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Late Update:Volkswagen chief's swift resignation highlights exploding global scandal

Volkswagen chief's swift resignation highlights exploding global scandal.

In stepping down as chief executive of the world's largest automaker,
Volkswagen's Martin Winterkorn said he was “not aware” of any wrongdoing on his
part in the emissions-test cheating scandal now engulfing the German automaker.

He was, in fact, “stunned that misconduct on such a scale was possible in the
Volkswagen Group.”

That would represent a stunning ignorance of the goings-on at the company
Winterkorn ran for a decade as a top executive, experts said. His tenure covered
the entire period of cheating on U.S. emissions tests for VW's diesel vehicles.

The elaborate scheme — creating software to detect the testing conditions and
alter engine performance — had to have involved large numbers of VW employees
conspiring, experts said.

“To engineer a technology like this requires an entire strategy and the
participation of entire teams of design people, engineering people and
manufacturing people,” said Jeff Thinnes of JTI Inc., an independent consultant
on ethics and compliance. “Regulators are going to come down with a major
sledgehammer on this.”

The illegal software made its way into 11 million cars worldwide under
Winterkorn's watch, nearly half a million of them in the U.S. The question now
is whether those who executed and approved the scheme will face criminal charges
— which executives at other scandalized auto companies have so far avoided.

Investigations into safety defects at General Motors Co. and Toyota Motor
Corp., for instance, resulted in billion-dollar fines but drew criticism for
their failure to hold any individual accountable for negligence that led to
deaths and injuries, or for subsequent coverups. Neither have executives from
Takata Corp., the massive Japanese auto parts supplier, been charged in
connection with deadly, defective air bags in millions of vehicles worldwide.

That could change with VW. The cheating allegations come less than two weeks
after a top Justice Department official instructed prosecutors to go after
individual corporate wrongdoers rather than entire companies.

“This may very well be a test case of how that policy is going to apply,”
said Timothy J. Heaphy, a former federal prosecutor who heads the white collar
defense practice at the Hunton & Williams law firm.

“I know that the department at the highest levels wants to hold individual
executives accountable,” said Heaphy, who was the U.S. attorney for the Western
District of Virginia from 2009 to 2014. “I think it's bad news for Volkswagen
executives more than Volkswagen the company.”

Winterkorn's role in the digital deception will probably come under intense
scrutiny. His explanation didn't wash with industry experts who believe the
executive — CEO for a year, but in charge of the Volkswagen brand for the
previous decade — either approved the scheme or was grossly negligent in not
discovering it.

“Either situation reflects poorly on Winterkorn and his leadership skills,”
said Karl Brauer, senior analyst for Kelley Blue Book. “His resignation wasn't
just likely, but necessary.”

Regulators and lawmakers are already calling for action, noting that
Volkswagen violated emissions standards but also duped consumers by marketing
them as “clean” diesel cars. The company also benefited from about $51 million
in federal green car subsidies awarded to buyers of diesel vehicles in 2009,
according to a Times analysis.

The $1,300 tax credit would have been available to buyers of about 39,500
Jetta and Jetta Sportwagen models that VW sold that year, according to Motor
Intelligence, an industry research firm.

What seems to be clear and admitted guilt on the part of Volkswagen may soon
result in names being named and charges being filed.

In a Sept. 10 speech outlining the Justice Department policy, Deputy Atty.
Gen. Sally Quillian Yates said that from now on, in order for a company to get
credit for cooperating with a Justice Department investigation, “it must give up
the individuals, no matter where they sit within the company.”

“Crime is crime,” she said. “And it is our obligation at the Justice
Department to ensure that we are holding lawbreakers accountable regardless of
whether they commit their crimes on the street corner or in the boardroom.”

Yates noted that there were obstacles to identifying exactly who in a company
was responsible, and that it was difficult to deal with corporate employees in
foreign countries because U.S. prosecutors have “a limited ability to compel the
testimony of witnesses abroad.”

But Heaphy said U.S. and German officials have a long history of cooperation,
so Volkswagen's foreign location shouldn't pose a major problem. Criminal
charges against executives or employees also could lead to more details about
the scheme becoming public, he said.

It remains a challenge for prosecutors to pin blame on individuals inside
major companies, said David Uhlmann, who headed the Justice Department's
environmental crimes section from 2000 to 2007.

“The biggest hurdle in cases of corporate crime typically is the degree to
which large corporations diffuse responsibility for their operations across
multiple departments and multiple individuals,” said Uhlmann, a professor at the
University of Michigan Law School.

Federal motor safety laws do not have criminal provisions, and the GM case
would have required prosecutors to prove intent to deceive and mislead under a
broader statute, he said.

But it might be easier to charge individuals in the VW case because there are
criminal provisions in U.S. clean air laws.

“It probably will be enough to show that individuals disabled the emissions
control devices and knew that they were doing so,” Uhlmann said.

In addition to potential criminal charges, Volkswagen also faces fines that
could total in the billions — perhaps the highest ever paid in a case of
corporate fraud.

Volkswagen has already announced setting aside $7.3 billion to address the

Regulatory fines for Clean Air Act violations could total more than $18
billion, or $37,500 for each of the 482,000 diesel VWs sold in the U.S. with the
cheating software.

The cars included TDI versions of the Jetta (model years 2009 to '15), Beetle
(2009 to '15), Audi A3 (2009 to '15), Golf (2009 to '15) and Passat (2012 to

“The prosecutors are going to want to find a way to punish Volkswagen
financially, but not necessarily put them out of business,” Heaphy said. “But
then again, you don't want to impose a fine that can be written off as a
business expense and pales in comparison to the profits they made from the
Winterkorn's successor could be named as early as Friday, when the Volkswagen
board is next scheduled to meet.

Winterkorn's resignation is a good start in responding to the investigations,
said Howard Bragman, a veteran crisis consultant and founder and chairman of the
public relations company Fifteen Minutes.

“What Volkswagen did was heinous — borderline criminal, and certainly immoral
— and someone has to pay for that,” said Bragman, who grew up in Flint, Mich.,
in the shadow of car giant GM, and has consulted with automakers.

But the fleeing CEO is likely to have company before the emissions scandal is

“Winterkorn rightly saw the tsunami coming, and he grabbed a lifeboat and got
away,” consultant Thinnes said. “That tsunami is going to take a lot of people
with it.” 
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