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William Maley

VW News: As the Diesel Emits: Volkswagen Agrees To Pay $4.3 Billion To Settle Criminal Case, Six Employees Indicted

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Volkswagen will be cutting another big check. Today, the company announced that it had reached a settlement with Department of Justice over the criminal case on the diesel emission scandal. Volkswagen will plead guilty to three criminal felony charges and will pay $4.3 billion - $2.8 billion for the fine and $1.5 billion to settle civil cases. The settlement also requires an independent monitor to watch over the company for the next years. 

Volkswagen's board still needs to approve this settlement, but the company says the approval could happen today or tomorrow. If they waited, the parties would have to do it all over again with new people coming as part of President-elect Trump's team.

“Today’s actions reflect the Justice Department’s steadfast commitment to defending consumers, protecting our environment and our financial system and holding individuals and companies accountable for corporate wrongdoing. In the days ahead, we will continue to examine Volkswagen’s attempts to mislead consumers and deceive the government. And we will continue to pursue the individuals responsible for orchestrating this damaging conspiracy,” said Attorney General Loretta E. Lynch in a statement.

In addition, six Volkswagen executives and employees have been charged with their involvement in the scandal. They include, 

  • Richard Dorenkamp - In charge of Volkswagen’s Engine Development After-Treatment Department from 2003 to 2013. This department is where the cheat was developed.
  • Bernd Gottweis - Volkswagen's supervisor responsible for Quality Management and Product Safety between 2007 to October 2014.
  • Jens Hadler - Head of powertrain development from 2007 to 2011.
  • Heinz-Jakob Neusser - Head of powertrain development from 2011 to 2013, suspended by Volkswagen back in 2015.
  • Jürgen Peter - Worked in Volkswagen's Quality Management and Product Safety Group from 1990 to now. For a few months in 2015, he was a liaison for various regulatory agencies.
  • Oliver Schmidt - Volkswagen's liaison with U.S. environmental regulators. He was arrested on Sunday in Miami as he was returning to Germany.

Source: Department of Justice, Bloomberg, Reuters
Press Release is on Page 2


Volkswagen AG Agrees to Plead Guilty and Pay $4.3 Billion in Criminal and Civil Penalties; Six Volkswagen Executives and Employees are Indicted in Connection with Conspiracy to Cheat U.S. Emissions Tests

  • VW to Pay $2.8 Billion Criminal Fine in Guilty Plea and $1.5 Billion Settlement of Civil Environmental, Customs and Financial Violations; Monitor to Be Appointed to Oversee the Parent Company

Volkswagen AG (VW) has agreed to plead guilty to three criminal felony counts and pay a $2.8 billion criminal penalty as a result of the company’s long-running scheme to sell approximately 590,000 diesel vehicles in the U.S. by using a defeat device to cheat on emissions tests mandated by the Environmental Protection Agency (EPA) and the California Air Resources Board (CARB), and lying and obstructing justice to further the scheme, the Justice Department announced today.

In separate civil resolutions of environmental, customs and financial claims, VW has agreed to pay $1.5 billion. This includes EPA’s claim for civil penalties against VW in connection with VW’s importation and sale of these cars, as well as U.S. Customs and Border Protection (CBP) claims for customs fraud. In addition, the EPA agreement requires injunctive relief to prevent future violations. The agreements also resolve alleged violations of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).

The Criminal Case:

VW is charged with and has agreed to plead guilty to participating in a conspiracy to defraud the United States and VW’s U.S. customers and to violate the Clean Air Act by lying and misleading the EPA and U.S. customers about whether certain VW, Audi and Porsche branded diesel vehicles complied with U.S. emissions standards, using cheating software to circumvent the U.S. testing process and concealing material facts about its cheating from U.S. regulators. VW is also charged with obstruction of justice for destroying documents related to the scheme, and with a separate crime of importing these cars into the U.S. by means of false statements about the vehicles’ compliance with emissions limits. Under the terms of the plea agreement, which must be accepted by the court, VW will plead guilty to all these crimes, will be on probation for three years, will be under an independent corporate compliance monitor who will oversee the company for at least three years, and agrees to fully cooperate in the Justice Department’s ongoing investigation and prosecution of individuals responsible for these crimes.

