US pipelines face increased criminal threat from heightened environmental scrutiny

The US Department of Justice has made it clear that the pipeline industry is the focus of increased attention from environmental enforcement authorities. The department's statements follow on the heels of new laws providing powerful new prosecution tools.

In this climate, pipeline owners and operators must understand the government's criminal enforcement program in order to minimize the chances that any company or its employees will face criminal investigation or prosecution.

The investigators

Four key federal agencies are involved in investigating environmental crimes:

1. The US Environmental Protection Agency's criminal investigation division.

2. The Federal Bureau of Investigation.

3. The Department of Transportation's Inspector General's office.

4. The US Coast Guard.

The investigative priorities of these federal agencies are similar. Each agency operates under the premise that violations causing significant environmental harm or placing individuals in danger of death or serious bodily injury should be considered as possible criminal cases.

In addition, following the events of Sept. 11, 2001, almost any major incident involving critical private infrastructure will be the subject of law enforcement scrutiny.

In general, for such incidents to develop into criminal investigations, this initial factor of "harm" must be coupled with "culpable conduct." This means existence of evidence of such factors as the following:

• A history of repeat violations.
• Deliberate behavior.
• Efforts to conceal.
• Tampering with monitoring devices.
• Activity such as false statements, obstruction, and the like.

The CSE agencies tend to focus their energies and resources on cases in which they see evidence of both environmental harm and culpable conduct.

Prosecutorial discretion

In choosing whether to pursue a criminal case against an individual, prosecutors consider a variety of factors, including:

• Whether there is sufficient evidence.
• Whether success at trial is likely.
• Whether a conviction would deter similar crimes or would rehabilitate the offender.
• Whether there are non-criminal approaches that would be adequate.

When deciding whether to prosecute a corporation for the acts of its employees, prosecutors weigh several additional factors, including:

• Whether the nature of the offense was serious and whether harm to the public was risked.
• Whether wrongdoing was pervasive within the corporation and whether corporate management was aware of or agreed to the wrongdoing.
• Whether there is a history of similar conduct by the corporation, including previous criminal, civil, and regulatory enforcement actions.
• Whether the corporation quickly and voluntarily disclosed the wrongdoing and showed a willingness to cooperate.
• Whether the company had a compliance program in place and whether that program was adequate.
• Whether the company took remedial actions, such as attempting to implement the compliance program or replacing or disciplining the wrongdoers.
• Whether innocent shareholders and employees would suffer disproportionately.

In January 2003, former Deputy Atty. Gen. Larry Thompson issued revised guidance for federal prosecutors, entitled "Principles of Federal Prosecution of Business Organizations."

The "Thompson Memo," as it has become known, states that even if the corporation is charged, corporate executives will not necessarily escape prosecution.

The memo pointed out that, because a corporation can act only through individuals, "imposition of individual criminal liability may provide the strongest deterrent against future corporate wrongdoing." Even when the corporation offers up guilty pleas, the memo directs that prosecutors should pursue any "provable individual culpability."

These factors provide insight into the process by which prosecutors and defense counsel can evaluate the potential criminal exposure of an individual or a company. When criminal prosecution is unavoidable, however, the company's response can factor significantly in the government's choice of criminal charges.

Thus, any company facing the possibility of criminal sanctions is well advised to seek the counsel of attorneys familiar with the criminal prosecution process and who may be best able to understand what charging and sentencing options may be available.

State of mind

It is important to understand the level of proof required in most environmental criminal cases.

The government must prove, beyond a reasonable doubt, all of the facts that constitute the violation, such as a discharge to US waters in violation of a Clean Water Act permit.

In addition, to convict on an environmental felony prosecution, the government must prove, again beyond a reasonable doubt, that the defendant acted "knowingly"—that is, that the defendant acted voluntarily and intentionally and that the violation was not the result of an accident or mistake of fact.

It is not, however, necessary for the government to prove that the defendant knew the conduct was unlawful or that the defendant knew about the particular statute, regulation, or even permit condition making the conduct unlawful.

Rather, the government must prove only that the defendant had knowledge of the conduct.

For example, under the Clean Water Act, a person may be convicted of a felony violation if the government proves that he or she acted volitionally, not by mistake or accident.

Mistake of law, such as misunderstanding what the law allows or prohibits, is no defense.

• Clean Water Act criminal negligence. The Clean Water Act makes certain acts a crime if committed negligently. The potential reach of this criminal negligence provision is extremely broad.

For example, violation of a national pollutant discharge elimination system permit or spill of a pollutant into US waters attributable to negligent operation, training, or supervision, may be considered as a basis for a negligence criminal prosecution.

The first federal court of appeals decision that affirmed the use of a "simple" negligence standard in a criminal Clean Water Act prosecution was the Ninth Circuit's 1999 ruling in United States v. Hanousek.

