O C T O B E R 5 , 2 0 1 1M A I N M E E T I N G O F O Z O N E A C T I O N N E T W O R K S F R O M

L AT I N A M E R I C A A N D T H E C A R I B B E A N

Stac i G a t i ca ga t i ca . s t ac i@epa .gov

U.S Licensing System&

Enforcement Activity

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Presentation Topics

Mechanics of U.S. Licensing System and Phaseout

Focus on ImportsUsed vs. virgin ODSPetition process

Collaboration to Identify Illegal Activity

Enforcement of RegulationsRecent Illegal TradeOther Types of Violations

US EPA Stratospheric Ozone Program Office

U.S. Licensing System to Ensure Compliance

Licenses (“allowances”) needed to produce or import bulk HCFCs

“Baselines” established for individual companies effective in 2003 (production & consumption) Baselines based on historical consumption data of each

company Goal: Avoid disruption of existing market

Current phaseout approach: Baseline allowances reduced proportionately via regulation to implement and domestic regulations and Protocol goals Also a “worst first” phaseout approach

“Exemptions” needed for CFCs, MeBr and other phased-out ODS 4

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HCFC Allowance Expenditure

Production Allowances

Consumption Allowances

Domestic Production =

1 consumption +

1 production allowance for

each kg produced in U.S.

Import =

1 consumption allowance for

each kg imported in the U.S.

• 1 allowance = 1 kg of chemical

Trade of Allowances

Allowances are tradable between companies and between chemicals

Trades allow new entrants into the HCFC market

EPA must be notified of trade EPA must process request within 3 days, or it

happens automatically

EPA notification is very important EPA should at ALL times know what companies

have allowances to import ODS

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Total Projected R-22 Servicing Demand & EPA’s 2010-2014 Initially Developed Allocations of HCFC-22

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

HC

FC

-22 (

MT

)

Recovered R-22 Needed to SatisfyRemainder of Service Demand

R-22 Allocation Amount

Total R-22 Service Demand U.S. HCFC Consumption Cap

Projected Unmet Need for R-22

Implementation of HCFC Phaseout

Next major milestone under Montreal Protocol: 90% HCFC reduction from 2003 baseline by 2015

ODS Tracking System (ODSTS)

Collect CBI data from about 80 companies ODSTS contains significant data from reports (i.e., producer,

importer, exporter, destruction, transformation, etc.) Electronic templates for major reports The ODSTS tracks allowances to ensure compliance under

Protocol Balance statements (per transaction) All trades contained in the system

ODSTS analyzes data and produces reports (i.e., Article 7 for UNEP)

HARD COPY FORMS

Ozone Depleting Substance Tracking System (ODSTS)

Data Summary Reports

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Maintaining Tracking and Reporting

Data Continuity

Hard Copy Forms

ODSTracking SystemData Summary Reports

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Recordkeeping & Reporting Requirements

Found in 40 CFR part 82.13 and 82.24Production, Import and Exports reported

quarterlyA variety of other forms exist (i.e., destruction)

25+ reporting forms (http://www.epa.gov/ozone/record) Class I Class II Methyl Bromide

Reporting forms are always changing as regulations change due to phaseout

Guidance for reporting entitiesStakeholder input is helpful to form development

Focus on Imports

Virgin ODS Used ODS

For Use

-Consumption Allowances -Exemption Allowances Trades of Allowances tracked by EPA

-Petition to EPA-Non-objection Letter

NOL must accompany shipment through customs

For Destruction or

Transformation

-No need for Allowances-No pre-notification

SPD typically receives voluntary notification for phased out ODS (i.e., CFC)

-Petition to EPA for material being destroyed-NOL or Acknowledgement Letter

* N/A for Transformation11

Importing Used ODS – Petition Process

• Import petition required for shipments over 5 pounds

Petition contains a number of informational elements Purpose: to help EPA determine that the material is in fact, used

• Petition must be submitted to EPA at least 40 before shipment is to leave port of export

• EPA will investigate source information

• EPA mails or faxes either an objection (non-approval) or non-objection (approval) letter to petitioner

• Petition and non-objection letter must accompany shipment through U.S. Customs

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Importing Virgin ODSCFCsCustoms typically stops import of virgin CFCs

Call EPA on a case-by-case basis Such imports are rare

HCFCsEPA worked with Customs to put a criteria hit into

their Automated Commercial System (ACS) database- A comprehensive system that tracks, controls, and processes

commercial goods imported into the U.SCustoms is told to contact EPA to confirm import of

HCFCs into the U.S.EPA is available 24-hour via cell phone to work with

CustomsEPA verifies against ODSTSAny illegal activity is referred to Office of Enforcement

and Compliance Assistance – civil and criminal divisions 13

Customs/EPA Process to Combat Illegal Trade

STOP!Customs Inspector stops shipment because of HTS

criteria hit

Customs Inspector calls EPA to check on clearance

EPA checks whether shipment is legal

EPA calls Customs to clear shipment for import

or ask them to seize it 14

Sharing Information & Intelligence Network!

Customs and Border Protection specific training and conferences

Joint EPA/Criminal Investigation Division and CBP “sting” operation

EPA bi-annual regional conference

Communicate! EPA holds monthly conference calls with our Regional EPA

contacts on enforcement issues Quarterly information exchange with stakeholders (i.e.,

Alliance) to get “tips” in illegal activity

Leverage Resources! Work with our Office of Enforcement and Compliance here at

EPA to get access to Customs and Border Protection import entry data to analyze against our ODSTS (ODS tracking system)

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Questions thus far?