In addition, a federal grand jury in the Eastern District of Michigan returned an indictment today charging six VW executives and employees for their roles in the nearly 10-year conspiracy. Heinz-Jakob Neusser, 56; Jens Hadler, 50; Richard Dorenkamp, 68; Bernd Gottweis, 69; Oliver Schmidt, 48; and Jürgen Peter, 59, all of Germany, are charged with one count of conspiracy to defraud the United States, defraud VW’s U.S. customers and violate the Clean Air Act by making false representations to regulators and the public about the ability of VW’s supposedly “clean diesel” vehicles to comply with U.S. emissions requirements. The indictment also charges Dorenkamp, Neusser, Schmidt and Peter with Clean Air Act violations and charges Neusser, Gottweis, Schmidt and Peter with wire fraud counts. This case has been assigned to U.S. District Judge Sean F. Cox of the Eastern District of Michigan.

Schmidt was arrested on Jan. 7, 2017, in Miami during a visit to the United States and appeared in federal court there on Monday. The other defendants are believed to presently reside in Germany.

Today’s announcement was made by Attorney General Loretta E. Lynch, EPA Administrator Gina McCarthy and Assistant Administrator Cynthia Giles, Deputy Attorney General Sally Q. Yates, FBI Deputy Director Andrew McCabe, Acting Deputy Secretary Russell C. Deyo for the Department of Homeland Security, U.S. Attorney Barbara L. McQuade of the Eastern District of Michigan, Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Assistant Attorney General John C. Cruden of the Justice Department’s Environment and Natural Resources Division and Principal Deputy Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division.

“Volkswagen’s attempts to dodge emissions standards and import falsely certified vehicles into the country represent an egregious violation of our nation’s environmental, consumer protection and financial laws,” said Attorney General Lynch. “Today’s actions reflect the Justice Department’s steadfast commitment to defending consumers, protecting our environment and our financial system and holding individuals and companies accountable for corporate wrongdoing. In the days ahead, we will continue to examine Volkswagen’s attempts to mislead consumers and deceive the government. And we will continue to pursue the individuals responsible for orchestrating this damaging conspiracy.”

“When Volkswagen broke the law, EPA stepped in to hold them accountable and address the pollution they caused,” said EPA Administrator McCarthy. “EPA’s fundamental and indispensable role becomes all too clear when companies evade laws that protect our health. The American public depends on a strong and active EPA to deliver clean air protections, and that is exactly what we have done.”

“This wasn’t simply the action of some faceless, multinational corporation,” said Deputy Attorney General Yates. “This conspiracy involved flesh-and-blood individuals who used their positions within Volkswagen to deceive both regulators and consumers. From the start of this investigation, we’ve been committed to ensuring that those responsible for criminal activity are held accountable. We’ve followed the evidence—from the showroom to the boardroom—and it brought us to the people whose indictments we’re announcing today.”

“Americans expect corporations to operate honestly and provide accurate information,” said Deputy Director McCabe. “Volkswagen’s data deception defrauded the U.S. government, violated the Clean Air Act and eroded consumer trust. This case sends a clear message to corporations, no matter how big or small, that if you lie and disregard rules that protect consumers and the environment, you will be caught and held accountable.”

“Blatant violations of U.S. customs and environmental laws will not be tolerated, and this case reinforces that,” said Acting Deputy Secretary Deyo. “These actions put our economy, consumers and citizens at risk, and the Department of Homeland Security and U.S. Customs and Border Protection will continue to take every step necessary to protect the American people.”