There, the court held that the government may convict upon proof that the person failed to act with the reasonable care of an ordinary person under similar circumstances. The court rejected arguments that the standard should be "gross" or "criminal" negligence.

Under this simple negligence theory, criminal liability may arise from the failure of a corporate official or manager to do what a reasonably prudent and careful manager would do under similar circumstances.

In the environmental context, this can include a manager's failure to take reasonable precautions to prevent a violation from occurring by the actions of subordinates.

The court's reasoning in Hanousek thus raises the concern that the simple negligence standard could be used by prosecutors to hold corporate officials and managers criminally negligent by virtue of their status as supervisors—without regard to their knowledge of, or causal role in, an environmental violation.

An individual can also be prosecuted for a felony violation of the Clean Water Act as a "responsible corporate officer."

In the felony context, the responsible corporate officer doctrine means that, if a corporate official knows the facts constituting the offense and has the authority to take action that would prevent a violation, then that individual can be held criminally liable for his or her failure to act.

The doctrine dispenses with the need to prove that the defendant committed an affirmative criminal act.

The government need only prove that the defendant had "authority to exercise control over the corporation's activity that is causing" the violation and that the defendant knew of the activity that constitutes the violation.

Hazardous Liquid Pipeline Safety Act. During the recent prosecution against Olympic Pipe Line Co., Bellingham, Wash., the government obtained a guilty plea in which it was agreed that the relevant standard of intent for a conviction under the Hazardous Liquid Pipeline Safety Act is a "willful" standard. Courts generally hold that a person acts "willfully" if he or she acts intentionally to disobey or disregard the law.

In such a case, the government still need not prove that a person is aware of the specific law he or she is alleged to have violated.

In contrast to the "knowing" standard, however, to convict under a "willful" standard the government must prove that the defendant acted with the intent to do something that the law forbids.

Sarbanes-Oxley

Passed in July 2002, the Sarbanes-Oxley Act is most often considered a securities law. But parts of Sarbanes-Oxley extend to all federal violations and they dramatically expand the scope of conduct covered by federal criminal law.

These provisions should heighten concern about a range of issues, including compliance programs and records retention.

Sarbanes-Oxley provides powerful new tools for all criminal cases.

One of those tools is a new obstruction-of-justice provision,which makes it a crime to destroy or falsify records or make a false entry in a record. Before Sarbanes-Oxley, a prosecutor could only charge an individual or corporation for obstruction if there were an "official proceeding" at the time of destruction of the evidence.

Now, if a person destroys records—even if the destruction is part of a legitimate records-retention program—and that person "contemplated" that there might be an "official proceeding" in the future, then the act may be treated as a crime.

Sarbanes-Oxley also created a whistleblower-protection provision, making it a felony offense if any person retaliates (by "interference with ... lawful employment or livelihood") against someone for providing information relating to the commission or possible commission of any federal offense.

In many environmental criminal cases, prosecutors include charges for false statements and obstruction of justice.

They do so because they believe such charges give cases the "badge of criminality" that is not present when only environmental charges are made.

Sentencing

The US Sentencing Commission issues sentencing guidelines that determine the sentences imposed in federal criminal cases. Because, by statute, the commission's guidelines become law unless the US Congress passes a law to reverse them, Supreme Court Justice Antonin Scalia referred to the Sentencing Commission as a "junior varsity Congress."

The seven commissioners are appointed by the president, confirmed by the US Senate, and serve 6-year terms. At least three must be members of the judiciary; no four may be of the same political party.

Early in a case, prosecutors will scrutinize the sentencing guidelines to determine what a case is "worth" in terms of the available sanctions and what kind of evidence would lead to greater sanctions.

In the view of the government, stiffer penalties for business crimes increase the potential that prosecutions will deter future misconduct; that potential makes it more likely that prosecutors will invest the time and resources needed to pursue these cases.

These penalty enhancements can also affect settlement discussions by increasing the government's ability to obtain various conditions as part of any resolution of government investigations.

Currently, the commission is considering changes to the guidelines that affect the sentencing of businesses.

In an October 2003 report, an ad hoc advisory group to the commission recommended that it provide far more guidance as to what constitutes an "effective program to prevent and detect violations of law."

For example, the advisory group recommended that the commission require, as an essential element of an effective compliance program, that a company provide a means for employees to report possible violations of law without fear of retaliation.

The sentencing in the Olympic Pipe Line case earlier this year well illustrates the consequences when environmental laws are violated. There, in sentencing a manager of the pipeline, the judge acknowledged that the defendant's intentions were good and that he clearly didn't intend for the incident to occur.

Nonetheless, the judge found it appropriate to sentence the defendant to time in prison, "to put closure" to the matter in which three people died.

In today's environmental enforcement climate, challenges lie ahead for the pipeline industry, as agencies have focused their resources on pipelines and prosecutors have been handed new tools. Under the sentencing guidelines, courts have limited discretion in sentencing, and the results are serious.