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Enforcement of ODS RegulationTwo general types of enforcement actions

Civil and criminal- Criminal – must show intent by defendant to break the law

Ultimate penalties vary – fines, community service, probation, imprisonment

The Stratospheric Protection Division (SPD) “Program office” does not enforce regulations

EPA’s Office of Enforcement and Compliance Assistance (OECA) have enforcement authority over our regulations

Great coordination between SPD and OECA Mindset – always aim to maintain that coordination Try to prepare for rise in illegal activity Details of investigation are maintained in OECA

Intelligence gathered via research, tips, inspections and online reporting, international collaboration http://www.epa.gov/compliance/ (click on the badge in the corner)

Recent Case Studies on Illegal TradeLateral Investments On July 29, 2011, Brendan Clery was sentenced to 18 months in prison

for illegally importing HCFC-22, contrary to the provisions of the Clean Air Act (CAA). In addition, he was ordered to pay a $40,000 criminal fine and forfeit illegal proceeds in the amount of $935,240. Between June and August 2007, Clery illegally smuggled into the United States approximately 278,256 kilograms, or 20,460 cylinders, of restricted HCFC-22, with a market value of $1,438,270. At no time did Clery or his company Lateral Investments hold unexpended consumption allowances that would have allowed them to legally import the refrigerant.

Facts about the case: Cleary created import business in Florida with intent to import

illegal refrigerant, among other items The product came from China This case of part of a larger criminal investigation known as

“Operation Catch-22” Investigation team: Environmental Protection Agency, U.S.

Immigration and Customs Enforcement, and the Florida Department of Environmental Protection, Criminal Investigation Bureau, and prosecuted by special assistant U. S. Attorney Jodi A. Mazer

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Recent Case Studies on Illegal TradeHarp USA, Inc. On February 11, 2011, Harp USA Inc. (Harp), a Florida corporation, pled guilty

and was sentenced today in connection with false statements made in entry documents for the importation of used HCFC-22 refrigerant. Harp’s plea included admittance to importing approximately 1,874 cylinders (approx 25,000 kg) into the U.S. using false invoices and statements resulting in three years of probation and a $206,140 criminal fine. Harp was also ordered to perform community service by making a $25,000 payment to the Southern Environmental Enforcement Training Fund, a not-for-profit training organization. In addition, as a special condition of probation, Harp was ordered to implement and enforce an Environmental Compliance Plan and to reimburse the government for costs associated with the storage and handling of the merchandise.

Facts about the case: The product came from the UK – claimed refrigerant was used The petition that was submitted to EPA was reviewed and a “non objection

letter” provided Upon further review and before the shipment arrived, EPA realized the

petition contained false statements EPA regulations (82.24(c)(4)(vi) state that if new information is found after a

non-objection letter is provided that indicate false information, then EPA can take enforcment action

Investigation team: Environmental Protection Agency, U.S. Immigration and Customs Enforcement, and the Florida Department of Environmental Protection, Criminal Investigation Bureau, Miami-Dade Police Department and prosecuted by special assistant U. S. Attorney Jodi A. Mazer

This is the US’s first prosecution for false statements contained in a petition to import used ODS 19

Recent Case Studies on Illegal Trade

Correa, Falcon, Nova, and Urena On October 20, 2010, John Correa, Abdiel Falcon, Charles Nova, and

Blasdimir Urena each pled guilty to the felony charge of violating 18 USC 545 for importing merchandise (23,079 kg of HCFC-22 with a FMV of approximately $257,944) contrary to the CAA in that they did not hold unexpended consumption allowances. Sentencing for all 4 defendants was scheduled for December 29, 2010. Results: 1-5 years of probation, storage and destruction fees.

Facts about the case: The HCFC-22 was Chinese manufactured The HCFC-22 was sent to the DR - we do not know if the import was

legal or illegal. We do not know how it got to the DR. We know the defendants “learned the smuggle scheme” from

someone; we do not know who taught them. Investigation team: Environmental Protection Agency, U.S.

Immigration and Customs Enforcement, and the Florida Department of Environmental Protection, Criminal Investigation Bureau, and prosecuted by special assistant U. S. Attorney Jodi A. Mazer

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Recent Case Studies on Illegal Trade

Kroy Corporation and James Garrido On February 11, 2010 James Garrido and Kroy Corporation were each

sentenced today by U.S. District Court Judge Patricia A. Seitz. Garrido was sentenced to 30 months’ imprisonment, to be followed by three years of supervised release. Kroy Corporation was sentenced to five years of probation. Additionally, Garrido and Kroy were sentenced, jointly and severally, to pay a criminal fine of $40,000, and were further ordered to forfeit $1,356,160 to the United States.

Facts about the case: The HCFC- was produced in China The HCFC-22 was sent to the Dominican Republic (DR) - we do not

know if the import into DR was legal or illegal The shipment was not defined as a transshipment

Multi-Agency team received a 2010 U.S. EPA Montreal Protocol Award Team: EPA Region 4, Department of Homeland Security, Department of Justice

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Other Types of ViolationsIllegal trade (imports) is only one type of

violationOther types include improper management of

ODS: Venting Improper disposal techniques Servicing by a technician without certification from an

approved certification program Selling ODS to uncertified technician Failure to repair leaks Tax evasion (CFC tax)

http://www.epa.gov/ozone/enforce/

Questions?

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Information on Alternativeshttp://www.epa.gov/ozone/intpol/mpagreement.html

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