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entitled 'Environmental Liabilities: Hardrock Mining Cleanup 
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Testimony: 

Before the Committee on Environment and Public Works, U.S. Senate: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 9:30 a.m. EDT: 

Wednesday, June 14, 2006: 

Environmental Liabilities: 

Hardrock Mining Cleanup Obligations: 

Statement for the Record by John B. Stephenson, Director: 
Natural Resources and Environment: 

GAO-06-884T: 

GAO Highlights: 

Highlights of GAO-06-884T, a report to the Committee on Environment and 
Public Works, U.S. Senate. 

Why GAO Did This Study: 

Key federal environmental statutes, such as the Resource Conservation 
and Recovery Act (RCRA) and the Comprehensive Environmental Response, 
Compensation, and Liability Act (CERCLA), which established the 
Superfund program, require that parties statutorily responsible for 
pollution bear the cost of cleaning up contaminated sites. In many 
cases, liable parties meet their cleanup responsibilities. However, 
many parties responsible for hardrock mining sites include businesses 
that no longer exist, having been liquidated through bankruptcy or 
otherwise dissolved. Under these circumstances, some hardrock mining 
companies that have caused environmental contamination have left the 
problem for others, typically the government, to address. 

We were asked to provide a statement for the record on the cleanup of 
contamination resulting from hardrock mining as it relates to our 
August 2005 report, Environmental Liabilities: EPA Should Do More to 
Ensure that Liable Parties Meet Their Cleanup Obligations (GAO-05-658). 
We made nine recommendations in this report aimed at reducing the 
government’s financial burden for costly environmental cleanups. The 
agency generally agreed with many of the recommendations, stating its 
intent to further evaluate some of them. 

What GAO Found: 

EPA could better ensure that companies at high risk of incurring 
environmental liabilities—including hardrock mining companies—meet 
their cleanup obligations by making greater use of existing 
authorities. Most significantly, EPA has not implemented a 1980 
statutory mandate under Superfund to require businesses handling 
hazardous substances to provide the agency evidence of their ability to 
pay to clean up contamination that could result from their operations. 
Businesses can provide this evidence, called financial assurance, in 
several ways, including providing a letter of credit from a financial 
institution and establishing a dedicated trust fund. The 1980 law 
requires EPA to use a risk-based approach for both (1) identifying the 
entities that would be covered and (2) specifying the financial 
assurance coverage they would be required to have. The law also 
requires EPA to give priority in developing these requirements to those 
classes of facilities, owners, and operators that EPA believes present 
the highest level of risk of injury. Although implementing the 
financial assurance requirement could help avoid the creation of 
additional Superfund sites and could provide funds to help pay for 
cleanups, EPA has cited competing priorities and lack of funds, among 
other things, as reasons for having made no progress in this area for 
nearly 25 years. Without the mandated financial assurance regulations, 
significant gaps in EPA’s environmental financial assurance coverage 
exist, thereby increasing the risk that taxpayers will eventually have 
to assume financial responsibility for cleanup costs. For example, none 
of EPA’s current financial assurance regulations require companies or 
industries that pose significant risk of environmental contamination to 
provide assurance that they can meet cleanup obligations for potential 
accidents or spills of hazardous substances or wastes. 

Hardrock mining can cause significant environmental problems; 
these sites are typically large, complex, and costly to clean up. For 
example, in 2004, the EPA Inspector General estimated that cleaning up 
63 mining sites on the Superfund’s National Priorities List would cost 
up to $7.8 billion. In applying the Superfund law’s risk-based approach 
for developing financial assurance requirements, EPA may want to 
consider hardrock mining—for example, gold, copper, and iron ore 
mining—a high priority because it presents taxpayers with an especially 
serious risk of having to pay cleanup costs for thousands of abandoned, 
inactive, and operating mines in the United States. Some mine owners 
have defaulted on multiple occasions on environmental liabilities 
associated with their mines, and the cleanup costs for these sites are 
being, or are expected to be, borne largely by taxpayers. As a result, 
EPA may wish to give priority in developing financial assurance 
requirements to facility owners whose prior actions indicate that they 
may pose a high risk of default on their environmental obligations. 
Finally, financial assurances for businesses at risk for environmental 
contamination can help mitigate the fact that businesses can legally 
organize or restructure in ways that can limit their future 
expenditures for cleanups by, for example, separating their assets from 
their liabilities using subsidiaries to protect their assets. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-884T]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact John B. Stephenson at 
(202) 512-3841 or stephensonj@gao.gov. 

