Volkswagen has agreed a US$4.3bn settlement with the US government over the diesel emissions-cheat scandal but is not off the hook yet as six executives have been indicted amidst US revelations of measures the automaker took to mislead regulators.
A campaign to mislead regulators was failing so badly that top executives signed off on a script for employees to use when questioned, Bloomberg reported. In the home office in Germany, some executives and engineers began deleting documents related to US emissions and the company’s head of engine development told an assistant to dispose of a hard drive containing e-mails from him and other supervisors, the report added.
Go deeper with GlobalData
US prosecutors on Wednesday announced charges against five more officials – all in Germany – which they said had been key to developing and carrying out the scheme. As part of the carmaker’s settlement concluding criminal and civil probes in the US, VW agreed to plead guilty to conspiracy to defraud the government and consumers and obstruction of justice, and to pay $4.3 billion in penalties while prosecutors continue to look into the roles individuals played and the investigation is still open, US Attorney General Loretta Lynch said at a press conference reported by Bloomberg.
Indicted with Heinz-Jakob Neusser, the engine development chief, were Richard Dorenkamp, who led the failed effort to design a diesel engine that would meet the tougher emissions standards the US adopted for 2007 and appeal to drivers; Jens Hadler, who led engine development from 2007 to 2011; Bernd Gottweis, who was responsible for quality management from 2007 to 2014; and Jurgen Peter, who worked on Gottweis’s group since 1990 and was one of VW’s liaisons with US regulators during the critical months when they were growing more suspicious.
A sixth man, Oliver Schmidt, the company’s liaison with US regulators, was arrested Saturday as he attempted to return to Germany after a Florida holiday, Bloomberg said. Schmidt, also charged with participating in the alleged scheme, is scheduled to appear in court on Thursday (12 January) in Miami. Neusser and the other four are in Germany, and Lynch said it wasn’t clear how their cases would proceed.
Bloomberg noted VW has suspended or pushed out about a dozen executives in the aftermath of the scandal including former CEO Martin Winterkorn, who has denied any knowledge of the cheating. A VW spokeswoman declined to comment to Bloomberg on the employment status of the men indicted Wednesday.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataAccording to Bloomberg, the US case against Volkswagen outlines an audacious scheme developed in 2006 to sell more diesel cars in the US despite the tougher emissions standards about to be adopted. Dorenkamp and Hadler were among a group designing a new diesel engine that was a cornerstone to what was known as the ‘US’07’ project, the indictment says.
But they couldn’t design an engine that met new emission standards while attracting new customers. So, despite concerns raised by some VW employees, they authorised the creation of software that recognised when the vehicle was undergoing testing and switched to more effective emissions controls, authorities said.
According to the report, on 17 October, 2007, a slide containing explicit engineering terms for the defeat device was passed around to Hadler and others, and he responded, in German, “We shall never present this anywhere and will also not distribute it.” A month later, Hadler sent an e-mail to Dorenkamp that included photos of himself posing with California’s then-governor Arnold Schwarzenegger at an event where VW’s cars were promoted as “green diesel”.
Bloomberg said the plan began unravelling in 2014 after a laboratory at West Virginia University noticed startling disparities in VW’s emissions tests. US and California regulators pressed Volkswagen for an explanation, and Neusser, Gottweis, Schmidt and Peter “pursued a strategy of concealing the defeat device in responding to questions from US regulators, while appearing to cooperate”, according to the documents.
In June 2015, Peter wrote to VW employees saying they needed to come up with “good arguments” to tell regulators asking about the emissions discrepancies. Schmidt had a chance that August, and in a meeting with a California environmental regulator, he blamed “irregularities” and “abnormalities” for the results.
He later explained why he wouldn’t bring other colleagues with him to those meetings: so they “would not have to consciously lie”.
As part of the resolution, the automaker has agreed to pay penalties and fines totalling US$4.3bn and to a series of measures to further strengthen its compliance and control systems, including the appointment of an independent monitor for a period of three years.
Group CEO Matthias Müller said in a statement: “Volkswagen deeply regrets the behaviour that gave rise to the diesel crisis. Since all of this came to light, we have worked tirelessly to make things right for our affected customers and have already achieved some progress on this path. The agreements that we have reached with the US government reflect our determination to address misconduct that went against all of the values VW holds so dear. They are an important step forward for our company and all our employees.”
Hans Dieter Pötsch, chairman of the supervisory board, added: “When the diesel matter became public, we promised that we would get to the bottom of it and find out how it happened – comprehensively and objectively. In addition, a task force of our group audit function conducted an investigation into relevant processes, reporting and monitoring systems as soon as the issue came to light. We are no longer the same company we were 16 months ago. The supervisory board and the management board have faced up to past actions.”
The resolution comprises four settlements, including a plea agreement with the US Department of Justice (DOJ). The plea agreement is accompanied by a published Statement of Facts that lays out the findings and facts established as to the origins and evolution of the misconduct in the diesel matter.
Volkswagen cooperated with the DOJ’s investigation. The supervisory board directed law firm Jones Day to share all findings of its independent investigation with the DOJ. The Statement of Facts draws upon Jones Day’s extensive work, as well as on evidence developed by the DOJ.
Terms of the US resolution
As part of its plea agreement with the DOJ, Volkswagen AG has agreed to plead guilty to three felony counts under US law. The plea agreement, which is subject to US federal court approval, provides for payment of a criminal fine of $2.8bn and the appointment of an independent monitor for a period of three years. The monitor will assess, oversee and monitor the company’s compliance with the terms of the resolution, including measures to further strengthen VW’s compliance, reporting and monitoring mechanisms and implementation of an enhanced ethics programme.
VW has further agreed to pay a combined penalty of $1.45bn to resolve US federal environmental and customs-related civil claims. Separately, the automaker has agreed to pay a civil penalty of $50m to the Civil Division of the DOJ to settle potential claims asserted under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). VW specifically denies any liability and expressly disputes these claims, which it is settling to avoid the uncertainty and expense of protracted litigation.
The agreements announced resolve Volkswagen’s liability under US law and are not intended to address its liability, if any, under the laws or regulations of any jurisdiction outside the United States. VW continues to cooperate with investigations by the DOJ into the conduct of individuals and with enquiries by the Braunschweig and Munich public prosecutor’s offices in Germany.
In order not to prejudice or otherwise impede ongoing investigations, the company said, it would not make any further comment on the Statement of Facts or findings of the work of Jones Day.
Steps to realign the group
Initiatives VW has implemented in response to the diesel matter include enhanced operational processes and reporting and control systems to ensure responsibilities are clear, a more robust whistle-blower system and new, stricter standards in its emissions testing practices.
“Independently of the events that led to the diesel matter, [the group] will leave no stone unturned to prevent violations of any rules and identify such violations as early as possible, the statement said.
Pötsch said: “The trust of our customers, our shareholders, partners, employees and the general public is our most important asset. The supervisory board will spare no effort to ensure that VW fully restores their confidence. We are determined to do so by building on the qualities and strengths of VW.”
Müller said: “We have taken significant steps to strengthen accountability, enhance transparency and prevent something like this from happening again. We will continue to press forward with changes to our way of thinking and working that Volkswagen needs. We are determined that Volkswagen will become an example of how a socially responsible company should act and lead in the years ahead – and we know that our success can never be divorced from the way we conduct ourselves.”
The group has substantially elevated its commitment to working ethically and with integrity and is decentralising how Volkswagen is managed by granting its brands and regions much more autonomy. These and other substantive actions across the group are part of a broader transformation of corporate culture to create a more entrepreneurial and international organisation.
