More Volkswagen Criminal Charges Could Be on the Way

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By Patrick Ambrosio

Sept. 14 — The cooperation of a Volkswagen engineer is likely to help advance the federal government’s investigation into the automaker’s diesel emissions deception, but it remains to be seen whether Volkswagen executives will face criminal charges, according to attorneys observing the case.

James Robert Liang, a 62-year-old Volkswagen engineer, pleaded guilty Sept. 9 to conspiracy charges related to his role in the development and use of illegal technology, known as a defeat device, in hundreds of thousands of diesel-engine vehicles sold in the U.S. While Volkswagen reached a tentative $14.7 billion deal with the federal government and a class of consumers, Liang’s indictment represented the first criminal charges filed in the U.S. related to the scandal.

Under the plea deal, Liang faces a maximum of five years in prison and a $250,000 fine. Liang also agreed to cooperate with investigators, which attorneys said could help the U.S. Justice Department identify other Volkswagen employees who acted illegally.

“Overall, [Liang’s] plea will advance the government’s investigation and likely be the first domino to fall for additional criminal charges for others,” Michael Weinstein, chair of the White Collar Defense & Investigations Department at Cole Schotz PC in New Jersey, told Bloomberg BNA. “I think this is a dramatic moment in the case because it really shines a light on who knew what, when they knew it, and what steps were being taken internally to create and continue [to use] the defeat devices.”

Weinstein, a former trial attorney with the Justice Department, noted that without a plea deal, Liang would have faced “significantly more” potential charges, prison time and fines.

Will Executives Be Charged?

Liang, in his guilty plea, admitted that the decision to use the illegal defeat devices came after engineers struggled in their effort to develop a new diesel engine that could meet both consumer expectations and strict U.S. limits for emissions of nitrogen oxides. What followed was a nearly decade-long deception that involved fraudulent certification of various Volkswagen diesel models and false marketing of Volkswagen’s “Clean Diesel” fleet.

The Volkswagen scandal was announced to the public in September 2015, just over one week after Deputy Attorney General Sally Yates issued a memorandum outlining policy changes intended to hold executives more accountable for corporate misconduct.

Carolyn Kendall, an associate in the Internal Investigations & White Collar Defense Group at Post & Schell P.C. in Philadelphia, told Bloomberg BNA that many observers view the Volkswagen emissions scandal as the “first potential case” that could be affected by the Yates memo. Kendall is one of the co-authors of a January Bloomberg BNA Insights article “ Will Volkswagen Executives Be the Yates Memo’s First Casualties?

It is still “too early to tell” what the impact of the Yates memo will be on the Volkswagen investigation, even after Liang’s indictment, Kendall said. That’s because prior to the Yates memo, criminal investigations would result in charges against one or two people involved in the “mechanics of the conduct” but no charges against people in supervisory roles.

“It’s still early days here...we know investigations are still ongoing,” Kendall said. “It’s possible that we’ll see people in supervisory roles [charged].”

Volkswagen of America did not respond to a request for comment on the indicment of Liang.

Liang’s Knowledge Could Help

To charge executives, Justice Department investigators would need to find proof that individual corporate managers at Volkswagen had actual knowledge of the illegal activity, according to Daniel Riesel, a principal at Sive, Paget & Riesel P.C. in New York. Riesel’s experience includes environmental and white collar defense litigation.

“To have a viable case, they [DOJ investigators] have to show that corporate managers above Liang had knowledge of what Liang was doing, or directed him to do it,” Riesel told Bloomberg BNA.

While it’s unclear if Liang will have the information needed to lead investigators higher up Volkswagen’s corporate ladder, it is “standard procedure” for government investigators to target individuals who are easier to prove wrongdoing against and force them to plead guilty and cooperate in order to reduce the impact of sentencing on them, Riesel said.

Kendall said a cooperator like Liang can provide “immeasurable value” in a criminal investigation into corporate wrongdoing, especially if their statements can be corroborated. Corporate insiders who agree to cooperate may be able to help investigators “cut through the fog” and identify communications that the government either doesn’t have or hasn’t identified as important, she said.

“Someone with historical memory is invaluable to the government in terms of finding the individuals who are responsible,” Kendall said.

E-Mails Could Identify Others

The indictment against Liang mentioned numerous e-mails as evidence of a conspiracy. Those include e-mails between Liang and another Volkswagen engineer related to the calibration of the defeat devices and an e-mail sent to Liang that urged Volkswagen to prevent California regulators from testing a certain model of diesel engine vehicle.

Weinstein said it is “fair to assume” that all of the Volkswagen employees on those various e-mails have some level of exposure to possible criminal charges. Investigators will likely approach those employees and try to gain cooperation in the investigation into Volkswagen executives.

“The first people they’re going to look at are the people on those e-mails,” Weinstein said. “That’s great leverage for the government to have.”

Weinstein predicted that the Volkswagen investigation will eventually lead “much higher up” in the company than the engineering team. He noted that Liang’s plea agreement mentioned that the engineer knew that Volkswagen falsely told regulators that a voluntary recall issued in early 2015 would fix an emissions discrepancy identified by researchers at West Virginia University.

“I think that shows the level of intent, the level of commitment of Volkswagen to really hide these emissions from the government,” Weinstein said.

To contact the reporter on this story: Patrick Ambrosio in Washington at PAmbrosio@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com

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