Volkswagen AG Chief Executive Officer Matthias Mueller became aware of emissions cheating a decade ago as part of a broad conspiracy orchestrated by “top brass,” according to lawsuits filed by U.S. states.
The allegations undercut the German carmaker’s official account that the deceit was the result of a small group of employees and could add billions to the cost of the scandal, which has risen to more than 18 billion euros ($19.8 billion). If substantiated, the claims of Mueller’s early knowledge of the cheating could hurt the CEO’s credibility in leading Volkswagen’s cleanup.
After the first known instance of rigging diesel engines to cheat on emissions tests in 1999, Volkswagen spent much of the next decade perfecting its so-called defeat devices for use in Europe and then the U.S., the attorneys general for New York, Maryland and Massachusetts said Tuesday in lawsuits and press conferences. While Mueller wasn’t involved in the initial development of the cheating software, he became aware of the defeat device in 2006, according to the New York complaint.
Painting a picture of systematic cheating, the attorneys general said Volkswagen developed six generations of defeat devices to beat pollution-control tests starting in Europe in 2004. By 2008, Volkswagen’s defeat devices reached the U.S. where “top brass” planned to confuse authorities and hide the truth, they said.
“This was a widespread conspiracy involving many, many people,” New York Attorney General Eric Schneiderman said at a press conference. “The top brass knew” they were in violation of state and federal laws, he said.
Previous Settlement
Volkswagen’s $15.3 billion in lawsuit settlements with federal regulators, car owners and 44 states covers only 2009 models and later. The company, which is also the target of potentially costly criminal probes in the U.S., Germany and South Korea, admitted in September to using the defeat devices, which detected official tests while on the road emitting up to 40 times more pollutants than permitted under U.S. law. Worldwide, about 11 million vehicles were equipped with the rigged diesel engines.
Even with operations recovering, Volkswagen is still wrestling with the fallout from the crisis. On Tuesday, it said it set aside an additional 2.2 billion euros for legal risks chiefly in the U.S. The European Union is also working with consumer groups and regulators to pressure Volkswagen into compensation for about 8.5 million affected customers in Europe.
VW responded to the new state lawsuits, saying it’s cooperating with the U.S. Department of Justice, the Environmental Protection Agency and the California Air Resources Board on a “national resolution” of all remaining environmental issues.
‘Regrettable’ Lawsuits
“It is regrettable that some states have decided to sue for environmental claims now, notwithstanding their prior support of this ongoing federal-state collaborative process,” Jeannine Ginivan, a spokeswoman for the carmaker, said in a statement. She declined to comment on allegations dating back to 1999.
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The new allegations that cheating extended over a longer period “reveal a culture of deeply rooted corporate arrogance, combined with a conscious disregard for the rule of law or the protection of public health and the environment,” said Schneiderman. “Substantial penalties must be imposed on the Volkswagen companies, above and beyond the amount they have to pay to make American consumers whole.”
VW’s Audi and Porsche units, as well as their U.S. divisions, are named as defendants in the lawsuits. Maryland Attorney General Brian Frosh said the state’s penalties could run into the billions of dollars.
Michael Weinstein, a former Justice Department attorney who’s now a white-collar defense lawyer at Cole Schotz PC, said it’s likely federal prosecutors are reading the states’ complaints very closely.
‘Wholesale Fraud’
“From the allegations, this appears to be a large scale, deeply embedded wholesale fraud brought by the company against the public and the government,” Weinstein said. “Schneiderman’s complaint includes many high ranking executives as well as senior management that — if he can tie them in directly through e-mails or testimony — creates tremendous problems for them and the company as a whole.”
VW’s efforts to evade emissions laws date to 1999, when the Audi division tried to lower nitrogen oxide emissions to be able to sell large luxury cars with 3-liter, six-cylinder engines in Europe. Audi engineers found they could eliminate the “traditional, disagreeable clattering noise” diesels made when they started by injecting additional fuel into the engine. A side effect of that fix was that the vehicles violated European emissions standards. Part II of the fix was software that detected when testing was being conducted — based on the lack of steering wheel movement — and deactivated the fuel injection.
Audi Fix
The combination of the fuel injection and defeat-device software was used on Audi V6 diesels from 2004 to 2008 in Europe, the attorneys general said. The company called it “Acoustic Function” because it reduced the clattering noise.
VW engineers decided to adopt the Audi technology to meet tough U.S. emissions standards in 2006, according to the state lawsuits.
The engineers couldn’t figure out how to make the company’s lean-NOx traps work for reducing nitrogen oxides without producing so much soot that they clogged an emissions-control filter after 50,000 miles — far sooner than the 150,000-mile standard mandated in the U.S. Under a management-imposed deadline and “with the knowledge and approval of their managers,” the engineers adapted the Audi software, the attorneys general said.
There were six variations of the defeat device installed by VW and Audi starting in 2008, with Porsche implementing them later, according to Schneiderman’s office. VW used the devices even after the EPA began looking into the software to determine its purpose, according to the complaint.
Evidence Destroyed
When regulators started asking questions, several VW employees destroyed incriminating evidence after they were tipped off by a senior in-house lawyer in Germany and then repeatedly failed to disclose to regulators the true reason for the discrepancies, according to the New York and Maryland complaints.
In one 2014 e-mail obtained by New York investigators, Winterkorn was told by Frank Tuch, director of VW group quality management, “A thorough explanation for [high] emissions cannot be given to authorities.”