Alaska arising out of the Exxon Valdez oil spill. This sum included a $ 125 million criminal fine, $ 100 million of which is restitution for the damage to Prince William Sound. In addition, Exxon agreed to pay $ 900 million over a 10-year period to a trust fund administered by the state and federal governments, which will be used to study and cleanup the Sound. In addition, Exxon could be liable for an additional $ 100 million if unknown damage is discovered in the future. This sum is also in addition to the estimated $ 2.5 billion Exxon had already paid to cleanup the Sound. See Judge Accepts Exxon Pact, Ending Suits on Valdez Spill, N.Y. TIMES, Oct. 9, 1991, at A14, col. 4.

101. U.S.S.G. § 801.1.

102. Congress has considered several bills that would have further expanded these powers. In July 1991, Sen. Harris Wofford (D-Pa.) introduced an amendment to the Omnibus Crime Control Act which was nearly enacted in the final days of the first session of the 102d Congress. S. 1241, 102d Cong. 1st Sess. (1991) (Amend. No. 564); 137 CONG. REC. S9308 (daily ed. July 9, 1991). The amendment would have required courts to appoint an independent "expert" to conduct an environmental audit of an organization convicted of an environmental offense, at the organization's expense. The purpose of such an audit was to identify all causes and factors relating to the offense and to recommend measures for preventing a recurrence of the offense. The court would then have been empowered to order the defendant to implement all "appropriate" recommendations of the audit. S. 1241, 102d Cong. 1st Sess. (1991) (Amend. No. 564).

Nothing in the bill would have allowed the organization to challenge the findings of the audit. Nor were there any assurances that the independent auditor would have had particular experience in or knowledge of the business of the facility audited. Moreover, the bill would have allowed the findings of the audits to be made public, and the prosecutor, the auditor, any governmental agency, or any private individual would have been entitled to present evidence to the court that the organization did not implement the appropriate recommendations of the audit. Id.

Similar authority, though limited to "knowing endangerment" offenses, was proposed last year in the House by Rep. Charles Schumer (D-N.Y.). H.R. 5305, 102d Cong., 2d Sess. (1992).

103. CAA § 306, 42 U.S.C. § 7606, ELR STAT. CAA 145; FWPCA § 508, 33 U.S.C. § 1368, ELR STAT. FWPCA 102.

104. H.R. 3271, 102d Cong., 1st Sess. (1991); H.R. 908, 103d Cong., 1st Sess. (1993); see infra notes 124-26.

105. 42 U.S.C.A. § 7606(a) (1990), amended by 42 U.S.C.A. § 7606(a) (West Supp. 1993).

106. The 1990 amendments also clarified that for convictions under § 113(c)(2) regarding information reporting violations (i.e., knowing false statements; knowing failure to file a report; and knowing falsification of, tampering with, or failure to install a required monitoring device), the listing can be removed only upon correction of the "substantive violation" underlying the conviction. CAA § 306(a), 42 U.S.C. § 7606(a), ELR STAT. CAA 145.

107. 33 U.S.C. § 1368(a), ELR STAT. FWPCA 102.

108. Id. § 1319(c), ELR STAT. FWPCA 64.

109. CAA § 306(a), 42 U.S.C. § 7606(a), ELR STAT. CAA 145.

110. 38 Fed. Reg. 25161 (1973).

111. Exec. Order No. 11738 § 1, 38 Fed. Reg. 25161 (1973).

112. See United States v. Interlake, Inc., 432 F. Supp. 987, 7 ELR 20669 (N.D. Ill. 1977); United States v. U.S. Steel, 10 Env't. Rep. Cas. (BNA) 1751 (N.D. Ill. 1977); United States v. Del Monte de Puerto Rico, Inc., 9 Env't. Rep. Cas. (BNA) 1495 (D.P.R. 1976) (upholding similar authority under the FWPCA).

113. 40 C.F.R. § 15.10 (1992); U.S. EPA, IMPLEMENTATION OF MANDATORY CONTRACTOR LISTING 1 (Aug. 8, 1984). EPA has yet to amend its regulations to implement the 1990 Clean Air Act Amendments, extending this mandatory listing to all criminal convictions under Clean Air Act § 113(c). EPA was supposed to propose rules in Spring 1992 and adopt them in December 1992. Semiannual Regulatory Agenda, 56 Fed. Reg. 54067 (1991).

114. 40 C.F.R. § 15.11(a) (1992). Under current regulations, EPA will exercise this discretionary authority if a federal court convicts any person under Clean Air Act § 113(c)(2) if that person owns, leases or supervises the facility. 40 C.F.R. § 15.11(a)(1). The 1990 amendments have made this basis for discretionary listing a mandatory basis for listing. CAA § 306(a), 42 U.S.C. § 7606(a), ELR STAT. CAA 145. EPA also exercises its discretionary listing authority if the person is subject to certain specified civil or administrative enforcement actions. 40 C.F.R. § 15.11(a)(2)-(6) (1992).