According to the indictment, the individuals occupied the following positions within the company:

  1. Heinz-Jakob Neusser: from July 2013 until September 2015, Neusser worked for VW as head of Development for VW Brand and was also on the management board for VW Brand. From October 2011 until July 2013, Neusser served as the head of Engine Development for VW.
  2. Jens Hadler: from May 2007 until March 2011, Hadler worked for VW as head of Engine Development for VW.
  3. Richard Dorenkamp: from 2003 until December 2013, Dorenkamp worked for VW as the head of VW’s Engine Development After-Treatment Department in Wolfsburg, Germany. From 2006 until 2013, Dorenkamp led a team of engineers that developed the first diesel engine that was designed to meet the new, tougher emissions standards in the United States.
  4. Bernd Gottweis: from 2007 until October 2014, Gottweis worked for VW as a supervisor with responsibility for Quality Management and Product Safety.
  5. Oliver Schmidt: from 2012 through February 2015, Schmidt was the General Manager in charge of the Environment and Engineering Office, located in Auburn Hills, Michigan. From February 2015 through September 2015, Schmidt returned to VW headquarters to work directly for Neusser, including on emissions issues.
  6. Jürgen Peter: Peter worked in the VW Quality Management and Product Safety Group from 1990 until the present. From March 2015 until July 2015, Peter was one of the VW liaisons between the regulatory agencies and VW.

According to the charging documents and statement of facts filed with the court, in 2006, VW engineers began to design a new diesel engine to meet stricter U.S. emissions standards that would take effect by model year 2007. This new engine would be the cornerstone of a new project to sell diesel vehicles in the United States that would be marketed to buyers as “clean diesel,” a project that was an important strategic goal for VW’s management. When the co-conspirators realized that they could not design a diesel engine that would both meet the stricter NOx emissions standards and attract sufficient customer demand in the U.S. market, they decided they would use a software function to cheat standard U.S. emissions tests.

VW engineers working under Dorenkamp and Hadler designed and implemented a software to recognize whether a vehicle was undergoing standard U.S. emissions testing on a dynamometer or it was being driven on the road under normal driving conditions. The software accomplished this by recognizing the standard published drive cycles. Based on these inputs, if the vehicle’s software detected that it was being tested, the vehicle performed in one mode, which satisfied U.S. NOx emissions standards. If the software detected that the vehicle was not being tested, it operated in a different mode, in which the vehicle’s emissions control systems were reduced substantially, causing the vehicle to emit NOx up to 40 times higher than U.S. standards.

Disagreements over the direction of the project were articulated at a meeting over which Hadler presided, and which Dorenkamp attended. Hadler authorized Dorenkamp to proceed with the project knowing that only the use of the defeat device software would enable VW diesel vehicles to pass U.S. emissions tests. Starting with the first model year 2009 of VW’s new “clean diesel” engine through model year 2016, Dorenkamp, Neusser, Hadler and their co-conspirators installed, or caused to be installed, the defeat device software into the vehicles imported and sold in the United States. In order to sell their “clean diesel” vehicles in the United States, the co-conspirators lied to the EPA about the existence of their test-cheating software, hiding it from the EPA, CARB, VW customers and the U.S. public. Dorenkamp, Neusser, Hadler, Gottweis, Schmidt, Peter and their co-conspirators then marketed, and caused to be marketed, VW diesel vehicles to the U.S. public as “clean diesel” and environmentally-friendly.

Around 2012, hardware failures developed in certain of the diesel vehicles. VW engineers believed the increased stress on the exhaust system from being driven in the “dyno mode” could be the cause of the hardware failures. In July 2012, VW engineers met with Neusser and Gottweis to explain what they believed to be the cause of the hardware failures and explained the defeat device. Gottweis and Neusser each encouraged further concealment of the software. In 2014, the co-conspirators perfected their cheating software by starting the vehicle in “street mode,” and, when the defeat device realized the vehicle was being tested, switching to the “dyno mode.” To increase the ability of the vehicle’s software to recognize that it was being tested on the dynamometer, the VW engineers activated a “steering wheel angle recognition feature.” With these alterations, it was believed the stress on the exhaust system would be reduced because the engine would not be operating for as long in “dyno mode.” The new function was installed in existing vehicles through software updates. The defendants and other co-conspirators falsely represented, and caused to be represented, to U.S. regulators, U.S. customers and others that the software update was intended to improve durability and emissions issues in the vehicles when, in fact, they knew it was used to more quickly deactivate emission control systems when the vehicle was not undergoing emissions tests.

