1. OCTOBER 5, 2011 MAIN MEETING OF OZONE ACTION NETWORKS FROM LATIN AMERICA AND THE CARIBBEAN Staci Gatica gatica.staci@epa.gov U.S Licensing System & Enforcement Activity

2. 2 Presentation Topics Mechanics of U.S. Licensing System and Phaseout Focus on Imports Used vs. virgin ODS Petition process Collaboration to Identify Illegal Activity Enforcement of Regulations Recent Illegal Trade Other Types of Violations

3. US EPA Stratospheric Ozone Program Office Stratospheric Protection Division Immediate Office Stratospheric Program Implementation Branch Alternatives & Emissions Reductions Branch

4. U.S. Licensing System to Ensure Compliance Licenses (“allowances”) needed to produce or import bulk HCFCs Licenses (“allowances”) needed to produce or import bulk HCFCs “Baselines” established for individual companies effective in 2003 (production & consumption) “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 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 “Exemptions” needed for CFCs, MeBr and other phased-out ODS 4

5. 5 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 1 allowance = 1 kg of chemical

6. Trade of Allowances Allowances are tradable between companies and between chemicals Allowances are tradable between companies and between chemicals Trades allow new entrants into the HCFC market Trades allow new entrants into the HCFC market EPA must be notified of trade EPA must be notified of trade  EPA must process request within 3 days, or it happens automatically EPA notification is very important EPA notification is very important  EPA should at ALL times know what companies have allowances to import ODS 6

7. 7 Total Projected R-22 Servicing Demand & EPA’s 2010-2014 Initially Developed Allocations of HCFC-22 Projected Unmet Need for R-22 Implementation of HCFC Phaseout Next major milestone under Montreal Protocol: 90% HCFC reduction from 2003 baseline by 2015

8. 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 8

9. 9 Maintaining Tracking and Reporting Data Continuity Hard Copy Forms ODS Tracking System Data Summary Reports

10. 10 Recordkeeping & Reporting Requirements Found in 40 CFR part 82.13 and 82.24 Production, Import and Exports reported quarterly A 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 entities Stakeholder input is helpful to form development

11. Focus on Imports Virgin ODSUsed 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 Transformation 11

12. 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 12

13. Importing Virgin ODS CFCs Customs typically stops import of virgin CFCs  Call EPA on a case-by-case basis  Such imports are rare HCFCs EPA 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.S Customs 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 Customs EPA verifies against ODSTS Any illegal activity is referred to Office of Enforcement and Compliance Assistance – civil and criminal divisions 13

14. 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

15. 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) 15

16. Questions thus far? 16

17. 17 Enforcement of ODS Regulation Two 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) http://www.epa.gov/compliance/

18. Recent Case Studies on Illegal Trade Lateral 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 18

19. Recent Case Studies on Illegal Trade Harp 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

20. 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 20

21. 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 21

22. 22 Other Types of Violations Illegal trade (imports) is only one type of violation Other 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/

23. Questions? 23

24. Information on Alternatives http://www.epa.gov/ozone/intpol/mpagreement.html 24