Justice Department Charges Former Volkswagen CEO in Diesel Vehicle Emissions Cheating Scheme

We all know the saying – A fish rots from the head.  Sometimes a clear and simple statement says it all.  The Volkswagen diesel emissions cheating scandal is yet another example of C-Suite, even CEO, misconduct.

The Justice Department recently announced the criminal indictment for former Volkswagen CEO, Martin Winterkorn, age 70, for conspiracy and wire fraud for Volkswagen’s scheme to defeat U.S. diesel vehicle emissions requirements.

In March 2017, Volkswagen plead guilty to criminal charges for deceiving the Environmental Protection Agency (EPA) and the California Air Resources Board (CARB) by installing devices to circumvent the engine emissions control systems.  Volkswagen paid a criminal fine of $2.8 billion and agreed to appointment of a monitor for three years.

The superseding indictment added Winterkorn to an existing indictment of five individuals.  Two former Volkswagen engineers, Oliver Schmidt and James Liang pleaded guilty to conspiracy and have been sentenced to 84 months and 40 months’ imprisonment, respectively.  The five existing defendants were indicted in January 2017 and have not been apprehended.  One former Volkswagen manager, an Italian citizen, has been charged by complaint and is awaiting extradition from Germany.

Winterkorn served as chairman of Volkswagen’s management board and chief executive from January 2007 to September 2015.  Winterkorn’s knowledge and involvement in the cheating scheme is explained in the indictment.  Winterkorn was informed of the cheating scheme in May 2014 and again in July 2015.  Having been informed of the scheme, Winterkorn agreed with other senior executives to continue the scheme and actively deceive U.S. regulators.

In the spring of 2014, the International Council on Clean Transportation (ICCT) tested two diesel Volkswagen cars and showed significantly elevated NOx levels for the two vehicles, with one at an emissions level of 35 times above the allowable limit.  A senior executive, Bernd Gottweis, who was responsible for product safety issues met with employees of the engine development department to discuss the ICCT study.  Gottweis informed the staff he would need to speak to Winterkorn about the issue.

On May 22, 2014, Gottweis sent a one-page memo to Winterkorn describing the results of the ICCT study and warned that Volkswagen could not give a valid explanation for increased NOx emissions.  Volkswagen continued to deceive U.S. regulators about the causes of the discrepancies between emissions testing results.

By the middle of 2015, U.S. regulators threated to withhold authorization for Volkswagen to sell 2016 vehicles in the United States until Volkswagen addressed the results of the ICCT study.  Volkswagen management held a meeting on July 27, 2015, to address the situation in the U.S.  Winterkorn chaired the meeting, which included several senior Volkswagen executives.  During the meeting, the staff presented specific facts on: (1) how Volkswagen was deceiving U.S. regulators; and (2) the potential consequences if Volkswagen was caught cheating.

In response, Winterkorn agreed to continue to deceive U.S. authorities and approved specific steps to have Oliver Schmidt meet with a senior CARB official to obtain the approval for model year 2016 vehicles and avoid revealing any information about the cheating technology installed in Volkswagen diesel vehicles.

When Schmidt met with CARB officials on August 19, 2015, he violated these instructions, and disclosed to CARB officials that Volkswagen had been using software in its 2.0-liter diesel vehicles to cheat U.S. emissions tests.  Two weeks later, on September 3, 2015, Volkswagen officially admitted that it had installed defeat devices in various 2.0 liter diesel vehicles sold in the U.S.

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