DETROIT — German automaker Volkswagen said Tuesday it plans to admit guilt to settle criminal and civil investigations brought by U.S. officials related to its diesel emissions cheating scandal, a rare admission of criminal wrongdoing by a major company.
The settlement, which Volkswagen said is in “advanced discussions,” also calls for the company to pay $4.3 billion in fines.
In another unusual move, the FBI this week arrested a Volkswagen employee for allegedly participating in the scheme to deceive U.S. regulators. A second Volkswagen worker pleaded guilty in September to fraud charges. Court documents indicate that investigators are looking at other autoworkers, as well.
VW’s admission of guilt struck analysts as both a sign of the strength of the government’s case and the fastest route for an automaker trying to escape damaging headlines that have poured out for more than a year, since the scandal broke.
It also stands in contrast to recent cases involving other automakers — including Toyota’s problem with the sudden acceleration of its cars and GM’s deadly problem with faulty ignition switches — when companies paid hefty fines but did not admit criminal wrongdoing.
David Uhlmann, who served as head of the Justice Department’s environmental crimes section from 2000 to 2007, saw VW’s expected admission as a hopeful sign.
“The Justice Department needs to move past its willingness to allow companies like VW to buy their way out of criminal prosecution—as Toyota and GM were able to do,” said Uhlmann, a University of Michigan law professor.
The late-stage deal with the Department of Justice and U.S. Customs and Border Protection is still subject to the approval of Volkswagen’s management and board of directors, the company said. Those bodies are set to meet Tuesday or Wednesday.
If it receives their support, the settlement must then be approved in court. Volkswagen then will also be required to have an independent monitor oversee its business for the next three years to ensure regulatory compliance.
The scandal affected 11 million cars around the world, including roughly half a million in the U.S.
The agreement comes three months after a U.S. District judge signed off on a separate settlement that requires Volkswagen to pay regulators and car owners $14.7 billion — the largest penalty levied against an automaker in U.S. history. Most of that money will be used to buyback cars and otherwise compensate impacted customers; smaller portions are allocated for efforts to mitigate the environmental damage and promote zero-emission cars.
“When you break the laws designed to protect public health in this country, there are serious consequences,” Environmental Protection Agency Administrator Gina McCarthy said at a June 2016 news conference when the penalty was announced.
In September 2015 the EPA issued a violation notice that Volkswagen had outfitted its diesel cars with software that recognized when the vehicle’s emissions were being tested. The car then activated a mechanism to reduce its emissions at the expense of engine performance. When not being tested, however, the cars actually emitted 40 times more nitrogen oxide than Clean Air Act regulations permit.
The scandal has not greatly impacted car sales. Volkswagen announced Tuesday that worldwide sales in 2016 rose by 3.8 percent from the year before, though U.S. sales were off by 2.6 percent.
Kelley Blue Book analyst Karl Brauer said Volkswagen sales took their hardest hit in the United States at the end of 2015. The scandal continued to drag down sales in the United States throughout 2016, albeit modestly, and the company’s global sales were buoyed by China and Europe, where Volkswagen is a bigger player in the market.
“Generally, Americans don’t have a super long memory when it comes to automotive scandals,” Brauer said. “So they didn’t grow [in the U.S.] this year, but they didn’t suffer further.”
But the scandal continues to unfold for executives at Volkswagen.
A Volkswagen executive was arrested in Miami over the weekend and charged with conspiracy to defraud the government. Oliver Schmidt, a German resident who had served as the executive in charge of the company’s emissions compliance in the United States, did not enter a plea in court on Monday. The Department of Justice asserts that Schmidt knew the software falsified emissions tests but kept that information hidden from regulators.
In September, another Volkswagen employee, engineer James Liang, pled guilty to defrauding U.S. regulators and customers. Prosecutors contend that Liang was among the employees who created the deceptive software after realizing Volkswagen’s diesel engine could not meet stiffening environmental standards.
On Tuesday, shares of Volkswagen ended regular trading modestly higher, but about 42 percent lower than when they reached their all-time high a few months before news of the scandal widely broke in late 2015.
Executives have since apologized for the emission scandal and pledged to expand their fleet of eco-conscious vehicles. In June, Volkswagen vowed to debut 30 new electric vehicles by 2025, an aggressive time frame during which the company also plans to invest in batteries, digitization and autonomous driving.
At the North American International Auto Show in Detroit, executives told reporters they were seeking to rebuild the country’s trust in the brand. The company unveiled a new version of the Tiguan crossover and a modern, concept version of its classic microbus that is electric and self driving.
Volkswagen certainly isn’t the first automaker to run afoul of the federal government.
In 2015, the Department of Justice ordered GM to pay $900 million for an ignition switch defect that was tied to at least 174 deaths. The company and its executives faced no criminal charges despite accusations of misleading safety regulators and delaying potentially lifesaving decisions.
A year prior, Toyota was told to pay $1.2 billion for deceiving regulators about a glitch that caused some of its cars to accelerate suddenly. The defect also lead to fatal car wrecks and safety concerns among owners of the brand. At the time, the settlement was the largest fine ever imposed by the Justice Department on a car company. Toyota also avoided criminal charges.
“VW had little chance of getting off that easily in light of deliberately installing the cheating software and denying doing anything wrong until it was caught red handed,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business.
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