[End of Section] 

Mr. Chairman and Members of the Committee: 

We are pleased to have the opportunity to comment on the cleanup of 
contamination resulting from hardrock mining as it relates to our work 
on environmental liability issues. Key federal environmental statutes, 
such as the Resource Conservation and Recovery Act (RCRA) and the 
Comprehensive Environmental Response, Compensation, and Liability Act 
(CERCLA),[Footnote 1] which established the Superfund program, require 
that parties statutorily responsible for pollution bear the cost of 
cleaning up contaminated sites.[Footnote 2] In many cases, liable 
parties have met their cleanup responsibilities. However, many parties 
responsible for hardrock mining sites include businesses that no longer 
exist, having been liquidated through bankruptcy or otherwise 
dissolved. Under these circumstances, some hardrock mining companies 
that have caused environmental contamination have left the problem for 
others, typically the government, to address. 

As the Committee considers legislation that would waive certain cleanup 
requirements for such parties as industry partners and nonprofit 
organizations who agree to clean up contaminated hardrock mining sites 
abandoned by their owners, it is also appropriate to consider other 
actions the government can take to better ensure that companies with a 
high risk for incurring environmental liabilities--including hardrock 
mining companies--meet their cleanup obligations. As detailed in our 
2005 report on environmental liabilities, the Environmental Protection 
Agency (EPA) could better ensure that bankrupt and other financially 
distressed businesses carry out their cleanup responsibilities by 
making greater use of EPA's existing authorities and enforcement 
tools.[Footnote 3] 

Most significantly, EPA has not implemented a 1980 statutory mandate 
under Superfund to require businesses handling hazardous substances to 
provide the agency evidence of their ability to pay to clean up 
potential spills or other environmental contamination that could result 
from their operations. Businesses can provide this evidence, called 
financial assurance, in several ways, including providing a letter of 
credit from a financial institution and establishing a dedicated trust 
fund. The 1980 law requires EPA to use a risk-based approach for both 
(1) identifying the entities that would be covered and (2) specifying 
the financial assurance coverage they would be required to have. The 
law also requires EPA to give priority in developing these requirements 
to those classes of facilities, owners, and operators that EPA believes 
present the highest level of risk of injury. Although implementing the 
financial assurance requirement could help avoid the creation of 
additional Superfund sites and could provide funds to help pay for 
cleanups, EPA has cited competing priorities and lack of funds, among 
other things, as reasons for having made no progress in this area for 
nearly 25 years. 

As we noted in our 2005 report, in applying the Superfund law's risk- 
based approach for developing financial assurance requirements, EPA may 
want to consider hardrock mining--for example, gold, copper, and iron 
ore mining--a high priority because history tells us that it presents 
taxpayers with an especially serious risk of having to pay cleanup 
costs for thousands of abandoned, inactive, and operating mines in the 
United States. As detailed in a 2004 report by EPA's Office of 
Inspector General, hardrock mining can cause significant environmental 
problems, and these sites are typically large, complex, and costly to 
clean up.[Footnote 4] According to the EPA IG report, 63 hardrock 
mining sites were on the Superfund's National Priority List (NPL) and 
another 93 sites had the potential to be added to the list. At least 19 
of the 63 NPL mining sites had estimated cleanup costs of $50 million 
or more. In total, the 63 sites were estimated to cost up to $7.8 
billion to clean up, $2.4 billion of which was expected to be borne by 
taxpayers rather than the parties responsible for the contamination. 
The IG report also highlighted the fact that the projected operation 
and maintenance period for cleanup remedies ranges from 40 years to "in 
perpetuity." Thus, the costs to taxpayers would increase if the liable 
parties expected to pay for the cleanup remedies proved to be unable to 
do so.[Footnote 5] 

