Environmental Crimes Bulletin - As Criminal Fines for Environmental Violations Steadily Rise, Will the Alternative Fines Act Crash the Floodgate? , October 1998

During 1997, the U.S. Environmental Protection Agency (EPA) set a record for criminal fines - $169.3 million. In February 1998, Earl Devaney (the Director of EPA's Office of Criminal Enforcement, Forensics, and Training) stated that the average fine for an environmental criminal case is now $1.9 million. A brief glance through the enforcement provisions of the major federal environmental statutes will explain why it is not difficult for the government to achieve these types of results. Under most environmental enforcement provisions, each separate day of a continuing violation qualifies as a separate count, and each count generally translates into a $500,000 increase in the overall maximum fine levied against a guilty company. Yet, these "count stacking" provisions may not even be the most effective tool for attaining astronomical criminal fines. The Alternative Fines Act provides a statutory maximum in the "alternative" to the $500,000-per-count ceiling: "twice the gross gain or twice the gross loss" caused by a company's violation(s). Obviously, in cases involving substantial harm ("loss") to the environment and/or third parties - e.g., large oil spills - the Alternative Fines Act can increase a defendant company's criminal fine exponentially and even jeopardize the company's continued viability. Obviously, where a company realizes enormous cost savings (and competitive advantage) as a direct result of its noncompliance, the Alternative Fines Act allows the government to disgorge these gains and penalize the company based upon some measure of such gains. What is not so obvious - and, in fact, contrary to the purpose of the Alternative Fines Act - is that the government may seek to levy equally devastating penalties where a company has failed to cause any noteworthy harm to the environment or third parties, and has realized only limited economic gain from its violations. Yet, some prosecutors are aggressively seeking to establish a broad interpretation of the term "gross gain" under the Alternative Fines Act - i.e., something substantially more than just the money saved by not complying with the law. In fact, some prosecutors go so far as to argue that the term "gross gain" can reasonably be interpreted to mean the defendant company's "gross profits realized during the period of violation." Because there is not a great deal of case law interpreting the Alternative Fines Act itself, prosecutors have room to argue for such an interpretation. However, when faced with these types of extravagant threats, corporate counsel should keep in mind the following. First, while there is little case law interpreting the Alternative Fines Act itself, there are numerous provisions of the United States Sentencing Guidelines (USSG) which are based upon the Alternative Fines Act. The commentary to many of these USSG provisions appears to support a narrow interpretation of the term "gain" (or "loss"). In addition, the majority of the cases examining the scope of gains/losses to be used as a basis for calculating criminal fines under these USSG provisions favor a narrow interpretation of gains/losses to the exclusion of consequential economic considerations. Second, although some prosecutors may champion an extremely broad definition of the term "gross gain" (or "gross loss"), the official position of the Department of Justice (DOJ) appears to support a narrow definition requiring a direct link between the illegal behavior and the resulting gain (or loss). The Sentencing Commission recently published a working paper, entitled Loss Issues, which discusses how economic considerations (both gains and losses) should figure into criminal fine calculations and cites DOJ as recommending a narrow interpretation of these terms. Third, from a policy standpoint, allowing a very broad definition of "pecuniary gain" makes little sense because it would lead to inconsistent penalties for similar violations - penalizing companies that happen to be unusually profitable during a period of violation more severely than companies that happen to be in a financial lull during a period of violation.