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Chemical Firms' 'Small' Slip-Ups Can Lead to Big Problems, Attorney Cautions

October 5, 2010
The necessity of coping with a thicket of ever-changing regulations is common to many industries, but this task can be even more daunting for U.S. chemical companies. In the September 13 issue of Corporate Compliance Insights, an online knowledge-sharing forum for the corporate compliance community, veteran environmental attorney James A. Kosch draws on decades of experience to outline common mistakes that tend to land chemical firms in regulatory hot water.

In the article, “Top Five Corporate Compliance Challenges Facing Chemical Companies”, Kosch notes that well-intentioned companies often excel at rising to meet difficult, big-picture challenges, but then slip up by making “smaller” mistakes: for example, failing to comply with the fine print of state, local, or federal regulations, that can prove just as costly as a headline-grabbing fire or spill.

“Companies that actually do go above and beyond on protecting workers or reducing toxic emissions often pay a steep price for making what might seem like relatively insignificant compliance mistakes,” writes the attorney, a Newark, N.J.-based shareholder in LeClairRyan’s  Tort Defense Practice, and a director of the New Jersey State Bar Association’s environmental law section. “They might be sticklers for getting the right emissions permits, for example, but then fail to read the fine print on the permit obligations.”

For chemical industry executives charged with overseeing compliance, Kosch writes: “Life can seem like a bowl of acronyms. After all, much of their time is spent absorbed in meditations on the likes of TSCA (the Toxic Substances Control Act), EPCRA (the Emergency Planning and Community Right-to-Know Act), CERCLA (the Comprehensive Environmental Response, Compensation and Liability Act), FIFRA (the Federal Insecticide, Fungicide and Rodenticide Act), and RCRA (the Resource Conservation and Recovery Act).”

However, as important as it is to comply with the “spirit” of these manifold regulations -- by running a safe company that does the maximum to avoid spills and promote employee safety -— the “letter” of these regulations is no less important. And documentation mistakes, in particular, can lead to hefty fines of $1 million or more, Kosch says. “For chemical companies, maintaining accurate and compliant documentation deserves just as much attention as big-picture compliance goals like cutting emissions or running a safer workplace,” the attorney notes.

Other challenges outlined in the article include making sure employees at all levels actually follow stated company policies. This is particularly pressing in the chemical industry because of the technically complex and specific nature of the regulations, as well as the high stakes involved in compliance failures. “The favorite smoking gun of any plaintiff’s attorney is one that dramatically demonstrates a company’s failure to abide by its own stated policies,” Kosch writes.

In any effort to ensure that a company follows its own rules, internal communication is central. For example, at companies that have a risk-manager and an environmental health-and-safety officer, communication between these two executives must be clear and strong, the attorney advises. “Make sure they talk to one another frequently and are in the plant on a regular basis,” he writes. “They need to know what is going on in those facilities and be up-to-date on the requirements of both company policy and applicable regulations.”

In addition to offering tips on anticipating compliance-related trends, Kosch describes the growing trend for governments to make wide-reaching cleanup claims for urban rivers and other bodies of water polluted during the industrial age. “Suddenly, companies that thought they were no longer located along a body of water, or believed that all their waterfront assets had been sold, are being hauled in to account for pollution caused by their predecessor entities decades ago,” he writes. “In the most extreme examples, these cases date back to the Civil War.”

These cleanups tend to be staggeringly expensive, and implicated companies typically face huge liabilities for natural resource damage claims. “This is a ‘compliance’ challenge in the sense that companies with significant longevity must look far back into their histories and try to figure out when, where, and how they might have violated regulations that came into existence long after the deed was done,” Kosch writes.

Finally, the attorney outlines changes that are not specific to the chemical industry per se, but that should be on the radar screen of any executive charged with maintaining compliance. “The pace of change for modern corporations -—touching on everything from electronic discovery, to green building, to immigration, to the privacy and liability implications of employee use of social-networking sites like Twitter and Facebook -— has never been more frenetic,” he writes. “The seismic shifts now occurring in our society and business culture have far-reaching consequences for compliance, and a myopic ‘old school’ approach simply will not do.”

The full article is available by clicking here