EA-93-170 - United Nuclear Corporation
United Nuclear Corporation
ATTN: Juan Velasquez, President
Post Office Box 3077
Gallup, New Mexico 87305
SUBJECT: NOTICE OF VIOLATION AND PROPOSED IMPOSITION OF CIVIL PENALTY - $100,000 (NRC Investigation Report Nos. 4-92-007 and 4-92-007S)
Dear Mr. Velasquez:
This refers to the subject NRC investigations conducted from 1992 to 1993 and in 1996 concerning the violation of an NRC Order to United Nuclear Corporation (Licensee or United Nuclear) dated January 13, 1992, and materially inaccurate statements made to the NRC. United Nuclear holds NRC License No. SUA-1475 (Docket No. 40-8907). NRC Investigation Reports Nos. 4-92-007 and 4-92-007S were issued on May 13, 1995, and September 17, 1996, respectively.
Based on the information developed during the investigations, the NRC has determined that willful violations of NRC requirements occurred. These violations are cited in the enclosed Notice of Violation and Proposed Imposition of Civil Penalty, and the circumstances surrounding the violations are described below.
By an immediately effective Order dated January 13, 1992, the NRC required United Nuclear, upon receipt from the U. S. Treasury of the proceeds ($67,500,000) from the settlement of a lawsuit between United Nuclear and the United States, to immediately set aside in one of its banking accounts $16,392,000 as an interim step to satisfy United Nuclear's existing, but not yet satisfied, financial assurance obligation for the decommissioning and decontamination of its Church Rock uranium mill site near Gallup, New Mexico. The Order further required United Nuclear to not expend any of those funds pending establishment of an escrow account for the same amount in the form of cash deposits, certificates of deposit, deposits of government securities, or combinations thereof with withdrawals subject to NRC approval. United Nuclear was required by the Order to notify the NRC within one day of receipt of the settlement proceeds that the fund set aside had been accomplished.
On January 14, 1992, the same day that the settlement proceeds were deposited in United Nuclear's bank account with Sunwest Bank in Albuquerque, New Mexico, the entire settlement proceeds, including the $16,392,000 required to be set aside, were transferred out of United Nuclear's account by the bank at the request of Trent Tyler, a senior accountant for United Nuclear, to an account in the Maryland National Bank (No. 9217936) which belonged to the parent company of United Nuclear, UNC, Inc. During the evening of that same day, UNC, Inc., officials instructed the Maryland National Bank to transfer $31,000,000 of the proceeds to Manufacturers Hanover in New York to be expended on the payment of debt owed by UNC, Inc. The next day, January 15, 1992, $32,000,000 was also transferred by Maryland National Bank, on instructions from UNC, Inc., officials to Manufacturers Hanover for investment purposes. Those latter funds were immediately deposited in a corporate cash investment account (No. 723-07H80) with Merrill Lynch Pierce, Fenner & Smith, Inc., which was in the name of, and owned by, UNC, Inc., not United Nuclear. The tax ID No. 54-1078297, which was shown on the investment account, was the tax number of UNC, Inc. These transfers of the settlement proceeds, which included the $16,392,000 set aside funds, into bank and investment accounts owned by the parent, UNC, Inc., rather than into a bank account of the Licensee, United Nuclear, were contrary to the requirements of the NRC Order.