After years of VW selling their “clean diesel” vehicles in the United States that had the cheating software, in March 2014, West Virginia University’s Center for Alternative Fuels, Engines and Emissions published the results of a study commissioned by the International Council on Clean Transportation (ICCT). The ICCT study identified substantial discrepancies in the NOx emissions from certain VW vehicles when tested on the road compared to when these vehicles were undergoing EPA and CARB standard drive cycle tests on a dynamometer. Rather than tell the truth, VW employees, including Neusser, Gottweis, Schmidt and Peter, pursued a strategy to disclose as little as possible – to continue to hide the existence of the software from U.S. regulators, U.S. customers and the U.S. public.

Following the ICCT study, CARB, in coordination with the EPA, attempted to work with VW to determine the cause for the higher NOx emissions in VW diesel vehicles when being driven on the road as opposed to on the dynamometer undergoing standard emissions test cycles. To do this, CARB, in coordination with the EPA, repeatedly asked VW questions that became increasingly more specific and detailed, and tested the vehicles themselves. In implementing their strategy of disclosing as little as possible, Neusser, Gottweis, Schmidt, Peter and their co-conspirators provided EPA and CARB with testing results, data, presentations and statements in an attempt to make it appear that there were innocent mechanical and technological problems to blame, while secretly knowing that the primary reason for the discrepancy was their cheating software that was installed in every VW diesel vehicle sold in the United States. The co-conspirators continued this back-and-forth with the EPA and CARB for over 18 months, obstructing the regulators’ attempts to uncover the truth.

The charges in the indictment are merely accusations and each defendant is presumed innocent unless and until proven guilty.

The case was investigated by the FBI and EPA-CID. The prosecution and corporate investigation are being handled by Securities and Financial Fraud Unit Chief Benjamin D. Singer and Trial Attorneys David Fuhr, Alison Anderson, Christopher Fenton and Gary Winters of the Criminal Division’s Fraud Section; Trial Attorney Jennifer Blackwell of the Environment and Natural Resources Division’s Environmental Crimes Section; and from the U.S. Attorney’s Office for the Eastern District of Michigan, Criminal Division Chief Mark Chutkow and White Collar Crime Unit Chief John K. Neal and Assistant U.S. Attorney Timothy J. Wyse. The Justice Department’s Office of International Affairs also assisted in the case. The Justice Department also extends its thanks to the Office of the Public Prosecutor in Braunschweig, Germany.

The Civil Resolutions:

The first civil settlement resolves EPA’s remaining claims against six VW-related entities (including Volkswagen AG, Audi AG and Porsche AG) currently pending in the multidistrict litigation before U.S. District Judge Charles R. Breyer of the Northern District of California. EPA’s complaint alleges that VW violated the Clean Air Act by selling approximately 590,000 cars that the United States alleges are equipped with defeat devices and, during normal operation and use, emit pollution significantly in excess of EPA-compliant levels. VW has agreed to pay $1.45 billion to resolve EPA’s civil penalty claims, as well as the civil penalty claim of CBP described below. The consent decree resolving the Clean Air Act claims also resolves EPA’s remaining claim in the complaint for injunctive relief to prevent future violations by requiring VW to undertake a number of corporate governance reforms and perform in-use testing of its vehicles using a portable emissions measurement system of the same type used to catch VW’s cheating in the first place. Today’s settlement is in addition the historic $14.7 billion settlement that addressed the 2.0 liter cars on the road and associated environmental harm announced in June 2016, and $1 billion settlement that addressed the 3.0 liter cars on the road and associated environmental harm announced in December 2016, which together included nearly $3 billion for environmental mitigation projects.

