VW dieselgate

As CEO Stumbles, Prosecutors Close In

lupe vw_withLogo source dpa fotolia M
German prosecutors are looking for the culprits.
  • Why it matters

    Why it matters

    • Volkswagen could face higher fines in the United States and elsewhere if regulators do not think the automaker is serious about resolving its diesel emissions scandal.
    •  
  • Facts

    Facts

    • VW’s supervisory board steering committee will meet today with CEO Matthias Müller to demand an explanation for his botched radio interview in the United States, during which he appeared to play down the diesel fraud.
    • German prosecutors suspect six engineers of involvement in the Dieselgate scandal, but don’t expect to complete their investigation soon.
    • Institutional investors from the United States and Britain plan to launch a joint lawsuit in Germany this week seeking hundreds of millions of euros in compensation for losses on VW shares.
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    Audio

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VW hoped the new year would bring a fresh start but so far, that’s not happening. Prosecutors are digging in their heels; big investors plan to join the barrage of lawsuits; and CEO Matthias Müller can expect a dressing down from supervisors today for his poorly-chosen remarks during a recent U.S. trip.

The leaders of VW’s supervisory board will demand an explanation from Mr. Müller for his public relations gaffe in his interview with National Public Radio, when he played down Dieselgate, calling it a “technical problem.”

Sources close to the board’s six member steering committee, who are to meet today with the chief executive, said they want to make sure Mr. Müller and his top lieutenants won’t repeat the mistake, Handelsblatt has learned.

In the interview last week with NPR, Mr. Müller sounded dismissive rather than contrite about the scandal that erupted last September. He said Volkswagen “didn’t lie” to U.S. regulators when confronted with false diesel emissions data.

The leaders of VW’s supervisory board will demand an explanation from Mr. Müller for his public relations gaffe in a radio interview with National Public Radio, when he tried to play down Dieselgate, calling it only a “technical problem.”

The remarks were a setback to VW’s effort to recover from its biggest crisis ever. Mr. Müller’s nationwide interview enraged U.S. regulators who allege the German automaker lied to cover up the systematic falsification of emissions tests on up to 11 million cars, including almost 600,000 in the United States.

The automaker’s actions and the role and complicity of its managers are being probed by criminal investigators on both sides of the Atlantic.

In Germany, the state prosecutor’s office Braunschweig, a city near VW’s headquarters in Wolfsburg, has taken the lead in the case.

Prosecutor Elke Hoppenworth, 57, is no stranger to VW.

Ten years ago, she took the company’s former human resources chief, Peter Hartz, to court for his role in a corruption scandal involving lavish company trips for top VW labor executives, including visits to brothels.

That case did huge damage to VW’s image, but is now being dwarfed by “dieselgate,” the mass cheating on nitrogen oxide emissions tests that the U.S. Environmental Protection Agency brought to light last September.

The scandal has shaved billions off VW’s market value and toppled then-chief executive Martin Winterkorn. Mr. Müller, a confidante of the family shareholders who control VW, was called in from Porsche to manage the crisis.

The scandal has shaved billions off VW's market value and toppled then-chief executive Martin Winterkorn. Mr. Müller, a confidante of the family shareholders who control VW, was called in from Porsche to manage the crisis.

But in his U.S. debut, Mr. Müller appears to have only made matters worse. He apologized to NPR listeners in a second interview, but the damage had already been done. Days later, U.S. regulators rejected VW’s plan to recall and repair its affected diesel cars in the United States, saying the plan lacked detail.

West of Mr. Müller’s office in Braunschweig, Ms. Hoppenworth’s desk is laden once again with stacks of VW files.

German prosecutors are running two separate investigations into VW. Ms. Hoppenworth runs a team of three prosecutors probing alleged fraud relating to nitrogen emissions, a toxic pollutant which contributes to creating smog.

 

merkel and matthias müller, martin winterkorn and matthias wissmann, head of the german auto association, sept 17, 2015 frankfurt auto show source reuters
German Chancellor Angela Merkel, and to her right, VW CEO Matthias Müller, former CEO Martin Winterkorn, and Matthias Wissmann, head of the German Automobile Association, in discussion at the Frankfurt Auto Show last September days after the Dieselgate scandal broke. Source: Reuters

 

So far, the prosecutors are investigating six men, all of them high-ranking VW engineers who are supposed to have played a role in the development of the diesel engines and emissions systems involved in the scandal.

The second investigation probes allegations that VW made false claims regarding carbon dioxide emissions, an accusation that surfaced in November when the automaker said it may have manipulated CO2 values of up to 800,000 cars in Germany, including some gasoline-powered vehicles.

VW said in December that its own internal review found that none of the cars had been “unlawfully” manipulated to reduce CO2 emissions values, though a small number did record “slight deviations” between testing and driving.

Nevertheless, two prosecutors in Braunschweig are investigating VW for possible tax evasion resulting from the CO2 case. Annual auto tax is tied to an engine’s emission level in Germany. Prosecutors are investigating whether VW’s deception effectively robbed the government of tax revenue.

In this probe, prosecutors have identified five suspects.

In his U.S. debut, the VW CEO appears to have only made matters worse for Volkswagen. He apologized for his botched radio interview, but days later, U.S. regulators rejected VW's plan to recall and repair its affected diesel cars in the United States.

Investigators now have to find out in both cases who initiated the alleged fraud, who knew about it, who covered it up, and whether top-level executives were involved.

Volkswagen has suspended a handful of mid-level managers in the scandal, and is conducting an internal investigation. But so far, top managers including Mr. Müller and his predecessor, Mr. Winterkorn, have denied knowledge.

