Volkswagen Executive’s Trip to U.S. Allowed F.B.I. to Pounce

 By JACK EWING, ADAM GOLDMAN and HIROKO TABUCHI - JAN. 9, 2017

When F.B.I. agents learned that a prime suspect in the Volkswagen emissions scandal was traveling to the United States, investigators knew they were on the cusp of a rare feat: the arrest of an overseas corporate executive accused of wrongdoing.

On Saturday night, agents swooped in to arrest the Volkswagen executive, Oliver Schmidt, as he prepared to depart Miami International Airport for Germany, according to two law enforcement officials familiar with the case, one of whom described the circumstances of the arrest. The officials spoke on the condition of anonymity because they were not authorized to speak publicly about the case.

Mr. Schmidt, formerly Volkswagen’s top emissions compliance executive in the United States, has been charged with defrauding the government and violating the Clean Air Act. He made an initial appearance on Monday in federal court in Miami. He will be moved to Detroit, where he was originally charged and where court documents suggest that he might be valuable in the government’s investigation into other Volkswagen officials.

Mr. Schmidt, 48, played a central role in Volkswagen’s cover-up of its diesel emissions cheating, according to an affidavit from an F.B.I. agent that was unsealed on Monday. Even as the company obfuscated details of its cheating program from regulators, Mr. Schmidt warned executives in Germany that the company could face criminal charges for its actions, the affidavit says.

The case against Mr. Schmidt sheds new doubt on Volkswagen’s assertions that top executives did not understand the full scale of the wrongdoing until early in September 2015, more than a year after questions were first raised about emissions from its vehicles. Mr. Schmidt briefed executives in detail months earlier, in July, according to the criminal complaint, filed in federal court in Michigan. The timeline of the briefing has not been laid out before by prosecutors.

The complaint also says that other employees were involved in a cover-up, suggesting that more charges could be coming. It is unclear which employees — above or below Mr. Schmidt — the government believes were involved. Mr. Schmidt reported to high-ranking officials at Volkswagen headquarters in Wolfsburg.

Volkswagen is nearing a deal with the Justice Department to pay more than $2 billion to resolve the criminal investigation into the emissions cheating, according to three people briefed on the negotiations. The company or one of its corporate entities is expected to plead guilty as part of the deal, according to one of the people.

That deal, though, would not prevent charges against individual employees. Volkswagen’s emissions scandal has cost the company $16 billion in civil settlements in the United States alone.

The fallout from the scandal has already reached Volkswagen’s executive ranks. The automaker’s chief executive, Martin Winterkorn, resigned in September, several days after American regulators publicly accused the company of manipulating testing results. German prosecutors are now investigating Mr. Winterkorn and another executive, Hans Dieter Pötsch, about whether they violated securities laws.

For United States investigators, the arrest of Mr. Schmidt is a stroke of luck. Their attempts to prosecute people suspected of being responsible for the scandal have been hampered because many of the people are in Germany, which does not normally extradite its citizens.

Mr. Schmidt’s lawyer, David Massey, said in court that his client had learned of the investigation and contacted the F.B.I. to cooperate. He met with federal investigators in London in 2015, Mr. Massey said.

Reached by phone, Mr. Massey declined to comment further, leaving unclear what came of the outreach to the government.

Volkswagen declined to comment.

Why Mr. Schmidt risked arrest by traveling in the United States remains a mystery. He is fluent in English and has extensive ties in the United States from his years working in the country for Volkswagen.

A Volkswagen employee since 1997, Mr. Schmidt was named general manager of Volkswagen’s Engineering and Environmental Office in Auburn Hills, Mich., in 2013. In that job, he was responsible for managing relations with the Environmental Protection Agency and the powerful California Air Resources Board, the regulatory agencies that initially pursued the emissions cheating case.

Mr. Schmidt was among the first to react in early 2014 when a study by West Virginia University found evidence that Volkswagen diesel cars polluted far more under normal driving conditions than they did in official testing labs.

In an email to a colleague in April 2014, he wrote, “It should first be decided whether we are honest,” according to an affidavit signed by Ian Dinsmore, an F.B.I. special agent. The affidavit was the basis for a criminal complaint against Mr. Schmidt.

Volkswagen decided to mask its emissions cheating from regulators, according to the complaint and lawsuits filed by the New York attorney general’s office. To buy time, the company recalled Volkswagens in the United States for an update of the engine software in early 2015, even though Mr. Schmidt and others knew that change would not bring the cars into compliance, according to the complaint.

Mr. Schmidt was arrested on Saturday night by F.B.I. agents before departing Miami for Germany. CreditBroward Sheriff's Office, via Getty Images

Mr. Schmidt was arrested on Saturday night by F.B.I. agents before departing Miami for Germany.
CreditBroward Sheriff's Office, via Getty Images

In March, Mr. Schmidt was promoted to a new position in Wolfsburg. As he moved up, he continued to play a crucial role in Volkswagen’s relations with regulators.

In July, he briefed high-ranking executives on the risks that Volkswagen faced. According to the complaint, Mr. Schmidt and other Volkswagen employees briefed top managers in Wolfsburg ahead of a meeting with officials at the California regulatory agency, also known as CARB, which took the lead in the investigation.

Mr. Schmidt explained that the cars contained software that recognized when a vehicle was undergoing tests. The so-called defeat device increased pollution controls so the cars would pass muster. Mr. Schmidt also told the executives that if the meeting with regulators did not go well, the company could face criminal charges, according to the complaint.

The high-ranking executives decided not to disclose the defeat device, according to the complaint. The complaint did not say which executives Mr. Schmidt briefed.

The account runs counter to the timeline Volkswagen has detailed. The company has maintained in court documents that top managers did not learn of the wrongdoing until early September 2015.

The cover-up continued into August, according to the complaint. While attending an industry conference, Mr. Schmidt presented a thick binder of technical information to a high-ranking California regulator. But when agency experts scrutinized the data, they found that it made no sense, Alberto Ayala, the board’s deputy executive officer, said in an interview last year.

Having run out of excuses for the emissions discrepancies, Mr. Schmidt and other Volkswagen managers met with CARB and E.P.A. officials in September and admitted the presence of a defeat device. By then, Mr. Schmidt and his colleagues had squandered the credit that companies usually get for cooperating with investigators.

Nevertheless, Mr. Schmidt continued to represent Volkswagen publicly through early 2016, continuing to play down what the company had done. In January, he testified before the British Parliament as part of an inquiry into the emissions testing.

Mr. Schmidt told the members of Parliament that Volkswagen had removed software that recognized when an emissions test was underway. But the software was nothing nefarious, he said.

“This software is not defined as a defeat device in Europe,” he said.


Susan C. Beachy contributed research.