Written by Jake Plenderleith on Thursday February 9, 2017
We examine the case of automotive giant Volkswagen, the most recent household name to be hit by US authorities for breaching laws and regulations.
The $4.3 billion penalty was issued after Volkswagen pleaded guilty to conspiracy to defraud the US and Volkswagen US customers, along with violations of environmental regulations.
The charges relate to Volkswagen intentionally deceiving regulators as to the diesel emissions their vehicles emitted.
Concerns were raised by Volkswagen employees as far back as 2006, who, after reporting their unease about installing ‘defeat devices’ to fool US diesel emissions tests, were told by the head of Volkswagen brand engine development to carry on with the practice and ‘not to get caught’.
A Volkswagen whistleblower informed US regulators about the devices in August 2015.
Six former Volkswagen executives have additionally been charged with defrauding the US and Volkswagen’s US customers with four of them indicted on wire fraud charges.
Volkswagen has even reportedly advised senior managers not to travel to the US, after one of the six employees charged, Oliver Schmidt, was arrested at Miami International Airport on January 7 this year.
The total fine is made up of a $2.8 billion criminal fine and a $1.5 billion civil penalty. At least 40 Volkswagen employees were involved in destroying evidence of the company’s misconduct, according to the US Justice Department.
As part of the guilty plea Volkswagen have agreed to independent monitoring and audits for three years. Employee environmental protection provisions must also be added to the employee code of conduct.
The fallout from dieselgate continues unabated. Today, it has been alleged that former Volkswagen chairman Ferdinand Piëch told public prosecutors that ex-CEO Martin Winterkorn, who denied all knowledge of the cheating devices until late 2015, knew about them as early as February 2015.
What can be learnt?
What does the Volkswagen fine tell us?
It suggests that fraud was prevalent at a high-ranking level at Volkswagen, and that the instruction to commit fraud came from executives; it shows us the manner in which employees can become complicit to fraud, but also the impact employees can have in exposing fraudulent practice within their company.
Above all, it underlines the seriousness with which US authorities are fighting fraud, and their willingness to impose hefty fines on companies that breach the law.
Investigation isn’t confined to the US, though: French and British authorities are also reported to be looking into carmakers Renault and Fiat with regards to similar emissions devices.
The reputational damage that Volkswagen will suffer is hard to quantify, but it has the potential to be significant. The economic impact of handing over the fines is at the very least unwelcome.
The US – and other countries following their lead – appear determined to clamp down on fraud, no matter where the offending company hails from. The lesson to be drawn from this ongoing case is that perhaps it’s overdue that organisations and businesses take compliance seriously amidst this growing trend of prosecution.
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