Further, we reported in 2005 that some mine owners have defaulted on 
multiple occasions on environmental liabilities associated with their 
mines, and the cleanup costs for these sites are being, or are expected 
to be, borne largely by taxpayers. These owners may reasonably be 
viewed as at high risk for defaulting on environmental obligations 
associated with mines or businesses that they currently own. For 
example, one individual is associated with several businesses that have 
filed for bankruptcy protection. Like other mine owners with serial 
bankruptcies involving contaminated mining sites, this owner continues 
to operate businesses having sites with significant contamination whose 
cleanup may eventually fall to the Superfund. If EPA developed and 
implemented the financial assurance regulations that the Superfund law 
mandates, EPA could require such owners to provide financial assurances 
now for existing and future cleanups, thereby reducing the amount that 
taxpayers would otherwise likely be required to pay. 

However, without the mandated financial assurance regulations, 
significant gaps in EPA's environmental financial assurance coverage 
exist, thereby increasing the risk that taxpayers will eventually have 
to assume financial responsibility for cleanup costs. First, none of 
EPA's current financial assurance regulations require companies or 
industries that pose significant risk of environmental contamination to 
provide assurance that they can meet cleanup obligations associated 
with potential accidents or spills of hazardous substances or wastes. 
For example, when EPA reaches settlement agreements with parties 
regarding cleaning up existing Superfund sites, the agency generally 
requires the businesses to provide financial assurance demonstrating 
their ability to pay for the agreed-upon cleanup activities. Similarly, 
under RCRA's corrective action program, EPA typically requires that 
owners and operators of hazardous waste treatment, storage, and 
disposal facilities provide financial assurance for cleanups of spills 
or other existing contamination at hazardous waste facilities.[Footnote 
6] 

Another significant gap in financial assurance coverage that the 
Superfund mandate could address involves types of waste excluded from 
RCRA coverage. Some types of wastes associated with mining activities 
can result in substantial cleanup costs but are excluded from the 
definition of hazardous wastes and therefore are not regulated under 
RCRA's hazardous waste provisions. This exclusion has resulted in a 
significant gap in financial assurance. In addition, we note that 
mining activities on private lands are not covered by the Department of 
the Interior's Bureau of Land Management financial assurance 
requirements for mines on federal land it manages.[Footnote 7] However, 
some of these mining facilities handle hazardous substances as defined 
under the Superfund law, and, therefore, financial assurance 
regulations issued under the Superfund law could apply to these 
facilities. The Superfund financial assurance mandate could also 
address the significant gap in financial assurance that exists because 
generators of hazardous waste (such as metal-plating facilities), which 
are regulated under RCRA, are generally not required to maintain any 
financial assurances for contamination they have caused. 

By its inaction on the Superfund mandate to require businesses to 
provide financial assurance, EPA has continued to expose the Superfund 
program, and ultimately the U.S. taxpayers, to potentially billions of 
dollars in cleanup costs for facilities that currently are not required 
to have financial assurances for cleanup costs, such as many gold, 
lead, and other hardrock mining sites and metal-plating facilities. By 
implementing the financial assurance requirement under Superfund. EPA 
could help close the financial assurance gaps discussed above by 
requiring financial assurances for cleaning up existing and future 
contamination at facilities that handle hazardous substances but are 
not subject to RCRA's closure/post-closure or corrective action 
programs, including many mining sites and facilities that generate, but 
do not treat, store, or dispose of hazardous waste. These financial 
assurance gaps may be more significant since the authority for an 
environmental tax on corporations, crude oil, and certain chemicals, 
that had largely funded the Superfund program expired in 1995. As a 
result, the federal government's general appropriations fund is 
increasingly being tapped to fund the cleanups paid for by the 
Superfund trust fund when responsible parties do not. For example, for 
fiscal year 2004, EPA's appropriation for the Superfund program was 
from general revenues only. 

As we noted in our 2005 report, EPA may wish to give priority in 
developing financial assurance requirements to facility owners whose 
prior actions indicate that they may pose a high risk of default on 
their environmental obligations. Factors EPA may wish to consider in 
evaluating owner risk include compliance history--such as a history of 
noncompliance with environmental laws, including cleanup obligations, 
and magnitude of past, current, and potential environmental 
liabilities. 

