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VW Engineer Pleads Guilty in U.S. Criminal Case Over Diesel Emissions VW Engineer Pleads Guilty in U.S. Criminal Case Over Diesel Emissions
(about 7 hours later)
A Volkswagen engineer pleaded guilty on Friday to conspiring to defraud regulators and car owners, in the first criminal charges stemming from the American investigation into the German carmaker’s emissions deception.A Volkswagen engineer pleaded guilty on Friday to conspiring to defraud regulators and car owners, in the first criminal charges stemming from the American investigation into the German carmaker’s emissions deception.
The case against the engineer, James Robert Liang, who pleaded guilty in United States District Court for the Eastern District of Michigan, adds to the pressure on the company, as Volkswagen faces criminal investigations and lawsuits around the world. The plea by the engineer, James Robert Liang, a Volkswagen veteran, suggests that the Justice Department is trying to build a larger criminal case and pursue charges against other higher-level executives at the carmaker.
Volkswagen last year admitted to equipping 600,000 diesel vehicles in the United States with so-called defeat devices, software that helped the cars evade emissions rules by spewing far fewer pollutants in test conditions than on the open road. Mr. Liang was central in the development of software that Volkswagen used to cheat pollution tests in the United States, which the company admitted last year to installing in more than 11 million diesels vehicles worldwide. He was also part of the cover-up, lying to regulators when they started asking questions about discrepancies in emissions.
The Justice Department said that Mr. Liang, who has worked for Volkswagen since 1983, was cooperating with its continuing investigation. Mr. Liang admitted that he and other engineers at Volkswagen had developed a defeat device to cheat emissions tests in the United States. He faces a maximum sentence of five years in prison. Mr. Liang’s admissions, made in the United States District Court for the Eastern District of Michigan, portray a broader conspiracy by executives, making Mr. Liang a potentially valuable resource for the developing criminal investigation. The Justice Department said Mr. Liang, who faces a maximum sentence of five years in prison, would cooperate.
The financial toll from the deception has been significant for Volkswagen. The company reached a $15 billion settlement with car owners in the United States, and a further $1.2 billion to dealers. The Volkswagen case comes at a time when the government is trying to get tough on white-collar crime and hold more individuals responsible. After being criticized for going soft on executives, the Justice Department introduced new policies last year that emphasized the prosecution of individual employees. And the Volkswagen case provides one of the first real tests of the government’s commitment.
The case has also hurt the bottom line. In the second quarter of this year, net profit for the company as a whole fell by more than half to 1.2 billion euros, or roughly $1.35 billion. The company’s share price is off by more than a quarter since it admitted to the diesel deception. The Volkswagen case has escalated quickly. In June, the Justice Department and other agencies secured a record $15 billion settlement in a civil suit with the company. At the time, officials were quick to note that the settlement was just a first step, saying they would aggressively pursue a criminal case against the company and individuals.
“Volkswagen is continuing to cooperate with the U.S. Department of Justice,” Jeannine Ginivan, a spokeswoman for Volkswagen, said in an email. She said that the automaker had no comment on the case against Mr. Liang, however. “There’s considerable pressure on the Department of Justice to see how far up the chain of management the knowledge goes,” said Daniel Riesel, a principal at the New York-based environmental law firm Sive, Paget & Riesel.
In its indictment, the Justice Department outlined a decade-long conspiracy to mislead regulators and Volkswagen customers over the company’s “clean diesel” technology. And Mr. Liang was one of the engineers directly involved in that deceit, it said. One way for investigators to do that was “to indict and cut deals with lower-level people,” he added. Mr. Liang is “a high enough official who is culpable on his own right, and maybe in a position to start unraveling this chain of responsibility.”
In 2006, Mr. Liang and other engineers in Volkswagen’s diesel development department in Wolfsburg, Germany, began designing a new diesel engine that executives hoped would lead the automaker’s push into the American market. But his team faced a dilemma: Meeting stricter emissions standards that would be in effect the next year meant compromising on mileage and design. The Justice Department and several attorneys general have outlined a vast conspiracy that stretched back more than a decade. Mr. Liang’s case followed the same broad strokes. Mr. Liang was also named as a main suspect in a suit filed against Volkswagen on Thursday by William H. Sorrell, the attorney general of Vermont.
Rather than make those compromises, Mr. Liang and his team created software that recognized whether a car was undergoing emissions testing or being driven on the road under more normal driving conditions. If the software detected that the car was being tested, the vehicle’s full emissions control systems would kick in, ensuring it passed testing standards. But on the road, those control systems were scaled back substantially, according to Mr. Liang’s guilty plea. Three state attorneys general have also claimed that Volkswagen’s fraud reached deep into the company’s boardroom, all the way to its former chief executive, Martin Winterkorn. The New York suit suggested that Matthias Müller, Volkswagen’s current chief executive, was aware that some vehicles had inadequate pollution control systems.
