Criminal Law Considerations

June 20, 2018 | By Melissa Ferrari
The recall has started

In June 2018, Volkswagen AG (VW) accepted the payment of a fine in Germany in the amount of EUR 1 billion (US$1.2 billion) for its involvement in the diesel scandal. While sounding like a lot of money by almost anyone’s standards, the German fine is far less than that imposed in the United States. Some would say that VW is getting off easy in Germany.

With its acceptance of the fine, all criminal actions against VW will be dropped in Germany and VW will never have to face a criminal trial in a German court for its actions in the dieselgate affair.

In this article, we compare the imposition of a fine in Germany to VW’s pleading guilty to criminal violations in the United States.

How severe were VW’s violations?

In Germany, the violation falls under the category “Ordnungswidrigkeit”, an administrative offence. A typical example of an Ordnungswidrigkeit is a speeding ticket. Nobody wants to get one, but it’s not the most severe category of crime. The German EUR 1 billion fine, nevertheless, is a severe penal sanction for an offense committed by VW management, a public law sanction for criminal behavior.

In the U.S., VW was charged with committing severe crimes, 3 criminal felonies. A felony is the most severe level of crime under U.S. law.

How much was the penalty?

In Germany, VW will pay EUR 1 billion (almost US$ 1.2 billion).

In the U.S., $4.3 billion was assessed in criminal and civil penalties consisting of a $2.8 billion criminal fine and $1.5 billion in civil fines for resolution of environmental (Environmental Protection Agency), customs (Customs and Border Protection) and financial (Financial Institutions Reform, Recovery and Enforcement Act of 1989, “FIRREA”) violations.

In summary, the sum of U.S. federal criminal and civil penalties is nearly 4 times higher than the German fine.

Separately, and in addition to these amounts, VW has paid other amounts in the U.S. for violating the law.

About 6 months before $4.3 billion in penalties was assessed, in the context of settling issues in Court regarding 2-liter diesel vehicles, VW had agreed to an investment of $2 billion over a ten-year period to support increased use of technology for Zero Emission Vehicles in California and in the U.S. (see Department of Justice Partial Consent Decree). Additionally, VW agreed to pay $2.7 billion to fund environmental mitigation actions to reduce NOx (see Department of Justice Partial Consent Decree).

Later, when settling 3-liter diesel issues in Court, VW agreed to pay an additional $225,000,000 in NOx emission mitigation (see Amended 3-0 Liter Settlement Agreement).

How much were the fines per vehicle?

Putting the amounts of the penalties into perspective, Germany’s fine was in consideration of 10.7 million affected diesel vehicles placed on the market worldwide. A fine of EUR 1,000,000,000 assessed for 10,700,000 vehicles is equivalent to a fine of EUR 93.46 ($108.50) per vehicle.

The U.S. fines, on the other hand, were assessed based on approximately 580,000 affected vehicles on the U.S. market, equivalent to approximately $7400.00 per vehicle.

What conduct violated the law?

Pursuant to German law, corporations, as opposed to individuals, cannot be guilty of a crime.

It’s different in the U.S. where, pursuant to the law, a company can be found criminally liable, usually for being responsible for the acts of an employee.

In Germany, based upon the information reported in the press and on VW AG’s website on 13 June 2018, VW’s management, specifically the Department of Aggregate Development, failed to properly supervise vehicle testing leading to 10.7 million vehicles with an impermissible software function being advertised, sold to consumers, and placed on the roads worldwide.

Under the law of the United States, VW acknowledged that it was guilty of three crimes:

  1. Conspiracy:
    • Conspiracy to defraud the United States by obstructing the federal government (the Environmental Protection Agency or EPA),
    • Conspiracy to violate the wire fraud statute and the Clean Air Act,
  2. Obstruction of justice: knowingly destroying records, and
  3. Entry of goods (vehicles) into the U.S. by false statement.

Public access to information

The German “Bescheid” or order assessing the fine has not been made public. The German proceedings were not made public either. Articles appearing in the press refer only to a press release published on the website of Volkswagen AG, not to official governmental documents.

The document signed in the U.S. that confirms that VW has admitted committing crimes, the “Rule 11 Plea Agreement”, is a public document available to everyone online via a link that can be found here.

Did VW admit that it is guilty of a crime?

With reference to the German fine, on its website, VW confirms that it accepts the fine and thereby acknowledges its responsibility, and VW did not appeal against the imposition of the fine. That sounds like an admission of guilt.

In the U.S., VW clearly admitted that it had violated U.S. federal law or, in other words, is guilty of the three crimes described above. The U.S. Rule 11 Plea Agreement, the document that officially confirms the “guilty plea”, says that VW “is pleading guilty because it is guilty…” and admits to the facts outlined in the Statement of Facts attached as an exhibit to the Plea Agreement.

Who gets the money?

Both in Germany and in the United States, the penalty or fine money goes to the government. Affected consumers, i.e. affected diesel vehicle owners, will not get any of the penalty money, neither in the U.S. nor in Germany.