A second civil settlement resolves civil fraud claims asserted by U.S. Customs and Border Protection (CBP) against VW entities. VW entities violated criminal and civil customs laws by knowingly submitting to CBP material false statements and omitting material information, over multiple years, with the intent of deceiving or misleading CBP concerning the admissibility of vehicles into the United States. CBP enforces U.S. customs laws as well as numerous laws on behalf of other governmental agencies related to health, safety, and border security. At the time of importation, VW falsely represented to CBP that each of the nearly 590,000 imported vehicles complied with all applicable environmental laws, knowing those representations to be untrue. CBP’s relationship with the importing community is one based on trust, and this resolution demonstrates that CBP will not tolerate abrogation of importer responsibilities and schemes to defraud the revenue of the United States. The $1.45 billion paid under the EPA settlement also resolves CBP’s claims.

In a third settlement, VW has agreed to pay $50 million in civil penalties for alleged violations of FIRREA. The Justice Department alleged that a VW entity supported the sales and leasing of certain VW vehicles, including the defeat-device vehicles, by offering competitive financing terms by purchasing from dealers certain automobile retail installment contracts (i.e. loans) and leases entered into by customers that purchased or leased certain VW vehicles, as well as dealer floorplan loans. These financing arrangements were primarily collateralized by the vehicles underlying the loan and lease transactions. The department alleged that certain of these loans, leases and floorplan financings were pooled together to create asset-backed securities and that federally insured financial institutions purchased certain notes in these securities. Today’s FIRREA resolution is part of the department’s ongoing efforts to deter wrongdoers from using the financial markets to facilitate their fraud and to ensure the stability of the nation’s financial system.

Except where based on admissions by VW, the claims resolved by the civil agreements are allegations only.

The civil settlements were handled by the Environmental and Natural Resources Division’s Environmental Enforcement Section, with assistance from the EPA; the Civil Division’s Commercial Litigation Branch; and CBP.


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Ouch, the start of draining their bank account. Wonder how the US will spend this money? Social overkill waste or actually paying some debt?

No matter what, VW will be hurting for a long time.

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      This wasn't the only change made by Volkswagen's supervisory board yesterday. The company will reorganize their passenger car brands into three groups.
      Volume: Seat, Skoda, and Volkswagen Premium: Audi Super Premium: Bentley, Bugatti, Lamborghini, and Porsche Volkswagen's truck division will go into their own separate unit.
      Diess is also planning a review of all the companies under the Volkswagen group umbrella (Ducati motorcycles and Renk, a transmission maker) to see whether it makes sense to keep them.
      "We've lost a great deal of trust with customers. It will be a long, rough road to gain it back," said Diess.
      Source: Automotive News (Subscription Required), 2, Reuters, Volkswagen
      EXTENSIVE REVISION OF VOLKSWAGEN GROUP MANAGEMENT STRUCTURE DECIDED
      Apr 12, 2018
       
