Dont Buy Compliance Trouble

Sept. 17, 2007
A: Many civil penalty cases I am asked to defend involve companies or product lines that have been acquired, and that are regulated by the US Department

A: Many civil penalty cases I am asked to defend involve companies or product lines that have been acquired, and that are regulated by the US Department of Transportation (DOT). Problems arise when there has been inadequate preparation and integration into the acquiring company’s compliance program, resulting in an illegal shipment.

The most common flaw is that the deal is closed before the acquiring company’s hazmat people have had a chance to get involved. The time for environmental, health, and safety review is before the price of the transaction is set, not after it is concluded.

Healthy skepticism is appropriate in conducting regulatory due diligence. Do not assume the selling company’s Material Safety Data Sheets (MSDS) or hazmat transportation practices have been correct. My suggestion is to look broadly at their hazmat program first. This includes review of who is in charge of that function, how they have made initial determinations of regulated status of a product, its proper classification, and division or product group.

Look to see how the company has met their “hazmat employee” training requirements. Look at their initial training, including security awareness, and periodic re-training. If you are acquiring these people as well as the product line, you may need to get them into training programs before they can work for you. Determine whether their training has been limited in scope by mode of transportation or geographic area. If you intend to ship the acquired products by air, and the seller never prepared for that eventuality, then all of their hazmat regulatory decisions will require thorough re-examination.

See how they chose shipping descriptions based on technical classification information, and whether these decisions too may have been limited by their geographic scope (e.g., US only), or transport mode (e.g., ground only).

If the classes and shipping descriptions are credible, then look at how they selected packaging compatible with and suitable for the products. Are they using proper UN or DOT specification packaging. Confirm that they have the test reports, closure instructions, and other records supporting those packaging choices. If the products will be shipped by air, confirm they have data supporting their conclusion that the packaging will withstand the pressure-differential, temperature, closure-securement, and vibration characteristics inherent in the air mode. If their products are in reusable packaging such as tanks, check their periodic maintenance and re-test compliance program, and related records and approvals.

Package marks and labels should be reviewed. If the packages are large enough to require labeling, then it is likely placards also would have been required. If so, verify correlation of their placarding program with their shipping papers. Give particular scrutiny to how they develop and enter information on shipping papers and container packing certificates; look at their shipping paper retention program.

Placarding triggers other requirements, such as registration with DOT and payment of the annual registration fee, which may have to be transferred. Look at their written security plan and related hazmat employee training on the details of those plans for affected employees.

For drivers and vehicles, look at their CDL program as well as compliance with the Federal Motor Carrier Safety qualifications for drivers and vehicles.

If any of these elements is missing or is in error, as the acquiring company you will need a game plan to bring the acquired operation into compliance before you begin shipping the products in your own name. Consider the time and cost involved not only in implementing any changes, but the awkward transition that may involve changing or recalling products already in warehouses or distribution centers. The sooner this process begins, the smoother the acquisition process will flow.

Lawrence Bierlein is a partner with McCarthy, Sweeney& Harkaway, PC (, in Washington, DC. His practice is devoted to issues involving transportation of hazardous materials. He can be reached at (202) 775-5560 or [email protected].

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