Volkswagen facing ‘tsunami’ of legal trouble in emissions scandal

27 Sep 2015 | Author: | No comments yet »

Reports: VW warned about illegal emissions tricks many years ago.

Those are among questions that state and federal investigators want answered as they plunge into the emissions scandal at Volkswagen that has cost the chief executive his job, caused stock prices to plummet and could result in billions of dollars in fines. BERLIN • Volkswagen’s own staff and one of its suppliers warned years ago about software designed to thwart emissions tests, two German newspapers reported on Sunday, as the automaker tries to uncover how long its executives knew about the cheating.

Berlin: Volkswagen ignored warnings from staff and a supplier years ago that the emission test rigging software that sparked the company’s worst ever corporate scandal was illegal, news reports said Sunday. Legal experts say the German automaker is likely to face significant legal problems, including potential criminal charges, arising from its admission that 11 million of its diesel vehicles sold worldwide contained software specifically designed to help cheat emissions tests. The world’s biggest automaker is adding up the cost to its business and reputation of the biggest scandal in its 78-year history, having acknowledged installing software in diesel engines designed to hide their emissions of toxic gasses. German authorities meanwhile heaped pressure on the embattled corporate titan, demanding it set out a timeline by October 7 on how it will ensure its diesel cars meet national emission standards without using the cheat technology. The Environmental Protection Agency has accused VW of installing sophisticated stealth software that enabled “clean diesel” versions of its Passat, Jetta, Golf and Beetle models to detect when they were being tested and emit less-polluting exhaust than in real-world driving conditions.

The agency says the “defeat devices” allowed those models to belch up to 40 times the allowed amounts of harmful fumes in order to improve driving performance. “If there is sufficient evidence to show that Volkswagen intentionally programmed its vehicles to override the emission control devices, the company and any individuals involved could face criminal charges under the Clean Air Act, and for conspiracy, fraud and false statements,” said David M. Last Friday, after a marathon crisis session, the carmaker’s board tapped company insider Matthias Mueller — chief of its luxury sports car brand Porsche — to steer the world’s largest automaker out of the wreckage. He called criminal charges “almost certain.” But Uhlmann cautioned that hauling the executives involved into a U.S. courtroom could be challenging because much of the conduct at issue probably occurred overseas. The Frankfurter Allgemeine Sonntagszeitung, citing a source on VW’s supervisory board, said the board had received an internal report at its meeting on Friday showing VW technicians had warned about illegal emissions practices in 2011. Mueller, 62, who replaces Martin Winterkorn as CEO, pledged that “we will overcome this crisis” and vowed to restore confidence through “an unsparing investigation and maximum transparency”.

While the U.S. has an extradition treaty with Germany, European regulators are also now investigating and could claim first dibs on prosecuting company officials. But an internal probe has already unearthed more troubling news for VW, as it faces judicial penalties and class action lawsuits, according to German newspaper reports Sunday. Separately, Bild am Sonntag newspaper said VW’s internal probe had turned up a letter from parts supplier Bosch written in 2007 that also warned against the possible illegal use of Bosch-supplied software technology. In July 1973, the agency found that VW had installed temperature-sensitive devices that turned off emissions controls on about 25,000 Fastback, Squareback and bus models. The paper did not cite a source for its report. “There are serious investigations underway and the focus is now also on technical solutions” for customers and dealers, a Volkswagen spokesman said. “As soon as we have reliable facts we will be able to give answers.” Bild said Martin Winterkorn, who quit as Volkswagen CEO last week, was demanding his salary for the rest of his contract through the end of next year but the board did not want to pay it.

CEO Martin Winterkorn resigned on Wednesday, and Volkswagen announced it would set aside $7.3 billion to cover the cost of the scandal, but even that may not be enough. It said that would leave 40,000 cars stuck on Italian lots. “As a precautionary measure, we ask that you suspend immediately the sale, registration and delivery only of vehicles carrying the Euro 5, EA 189 motor,” the newspaper quoted Massimo Nordio, chief executive office of Volkswagen’s Italian unit, as writing in a letter to dealers.

If Volkswagen fails to comply, the KBA warned in a two-page letter, the authority could withdraw approval for the affected models, meaning they could no longer be sold or even moved on German roads, the report said. In Volkswagen’s home market Germany, where 2.8 million of the 11 million affected diesel cars are on the road, the government watchdog KBA has set an Oct. 7 deadline for the company to present a plan to bring diesel emissions into line with the law, Bild reported.

The European Commission said Friday that a new testing procedure will come into force in January, because the current laboratory tests do “not reflect the emissions of vehicles in normal driving conditions”. The transport ministry said the KBA had written to VW demanding it “commit to concrete steps and a timetable” to ensure its cars in Germany meet requirements. EU sources said the change aims to prevent the sort of rigging used by VW after research over several years had shown a difference between lab results and those found in real driving conditions. The German group has suffered its biggest crisis in the same year it had reached its long-time goal — overtaking the Japan’s Toyota as the world’s top car maker by sales. Investigators will almost certainly look for any false statements made to the EPA and for signs that VW has tried to conceal wrongdoing or obstruct regulators.

Since the revelation, it has been hit by a cascade of bad news, including the threat of massive fines for which VW has set aside €6.5 billion (Dh26.7 billion) in provisions for the third quarter. VW in the United States has stopped the sale of new diesel cars, while Switzerland has ordered a temporary halt to sales of the group’s new diesels. And money laundering allegations will be explored if investigators suspect that VW sent illicit proceeds overseas. “If a software package such as this were intentionally designed to defeat the emissions testing, there may well be email traffic, meetings, records that would establish that intent,” said Gregory Linsin, a former environmental crimes prosecutor at the Justice Department. Volkswagen’s shareholders — dominated by the Porsche SE holding company, a separate entity to the luxury brand — are expected to hold emergency talks in Berlin on November 9. German Environment Minister Barbara Hendricks, speaking to the Handelsblatt daily, said the scandal “casts a pall on the environmental promises of German companies”.

The last two major criminal investigations against auto companies — Toyota and General Motors — yielded massive fines over car safety problems but has resulted in no prosecutions of executives. Volkswagen and other European manufacturers have promoted “clean diesel” technology, benefiting from diesel’s fuel economy but meeting stringent tests for emissions of toxins.

The chief of German luxury auto giant Daimler, Dieter Zetsche, told the FAS it was too early to assess the negative impact on Germany’s crucial car sector, adding: “I hope the damage isn’t permanent.” Those outcomes dismayed consumer watchdog groups and grieving victims’ relatives, who demanded better accountability for failure to disclose vehicle defects.

But the suggestion that this was achieved by cheating on tests could affect the viability of the entire diesel sector and the fate of companies that have bet on it. A memo this month by Deputy Attorney General Sally Yates sought to reaffirm the Justice Department’s commitment to prosecuting employees and executives, directing among other policy mandates that corporations pushing for credit for cooperating with the government must first turn over evidence against individuals. “Volkswagen has a fundamental choice to make,” said Uhlmann, the former prosecutor. “That is whether it intends to cooperate and seek leniency, or whether it wants to fight the charges.

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