      Board of Management and Supervisory Board pave the way for more efficient Group management Group will be organized into six business areas and the China region Dr. Herbert Diess follows Matthias Müller as Chairman of the Group’s Board of Management Supervisory Board thanks Matthias Müller for outstanding service New head of Human Resources and Organization – Gunnar Kilian to follow Karlheinz Blessing Dr. Garcia Sanz leaves the Company at his own request Porsche CEO Oliver Blume appointed to Group Board of Management  
      WOLFSBURG, April 12, 2018 – The Board of Management and Supervisory Board of Volkswagen Aktiengesellschaft have resolved to extensively revise the Group’s management structure. Volkswagen is thus systematically continuing to transform its business and establishing even more efficient Group management in a phase of highly dynamic change in the Company and the entire automotive industry. In order to sustainably implement the new structure, there will be a number of changes on the Board of Management. Matthias Müller steps down as Chairman of the Board of Management by mutual agreement, effective immediately. At its meeting on Thursday, the Supervisory Board appointed Dr. Herbert Diess as his successor.
      Chairman of the Supervisory Board Hans Dieter Pötsch expressly thanked Müller for his dedication: “Matthias Müller has done outstanding work for the Volkswagen Group. He assumed the chairmanship of the Board of Management in the fall of 2015 when the Company faced the greatest challenge in its history. Not only did he safely navigate Volkswagen through that time; together with his team, he also fundamentally realigned the Group’s strategy, initiated cultural change and, with great personal commitment, made sure that the Volkswagen Group not just stayed on track but is now more robust than ever before. For that, he is due the thanks of the entire Company.”
      The introduction of the brand groups Volume, Premium and Super Premium, along with the planned preparation for capital market readiness of Truck & Bus, create the basis for a more subsidiary leadership of the Group. The Chairmen of the Board of Management responsible for the brand groups will be taking on additional Group management roles. Following this reorganization, Herbert Diess will be responsible for Group Development and Research, Rupert Stadler for Group Sales, and Oliver Blume for Group Production.
      Additional Group functions will be allocated according to the same principle. Due to the special significance of vehicle connectivity, Vehicle IT will be led by Herbert Diess himself; Company IT will be headed by Frank Witter. Procurement and Components are to be combined into one unit going forward.
      The new structure streamlines Group management, systematically leverages synergies in the individual operating units and speeds up decision-making. “The Volkswagen Group’s goal is and remains to align the Company and its brands with future needs, to safeguard its position among the leaders of the international automotive industry with innovativeness and profitability and to be instrumental in shaping tomorrow’s personal mobility with the strength of our Group brands. Herbert Diess is the right manager to do that. In realigning the Volkswagen brand, he has demonstrated to impressive effect the speed and rigor with which he can implement radical transformation processes. This accomplishment makes him predestined to fully implement our Strategy 2025 in the decisive years that are now to follow,” Pötsch says.
      “The Volkswagen Group is a union of strong brands with great potential. Matthias Müller has laid the groundwork for our transformation. My most important task will now be to join with our management team and our Group workforce in consistently pursuing and pushing forward our evolution into a profitable, world-leading provider of sustainable mobility. In a phase of profound upheaval in the automotive industry, it is vital for Volkswagen to pick up speed and make an unmistakable mark in e-mobility, the digitalization of the automobile and transportation as well as new mobility services,” Diess says.
      At its meeting today, the Supervisory Board also decided on two new appointments to the Group Board of Management. Dr. Oliver Blume, Chairman of the Board of Management at Porsche, will belong to the Group’s top governing body going forward.
      In addition, Gunnar Kilian, who until now has served as Secretary-General of the Volkswagen Group Works Council, has been appointed the new member of the Group Board of Management for Human Resources. He takes over the post from Dr. Karlheinz Blessing, who served in the role from the beginning of 2016. Dr. Blessing will be leaving the Board of Management by mutual agreement, but remains available to the Company in a consultative capacity for the remaining duration of his employment contract. Pötsch thanked Blessing for his service: “Dr. Blessing has been instrumental in realigning the Group during the past two years. He also contributed with great dedication to the evolution of the VW brand as part of the Volkswagen brand’s Future Pact.
      Dr. Francisco Javier Garcia Sanz, head of Procurement, leaves the Company at his own request. “During the past two decades, Dr. Garcia Sanz has built up a cutting-edge Procurement department. His leadership of the diesel task force was instrumental in overcoming the diesel crisis. As Chairman of the Supervisory Board of the SEAT brand, he also made a significant contribution to reinforcing the brand,” said Pötsch in gratitude. Ralf Brandstätter, Board of Management member responsible for Procurement for the VW brand, will take on this additional role provisionally.

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