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Environmental Criminal Enforcement -
A Few Questions And Answers About
Debarment, Suspension, And Sentencing
W. Thomas Dillard and Stephen Ross Johnson
In the Southeast, many of us find ourselves defending the small company. These organizations have the most to lose from a suspension or a debarment from government contracts, and they will have a tougher fight than larger companies because they do not have the same political and/or economic influence. The worst case scenario is when the investigation into an environmental crime creates a situation where an organization is suspended, and later debarred as a result of a plea or conviction, from government contracts, and this suspension or debarment severely impacts the economic viability of the company, possibly even resulting in bankruptcy.
I. Sentencing guidelines and environmental crimes.
The Sentencing Guidelines list six different types of offenses with respect to environmental crimes, all dealing with the sentencing of individuals , not organizations. 1 The Sentencing Guidelines allow downward departures from the guideline sentence if the environmental offense was negligent rather than knowing. 2However, upward departures may be appropriate if the offense involved highly hazardous substances or there are substantial cleanup expenses. 3Additionally, adjustments common to all crimes, not just those environmental in nature, apply. “The sentence can be adjusted upwardly if the defendant was an organizer or leader in the offense, or impeded the investigation, prosecution, or sentencing of the offense, or downwardly, if the defendant” accepts responsibility. 4
The above sentencing guidelines applicable to individuals convicted of or pleading to environmental crimes are inapplicable to the sentencing of corporations or other organizations convicted of or pleading to environmental crimes. 5Rather, the sentencing court is instructed to determine the appropriate fine amount by applying the provisions of 18 U.S.C. §§ 3553 and 3572. 6Therefore, a sentencing court has considerable more discretion in sentencing organizations convicted of or pleading to environmental crimes than the similarly situated individual.
Being charged with and either pleading to or being convicted of an environmental crime can have serious consequences with respect to being suspended and subsequently debarred from participating in future government contracts. Federal agencies are prohibited from entering into contracts with, or even issuing grants to, any entities who are convicted of crimes under certain environmental statutes. 7This “blacklisting” of an organization, at the EPA’s discretion, can extend to other organizations or entities owned by the entity pleading to or convicted of the environmental violation. 8
II. Debarment and suspension from contracting with the federal government.
Although debarment is generally discretionary, there are certain statutes that mandate debarment. Under the Clean Air Act and the Clean Water Act, no federal agency may contract with any entity if they have been convicted of any offense under the criminal penalty provisions of either Act. 9Both of these provisions are facility specific, which basically means that if the entity has another facility that was not involved in the violation, then the federal government may contract with the other facility. 10
Suspension is an interim refusal to deal with a contractor pending receipt of further information. It temporarily disqualifies a contractor from receiving government contracts or having contracts renewed or extended until the basis for the suspension is resolved.” 11 Debarment follows suspension - it is the formal disqualification of a contractor or a participant in government programs for a set period of time, usually one to three years but sometimes longer. 12 Organizations and individuals are treated the same under the debarment and suspension regulations - they are all considered “entities” for purposes of the applicable regulations.
A. Contractors and participants - the immense breadth of the applicability of debarment and suspension
By statute, executive order, and regulations, the Government must do business only with responsible contractors and participants in Federal assistance, loan, and benefit programs. 13 Each federal agency has a debarring official, and “the debarring official may extend the debarment decision [of a contractor or participant] to include any affiliates of the contractor [or participant].” 14
The debarment regulations apply to individuals who have participated in, or who reasonably may be expected to participate in, covered transactions under Federal assistance, loan, and benefit programs or Federal contracts and subcontracts. 15 An individual may participate, or have the potential to participate, in Federal procurement programs as a contractor or subcontractor, an agent or representative of a contractor or subcontractor, or as an individual surety. 16 The definitions of both “contractor” and “participant” have been interpreted extremely broadly in the context of debarment and suspension; in fact, in the relatively few administrative decisions dealing with the interpretation of contractors and participants for purposes of debarment, the respondent challenging his or her classification as a participant or contractor has never won.
A Respondent's business expertise may support a reasonable inference that the individual has the potential to do business with the Government.” 17 Therefore, an individual’s or organization’s mere potential to contract with the government may serve as a basis for suspension or debarment. The same is true for “participants.” Those who are in non-procurement positions with the government – essentially those who participate in government programs in some manner or have the mere potential to participate in government programs of any kind, may be suspended or debarred by virtue of their status or potential status as a “participant.” 18
B. The taint of a criminal investigation, plea, or conviction
A debarring official with the applicable federal agency may debar or suspend a contractor for a conviction or civil judgment for “commission of any ... offense indicating a lack of business integrity or business honesty that seriously and directly affects the present responsibility of a Government contractor or subcontractor.” 19 A contractor or participant may be debarred or suspended for “[a]ny other cause so serious or compelling a nature that it affects the present responsibility of a Government contractor or subcontractor” or of the participant. 20 “Responsibility is a term of art in Government contract law that has been defined to include not only the ability to complete a contract successfully, but also the honesty and integrity of the contractor.” 21 Although the test for debarment is the present responsibility of the contractor, present lack of responsibility can be inferred from past acts. 22
Under the debarment regulations, existence of a criminal conviction for an offense indicative of business risk provides the material fact in support of cause for debarment; a criminal conviction casts doubt on the present responsibility of a person for purposes of debarment or suspension. 23.
C. The catch-all “affiliate” provision
If an entity is found to be a “contractor” or a “participant” for purposes of suspension or debarment, the debarring official of the debarring agency may “extend the debarment decision to include any affiliates of the contractor if they are (1) specifically named and (2) given written notice of the proposed debarment and an opportunity to respond.” 24
An “affiliate” for purposes of suspension or debarment is defined in 48 C.F.R. § 9.403. It states:
Affiliates. Business concerns, organizations, or individuals are affiliates of each other if, directly or indirectly, (1) either one controls or has the power to control the other, or (2) a third party controls or has the power to control both. Indicia of control include, but are not limited to, interlocking management or ownership, identity of interests among family members, shared facilities and equipment, common use of employees, or a business entity organized following the debarment, suspension, or proposed debarment of a contractor which has the same or similar management, ownership, or principal employees as the contractor that was debarred, suspended, or proposed for debarment.
“ Business concerns or individuals are affiliates if, directly or indirectly ... one controls or can control the other ....” 25.
III. Damage control – using mitigating factors to stave off a debarment or suspension
The list of mitigating factors relevant to a debarring official’s decision to debar or suspend an entity is found in 48 C.F.R. 9-406.1(a):
(a) It is the debarring official's responsibility to determine whether debarment is in the Government's interest. The debarring official may, in the public interest, debar a contractor for any of the causes in 9.406-2, using the procedures in 9.406-3. The existence of a cause for debarment, however, does not necessarily require that the contractor be debarred; the seriousness of the contractor's acts or omissions and any remedial measures or mitigating factors should be considered in making any debarment decision. Before arriving at any debarment decision, the debarring official should consider factors such as the following:
(1) Whether the contractor had effective standards of conduct and internal control systems in place at the time of the activity which constitutes cause for debarment or had adopted such procedures prior to any Government investigation of the activity cited as a cause for debarment.
(2) Whether the contractor brought the activity cited as a cause for debarment to the attention of the appropriate Government agency in a timely manner.
(3) Whether the contractor has fully investigated the circumstances surrounding the cause for debarment and, if so, made the result of the investigation available to the debarring official.
(4) Whether the contractor cooperated fully with Government agencies during the investigation and any court or administrative action.
(5) Whether the contractor has paid or has agreed to pay all criminal, civil, and administrative liability for the improper activity, including any investigative or administrative costs incurred by the Government, and has made or agreed to make full restitution.
