Today I continue my exploration of the Battle of the Somme, which began on July 1, 1916. Daniel Todman writing in the Financial Times (FT), in an article entitled “Stories of the Somme”, insightfully noted that for all the failures of leadership and the loss of troops did not affect Britain’s commitment to the war effort. Todman said, “what is surely the key fact of Britain’s Somme: that neither the disastrous losses of the first day nor the months of ensuing struggle led to a widespread popular rejection of the war. Instead, all the suffering upped the political ante: only victory could validate the pouring out of so much blood. The belief that sacrifice must be redeemed kept the great nations of Europe at war past any reason; a point that is important to bear in mind amid the parroted rhetoric of remembrance at the centennial commemorations.”
This commitment, in the face of such horrific losses, may seem hard to understand today but 100 years ago that was called British resolve. I thought about this type of resolve to move forward and persevere as I considered the recently announced settlement by the US government with Volkswagen (VW) over its emissions-testing fraud. I view this scandal as corruption by another name as VW engaged in a nearly decade long effort to defraud government regulators and the general public by lying about whether its diesel engine cars met government mandated standards for pollution.
VW agreed to pay $14.7 billion to settle claims in the US. This includes $10 billion to buy back cars in the US; $2.7 billion in fines to the US Equal Protection Agency; and finally that the company must spend $2 billion to promote zero emission technology. There was a separate settlement with 44 states, Puerto Rico and the District of Columbia for a total amount of $603 million. (Including the great state of Texas which got $50MM). These fine amounts are approximately 20% of the company’s worth. This settlement is for approximately 490,000 US car owners and with the US and state governments only so it does not include the 8.5 million VW car owners in Europe or with EU regulators. Echoing this final thought, EU industrial policy commissioner Elżbieta Bieńkowska said, “European consumers have been cheated in the same way as US customer, so it is only fair to offer comparable compensation without hiding behind legal arguments.”
As difficult as these negotiations with EU regulators may be, at this point they are only over money. However, back in the US, VW’s investigation nightmare may be far from over. Deputy Attorney General Sally Yates (of Yates Memo fame) was quoted in the Wall Street Journal (WSJ) for the following, “Volkswagen turned nearly half a million American drivers into unwitting accomplices in an unprecedented assault on our country’s environment.” She went on to call “the deception “one of the most flagrant violations” of “environmental and consumer laws in our country’s history.””
The WSJ went on to note, “A related criminal probe examining “multiple companies” and “multiple individuals” is continuing, Ms. Yates said, with investigators still reviewing roughly 1.5 million Volkswagen documents. Potential civil and criminal penalties imposed by the Justice Department also loom.” The FT added additional remarks by Yates, “The settlements do not address any potential criminal liability, although I can assure you our criminal investigation is active and ongoing. We’ll follow the facts wherever they go and make a determination about whether any companies or individuals should be criminally charged.”
Given the tighter focus on individual criminal liability for white collar crimes, as laid out by Ms. Yates in the Memo which bears her name, it may well be the Department of Justice (DOJ) could try and prosecute individuals in a manner they did not attempt in the General Motors (GM) ignition switch scandal and for which the DOJ was widely assailed. One must note that many, if not all, of the individuals would be in Germany so obtaining jurisdiction over them and bringing them to the US to stand trial might well be a very difficult endeavor.
Also noted in the FT piece was an interesting note that “the probe has already spread along VW’s supply chain. The so-called defeat devices contained components from other manufacturers that prosecutors are also investigating.” This could open up a new area of risk and risk evaluation for companies. What if your product could be used in a system designed to violate a law or environmental regulation such as the emissions output from a diesel engine? What level of knowledge or intent must you have to be liable? At this point in the VW scandal and investigation we do not have any answer, only questions.
Another question open from this settlement is around banking and financial institutions. As with most auto manufacturers, VW had its own financing arm; both for customers and dealer floor room financing. In an article in the New York Times (NYT), it reported that New York State’s financial regulators were investigating the financing arm over whether VW had over-charged for cars that did not meet environmental regulations. Finally, there is an insurance investigation, as the state of New York’s Department of Financial Services has “also sought information from the German automaker on insurance coverage required for Volkswagen and Audi cars financed or leased in the US.”
All of these open investigations and issues make clear that this is not the beginning of the end for VW and its woes but, perhaps, only the end of the beginning.
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