Based on an NRC investigation, the staff learned of certain facts and circumstances surrounding the violations. In moving the settlement proceeds out of the Licensee's Sunwest account and into the parent corporation's Maryland National Bank account, Mr. Tyler was acting on instructions from Juan Velasquez, President of United Nuclear, and officers of the parent corporation, UNC, Inc. Richard Andrews, Vice President, Manufacturing, UNC, Inc., responsible for oversight of United Nuclear management activities, believed that it was not in the best interest of UNC, Inc. or United Nuclear to leave the $16 million set aside, because United Nuclear did not have the expertise to handle this amount of money, and that he had a responsibility to ensure that the funds be properly handled. Paul McClain, Vice President of financial controls for UNC, Inc., believed that an investment return on the $16 million would be "lost" unless the funds came back to the parent and were consolidated to maximize earnings.1 Mr. Velasquez stated that it was a joint decision of himself, Mr. McClain, Mr. Andrews and Mr. Lange that a transfer of the funds to a UNC, Inc. account would be in compliance with the Order. Mr. Lange was a Vice President of the Licensee and the Senior Vice President, General Counsel, and Secretary of the parent, UNC, Inc. Mr. Andrews does not recall such a discussion, and Mr. McClain stated that Mr. Lange did not advise that it was acceptable to transfer the funds to a UNC, Inc. account. Mr. Lange not only denies ever advising that transferring the funds to UNC, Inc. would be appropriate, but stated that the Order was so explicit that he believed nobody would question what was required, and that if he had been asked whether it would be appropriate to put the money into a UNC, Inc. account, he would have advised against doing so. Mr. McClain relied on Mr. Lange to ensure compliance with the Order because it was a legal document, and Mr. Andrews stated that he and Mr. McClain had delegated responsibility for compliance with the Order to Mr. Lange and to Mr. Gregory M. Bubb, Treasurer of UNC, Inc.
By letter dated January 15, 1992, to James Lieberman, Director, NRC Office of Enforcement, Mr. Lange, replied to Paragraph IV.A of the Order, by informing Mr. Lieberman that "United Nuclear received the funds referred to in Mr. Bernero's order on January 14, 1992, and an amount of at least $16,392,000 was, on the same day, placed in an account from which such or a lesser amount can be readily made available to comply with any such requirement" of the NRC's Order. He also assured Mr. Lieberman "that such amount will not be expended prior to resolution of the issues raised by United Nuclear in the United States District Court action it commenced against the Commission." This letter does not indicate whether the funds were placed in a United Nuclear bank account.
Subsequently, on February 13, 1992, Robert Bernero, Director, NRC Office of Nuclear Material Safety and Safeguards, wrote United Nuclear, to the attention of Mr. Velasquez, requiring United Nuclear to provide, in writing and under oath or affirmation pursuant to 10 CFR 40.31(b), "an explanation of how and when the licensee had satisfied the set aside requirement, including specifically an identification of the bank and type, owner and number of the account(s) which was established to satisfy the set aside requirement, the date and time when such account(s) was established, persons authorized to withdraw funds from the account(s), and whether such account(s) was, and is being continuously maintained in satisfaction of the set aside requirement."
The NRC investigations further revealed that after receipt of this letter, Mr. Lange, along with two officials of UNC, Inc., placed a telephone call to Ms. Avery Cannaday, Assistant Financial Consultant, Merrill Lynch. Ms. Cannaday advised them that to change the name and ownership of the account, the account would have to be closed and the funds transferred to a new account in the name of United Nuclear. The three men, however, told Ms. Cannaday that they only needed to show they were holding the money for United Nuclear and to have United Nuclear's name on the account. They then agreed to add to the account a "FBO United Nuclear " designation, which signified "for the benefit of United Nuclear." This was done, but according to Merrill Lynch officials, it did not change the account's ownership, and was merely an informational addition to the account. Merrill Lynch officials stated to NRC investigators that ownership changes require a closing of the old owner's account and a reopening in the name of the new owner, all with prior approval of Merrill Lynch's paralegal department in Denver, none of which was done in this case. Also, Merrill Lynch officials stated that it was their understanding that the funds in question belonged to UNC, Inc., not United Nuclear. Only UNC, Inc., officials had the authority to direct disposition of the funds.
Mr. Lange was a senior licensee official responsible for ensuring compliance with the Order. Mr. Lange admittedly understood that UNC Inc. controlled the Merrill Lynch account and that its officers were the signatories on the account. Mr. Lange should have known no later than the telephone call to Ms. Cannaday, based on the information known to him, that the Licensee was not in compliance with the Order, and that adding "FBO" to the title of the account did not make the Licensee an owner of the account. Instead, Mr. Lange failed to confirm with Merrill Lynch that the FBO designation made the Licensee an owner of the account, and caused a continuing violation of the Order by agreeing to the "FBO United Nuclear" designation on the Merrill Lynch account and by advising Mr. Velasquez, in addition to officials of UNC, Inc., that the "FBO" designation was the same thing as making it United Nuclear's account and that by adding the designation, United Nuclear was in compliance with the Order.
