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Volkswagen agrees to plead guilty to criminal charges and pay $2.8 billion for cheating on emissions tests

Volkswagen 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 about 590,000 diesel vehicles in the United States by using a defeat device to cheat on emissions tests and lying to further the scheme, the U.S. Justice Department said Wednesday.

In separate civil resolutions of environmental, customs, and financial claims, VW has agreed to pay $1.5 billion. This includes the U.S. Environmental Protection Agency’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 claims for customs fraud. In addition, the EPA agreement requires overview to prevent future violations.

The criminal case

VW has agreed to plead guilty to taking part in a conspiracy to defraud the United States and VW’s U.S. customers and to violating the Clean Air Act by lying about whether some VW, Audi, and Porsche diesel vehicles complied with U.S. emissions standards.

VW is also charged with obstruction of justice for destroying documents related to the scheme, and with a separate crime of importing cars into the U.S. by using false statements about the vehicles’ compliance with emissions limits. Under the agreement, which needs to be accepted by the court, VW will plead guilty to these crimes, will be on probation for three years, and will be under an independent monitor who will oversee the company for at least three years. VW also will agree to cooperate in the Justice Department’s ongoing investigation and the prosecution of individuals responsible for these crimes.

In addition, a federal grand jury indicted six VW executives and employees on Wednesday 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 U.S., 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.

Schmidt was arrested on Jan. 7, in Miami during a visit to the U.S. and appeared in federal court there on Monday. The other defendants live in Germany.

“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 U.S. Attorney General Lynch.

“When Volkswagen broke the law, EPA stepped in to hold them accountable and address the pollution they caused,” said EPA Administrator McCarthy.

“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.”

According to the indictment, the individuals had the following positions in 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.
  1. Jens Hadler: from May 2007 until March 2011, Hadler worked for VW as head of Engine Development for VW.
  1. 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.
  1. Bernd Gottweis: from 2007 until October 2014, Gottweis worked for VW as a supervisor with responsibility for Quality Management and Product Safety.
  1. 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.
  1. 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 court documents, 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 U.S. 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 couldn’t design a diesel engine that would both meet the stricter nitrous oxide emissions standards and attract enough customer demand in the U.S. market, they decided they’d use software to cheat standard U.S. emissions tests.

VW engineers working under Dorenkamp and Hadler designed software to recognize whether a vehicle was undergoing standard U.S. emissions testing or it was being driven on the road. If the vehicle’s software detected it was being tested, the vehicle performed in one mode, which satisfied U.S. NOx emissions standards. If the software detected that the vehicle wasn’t being tested, it operated in a different mode, in which the vehicle’s emissions control systems were reduced, causing the vehicle to emit NOx up to 40 times higher than U.S. standards.

Disagreements over the project occurred at a meeting Hadler presided over, and that Dorenkamp attended. Hadler authorized Dorenkamp to proceed with the project knowing that only the use of the defeat device software would allow 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 oversaw the installation of defeat device software into the vehicles imported and sold in the U.S. To sell their “clean diesel” vehicles in the U.S, the co-conspirators lied to the EPA about their test-cheating software, hiding it from the EPA, the California Air Resources Board, VW customers, and the U.S. public. Dorenkamp, Neusser, Hadler, Gottweis, Schmidt, Peter, and their co-conspirators then marketed VW diesel vehicles to the U.S. public as “clean diesel” and environmentally friendly.

Around 2012, hardware failures developed in some 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 wouldn’t 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 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 they knew it was used to more quickly deactivate emission control systems when the vehicle wasn’t undergoing emissions tests.

After years of VW selling their “clean diesel” vehicles in the U.S. 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. The ICCT study identified discrepancies in the NOx emissions from some 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.

After 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 compared to 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 carrying out their strategy of disclosing as little as possible, Neusser, Gottweis, Schmidt, Peter, and their co-conspirators provided the 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 main reason for the discrepancy was their cheating software that was installed in every VW diesel vehicle sold in the U.S.

The co-conspirators continued this back-and-forth with the EPA and CARB for more than 18 months, obstructing the regulators’ attempts to uncover the truth, the department said.

The criminal investigation is ongoing, Lynch said at a press conference, adding she wouldn't comment on whether other individuals would be indited.

Copyright 2017, Rita R. Robison, Consumer Specialist

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