In 2008, Mr. Liang moved to California to help with the introduction of Volkswagen’s new “clean diesel” vehicles in the United States. In meetings with the Environmental Protection Agency and the California Air Resources Board, Mr. Liang and other engineers lied about Volkswagen’s diesel technology and emissions control systems, saying they were fully compliant with federal and state laws, the plea agreement said. Volkswagen has maintained that the deception was limited to a small group of people and that top management was not aware of the cheating software. Volkswagen has denied that Mr. Müller was aware of any wrongdoing.
Even when independent testing carried out in 2014 by a nonprofit group pointed to discrepancies in emissions from some Volkswagen cars, prompting an investigation by the E.P.A. and the California board, the engineers scrambled to offer excuses. The company would not comment on Mr. Liang’s case, saying that it would continue to cooperate with the investigation. Mr. Liang’s lawyer, Daniel V. Nixon, did not respond to a request for comment.
In an email dated July 2, 2015, and quoted in the indictment, an unnamed Volkswagen employee sought advice on how to respond to questions from regulators, noting that “the key word ‘creativity’ would be helpful here.” And in a calendar invitation sent to Mr. Liang and other team members later that month, a Volkswagen employee, also unnamed, warned that regulators are “still waiting for Answers.. We still have no good explanations!!!!!” Mr. Liang’s knowledge of the deception, laid out in the plea agreement, could provide important building blocks for the investigation.
It is unclear whether Mr. Liang’s cooperation will lead to indictments against higher-level executives at Volkswagen. Three state attorneys general have claimed that Volkswagen’s fraud reached deep into the company’s boardroom and all the way to Matthias Müller, Volkswagen’s chief executive. Mr. Liang, who has worked for Volkswagen since 1983, was among one of the company’s most prominent and respected engine developers. He is credited as the inventor in at least one European patent related to motor technology.
Volkswagen has maintained that the deception was limited to a small group of people. The company has said top management was not aware of the cheating software. As Volkswagen moved aggressively to capture a bigger share of the American market, Mr. Liang was part of a team of engineers at the company’s headquarters in Wolfsburg, Germany, tapped in 2006 to develop a new diesel engine. The engine needed to comply with stricter emissions standards in the United States, which would take force the next year.
But the team faced a dilemma. To meet the new rules, it would have to compromise on mileage and design, a potentially costly change.
Rather than take that risk, Mr. Liang and his team found another option: software that would trick the tests.
If the so-called defeat device detected that the car was being tested, the full emissions control systems would kick in, throttling back the pollution spewing from the vehicle. On the road, those control systems were scaled back substantially, according to Mr. Liang’s guilty plea. Those nitrogen oxide emissions, in some cases, were up to 40 times the legal limit.
Mr. Liang moved to California in 2008 to help with the introduction of Volkswagen’s new “clean diesel” vehicles in the United States. When Mr. Liang and other engineers met with regulators to certify the vehicles, they misrepresented the cars, according to the plea agreement. Hiding the existence of the defeat device, they said the cars were fully compliant with federal and state laws.
By 2014, independent testing started to find discrepancies with Volkswagen’s emissions. But Mr. Liang and others continued to lie, as they scrambled to find explanations that would appease regulators.
In an email dated July 2, 2015, an unnamed Volkswagen employee sought advice on how to respond to questions from regulators, noting that “the key word ‘creativity’ would be helpful here,” according to the indictment. Later that month, a Volkswagen employee warned, in a calendar invitation sent to Mr. Liang and other team members, that regulators are “still waiting for Answers. We still have no good explanations!!!!!”
“This is just the first shoe to drop in the Volkswagen criminal case,” said David M. Uhlmann, a former chief of the Justice Department’s Environmental Crimes Section and a law professor at the University of Michigan.
“The facts make it a stronger case for individual accountability, because the defeat device can’t be installed in a car by accident,” he added. “There just appears to have been so much deception involved.”
A couple of months later, Volkswagen confessed — wrongdoing that has taken a significant financial and reputational toll on the company. Along with the $15 billion settlement, it agreed to pay $1.2 billion to dealers in the United States. Its profit has tanked. Its share price has sunk.
Increasing the criminal investigation only adds to the pressure on the company. But the Justice Department is stepping into complicated territory with Volkswagen.
Germany does not usually extradite its own citizens, so American authorities would not likely be able to arrest Volkswagen employees there unless they surrendered voluntarily. The Justice Department could put pressure on other Volkswagen employees simply by indicting them. The suspects would not be able to leave Germany without risking arrest.
German prosecutors in the state of Lower Saxony, where Volkswagen is the backbone of the local economy, have been conducting their own investigation. But they have said they do not expect it to conclude until the end of the year.
The action by American authorities may put pressure on the German prosecutors to aggressively pursue criminal charges. The prosecutor’s office in Lower Saxony did not immediately reply to requests for comment.