(6) Whether the contractor has taken appropriate disciplinary action against the individuals responsible for the activity which constitutes cause for debarment.
(7) Whether the contractor has implemented or agreed to implement remedial measures, including any identified by the Government.
(8) Whether the contractor has instituted or agreed to institute new or revised review and control procedures and ethics training programs.
(9) Whether the contractor has had adequate time to eliminate the circumstances within the contractor's organization that led to the cause for debarment.
(10) Whether the contractor's management recognizes and understands the seriousness of the misconduct giving rise to the cause for debarment and has implemented programs to prevent recurrence.
The existence or nonexistence of any mitigating factors or remedial measures such as set forth in this paragraph (a) is not necessarily determinative of a contractor's present responsibility. Accordingly, if a cause for debarment exists, the contractor has the burden of demonstrating, to the satisfaction of the debarring official, its present responsibility and that debarment is not necessary.
Additionally, debarment or suspension is inappropriate if a participant can demonstrate that, notwithstanding any past nonresponsible conduct such as a conviction, he no longer constitutes a business risk. 26 It is the EPA’s policy to insure that the government conducts business with responsible persons, and debarment and suspension “are serious actions which shall be used only in the public interest and for the Federal Government’s protection and not for purposes of punishment .” 27 The EPA may grant an exception permitting a debarred or suspended entity to participate in a particular transaction “upon a written determination by the agency head or an authorized designee stating the reason(s)” for the deviation. 28 This exception power can be exercised by any agency head or authorized designee. 29 Furthermore, agencies and participants may continue in the transactions already in existence at the time of the debarment or suspension – the debarment or suspension only relates to future contracts and future participation with the federal government. 30
Entities are given an opportunity to contest a proposed debarment or suspension – within 30 days after receiving a notice from the EPA of proposed debarment, the entity may submit an argument in opposition to the proposed debarment. 31 The debarment period usually should not exceed three years, yet a longer period of debarment may be imposed in certain special circumstances. 32
An individual or an organization may request the EPA’s debarment official to reverse a debarment decision to reduce the period or the scope of the debarment. Some of the reasons that a debarring official must look to in considering the request are: (1) newly discovered material evidence; (2) reversal of the conviction or civil judgment upon which the debarment was based; (3) a “bona fide” change in ownership or management; (4) elimination of other causes for which the debarment was imposed; (5) or other reasons that the debarring official deems appropriate. 33.
IV. So you’ve been debarred or suspended – how to make the most of it with respect to sentencing if you’re an organization
While suspension and debarment are within the discretion of the agency, “the E.P.A. has become increasingly aggressive in taking suspension or debarment actions against companies that have been accused of or convicted of environmental crimes.” 34 While no company or organization wants a suspension and later debarment, should this occur, it could perhaps form an effective argument to persuade the sentencing court to perhaps lessen the applicable fine. 35.
V. What sort of pressure can be brought to bear on an organization to aid the government in the prosecution of individual employees?
The official position of the Justice Department is that indicting a corporation “is not a substitute for the prosecution of criminally culpable individuals.” 36 “A prosector assessing cooperation [of a corporation] should take into account the corporation’s willingness to identify culprits within the corporation, including senior executives, to make witnesses available, to disclose the complete results of its internal investigation, and to waive the attorney-client and work-product privileges.” 37 Additionally, “the collateral consequences of a criminal conviction are another factor that a prosecutor should consider in deciding whether to charge a corporation. Possible harm to innocent employees, officers, or shareholders is one such consequence; the potential for serious nonpenal sanctions such as suspension and debarment from federal contracts or programs is another.” 38.