115. 40 C.F.R. § 15.20 (1992).

116. U.S. EPA, CONTRACTOR LISTING PROTOCOLS, Attachment YY (May 1991).

117. Id., attachment XX.

118. 56 Fed. Reg. 64785 (1991).

119. Id. at 64786.

120. U.S.S.G. § 8.A1.2, application note 3(k). For further discussion of these standards, see infra note 131 and accompanying text.

121. 56 Fed. Reg. at 64787. The EPA Delisting Policy does not include the criterion of avoiding delegation of substantial discretionary authority to individuals whom the corporation knows or should know have a propensity to engage in illegal activities, which is found in the Sentencing Guidelines. Moreover, the EPA Delisting Policy focuses on environmental compliance as opposed to the Sentencing Guidelines' more general focus on criminal activities.

122. 40 C.F.R. § 15.21 (1992).

123. 40 C.F.R. §§ 15.13(b), 15.24 (1992).

124. H.R. 3271, 102d Cong., 1st Sess. (1991); H.R. 908, 103d Cong., 1st Sess. (1993). "Federal environmental law" means the Clean Air Act, CERCLA, the Safe Drinking Water Act, the Solid Waste Disposal Act, and TSCA. (Interestingly, it does not include the FWPCA, although this may have been an oversight.)

125. N.J. STAT. ANN. § 13:1E-126 (West Supp. 1990).

126. H.R. 3271, 102d Cong., 1st Sess. § 1 (1991).

127. See supra note 120-21 and accompanying text.

128. U.S. DOJ, FACTORS IN DECISIONS ON CRIMINAL PROSECUTIONS FOR ENVIRONMENTAL VIOLATIONS IN THE CONTEXT OF SIGNIFICANT VOLUNTARY COMPLIANCE OR DISCLOSURE EFFORTS BY THE VIOLATOR (July 1, 1991).

129. Id.

130. Although the portion of the Organizational Guidelines discussed below (i.e., § 8C (fines)) does not currently apply explicitly to environmental crimes, see U.S.S.G. § 8C2.1, the Sentencing Commission has formed an Advisory Working Group to consider whether these guidelines should explicitly apply in environmental cases, or whether modifications are warranted. In the meantime, it is likely that the DOJ prosecutors and courts will be influenced by the relevant portion of the Organizational Guidelines when determining the appropriate sentence for environmental crimes, especially in view of the analogous principles issued in 1991 by the DOJ in the policy discussed in the text above. See supra note 128.

131. U.S.S.G. § 8A1.2, commentary 3(k).

132. Id.

133. U.S.S.G. § 8C2.5(g)(2), (3), commentary.

134. U.S.S.G. § 8C2.5.

135. 26 U.S.C.A. § 162(a) (1986 & West Supp. IV 1991).

136. Id. at § 162(f).

137. Thus, although a plea of nolo contendere may be useful in avoiding the preclusive effects of a criminal plea, such a plea alone will not reduce a defendant's tax liability.

138. Treas. Reg. § 1.162-21(b)(2) (1993); see True v. United States, 894 F.2d 1197 (10th Cir. 1990).

139. Treas. Reg. § 1.162-21(b)(2) (1993).

140. See Evan Slavitt, An Overview of the Tax Implications of Environmental Litigation, 20 ELR 10547 (Dec. 1990).

141. Id. at 10548.

142. As Evan Slavitt observes, attorneys and courts perform the punitive/compensatory analysis because that is what the current law and regulations require and not necessarily because the distinction makes any particular sense. Id. He opines:

The entire enterprise may well be built on the false assumption that a payment is either punitive or compensatory. Any substantial mandatory payment has a punitive — that is, deterrent — effect. Similarly, any monetary fine has some element of compensation, and courts often set even criminal fines with an eye toward the magnitude of the loss. For tax theoreticians and policy makers, this suggests a fresh look at the entire area. For practitioners and the courts, it means that the case law is likely to be and to remain inherently inconsistent and occasionally arbitrary.

Id. at 10548. This critique provides a useful perspective, and should be considered in light of the wrangling over punitive versus compensatory rationales employed in the double jeopardy and collateral estoppel contexts.

143. 432 F. Supp. 148, 149-50 (E.D. Wis. 1977).

144. See Lilly v. Commissioner, 343 U.S. 90 (1952); Tank Truck Rentals, Inc. v. Commissioner, 356 U.S. 30 (1958).

145. 88 T.C. 1384 (1987), aff'd, 850 F.2d 611 (9th Cir. 1988).

146. Id. at 1387.

147. According to the court, under California law "disposing of civil liability cannot be a function of restitution in a criminal case." Id. at 1389.

148. Id. at 1389.

149. Id.

150. 905 F.2d 667, 674 (2d Cir. 1990) (emphasis added). Stephens considered the deductibility of a restitution payment under § 165(c)(2), to which general public policy exceptions rather than § 162(f)'s statutory exceptions apply. Section 162(f), however, is regarded as "highly relevant" to the § 165 inquiry. Id. at 672.