Subsequently, on February 18, 1992, Mr. Lange replied to Mr. Bernero's letter on behalf of United Nuclear, stating he had been "closer" to the matters covered by Bernero's letter. A notarized statement to the effect that the statements contained in the letter were under oath and were true and correct was forwarded separately on the same day. In violation of 10 CFR 40.9(a), Mr. Lange provided materially inaccurate information to the NRC by stating that a corporate cash investment account No. 723-07H80 "was established for the benefit of United Nuclear with Merrill Lynch Corporate Banking Department on January 9, 1992," and that the "owner" of the account was "UNC Incorporated/United Nuclear Corporation." Mr. Lange also stated that such account "was, and is being, continuously maintained in satisfaction of the set aside requirement in Section IV.A. of the Order." In fact, the account had been established on January 9, 1992, in the name of UNC, Inc., and the FBO designation was added sometime after Mr. Bernero's February 13, 1992 letter and after the call to Ms. Cannaday. Moreover, United Nuclear Corporation was not and had not been an owner of the account and it had no control over the account. The account was and had been solely in the name of UNC. Inc., the only owner of the account. These inaccurate statements were material to the NRC in that they concealed the failure of United Nuclear to comply with the Order's requirement to deposit certain funds in a banking account of United Nuclear. Although Mr. Lange had information such that he should have known that the licensee did not have and had not had ownership of the account and was not and had not been in compliance with the Order, he represented otherwise to the NRC. Despite the clear notice NRC had provided to United Nuclear of the importance and need to meet the Order so that necessary funds would be assured for decommissioning activities, and despite a demand for information regarding compliance with the Order, United Nuclear continued to fail to comply with the Order and submitted materially inaccurate and incomplete information to the NRC concerning compliance with the Order, in at least careless disregard of the Commission's requirements.
Willful violation of an NRC Order and the willful submission of incomplete and inaccurate information by a senior Licensee official are considered very significant violations. The NRC should be able to fully rely on Licensees and their senior officials to comply with NRC orders and to provide complete and accurate information, particularly when statements are made under oath. Therefore, consistent with the "General Statement of Policy and Procedure for NRC Enforcement Actions" (Enforcement Policy), 10 CFR Part 2 (1992), Appendix C, Supplement VII, these violations have been classified as a Severity Level II problem.
In accordance with the Enforcement Policy, a base civil penalty of $8,000 is considered for a Severity Level II problem. The staff has determined under the circumstances of this case as noted above, notwithstanding the outcome of the normal civil penalty assessment process, that the NRC should exercise its full enforcement authority under Section V.B. of the Policy, and is escalating the civil penalty to $100,000 in order to convey the appropriate regulatory message to the licensee and other similarly situated licensees. The NRC must be able to have full confidence in the honesty and integrity of licensees, especially senior licensee officials, and in their willingness to comply with NRC orders and regulations and to provide accurate information to the NRC. When that confidence is destroyed by willful violations by senior Licensee officials, such as those described above, an exercise of discretion to escalate the proposed civil penalty is merited.
Therefore, to emphasize the importance of full compliance with NRC orders, and submission of complete and accurate responses to appropriate demands for information by the NRC, I have been authorized, after consultation with the Commission, to issue the enclosed Notice of Violation and Proposed Imposition of Civil Penalty (Notice) in the amount of $100,000.
You are required to respond to this letter and should follow the instructions specified in the enclosed Notice when preparing your response. In your response, you should document the specific actions taken and any additional actions you plan to prevent recurrence. After reviewing your response to this Notice, including your proposed corrective actions, the NRC will determine whether further NRC enforcement action is necessary to ensure compliance with NRC regulatory requirements.
In accordance with 10 CFR 2.790 of the NRC's "Rules of Practice," a copy of this letter, its enclosure, and your response will be placed in the NRC Public Document Room (PDR). To the extent possible, your response should not include any personal privacy, proprietary, or safeguards information so that it can be placed in the PDR without redaction.
