April 1999

Environmental Crimes Bulletin - Can Corporate Officers Be Criminally Liable For Y2K-Related Environmental Violations?

5 min

Like most other issues associated with the Year 2000 (Y2K) computer problem, no one knows for sure how the Millennium Bug will affect environmental compliance, or how aggressive the government will be in bringing enforcement actions when environmental violations result from Y2K-related failures. Though it sounds far-fetched, corporate officers may find themselves the focus of criminal enforcement actions arising from such failures.

EPA and other government enforcement agencies have put industry on notice that companies must (1) test pollution control systems, monitoring equipment, alarms, and other technology for Y2K problems; (2) take corrective measures as needed; and (3) develop contingency plans to ensure compliance with applicable environmental laws. In fact, EPA is so concerned about the potential for serious environmental violations resulting from Y2K-related malfunctions that the Agency published a “safe harbor” policy in November 1998. The policy is designed to encourage the prompt testing of equipment with computer components or embedded microchips to ensure that environmental compliance is not impaired. Under the policy, EPA will waive 100% of civil penalties and not recommend criminal prosecution for environmental violations that result from tests to identify and eliminate Y2K-related malfunctions as long as specific criteria delineated in the policy are met.

Against the backdrop of EPA's Y2K mandate, the government is likely to seek administrative, civil or even criminal penalties for environmental violations resulting from Y2K-related failuresif companies fail to “test and correct.” Recent enforcement history suggests that the government is most likely to criminally prosecute when such violations result in, or run the risk of, significant harm to the environment or public health. The reduced “intent” threshold applicable to most environmental crimes will aid prosecutors seeking criminal sanctions in such cases. The most likely basis for criminal prosecution of Y2K-related violations will be the Clean Water Act, which provides criminal misdemeanor penalties when violations result from negligence. To prove negligence under the Act, the government must show only that the company failed to exercise due care under the circumstances, and that this failure led to the pollution.

Arguably, EPA has established the standard of due care by publishing its enforcement policy and the “safe harbor” program. Criminal liability under the negligence standard could be argued for corporate officers who were responsible for ensuring the company's regulatory compliance, and who failed to test pollution control equipment and systems for Y2K compliance and/or correct problems discovered.

In addition, the Clean Water Act and most other environmental statutes establish felony sanctions for “knowing” violations. Because environmental statutes have been characterized as public welfare statutes, proof of knowledge merely requires a showing that the company or individual charged was aware of the particular acts or omissions that violated the law (general intent) rather than a showing that the company or individual was aware that the acts or omissions were illegal (specific intent), as is required for most other felonies.

There are several ways that the courts have allowed the government to prove the requisite criminal “knowledge” in environmental cases against corporate officers. In some instances, courts have held that direct evidence indicating the corporate officer instructed his or her subordinates to perform acts that violate environmental laws meets the knowing standard for environmental violations, even if the officer did not directly participate in the prohibited conduct. Such a situation may arise in the Y2K context, for instance, if a corporate officer is aware that certain pollution control equipment has failed due to Y2K-related malfunctions yet orders the system to remain in operation, knowing that pollutants will be discharged as a result.

In cases where there is no direct evidence that the corporate officer was personally involved in committing the offense or instructing subordinates to perform acts that violate environmental laws, courts have held that the requisite knowledge can be established by other means, including circumstantial proof of willful blindness or proof under the responsible corporate officer doctrine.

Some courts have allowed the government to show that the corporate officer consciously avoided learning the truth after receiving substantial warnings, and held that this is the equivalent of the requisite knowledge required. When the element of knowledge is in dispute, courts have accepted this theory if the evidence would permit a rational juror to conclude beyond a reasonable doubt that the corporate officer was aware of the high probability of the fact in dispute and consciously avoided confirming the fact.

Similarly, courts have inferred the requisite criminal knowledge based on what a responsible corporate officer would have known through the exercise of reasonable diligence in situations in which the officer had some affirmative duty to know the facts or investigate the situation.

In one case, for instance, the court found that knowledge could be inferred from evidence that a supervisor responsible for operations involving hazardous chemicals had been informed by safety inspectors and other employees about “problems” with stored chemical, and the supervisor simply failed to follow up, despite having the responsibility to do so. (As noted in the next article, courts have never convicted responsible corporate officers based solely upon their position. There has always been at least some circumstantial evidence of knowledge.). In the Y2K context, these precedents may apply where plant engineers or technicians have warned corporate officers that certain pollution control equipment runs a high risk of failure due to Y2K problems, and the officers do not test the equipment, which then fails and results in the discharge of pollutants.

Even at this late date, companies still have time to test equipment for Y2K compliance and take corrective actions. Before conducting such testing, companies should become familiar with EPA's Y2K “safe harbor” provisions. In light of the focus placed on this issue by environmental enforcement agencies, it is likely that an aggressive enforcement posture will be adopted. In this instance, an ounce of prevention is surely worth a pound of cure.