Volkswagen Said Focus of U.S. Criminal Probe on Emissions

Updated on
Volkswagen Could Face Criminal Probe on Emissions

The U.S. Justice Department is investigating Volkswagen AG over its admission that it cheated on federal air pollution tests, according to two U.S. officials familiar with the inquiry.

That adds the specter of criminal proceedings to challenges the world’s biggest automaker already faces from regulators, lawmakers and vehicle owners in the three days since it admitted that it had rigged diesel vehicles to pass emissions tests in the lab. The vehicles emitted as much as 40 times the legal limit of pollutants when they were on the road, the Environmental Protection Agency alleges.

The criminal probe, which the officials described on condition of anonymity because it is continuing, will provide an early test of the Justice Department’s newly stated commitment to holding individuals to account for corporate wrongdoing. Earlier this month, the department said companies that want credit for cooperating with investigators must name individuals they allege are responsible for misconduct.

The probe is being led by the Justice Department’s Environment and Natural Resources Division, which prosecutes violations of pollution-control laws, according to the officials. Wyn Hornbuckle, a department spokesman, declined to comment.

‘Defeat Device’

Wolfsburg, Germany-based Volkswagen said on Sept. 18 that it used “defeat device” software to sway emissions tests, adding that it’s cooperating with U.S. officials. The admission, which sent shares to their lowest level in more than three years on Monday, puts pressure on Chief Executive Officer Martin Winterkorn to repair the damage just days before a supervisory board is scheduled to vote on renewing his contract.

Winterkorn, who has led VW since 2007, halted sales of the cars on Sunday and issued a public apology, saying he’s “deeply sorry” for breaking the public’s trust and that VW would do “everything necessary in order to reverse the damage this has caused.”

The ultimate extent of such damages is unclear. The Justice Department could attempt to make a case using criminal provisions in the Clean Air Act related to emissions controls. But even without such environmental laws, Volkswagen’s alleged conduct could have broken general fraud laws, said Daniel Richman, a former prosecutor who teaches at Columbia Law School in New York.

Criminal inquiries can take months or years and lead to charges against individuals or companies. They can result in fines and deferred-prosecution agreements, such as the one recently struck with General Motors Co., to spur companies into improving their behavior and addressing problems revealed during the investigations.

Possible Charges

Several lawyers and legal analysts saw the matter as potentially costly for the company, its executives and its reputation.

“If the allegations against VW can be proven, criminal charges are possible against VW and any culpable individuals for conspiracy, fraud, false statements and concealment of the defeat device,” said David Uhlmann, a law professor at the University of Michigan in Ann Arbor.

That raises the possibility that U.S. prosecutors could pursue German-based executives. The Justice Department has brought charges against foreign nationals abroad, including those accused of rigging markets or paying bribes connected to international soccer. It’s not a given that such individuals will sent to the U.S. for trial, however, and the extradition process can take years.

The European Commission said it’s taking allegations about VW seriously and is in contact with U.S. regulators and the company.

EPA Penalties

The matter could cost Volkswagen $18 billion in penalties with the EPA, based on a maximum $37,500 violation for each of nearly a half-million diesel versions of the VW Jetta, Golf, Beetle and Passat and the Audi A3.

“They’re in a perfect storm of multi-billion-dollar litigation that could drag on for years, and that’s only in the U.S.,” said Brandon Barnes, energy litigation analyst at Bloomberg Intelligence.

Volkswagen’s tally could exceed $20 billion, Barnes estimated, more than the $18.7 billion that BP Plc paid in relation with the Deepwater Horizon oil spill in the Gulf of Mexico. Included in his tally is the potential for suits from shareholders arguing the company concealed information in a way that inflated share prices, Barnes said.

He also added lawsuits by consumers who say Volkswagen fraudulently induced them to pay a premium for clean diesel cars. At least nine such suits have been filed since Friday, including two by Hagens Berman Sobol Shapiro LLP, the firm that led the $1.6 billion settlement with Toyota Motor Co. over lost vehicle value tied to unintended acceleration.

Hearing Planned

A House Energy and Commerce subcommittee will hold a hearing on the matter in the coming weeks, said committee Chairman Fred Upton, a Michigan Republican, and Pennsylvania Republican Tim Murphy, chairman of the oversight and investigations subcommittee.

Top Volkswagen supervisory board members will convene on Wednesday, according to two people with knowledge of the plans, who asked not to be named because the meeting is private.

The U.S. accusations are “grave” and must be clarified swiftly, said Stephan Weil, prime minister of the German state of Lower Saxony, which owns 20 percent of Volkswagen’s voting shares. “Possible consequences can be decided after that.”

While the Justice Department could levy its own fines, it could give the company credit for fines paid as part of any EPA settlement.

“They don’t want to put VW out of business,” said Timothy Heaphy, a former U.S. Attorney for the Western District of Virginia. “They want a fine that has consequences, and hurts -- but not hurts to the degree it puts people out of jobs.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE