Business & Practice

VW’s German Execs Gird to Face Questions From U.S. Authorities

Dec. 5, 2016, 10:09 PM

By Tom Schoenberg and Alan Katz, Bloomberg News

Dozens of Volkswagen AG officials in Germany have hired U.S. criminal defense lawyers as the Justice Department ramps up meetings with managers to gather evidence that may lead to charges against executives, people familiar with the matter said.

U.S. authorities have traveled to Germany to arrange interviews with managers and seek cooperation in their probe of the automaker’s efforts to subvert anti-pollution rules, the people said. With some interviews yet to take place, it makes it less likely, they said, that prosecutors will be able to reach a resolution with the company by the close of the Obama administration as some officials had hoped.

That activity, and the Justice Department’s efforts to interview executives on foreign soil, shows the U.S. is keeping pressure on the automaker after it admitted last year that it had rigged its diesel engines to lower their emissions during testing.

The U.S. has already helped broker a civil settlement that will cost the Wolfsburg, Germany, company more than $16 billion in fines and penalties. The Justice Department, characterizing the diesel cheating as a 10-year conspiracy to deceive environmental officials, has said it will pursue criminal charges against not only the company but also individuals.

Environmental Capstone

The two-pronged approach would make good on the department’s 2015 call for prosecutors to focus on the individuals behind corporate misdeeds, a policy drafted after criticism that it had entered into multibillion-dollar corporate settlements while failing to prosecute the people responsible. The case could also serve as a capstone to the environmental-enforcement cases pursued under the Obama administration, which includes the $25 billion in criminal fines and civil penalties paid by BP Plc for the Deepwater Horizon oil spill.

Peter Carr, a Justice Department spokesman, declined to comment.

“Volkswagen continues to cooperate with the Department of Justice as we work to resolve remaining matters in the United States,” Eric Felber, a spokesman, said in an e-mailed statement.

The U.S. investigators have urged some of the VW employees to come to the U.S., where they can be interviewed away from German prosecutors, who are building their own cases against company officials, said one of the people.

U.S. prosecutors may seek cooperation from some of the employees to testify against those above them in the organization, the people said, as is typical with such cases. In September, U.S. prosecutors secured a guilty plea and cooperation from a former VW software engineer who reported to German executives.

Winterkorn’s Exit

Beyond that engineer, it isn’t clear who, if anyone, may face charges in the investigation into fraud and Clean Air Act violations. Nor is it clear whether former Chief Executive Martin Winterkorn, who was forced out as a result of the scandal, or the company’s most senior executives who make up what is known as the management board, are a focus of the U.S. probe. Winterkorn took responsibility for the scandal when he resigned in September 2015 but said he wasn’t aware of any wrongdoing on his part.

For a primer on Volkswagen’s Diesel Emissions Scandal, click here

VW has said top management were unaware of the decision to install the software to cheat emissions tests. “The then and current board of management of Volkswagen AG had, at any rate, no knowledge of the use of unlawful engine-management software at the time,” Volkswagen wrote in its annual report for 2015, a statement it has cited in response to subsequent inquiries.

German prosecutors have said that they have no evidence that shows that Volkswagen’s top leadership approved the diesel-cheating program. German authorities are investigating whether Winterkorn and Chairman Hans Dieter Poetsch were too slow to inform the market about the investigation into the cheating devices.

“Based on careful examination by internal and external legal experts, the Company reaffirms its belief that the Volkswagen Board of Management duly fulfilled its disclosure obligation under German capital markets law,” Volkswagen said in a Nov. 6 statement responding to the allegations against Poetsch. Poetsch himself hasn’t made any public statement about that investigation or the U.S. criminal probe.

Unfinished Business

The activity in the U.S. criminal case may dash expectations set by VW’s chief executive officer Matthias Mueller, who said last month that he would like to secure a criminal settlement with the U.S. before the new U.S. president takes office on Jan. 20.

Any unfinished business in the VW matter would pass to the administration of president-elect Donald Trump, who has said he would name U.S. Senator Jeff Sessions as attorney general. At a Senate hearing six years ago, Sessions, a former federal prosecutor from Alabama, said he wouldn’t back away from charging a major company if there was evidence of criminal conduct.

At the time, the Justice Department was investigating BP over the Deepwater Horizon spill. Sessions warned that the department shouldn’t be swayed by concerns about whether criminal charges could harm people who depended on the company for jobs. “They are not too big too fail,” he said.

No Extraditions

The U.S., should it choose to pursue charges against executives in Germany, could face challenges. The U.S. can charge individuals even if German authorities issue their own indictments. But getting executives to stand trial in the U.S. could be difficult. Germany’s constitution doesn’t allow citizens to be extradited outside the European Union. The Justice Department is exploring its options to get executives to the U.S., according to one of the people familiar with the mater.

In one scenario, the U.S. could put pressure on the company as settlement discussions advance by filing charges against individual executives, issuing arrest warrants and sending enforcement requests through Interpol via the so-called red-notice system. At the least, that could restrict executives from travel outside Germany for fear of being detained and flown to the U.S. Investigators have already used this technique in investigations of global banks for rigging benchmark interest rates.

After Volkswagen publicly admitted to the diesel-cheating last year, it has embarked on a large-scale overhaul, focusing on electric cars after decades of diesel development. To help fund the shift, it reached an agreement on Nov. 18 to cut as many as 30,000 jobs, saving it about $3.9 billion. The company also faces outstanding civil claims from several U.S. states and is facing hundreds of investor lawsuits in Germany.

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