One of the primary roles of criminal defense counsel is to assess risk. Among other things, they rely on understanding of the law, knowledge of prosecuting and investigating agencies, relationships with those offices, experience representing similarly-situated individuals or corporations, and familiarity with judges and the types of sentences they are likely to impose. It is likely the most critical and most stressful service provided to clients.

For those in the white collar sphere, headline-making settlements and plea agreements can contribute to the development of their ability to assess risk. They often telegraph a change in policy at the Department of Justice or a new approach to a particular type of investigation.

This week’s dramatic announcement that Volkswagen would pay  a $4.3 billion settlement and plead guilty in connection with the emissions scandal provides critical insights into the Department’s approach to large scale corporate investigations.

In early 2014, a study by West Virginia University raised questions over Volkswagen’s diesel motors. Thereafter, the Environmental Protection Agency and other U.S. regulators began investigating the emissions standards tests for Volkswagen’s diesel cars. Ultimately, it was determined that Volkswagen was using an illegal “defeat device” to cheat on emissions standards tests. The “defeat device” is actually computer code in a car’s electronic control unit that is triggered during emissions tests. The software temporarily cuts emissions so that the engine appears to be much cleaner than it actual is during normal operation. Once on the road, the controls are switched off. It is believed that the nitrogen oxide released by these cars were up to 40 times the levels allowed by the Clean Air Act.

Early on in the investigation, Volkswagen executives took steps to prevent regulators from discovering the “defeat devices.”  In particular, Oliver Schmidt, a former emissions compliance manager for Volkswagen in the United States, attempted to convince regulators that the excess emissions were caused by technical problems rather than intentional deception. On January 25, 2016, Mr. Schmidt testified before the UK’s House of Commons that the defeat devices were not illegal.

In June 2016, Volkswagen agreed to pay a $15 billion settlement in a civil suit. The Justice Department noted that the settlement was a first step and that criminal charges would be actively pursued. This is notably one of the largest consumer class-action settlements in the United States. Over 500,000 cars were involved.

Next, Volkswagen confessed to their conduct and agreed to pay an additional $1.2 billion to dealers in the United States.

In the first of criminal charges stemming from the investigation, on September 9, 2016, a Volkswagen engineer pleaded guilty to conspiring to defraud regulators and car owners. James Robert Liang was integral to the development of software used to cheat on pollution tests in the United States. Mr. Liang is actively cooperating with the government and has yet to be sentenced.

On January 9, 2017, the FBI arrested Oliver Schmidt for conspiring to defraud the United States.  He was arrested as he attempted to board a plane to Germany. Germany does not typically extradite its citizens for prosecution by other jurisdictions.

Most recently, on January 11, 2017, the Department of Justice announced criminal charges against 6 Volkswagen executives, including Oliver Schmidt, for their role in the emissions scandal. Volkswagen also formally pleaded guilty to conspiracy to commit wire fraud and violate the Clean Air Act.

Insights

  • The Volkswagen investigation stands in sharp contrast to other recent auto-related investigations. In settlements with General Motors and Toyota, both companies agreed to pay large fines, but did not plead guilty.
  • Volkswagen’s cover-up and delayed acceptance of responsibility likely angered regulators and contributed to the aggressive nature of the investigation.
  • The Department of Justice is seeking more accountability from executives and corporations in the resolution of these sorts of investigations. The Deputy Director of the FBI commented during the most recent press conference that “this case is a great example of the fact that no corporation is too big, no corporation is too global, and no person is beyond the law.”
  • Volkswagen will likely be required to appoint an independent monitor for at least three years. This also appears to represent a trend in the resolution of these large-scale corporate investigations.

 

 

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Leech Tishman Fuscaldo & Lampl is a full-service law firm dedicated to assisting individuals, businesses, and institutions. Leech Tishman offers legal services in alternative dispute resolution, bankruptcy & creditors’ rights, construction, corporate, employee benefits, employment, energy, environmental, health & safety, estates & trusts, family law, government relations, immigration, insurance coverage & corporate risk mitigation, intellectual property, international legal matters, litigation, real estate, and taxation. Headquartered in Pittsburgh, PA, Leech Tishman also has offices in Chicago, Los Angeles, New York and Wilmington, DE.