VI. With respect to individuals, can debarment affect sentencing?
For purposes of debarment and suspension from government contracts, individuals and organizations are basically treated the same. However, for sentencing purposes, as mentioned previously, they are not. The few cases that are out there suggest that debarment or suspension does not form a sufficient basis for a downward departure for individuals at sentencing under the Sentencing Guidelines. 39
VII. What happens when a state follows up?
A number of governmental bodies are involved in an environmental crime investigation, including different levels of government. “[T]here may be competition for primary jurisdiction, both among federal and state enforcement personnel and between EPA and state regulators.” 40 In plea negotiations, you must remember that the federal prosecutor does not act with a “free hand” - the prosecutor “may need the concurrence of federal and state civil regulators on many of the cleanup terms that have critical cost implications.” 41
Additionally, pleading to or being convicted of an environmental crime can result in suspension or debarment from all state government contracts. Each state has the authority to suspend and debar companies from receiving future contracts and grants with the government. In the eyes of the government, the organization is not a responsible contractor if there is the taint of a criminal plea or conviction. Suspension and debarment can occur even if there is no conviction or plea - a criminal investigation can trigger a suspension and later debarment. Be sure to keep local state debarment and suspension regulations in mind in the plea negotiation, sentencing, and debarment/suspension negotiation process.
Many states also have state fines and sanctions for individuals or corporations who are found to have violated federal or state environmental regulations. For example, in Tennessee, an entity is subject to a $10,000.00 fine per day for each day that the act occurs. 42
FOR FURTHER READING:
Cooney, et al. “Criminal Enforcement of Environmental Laws: Part III - From Investigation to Sentencing and Beyond.” 25 E.L.R. 10600, 10614 (November, 1995).
Ilene H. Nagel & Winthrop M. Swenson, “The Federal Sentencing Guidelines for Corporations: Their Development, Theoretical Underpinnings, and Some Thoughts About Their Future”, 71 Wash. U. L.Q. 205, 256 (1993).
1 See generally U.S.S.G. §§ 2Q1.1-2Q1.6 (2000).
2 See U.S.S.G. § 2Q1.2, Application Note 4.
3 See U.S.S.G. § 2Q1.2, Application Notes 7-8.
4 Cooney, et al. “Criminal Enforcement of Environmental Laws: Part III - From Investigation to Sentencing and Beyond.” 25 E.L.R. 10600, 10621 (November, 1995) (citing U.S.S.G. §§ 3B1.1; 3C1.1, 3E1.1).
5 See U.S.S.G. § 8C2.1, background commentary .
6 Id .; U.S.S.G. § 8C2.10.
7 Id . (citing 33 U.S.C. §1368(a), 42 U.S.C. §706, 40 C.F.R. §15.11, 40 C.F.R. §15.12).
8 See 42 U.S.C. §7606(a).
9 42 U.S.C. § 7606; 1368(a).
10 33 U.S.C. § 1368; 42 U.S.C. § 7606.
11 Cooney, et al. “Criminal Enforcement of Environmental Laws: Part III - From Investigation to Sentencing and Beyond.” 25 E.L.R. 10600, 10626 (November, 1995).
12 Id .
13 See 41 U.S.C. § 253b(c); Executive Order 12549 (Feb. 18, 1986); Executive Order 12689 (Aug. 16, 1989); 40 C.F.R. § 32.115(a); 48 C.F.R. § 9.402(a).
14 48 C.F.R. § 9.406-1(b).
15 In the Matter of James Longenbach, Respondent Determination, EPA Case No. 95 0114 01, 1997 WL 1248808 (E.P.A. 1997) (citing 40 C.F.R. § 32.110(a); 48 C.F.R. §§ 9.400(a)(1) and 9.403).
16 Id . (citing 48 C.F.R. §§ 9.403 and 9.405(a)).
17 In the Matter of Thomas W. Mariani Respondent Determination , EPA Case No. 92 0034 01, 1995 WL 1212897 (E.P.A. 1995); see also In the Matter of George E. Washington Respondent Determination , EPA Case No. 96 0005 02, 1997 WL 1248801 (E.P.A. 1997) (finding that respondent was a potential participant in government programs and potential contractor in government contracts by virtue of his previous business experience and the wide range of government contracts and programs); In the Matter of James Traynor Spaulding Respondent Determination , EPA Case No. 93 0088 11, 1994 WL 1148098 (E.P.A. 1994) (“[G]iven his business expertise, it is reasonable to expect that Respondent may participate in a covered transaction directly, or as an agent or representative of business entity that is a participant. Furthermore, [Respondent] reasonably may be expected to conduct business with the Government as a contractor or an agent or representative of another contractor [because of his prior business experience in telemarketing]. Therefore, [Respondent] is a participant within the definition of 40 C.F.R. §32.105(m) and a contractor within the definition of 48 C.F.R. § 9.403).
18 40 C.F.R. § 32.100 (executive departments and agencies participate in a government-wide system for nonprocurement debarment and suspension and debarment or suspension of a participant by one agency shall have governmentwide effect); 40 C.F.R. § 32.105 (a party excluded from contracting with the government is also excluded from participating in government programs).
19 48 C.F.R. § 9.406-2(a)(5).
20 See 48 C.F.R. § 9.406-2(c); 40 C.F.R. § 32.305.
21 Seravalli and Brookchester, et al. , HUDBCA No. 84-952-DB, 1985 WL 17604 (HUDBCA 1985).
22 Id . (citing Schlesinger v. Gates , 249 F. 2d 111 (D.C. Cir. 1957), cert. denied, 355 U.S. 939 (1958); Stanko Packing Company, Inc. v. Bergland , 489 F. Supp. 927, 949 (D.C.C. 1980); 46 Comp. Gen. 651, 568-59 (1967).
23 Id .
24 See 48 C.F.R. § 9.406-1.
25 48 C.F.R. § 9.043.
26 See Seravalli , supra.
27 See 40 C.F.R. § 32.115.
28 See 40 C.F.R. § 32.215.
29 Id .
30 Id .
31 See 40 C.F.R. § 32.313.
32 See 40 C.F.R. § 32.320.
33 See 40 C.F.R. § 32.320.
34 Cooney, et al. “Criminal Enforcement of Environmental Laws: Part III - From Investigation to Sentencing and Beyond.” 25 E.L.R. 10600, 10627 (November, 1995).
35 See U.S.S.G. § 8C2.10, 8C2.1 (indicating that sentencing guidelines with respect to environmental crimes are inapplicable to organizations). Because the sentencing guidelines are not applicable to organizations, the sentencing court will have a significantly greater amount of discretion in determining the sentence, and debarment and/or suspension, particularly a debarment or suspension that will force an organization into bankruptcy, could be argued to be a mitigating factor for the court to consider in determining a fine pursuant to the statute.
36 See Holder, Eric J., Deputy Attorney General, “Federal Prosecutions of Corporations” June 16, 1999.
37 Id .
38 Id .
39 See United States v. Cowden Gravel & Ready Mix, Inc ., 33 F.3d 60, 1994 WL 441831, **1 (9th Cir. 1994) (holding that possible debarment is not an appropriate basis for a downward departure from the Sentencing Guidelines); United States v. Reilly , 33 F.3d 1396 (3rd Cir. 1994) (finding that possible debarment and suspension from government contracts and programs is not an appropriate basis for a downward departure from the Sentencing Guidelines); United States v. F.J. O'Hara & Sons, Inc ., 1991 WL 286175, *1 (finding that debarment from government contracts and programs does not serve as a basis for downward departure); contrast with United States v. Leon , 2 F.Supp. 2d 592, 595-96 (D.N.J. 1998) (finding that no downward departure for debarment and resultant bankruptcy is appropriate unless the defendant can somehow demonstrate that the debarment and bankruptcy resulting from the criminal conviction was atypical, or out of the ordinary in kind or degree).
40 Cooney, et al. “Criminal Enforcement of Environmental Laws: Part III - From Investigation to Sentencing and Beyond.” 25 E.L.R. 10600, 10614 (November, 1995).
41 Id . at 10619.
42 See T.C.A. §69-3-115.