In the U.S., though, a separate settlement on behalf of consumers, “victims of the underlying criminal conduct”, was agreed and approved by the U.S. Federal Court responsible for the group multi-district litigation covering all affected owners, except for those who chose to opt out of the settlement. The fact that affected car owners and lessees were to be compensated by VW was taken into consideration when the amount of the penalty was decided upon in the U.S. (Rule 11 Plea Agreement at page 11.) The U.S. criminal penalty would probably have been higher if American VW diesel consumers had not been compensated.

Will VW get a tax break for the payment of the penalty?

In the U.S., no, VW will not receive no tax break for paying the criminal penalty. This is part of the Plea Agreement at page 13.

Similarly, a fine imposed by a Court or Public Prosecutor cannot usually be deduced as a business expense under European or German law.

How long did it take for the alleged criminal conduct to be evaluated and the proceedings to be completed?

The U.S. Plea Agreement was signed by VW on 11 January 2017, about 16 months after the VW dieselgate scandal was made public in September 2015.

VW acknowledged the German legal violation on 13 June 2018, i.e. 17 months later. It took longer for Germany to evaluate the alleged crime despite most of the conduct having taken place in Germany, most witnesses being in Germany, and most of the documents being written in German.

How can we be sure VW won’t do the same thing again in the future?

The U.S. Plea Agreement contains several provisions designed to ensure that VW will not violate U.S. laws in the future:

  1. VW has been placed on probation for 3 years (Rule 11 Plea Agreement, page 14),
  2. VW agreed to continue to implement a compliance and ethics program designed to detect fraudulent conduct throughout its operations (Rule 11 Plea Agreement, page 18),
  3. An independent compliance monitor must be hired and paid by the company (Rule 11 Plea Agreement, page 21), and
  4. VW promised to commit no further crime and to be truthful with the Court and Department of Justice (Rule 11 Plea Agreement, page 17).

In Germany, from the information available so far, no safeguards have been agreed or ordered.

What about individuals involved?

Eight VW employees, including former CEO Martin Winterkorn, have also been criminally charged by the U.S. with conspiracy to defraud the United States, commit wire fraud, and violate the Clean Air Act. Two VW employees have plead guilty and are currently in prison in the U.S.

In Germany, criminal investigations against VW Group employees are still ongoing. On June 18, 2018, Audi CEO, Rupert Stadler, was arrested in Germany in connection with the diesel emissions scandal and has been detained due to concerns regarding the potential influence of witnesses and possible obstruction of justice in the pending fraud investigation.

VW’s paying criminal penalties does not exempt the company from having to pay compensation to car owners

The fines assessed in Germany are pursuant to German public law, specifically criminal law.

Affected VW diesel car owners are seeking compensation from VW under private civil law.

The criminal and civil issues are separate and “double jeopardy” does not apply. There is no basis in law for barring consumers from being compensated just because criminal penalties have been paid for the same conduct. VW cannot claim a discount for paying criminal fines, either.

To the contrary, the fact that a criminal fine has been assessed, and VW has admitted responsibility, should help consumers in their quest for compensation.

Based on the Charter of Fundamental Rights of the European Union (CFREU), Article 50, a person may not be prosecuted or punished twice for the same criminal conduct, known as the criminal law principle “ne bis in idem” or “double jeopardy”. In addition to safeguarding an individual’s rights, a final judgment in one EU Member State prevents another Member State from (further) prosecuting the same person (again) for the same conduct.

Because VW did not appeal the imposition of the EUR 1 billion German fine, it is possible that it may have secured a “final judgment” in Germany on behalf of some employees, preventing further prosecution in other European countries, although details have not been made public. Criminal investigations of VW for possible diesel related fraudulent activity have been initiated in other EU countries.

Environmental, economic and social impact analysis

Germany:

The German fine will be paid to the German government. None of the money will be paid to VW’s customers, the car owners or those who are leasing VW diesel cars, the consumer victims of the illegal defeat device. None of the money will go to installing hardware on the vehicles to reduce the NOx emissions. The “fix” or software update performed on the cars in Germany or elsewhere in Europe does not really “fix” the NOx emission problem. The NOx polluting cars are still out on the road.

USA:

In addition to the criminal and civil penalties being paid to the U.S. government, VW has committed to paying $4.8 billion consisting of a $2 billion investment to support Zero Emission Vehicle technology and $2.8 billion to fund NOx emissions reduction. Additionally, affected VW diesel owners were compensated for their losses and were given the option of returning their vehicle for a car that meets emissions standards or having a “fix” performed, provided an appropriate fix would be approved by the EPA. In contrast to Europe, where dieselgate vehicles are still being driven around on the roads, almost all affected vehicles have been taken off the U.S. streets and cannot be sold, even outside the U.S., unless a “fix” approved by the EPA is carried out beforehand. That was a key part of the Court approved civil class action settlement in the United States.

Evaluation

Considering all the factors, the U.S. justice system has, to date, done a better job than Germany’s justice system in protecting VW diesel vehicle owners and the air we all breath.

There is work still to be done in Europe and in Germany. CLEAN Foundation is committed to setting things right for consumers, and the environment.