VW Engineer Pleads Guilty in U.S. Criminal Case Over Diesel Emissions

Matthias Mueller, chief executive of Volkswagen, is displayed on a camera’s viewfinder during a news conference. LISI NIESNER / BLOOMBERG

Matthias Mueller, chief executive of Volkswagen, is displayed on a camera’s viewfinder during a news conference.

LISI NIESNER / BLOOMBERG

A Volkswagen engineer pleaded guilty on Friday to conspiring to defraud regulators and car owners, in the first criminal charges stemming from the American investigation into the German carmaker’s emissions deception.

The plea by the engineer, James Robert Liang, a Volkswagen veteran, suggests that the Justice Department is trying to build a larger criminal case and pursue charges against other higher-level executives at the carmaker.

Mr. Liang was central in the development of software that Volkswagen used to cheat pollution tests in the United States, which the company admitted last year to installing in more than 11 million diesels vehicles worldwide. He was also part of the cover-up, lying to regulators when they started asking questions about discrepancies in emissions.

Mr. Liang’s admissions, made in the United States District Court for the Eastern District of Michigan, portray a broader conspiracy by executives, making Mr. Liang a potentially valuable resource for the developing criminal investigation. The Justice Department said Mr. Liang, who faces a maximum sentence of five years in prison, would cooperate.

The Volkswagen case comes at a time when the government is trying to get tough on white-collar crime and hold more individuals responsible. After being criticized for going soft on executives, the Justice Department introduced new policies last year that emphasized the prosecution of individual employees. And the Volkswagen case provides one of the first real tests of the government’s commitment.

 

 

 

 

 

 

 

 

 

 

 

 

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The Volkswagen case has escalated quickly. In June, the Justice Department and other agencies secured a record $15 billion settlement in a civil suit with the company. At the time, officials were quick to note that the settlement was just a first step, saying they would aggressively pursue a criminal case against the company and individuals.

“There’s considerable pressure on the Department of Justice to see how far up the chain of management the knowledge goes,” said Daniel Riesel, a principal at the New York-based environmental law firm Sive, Paget & Riesel.

One way for investigators to do that was “to indict and cut deals with lower-level people,” he added. Mr. Liang is “a high enough official who is culpable on his own right, and maybe in a position to start unraveling this chain of responsibility.”

The Justice Department and several attorneys general have outlined a vast conspiracy that stretched back more than a decade. Mr. Liang’s case followed the same broad strokes. Mr. Liang was also named as a main suspect in a suit filed against Volkswagen on Thursday by William H. Sorrell, the attorney general of Vermont.

Three state attorneys general have also claimed that Volkswagen’s fraud reached deep into the company’s boardroom, all the way to its former chief executive, Martin Winterkorn. One suit, filed in New York, suggested that Matthias Müller, Volkswagen’s current chief executive, was aware that some vehicles had inadequate pollution control systems.

Volkswagen has maintained that the deception was limited to a small group of people and that top management was not aware of the cheating software. Volkswagen has denied that Mr. Müller was aware of any wrongdoing.

The company would not comment on Mr. Liang’s case, saying that it would continue to cooperate with the investigation.

Mr. Liang’s lawyer, Daniel V. Nixon, said that Mr. Liang was accepting responsibility for his actions. “He is one of many at Volkswagen who got caught up in the emissions scandal, and he is very remorseful for what took place.”

He said Mr. Laing remained employed by Volkswagen.

Mr. Liang’s knowledge of the deception, laid out in the plea agreement, could provide important building blocks for the investigation.

Graphic | Explaining Volkswagen’s Emissions Scandal Volkswagen has admitted that 11 million of its vehicles were equipped with software that was used to cheat on emissions tests. The company is now contending with the fallout.

Graphic | Explaining Volkswagen’s Emissions Scandal Volkswagen has admitted that 11 million of its vehicles were equipped with software that was used to cheat on emissions tests. The company is now contending with the fallout.

Mr. Liang, who has worked for Volkswagen since 1983, was among one of the company’s most prominent and respected engine developers. He is credited as the inventor in at least one European patent related to motor technology.

As Volkswagen moved aggressively to capture a bigger share of the American market, Mr. Liang was part of a team of engineers at the company’s headquarters in Wolfsburg, Germany, tapped in 2006 to develop a new diesel engine. The engine needed to comply with stricter emissions standards in the United States, which would take force the next year.

But the team faced a dilemma. To meet the new rules, it would have to compromise on mileage and design, a potentially costly change.

Rather than take that risk, Mr. Liang and his team found another option: software that would trick the tests.

If the so-called defeat device detected that the car was being tested, the full emissions control systems would kick in, throttling back the pollution spewing from the vehicle. On the road, those control systems were scaled back substantially, according to Mr. Liang’s guilty plea. Those nitrogen oxide emissions, in some cases, were up to 40 times the legal limit.

Mr. Liang moved to California in 2008 to help with the introduction of Volkswagen’s new “clean diesel” vehicles in the United States. When Mr. Liang and other engineers met with regulators to certify the vehicles, they misrepresented the cars, according to the plea agreement. Hiding the existence of the defeat device, they said the cars were fully compliant with federal and state laws.

By 2014, independent testing found discrepancies with Volkswagen’s emissions. But Mr. Liang and others kept lying as they scrambled to find explanations that would appease regulators.

In an email dated July 2, 2015, an unnamed Volkswagen employee sought advice on how to respond to questions from regulators, according to the indictment. Later that month, a Volkswagen employee warned, in a calendar invitation sent to Mr. Liang and other team members, that regulators are “still waiting for Answers. We still have no good explanations!!!!!”

“This is just the first shoe to drop in the Volkswagen criminal case,” said David M. Uhlmann, a former chief of the Justice Department’s Environmental Crimes Section and a law professor at the University of Michigan.

“The facts make it a stronger case for individual accountability, because the defeat device can’t be installed in a car by accident,” he added. “There just appears to have been so much deception involved.”

A couple of months later, Volkswagen confessed. Along with the $15 billion settlement, it agreed to pay $1.2 billion to dealers in the United States. Its profit has tanked. Its share price has sunk.

Increasing the criminal investigation only adds to the pressure on the company. But the Justice Department is stepping into complicated territory with Volkswagen.

Germany does not usually extradite its own citizens, so American authorities would not likely be able to arrest Volkswagen employees there unless they surrendered voluntarily. The Justice Department could put pressure on other Volkswagen employees simply by indicting them. The suspects would not be able to leave Germany without risking arrest.

German prosecutors in the state of Lower Saxony, where Volkswagen is the backbone of the local economy, have been conducting their own investigation. But they have said they do not expect it to conclude until the end of the year.

The action by American authorities may put pressure on the German prosecutors to aggressively pursue criminal charges. The prosecutor’s office in Lower Saxony did not immediately reply to requests for comment.