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More Charges Likely as VW Engineer Details Emissions Scandal

By on September 10, 2016

FILE - In this Oct. 13, 2015, file photo, a Volkswagen Touareg diesel is tested in the Environmental Protection Agency's cold temperature test facility in Ann Arbor, Mich. Volkswagen will spend more than $15 billion to settle consumer lawsuits and government allegations that it cheated on emissions tests in what lawyers are calling the largest auto-related class-action settlement in U.S. history. The settlement was revealed Tuesday, June 28, 2016, by a U.S. District Court in San Francisco. (AP Photo/Carlos Osorio, File)

In this Oct. 13, 2015, photo, a Volkswagen Touareg diesel is tested in the Environmental Protection Agency’s cold temperature test facility in Ann Arbor, Mich. (AP Photo/Carlos Osorio, File)

DETROIT – A Volkswagen engineer’s decision to tell everything he knows about the company’s scheme to cheat on U.S. emissions tests is a major break for investigators and a message to others involved to cooperate or face prosecution, according to legal experts.

James Robert Liang, 62, of Newbury Park, California, pleaded guilty in Detroit Friday to one count of conspiracy to defraud the government and agreed to cooperate with investigations in the U.S. and Germany. Liang is the first person to enter a plea in the wide-ranging case, but legal experts say his knowledge of the scheme means he won’t be the last.

“It becomes a chain up the ladder,” said William Carter, former federal prosecutor in Los Angeles who specialized in environmental crimes. “They are sending a very strong signal to all those involved that the train is leaving the station, and if you want to be on it, it’s time to cooperate.”

The Justice Department also unsealed a grand jury indictment against Laing that detailed a 10-year conspiracy by Volkswagen employees in the U.S. and Germany to repeatedly dupe U.S. regulators by using sophisticated software to turn on emissions controls when the cars were being tested and turn them off during real-world driving. The indictment detailed e-mails between Liang and co-workers that initially admitted to cheating in an almost cavalier manner but then turned desperate after the deception was uncovered.

Tests commissioned by a nonprofit organization in 2014 found that certain Volkswagen models with diesel engines emitted more than the allowable limit of pollutants. More than a year later, Volkswagen admitted to installing the software on about 500,000 2-liter diesel engines in VW and Audi models in the U.S.

The Environmental Protection Agency found that the cars emitted up to 40 times the legal limit for nitrogen oxide, which can cause human respiratory problems.

Volkswagen, based in Wolfsburg, Germany, briefly was the world’s top-selling automaker before the scandal. Sales fell sharply in the U.S., where the company heavily marketed its “clean diesel” vehicles. In June, VW agreed to pay $15 billion to settle customer and government lawsuits in the U.S., including spending up to $10 billion to buy back or repair the cheating diesels.

Jacob Frenkel, a white-collar defense lawyer in Washington and former federal prosecutor, said the indictment reveals a “sphere of communication” with Liang, and everyone involved knows they’ve been implicated.

“Mr. Liang certainly knew enough that the U.S. government has embraced him as its first and certainly a prominent cooperator,” said Frenkel, who added the Liang likely will get little or no prison time due to his cooperation. Sentencing guidelines call for a five-year prison term and up to a $250,000 fine when Liang is sentenced July 11.

Frenkel said VW is likely giving investigators the names of offending employees as it seeks lighter penalties and a quicker end to the scandal.

The plea means prosecutors will charge employees as well as Volkswagen as a company, said David M. Uhlmann, a former chief of the Justice Department’s Environmental Crimes Section who is now a University of Michigan law professor.

“The open question after today is whether they have the evidence to pursue anybody higher up the corporate chain of command,” he said.

Volkswagen wouldn’t comment Friday, but has said previously that the cheating was the work of lower-level employees and didn’t reach into the company’s upper management. Still, the scandal forced the ouster of the German CEO and VW’s top U.S. executive.

Uhlmann cautioned that it may prove difficult to extradite top Volkswagen executives to stand trial, because Germany doesn’t have the same emissions requirements as the United States.

“As a general rule, extradition treaties are limited to crimes that can be charged in both countries,” he said.

The grand jury indictment against Liang, which had been sealed since June 1, painted a picture of a group of VW workers who helped install the software when they realized that they couldn’t simultaneously satisfy consumer expectations and design a new 2-liter diesel engine that met strict U.S. nitrogen oxide pollution limits going into effect in 2007.

Liang began at VW in 1983 in Germany, moving in 2008 to California where he worked at the automaker’s U.S. emissions testing center , outside of Los Angeles, according to federal prosecutors. He admitted that he and others planned the software, known as a defeat device, and used it to get a certificate from the Environmental Protection Agency needed to sell the cars in the U.S. After that, to avoid being exposed, Liang and his co-workers had to make design changes and lie to regulators multiple times during the past decade.

Liang transferred in 2008 from Volkswagen headquarters in Germany to the U.S. to help oversee the launch of the new “clean diesel” models. Investigators uncovered internal company emails that show Liang and other VW engineers exchanged ideas about how to “effectively calibrate the defeat device” so that the cars would recognize when they were undergoing U.S. emissions testing.

In 2013, Liang and others exchanged messages in German about software that recognized when the engine was revving but the steering wheel was not moving, an indication that the car was undergoing a test. The software then calibrated the engine to run cleaner than it would in real world driving, according to the indictment.

“If this goes through without problems, the function is probably truly watertight! ;-)” one of the VW employees messaged Liang in German.

A year later, as VW started getting more warranty claims for pollution control parts failing, some of Liang’s co-workers thought that this was because the cars remained in test mode too long before switching to “road mode.” So they changed the software to reduce stress on the emissions controls and told customers it “was intended to improve the vehicles,” the indictment said.

The scheme began to unravel in 2014 when a nonprofit group discovered that the cars polluted too much in real-world driving conditions. But prosecutors say that Liang and his VW colleagues still conspired to hide the existence of the defeat devices.

As a first step, VW offered a new “optimized” software update that was supposed to address the high emissions.

“We ‘only just need a plausible explanation’ as to why the emissions are still high!!!” a VW employee wrote to Liang and others in German after the software patch provided by VW failed to fix the problem.

“We must be sure to prevent the authority from testing the Gen 1!” a VW employee emailed in June 2015, referring to the first generation of VW models using the “clean diesel” engines. The emails said that if Gen 1 was tested by the California Air Resources Board “then we’ll have nothing more to laugh about!!!!!”

As the VW engineers struggled to explain to U.S. regulators why their cars kept failing the tests, a VW employee wrote Liang and others in July 2015: “the key word ‘creativity’ would be helpful here.”

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