Doubts were raised about the independence of the state’s investigation last year after prosecutors in Braunschweig said they were investigating Mr. Winterkorn’s role and that of his top lieutenants, but then quickly backed down, saying no such investigation was taking place.

Mr. Winterkorn and his successor Mr. Müller, as well as other top VW board members, have denied having knowledge of the software fix that turned on emissions controls only when the car was being tested.

Amid those denials, Ms. Hoppenworth and her colleagues are attempting to get to the bottom of the matter. Their decisions could ultimately have a huge impact on the fortunes of VW.

“The matter is in good hands,” said a defense lawyer who knows Ms. Hoppenworth from previous cases and who has a mandate in the case. “Her experience is valuable and I know her to be a professional and meticulous prosecutor.”

To be sure, prosecutors only began their investigation after VW itself lodged a criminal complaint. A few weeks after the scandal was made public on Sept. 18, some 50 investigators searched the offices and homes of six suspects.

“With that complaint, VW deliberately directed suspicion at the level of departmental heads to take the management out of the firing line,” said one defense lawyer, who declined to be named.

“Our motto is: As fast as possible, but as thorough as necessary.”

Klaus Ziehe, Spokesman, Braunschweig Prosecutor's Office looking into VW Dieselgate affair

The investigation won’t be completed anytime soon, prosecutors say.

“The proceedings could hardly be more complex,” said Klaus Ziehe, a senior prosecutor and spokesman for the Braunschweig office. He acknowledged the urgency of the matter.

“Our motto is: As fast as possible, but as thorough as necessary,” he said.

The regional state criminal police force in the city of Hanover near Wolfsburg has also set up a task force called “VW” to help the Braunschweig legal team.

Some 20 officers are working through files and data confiscated in raids last October.

Mr. Ziehe stressed that the state’s probe was independent of VW.

“The fact that VW itself has commissioned internal investigators and law firms to assess information and conduct interviews is a decision taken by the company that doesn’t relieve of us of following up a single necessary lead,” Mr. Ziehe said.

VW has hired global law firm Jones Day and auditors Deloitte for its own internal probe. That investigation will take several more months, said sources close to the company. Their findings will likely be made available to the public prosecutors.

The Braunschweig office isn’t the only authority investigating the case. Prosecutors in the United States, Italy and France are also hard at work. In the United States, the Department of Justice is leading the probe and has support from the FBI, which has a unit specialized in economic crime in the auto industry.

In South Korea, prosectors plan to sue the country’s Volkswagen and Audi bosses because its recall plan for emissions-cheating cars there fell short of legal requirements, Reuters reported Tuesday, citing the prosecutors office.

So far, there has been no international cooperation among the various authorities in the case.

But it’s only a matter of time before Ms. Hoppenworth approaches her U.S. colleagues. The findings of U.S. EPA regulator, which has been investigating VW since spring of last year, would likely help prosecutors in Germany.

“So far we haven’t applied for legal assistance,” said Mr. Ziehe. “The hurdles are high but we are very interested.” He said investigators in both countries had already met. “There is intensive contact.”

But American investigators last week requested legal assisrtance from the Braunschweig prosecutor’s office.

 

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In a sign of how infuriated U.S. authorities are with VW and its chief executive, the attorney general of Connecticut, George Jepsen, said last week that Mr. Müller’s remarks in the radio interview were disturbing and showed how important the investigations into VW were.

Volkswagen wants to hire former FBI head Louis Freeh to help represent the carmaker in its ’diesel emissions scandal in the United States, the German newspaper Süddeutsche Zeitung reported Tuesday .

The automaker wants to employ Mr. Freeh as a special representative; its supervisory board plans to discuss his nomination later on Tuesday, according to the newspaper, citing information it had obtained together with state-backed broadcasters NDR and WDR.

VW declined to comment on “speculation,” a spokesman told Reuters.

Volkswagen, according to the report, is becoming increasingly concerned it might not be able to get a grip on its legal problems in the United States without an experienced mediator.

The barrage of lawsuits against VW is indeed intensifying. A total of 66 institutional investors, most of them from the United States and Britain, plan to sue VW for compensation for the money they have lost on VW shares in the scandal.

Law firm Nieding + Barth said Monday it would lodge a case with a regional court in Braunschweig this week, seeking hundreds of millions of euros in damages, arguing that VW knew about its violation of diesel emissions rules before its first statement in September, and should have informed the public earlier.

“The compensation claims amount to a clear three-digit million sum,” Klaus Nieding of Nieding + Barth told Handelsblatt on Monday.

Germany’s justice system lacks U.S.-style class-action lawsuits but the law firm plans to use a similar procedure in which one investor will pursue a model lawsuit that will act as a guide to set damages for other plaintiffs.

Mr. Nieding declined to name the investors.

VW declined to comment. Its shares have lost almost a third of their value, about €22 billion or $24 billion, since the case came to light in September.

Mr. Nieding said he saw “very good prospects for success” for the lawsuit because of the way VW had communicated in the scandal and because of the inclusion of partners in Germany and the U.S. Mr. Nieding is working with Cologne law firm Müller Seidel Vos in Germany and with Robbins Geller Rudman & Dowd in the U.S.

The Financial Times reported that a number of U.S. pension funds were also considering taking legal action against VW.

Meanwhile, Bafin watchdog said Monday its investigation into whether VW breached disclosure rules was so complex it would likely take several more months.

 

Volker Votsmeier is an editor with Handelsblatt’s investigative reporting team. Martin Murphy specializes in the automotive, defence and steel industries. To contact the authors: votsmeier@handelsblatt.com and murphy@handelsblatt.com

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