Finally, financial assurances for businesses at risk for environmental 
contamination can help mitigate the fact that businesses can legally 
organize or restructure in ways that can limit their future 
expenditures for cleanups by, for example, separating their assets from 
their liabilities using subsidiaries. A subsidiary that is engaged in a 
business that is at risk of incurring substantial liability, such as 
mining or chemical manufacturing, can protect its assets by 
transferring the most valuable ones--such as equipment and patents--to 
a related entity, such as the parent or other subsidiary engaged in 
less risky endeavors. The high-risk subsidiary can continue to use the 
transferred assets, as appropriate, by leasing or renting them. It has 
become common practice for experts in asset protection to recommend 
that corporations protect their assets in this way. A goal is to 
continually draw down on the subsidiary's remaining assets, such as 
cash from the sale of equipment, to pay operating expenses, including 
rental and lease payments and salaries. If a liability arises, the high-
risk subsidiary's remaining assets may be reached--but generally not 
those of the parent corporation or other subsidiaries to which assets 
were transferred. 

While these asset protection strategies are generally legal depending 
on the circumstances, it is generally unlawful to transfer assets with 
the intent to hinder or defraud creditors. Most states have laws that 
contain prohibitions on fraudulent transfers. Creditors generally must 
seek to invalidate such transfers within 4 years of their occurrence. 
Perhaps for these reasons, publications by financial and legal advisors 
have suggested that asset transfers be implemented in stages over time 
to avoid calling attention to them. The use of such strategies by 
parties liable for environmental cleanups presents a significant 
challenge to EPA in obtaining cleanup costs because it is hard for the 
agency to know about such transfers, much less obtain sufficient 
information to successfully challenge them within the time permitted by 
law. Further, because businesses typically are aware of Superfund 
liabilities for many years before they actually have to fund the 
cleanups, they have ample time to reorganize and structure themselves 
in ways that can limit the expenditures they may be required to make in 
the future. 

In closing, these are issues we believe the committee should consider 
in evaluating legislation to encourage the cleanup of contaminated 
hardrock mining sites. Our report on environmental liabilities 
identifies several ways EPA can and should protect its financial 
interests, including implementing the mandate in the Superfund law to 
require businesses at risk of environmental contamination to provide 
financial assurance that it can clean up any spills or contamination 
that might occur in the future. 

GAO Contact and Staff Acknowledgments: 

For further information on this statement,please contact John 
Stephenson at (202) 512-3841 or stephensonj@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this statement. Individuals who contributed to this 
statement include Nancy Crothers, Christine Fishkin, Richard P. 
Johnson, Ches Joy, and Susan Swearingen. 

FOOTNOTES 

[1] For simplicity in this testimony, the Comprehensive Environmental 
Response, Compensation, and Liability Act of 1980 will generally be 
referred to as the Superfund law. 

[2] The Superfund law generally applies to cleanups of contaminated 
sites that are no longer in use. RCRA generally applies to operating 
businesses that treat, store, or dispose of hazardous wastes. 

[3] Environmental Liabilities: EPA Should Do More to Ensure that Liable 
Parties Meet Their Cleanup Obligations, GAO-05-658, Aug. 17. 2005. 

[4] EPA, Office of Inspector General, Nationwide Identification of 
Hardrock Mining Sites, 2004-P-00005 (Washington, D.C.: Mar. 31, 2004). 

[5] The EPA Inspector General reported that at least one "clearly 
viable" party had been identified for 70 percent of the 63 NPL mining 
sites (including 11 percent where the viable party was a federal 
agency, such as the Department of the Interior). However, the report 
also emphasized that EPA should be concerned about the viability of 
these parties over time because of the long-term nature of the cleanups 
liabilities at mines. 

[6] RCRA's closure and post-closure financial assurances cover normal 
costs of closing and conducting post-closure care but do not cover 
cleanups stemming from accidental releases. 

[7] Our report Hardrock Mining: BLM Needs to Better Manage Financial 
Assurances to Guarantee Coverage of Reclamation Costs, GAO-05-377 
(Washington, D.D.: June 20, 2005) recommends ways for BLM to better 
manage financial assurances it requires of operators to guarantee 
reclamation costs if they fail to reclaim BLM-managed lands after 
operations cease. 

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