151. Id. at 673.

152. 991 F.2d 292 (6th Cir. 1993).

153. 18 U.S.C. § 3663 (1988 & Supp. III 1991). For a discussion of this authority, see supra notes 84-94 and accompanying text.

154. 991 F.2d at 298-99 (citing Bailey v. Commissioner, 756 F.2d 44 (6th Cir. 1985)).

155. 63 T.C.M. (P-H) 2672 (1992).

156. Although the trial judge had acknowledged in court that he was prohibited from diverting any portion of the criminal fine to a nongovernmental recipient, he also stated that he would consider any mitigating circumstances presented in the taxpayer's motion for a reduced sentence. The judge subsequently agreed in chambers to the $ 8.24 million reduction in exchange for the taxpayer's "voluntarily" paying $ 8 million to set up an environmental fund.

157. In fact, restitution under the VWPA has been expressly described as having that purpose. At least in federal cases, the fact that the VWPA provides for private, civil enforcement of an order of restitution may undermine the rationale used by the court in Waldman for reconciling the regulatory requirement that the sum must be "paid to the government" to constitute a nondeductible payment. See 18 U.S.C. § 3663(h) (1988 & Supp. III 1991).

158. This may be of particular concern if the third regulatory definition of "fine or similar penalty" is literally applied and the payment is viewed as being made "in settlement of the taxpayer's actual or potential liability for a fine or penalty."

159. See, e.g., Thomas H. Yancey, The Proposed Economic Performance Rules Affect the Timing of Superfund Cleanup Cost Deductions, 1 ENVTL. FIN. 93 (1991).

160. See H.R. 1726, 102d Cong., 1st Sess. (1991); H.R. 1539, 102d Cong., 1st Sess. (1991).

161. Larchfield Corp. v. United States, 373 F.2d 159, 167 (2d Cir. 1966); B. T. Harris Corp. v. Commissioner, 30 T.C. 635, 642 (1958); San-Knit-Ary Textile Mills, Inc. v. Commissioner, 22 B.T.A. 754 (1931). In some cases, however, courts have found these payments to be income to the employee. See Glimco v. Commissioner, 397 F.2d 537, 539-40 (7th Cir. 1968).

162. 383 U.S. 687 (1966); see also Treas. Reg. § 1.162-21(a)(2) (1993) (permitting the deductibility of legal fees, related expenses, court costs, and stenographic and printing charges incurred in defense of a prosecution).

163. See U.S. EPA, ENFORCEMENT ACCOMPLISHMENTS REPORT FY 1990, 5-3 (1991).

164. See Richard Y. Roberts, Commissioner, SEC, Remarks at the Sonat Legal Conference (Sept. 28, 1992)("[I]t is my impression that accruals concerning environmental liability are not showing up in the financial statements as quickly as I believe that they should be.").

165. Release No. 33-5170 (July 19, 1971), 36 Fed. Reg. 13989 (1971).

166. 17 C.F.R. § 229.103 (1992).

167. Id. instruction 5.

168. Id. instruction 5.B.

169. Id. instruction 5.C.

170. Satisfactory disclosure of criminal liabilities may require more than simply reporting the fact of a conviction. See United Paperworkers Int'l Union v. International Paper Co., 985 F.2d 190 (2d Cir. 1993) (disclosures in annual report, which included an inadequate description of criminal liabilities, failed to cure materially misleading proxy statement concerning defendant's environmental commitment and performance).

171. Release Nos. 33-6835, 34-26831 (May 18, 1989), 54 Fed. Reg. 22427 (1989).

172. 17 C.F.R. § 229.303 (1992).

173. 17 C.F.R. § 229.303, instruction 3 (1992).

174. 54 Fed. Reg. 22430. For a detailed discussion of these reporting standards see James G. Archer et al., SEC Reporting of Environmental Liabilities, 20 ELR 10105 (Mar. 1990).

175. See generally United States v. Matthews, 787 F.2d 38, 49 (2d Cir. 1986) (noting "concerns about the self-incrimination implications" of criminal liability for nondisclosure of a criminal offense); see also Robert F. Wall & Joseph G. Homsy, Environmental Reporting Required by the Securities and Exchange Commission, 6 TOXICS L. REP. 850, 854 (1991).

176. Township of Gloucester v. Maryland Casualty Co., 668 F. Supp. 394, 401, 18 ELR 20084, 20087 (D.N.J. 1987).

177. Id.

178. United States v. Ward, 22 Env't Rep. Cas. (BNA) 1235, 1236-37, 14 ELR 20804, 20805 (E.D.N.C. 1984); see also United States v. Ward, 618 F. Supp. 884, 910-12, 16 ELR 20127, 20139-40 (E.D.N.C. 1985).

179. See supra note 160 and accompanying text.