January 11, 2017 12:00 AM

VW pleads guilty, agrees to $4.3 billion settlement; five more executives charged

Investigation continues, more executives may be charged

Tom Schoenberg, Christoph Rauwald and David McLaughlin

Reuters

EPA Administrator Gina McCarthy speaks during a news conference in Washington, accompanied by U.S. Attorney General Loretta Lynch, right, and several other top U.S. law enforcement officials.

WASHINGTON (Bloomberg) -- Volkswagen took a major step toward resolving one of the darkest chapters in its history Wednesday, pleading guilty to an emissions-cheating scandal and agreeing to pay $4.3 billion in criminal and civil charges as the U.S. announced charges against five new individuals in Germany.

As part of its settlement, VW pleaded guilty to charges of conspiracy, obstruction of justice and using false statements to import cars to the U.S.

The individuals are former VW brand head of development Heinz-Jakob Neusser; former VW head of engine development Jens Hadler; Richard Dorenkamp, who led a team of engineers that developed the first diesel engine designed to meet new U.S. emissions standards; former VW quality manager Bernd Gottweis; former environment and engineering office manager Oliver Schmidt; and quality manager Juergen Peter.

“The investigation is still open and it is ongoing,” said Attorney General Loretta Lynch during the press conference. "Volkswagen knew of these problems and when regulators expressed concern Volkswagen obfuscated, they denied, and they ultimately lied."

"This announcement does not mean that our investigation is complete... We will continue to pursue the individuals responsible for orchestrating this damaging conspiracy," she added, declining to comment on specific individuals.

"But I will stress that we are looking at individuals who were involved and would have had knowledge of the same information that's currently being charged," she said.

In 2014, as U.S. suspicions increased about the real level of emissions from VW diesel cars, engineers and supervisors plotted ways to hide the defeat device, according to court documents. The next year, when regulators threatened not to certify 2016 models for sale in the U.S., Volkswagen’s senior officials in Wolfsburg, Germany, were told at a July 27 meeting about the deception.

Senior VW managers approved a plan in August 2015 for what the automaker’s employees would say in an upcoming meeting with California regulators, prosecutors allege. That plan called for Volkswagen employees to continue concealing the existence of the emissions device.

"The agreements that we have reached with the U.S. government reflect our determination to address misconduct that went against all of the values Volkswagen holds so dear," VW CEO Matthias Mueller said in an emailed statement Wednesday.

Separate case

Separately, Volkswagen agreed to pay a civil penalty of $50 million to the Civil Division of the DOJ to settle potential claims asserted under the Financial Institutions Reform, Recovery and Enforcement Act.

"Volkswagen specifically denies any liability and expressly disputes these claims, which it is settling to avoid the uncertainty and expense of protracted litigation," it said in relation to the FIRREA penalty.

Click here for the DOJ press release and other documents.

The court filings detail a scheme in which the German automaker deceived regulators and customers for years, and dozens of employees destroyed documents, even after the scandal broke in September 2015.

The emissions-cheating disclosures undermined the sterling reputation of German engineering and threatened the viability of a company that vies with Toyota Motor Corp. as the world’s biggest carmaker. Volkswagen pressed to resolve investigations and lawsuits as quickly as possible, while working to repair its reputation with car buyers and dealers. It’s now selling more cars and trucks then ever, offsetting declines in the U.S. with strong sales in China.

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So far: $23 billion cost

VW admitted in 2015 that about 11 million diesel cars worldwide were outfitted with so-called defeat devices, embedded algorithms used to game emissions tests. The settlement pushes the cost of the scandal to more than $23 billion in the U.S. and Canada and will force the company to increase the money set aside to pay fines and compensate affected customers, which currently totals 18.2 billion euros ($19.1 billion).

The government and Volkswagen have been trying to reach a settlement by Jan. 20 before Donald Trump is sworn into office and many of the people who have been overseeing the case step down. Though the case ends the company’s exposure to U.S. federal authorities, VW still faces probes from 42 state attorneys generals and a criminal probe and lawsuits in Germany.

Over the weekend, Oliver Schmidt, VW’s liaison with U.S. environmental regulators, was arrested in Miami as he was returning to Germany from vacation. An engineer previously pleaded guilty.

It was unclear if additional VW executives will be charged in the U.S. or Germany.

The Volkswagen plea, filed in federal court in Detroit, serves as a capstone for Lynch’s enforcement of corporate misconduct and stands as one of the top environmental cases pursued under President Barack Obama. Investigated in just over 16 months, the Justice Department case also delivers on promises to hold individuals accountable.

Hired lawyers

Dozens of Volkswagen officials in Germany have hired U.S. criminal defense lawyers over the past several months as the Justice Department ramped up its investigation, Bloomberg reported last month. U.S. authorities have traveled to Germany to arrange interviews with managers and seek cooperation.

VW has suspended or pushed out about a dozen executives in the aftermath of the scandal including former CEO Martin Winterkorn, who has denied any knowledge of the cheating.

The U.S. can charge individuals in Germany, but getting executives to stand trial in the U.S. could be difficult because Germany’s constitution bars extradition of German nationals to foreign countries other than European Union members.

U.S. officials declined to discuss that process during Wednesday's press conference.

VW has been making strides to wrap up other outstanding lawsuits in the U.S. On Friday, the EPA and California regulators gave their first approval to a plan to fix to some of the cars. A San Francisco judge has approved $14.7 billion settlement that requires the company to fix or buy back about 480,000 of the cars in the U.S. with 2.0-liter engines cars. VW is awaiting approval on a $1 billion deal concerning 3.0-liter engines.

Reuters contributed to this report.