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HomeFT SelectVW admits guilt and pays $4.3bn emissions penalty

VW admits guilt and pays $4.3bn emissions penalty

Volkswagen will plead guilty to three felonies and pay $4.3bn in penalties to settle a US Department of Justice investigation into the diesel emissions scandal that has engulfed the German carmaker for the past 15 months. 

Six VW executives based in Germany have also been indicted in connection with the case, including Oliver Schmidt who was arrested in the US on Monday, said Loretta Lynch, US attorney-general.

“For years, Volkswagen advertised its vehicles calling them ‘clean diesel’. Our investigation has revealed they were anything but,” Ms Lynch said.

The settlement announced on Wednesday comes more than a decade after VW first opted to design special software to outwit Environmental Protection Agency tests rather than sacrifice power in a new diesel engine. 

Up to 11m vehicles worldwide were fitted with the “defeat devices” to reduce their nitrogen oxide emissions in laboratory tests. When government regulators grew suspicious, its executives then lied and destroyed documents.

“Volkswagen’s top executives knew about this illegal activity and deliberately kept regulators, shareholders and consumers in the dark — and they did this for years,” said Andrew McCabe, deputy director of the Federal Bureau of Investigation.

The penalty, which includes a criminal fine of $2.8bn, is the second-largest criminal environmental settlement in US history behind BP’s Deepwater Horizon case. It represents an attempt by one of the world’s largest carmakers to resolve a scandal that ranks as the worst crisis in the company’s history. 

VW pleaded guilty to charges of conspiracy to violate the Clean Air Act and commit wire fraud, obstruction of justice and making false statements in order to import goods. The six indictments represented a validation of a DoJ strategy to target individual executives in corporate crime prosecutions.

Launched by deputy attorney-general Sally Yates in September 2015, the policy has been criticised as ineffectual.

But prosecutors said that those indicted on Wednesday held positions of authority, with one of the men managing about 10,000 employees. “The fact that we are announcing charges today against six high-ranking executives at Volkswagen — not just six employees but six high-ranking executives at Volkswagen — demonstrates this is not a paper policy,” Ms Yates said.

Along with Mr Schmidt, a federal grand jury has indicted for their roles in the scheme Heinz-Jacob Neusser, 56, a member of the management board for VW Brand; Jens Hadler, 50, former head of engine development; Richard Dorenkamp, 68, another former engine development executive; Bernd Gottweis, 69, a former quality management supervisor; and Jurgen Peter, 59, an executive in VW’s quality management and product safety group.

Other than Mr Schmidt, all of the men are in Germany, which generally does not extradite its citizens.

The company will pay $1.5bn to settle civil claims by the EPA and US Customs as well as $50m for violations of the Financial Institutions Reform, Recovery and Enforcement Act related to the pooling of car leases into asset-backed securities.

David Uhlmann, former head of the DoJ’s environmental crimes unit, noted that the government did not agree to a deferred prosecution agreement, a more lenient way of dealing with corporate lawbreaking. 

“It was essential that the justice department insist on a guilty plea given the egregiousness of Volkswagen’s misconduct and the fact it reached very high in the company,” he said.

VW shares rose 3.3 per cent on Wednesday, after the company announced late on Tuesday that it was in “advanced discussions” to settle for $4.3bn. 

Wednesday’s penalties come on top of the $15.3bn that VW agreed in June to pay in a partial civil settlement with federal and state governments and owners of cars fitted with two-litre engines, plus an additional $1bn announced last month related to three-litre engine models. VW said in October that it had set aside €18.2bn ($19.2bn) to cover the costs of the scandal.

VW must also accept and pay for an independent monitor of its compliance programmes for three years. The company has agreed to independent audits, establishment of an internal committee and additional vehicle testing.

The plea agreement filed in federal court in Detroit shows that the decision to cheat the emissions tests was contentious within VW. 

Six supervisors, often over their subordinates’ objections, and one company attorney directed specific acts to design the defeat device or conceal its existence from regulators, according to the plea agreement. 

VW employees destroyed documents as part of a broad cover-up of the engines used in 590,000 cars sold in the US.

On August 31 2015, as the cover-up was unravelling, a VW supervisor deleted files containing the term “acoustic function”, a reference to the cheating software, and instructed subordinates to do likewise. 

A second supervisor instructed his assistant to throw away a computer hard drive containing potentially incriminating files, according to court documents. Inside VW and Audi, “thousands of documents were deleted by approximately 40” employees. 

After the EPA publicly disclosed VW’s emissions cheating in September 2015, the company’s internal investigation recovered many of the deleted files and turned them over to prosecutors. 

That co-operation earned the company a 20 per cent reduction in the minimum financial penalty it might have faced, the DoJ said. VW also received $11bn in credit for its settlements with customers and payments into an environmental remediation trust.

Via FT