Sincerely, org signed by L. J. Callan L. J. Callan Regional Administrator
Docket No. 40-8907
License No. SUA-1475
Notice of Violation and Proposed Imposition of Civil Penalty
State of New Mexico
PROPOSED IMPOSITION OF CIVIL PENALTY
United Nuclear Corporation Docket No. 40-8907 Gallup, New Mexico License No. SUA-1475 EA 93-170
During NRC investigations conducted in 1992-1993 and 1996, violations of NRC requirements were identified. In accordance with the "General Statement of Policy and Procedure for NRC Enforcement Actions," 10 CFR Part 2, Appendix C (1992), the Nuclear Regulatory Commission proposes to impose a civil penalty pursuant to Section 234 of the Atomic Energy Act of 1954, as amended (Act), 42 U.S.C. 2282, and 10 CFR 2.205. The particular violations and associated civil penalty are set forth below:
A. Section IV.A. of the NRC "ORDER REQUIRING ESTABLISHMENT OF AN ESCROW ACCOUNT (EFFECTIVE IMMEDIATELY)," dated January 13, 1992 (Order), required, that upon receipt from the U. S. Treasury of the proceeds from that settlement of a certain lawsuit, the Licensee shall immediately set aside in one of its banking accounts $16,392,000, and not expend such funds pending establishment of an escrow account in the same amount in the form of cash deposits, certificates of deposit, deposits of government securities or combinations thereof.
Contrary to the above, the Licensee transferred the set aside funds subject to the Order, on January 14, 1992, the same day they were received into its bank account, to a Maryland National Bank account owned by its parent company, UNC, Inc. The funds were thereafter transferred by UNC, Inc. to a second UNC, Inc., bank account with Manufacturers Hanover and then to a corporate investment account, also owned by UNC, Inc., with Merrill Lynch Pierce, Fenner & Smith, Inc. The set aside funds remained in accounts owned and controlled by UNC, Inc. and not the licensee through March 11, 1992.
B. 10 CFR 40.9(a) states, in part, that information provided to the Commission by a licensee shall be complete and accurate in all material respects.
Contrary to the above, the Licensee, through Richard Lange, Vice President of United Nuclear Corporation (Licensee or United Nuclear), submitted information to the NRC that was incomplete or inaccurate in some respect material to the NRC. In a letter dated February 18, 1992, in response to the NRC's February 13, 1992, demand for information letter, Mr. Lange stated under oath that:
(1) an account "was established for the benefit of United Nuclear with Merrill Lynch Corporate Banking Department on January 9, 1992." In fact, the account had been established on January 9, 1992 in the name of UNC, Inc., the parent corporation of the Licensee. The account was not in United Nuclear's name on any date preceding Lange's letter. A designation "FBO United Nuclear" was added to the account after the February 13, 1992, demand for information letter, not on January 9, 1992;
(2) United Nuclear is an "owner" of the account. In fact, the account was in the name of UNC, Inc., only, and had not been in the name of United Nuclear at any time on or before February 18, 1992. United Nuclear was not an owner and had no control of or access to the account; and
(3) the account "was, and is being, continuously maintained in satisfaction of the set aside requirement in Section IV.A. of the Order". That January 13, 1992, Order required United Nuclear to immediately set aside $16,392,000 of the proceeds from settlement of certain litigation into a bank account of United Nuclear pending establishment of an escrow account in the same amount. Instead, funds had not been set aside in a Licensee banking account, but had been deposited and retained in banking and investment accounts of UNC, Inc., the parent corporation of the Licensee.
These inaccurate and incomplete statements were material to the NRC, in that they concealed the violation of its January 13, 1992, Order, requiring United Nuclear to deposit certain funds in a banking account of United Nuclear in order to ensure compliance with NRC decommissioning requirements.
These violations represent a Severity Level II problem (Supplement VII).
Civil Penalty $100,000.
