Fortune: How VW Paid $25 Billion for 'Dieselgate' — and Got Off Easy
This article is a collaboration between Fortune and ProPublica, a nonprofit investigative news organization.
Volkswagen has been hit with huge penalties in the U.S. for the emissions scandal, but not in Europe. Are the German automaker’s senior executives likely to face any prison time?
On Dec. 6, former Volkswagen (VLKAY, +0.00%) engineer Oliver Schmidt was led into a federal courtroom in Detroit in handcuffs and leg irons. He was wearing a blood-red jumpsuit, his head shaved, as it always is, and his deep-set eyes seemed to ask, how did I get here? As Schmidt’s wife tried to suppress tears in a second-row pew, U.S. District Judge Sean Cox sentenced him to what, had it been imposed in Schmidt’s native Germany, would rank among the harshest white-collar sentences ever meted out: seven years in prison.
Schmidt was being punished for his role in VW’s “Dieselgate” scandal, one of the most audacious corporate frauds in history. Yet his sentence brought no catharsis, least of all to Judge Cox, who at times seemed pained while imposing it. Sometimes, he told Schmidt apologetically, his job requires him to imprison “good people just making very, very bad decisions.”
Schmidt was a henchman, everyone understood, and his sentence, a stand-in. Judge Cox was addressing a set of people in Germany who are beyond the reach of U.S. prosecutors because Germany does not ordinarily extradite its nationals beyond European Union frontiers. Above all, the Detroit courtroom was haunted by the shadow of an individual who was absent: Martin Winterkorn, who was VW’s CEO during almost all of the fraud. His name was uttered only twice, yet his aura loomed over the entire hearing.
The outlines of the scandal are well known. For nearly a decade, from 2006 to September 2015, Volkswagen anchored its U.S. sales strategy — aimed at vaulting the company past Toyota to become the world’s number one carmaker — on a breed of cars that turned out to be a hoax. They were touted as “Clean Diesel” vehicles. About 580,000 such sedans, SUVs, and crossovers were sold in the U.S. under the company’s VW, Audi, and Porsche marques. With great fanfare, including Super Bowl commercials, the company flacked an environmentalist’s dream: high performance cars that managed to achieve excellent fuel economy and emissions so squeaky clean as to rival those of electric hybrids like the Toyota Prius.
It was all a software-conjured mirage. The exhaust control equipment in the VW diesels was programmed to shut off as soon as the cars rolled off the regulators’ test beds, at which point the tail pipes spewed illegal levels of two types of nitrogen oxides (referred to collectively as NOx) into the atmosphere, causing smog, respiratory disease, and premature death.
At first, Volkswagen insisted the fraud was pulled off by a group of rogue engineers. But over time the company has quietly backed away from that claim, increasingly focusing on protecting a small cadre of top officials. The crime may well have started among a relatively small number of engineers afraid to admit to feared top executives that they couldn’t reconcile the company’s goals and the law’s demands.
Over the past two years, prosecutors in the United States and Germany have been tracing who was aware of the scheme and have identified more than 40 people involved, spread out across at least four cities and working for three VW brands as well as automotive technology supplier Robert Bosch. In a new, potentially explosive move, some Justice Department officials are pushing to indict Volkswagen’s former CEO. Such a step would be largely symbolic — the U.S. has no extradition treaty with Germany — but it would send a message that the misconduct was egregious and directed from the top.
And it would highlight a stark contrast in punishment. U.S. authorities have extracted $25 billion in fines, penalties and restitution from VW for the 580,000 tainted diesels it sold in the U.S. In Europe, where the company sold 8 million tainted diesels, VW has not paid a single Euro in government penalties.
Read the full