Pursuant to the provisions of 10 CFR 2.201, United Nuclear Corporation (Licensee) is hereby required to submit a written statement or explanation to the Director of Enforcement, U.S. Nuclear Regulatory Commission within 30 days of the date of this Notice of Violation and Proposed Imposition of Civil Penalty (Notice). This reply should be clearly marked as a "Reply to a Notice of Violation" and should include for each alleged violation: (1) admission or denial of the alleged violation, (2) the reasons for the violation if admitted, and if denied, the reasons why, (3) the corrective steps that have been taken and the results achieved, (4) the corrective steps that will be taken to avoid further violations, and (5) the date when full compliance will be achieved. If an adequate reply is not received within the time specified in this Notice, an order or a Demand for Information may be issued as why the license should not be modified, suspended, or revoked or why such other action as may be proper should not be taken. Consideration may be given to extending the response time for good cause shown. Under the authority of Section 182 of the Act, 42 U.S.C. 2232, this response shall be submitted under oath or affirmation.
Within the same time as provided for the response required above under 10 CFR 2.201, the Licensee may pay the civil penalty by letter addressed to the Director, Office of Enforcement, U.S. Nuclear Regulatory Commission, with a check, draft, money order, or electronic transfer payable to the Treasurer of the United States in the amount of the civil penalty proposed above, or may protest imposition of the civil penalty in whole or in part, by a written answer addressed to the Director, Office of Enforcement, U.S. Nuclear Regulatory Commission. Should the Licensee fail to answer within the time specified, an order imposing the civil penalty will be issued. Should the Licensee elect to file an answer in accordance with 10 CFR 2.205 protesting the civil penalty, in whole or in part, such answer should be clearly marked as an "Answer to a Notice of Violation" and may: (1) deny the violation listed in this Notice, in whole or in part, (2) demonstrate extenuating circumstances, (3) show error in this Notice, or (4) show other reasons why the penalty should not be imposed. In addition to protesting the civil penalty in whole or in part, such answer may request remission or mitigation of the penalty.
In requesting mitigation of the proposed penalty, the factors addressed in Section V.B. of the Enforcement Policy in effect in 1992 should be addressed. Any written answer in accordance with 10 CFR 2.205 should be set forth separately from the statement or explanation in reply pursuant to 10 CFR 2.201, but may incorporate parts of the 10 CFR 2.201 reply by specific reference (e.g., citing page and paragraph numbers) to avoid repetition. The attention of the Licensee is directed to the other provisions of 10 CFR 2.205, regarding the procedure for imposing a civil penalty.
Upon failure to pay any civil penalty due which subsequently has been determined in accordance with the applicable provisions of 10 CFR 2.205, this matter may be referred to the Attorney General, and the penalty, unless compromised, remitted, or mitigated, may be collected by civil action pursuant to Section 234c of the Act, 42 U.S.C. 2282c.
The response noted above (Reply to Notice of Violation, letter with payment of civil penalty, and Answer to a Notice of Violation) should be addressed to: James Lieberman, Director, Office of Enforcement, U.S. Nuclear Regulatory Commission, One White Flint North, 11555 Rockville Pike, Rockville, MD 20852-2738, with a copy to the Regional Administrator, U.S. Nuclear Regulatory Commission, Region IV, 611 Ryan Plaza Drive, Suite 400, Arlington, Texas 76011.
Because your response will be placed in the NRC Public Document Room (PDR), to the extent possible, it should not include any personal privacy, proprietary, or safeguards information so that it can be placed in the PDR without redaction. However, if you find it necessary to include such information, you should clearly indicate the specific information that you desire not to be placed in the PDR, and provide the legal basis to support your request for withholding the information from the public.
Dated at Arlington, Texas,
this 13th day of February 1997
1.This motivation for transferring the funds to UNC, Inc. was indirectly corroborated 2 days later on January 16, 1992, during a hearing for a Temporary Restraining Order (TRO) in an unsuccessful attempt by United Nuclear to restrain the NRC from implementing its January 13 Order. Ridgeway Hall, counsel for United Nuclear, told the U.S. District Court for the District of Columbia that the set aside funds had been "frozen" by the NRC, which would result in an irreparable loss to the parent company.