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Sep 9, 2016

NYT | Internationa Business - September 9, 2016: VW Engineer Pleads Guilty in U.S. Criminal case over diesel Emissions, by Hiroko Tabuchi


www.nytimes.com

nytimes.com

Hiroko Tabuchi
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 case against the engineer, James Robert Liang, who pleaded guilty in United States District Court for the Eastern District of Michigan, adds to the pressure on the company, as Volkswagen faces criminal investigations and lawsuits around the world.
Volkswagen last year admitted to equipping 600,000 diesel vehicles in the United States with so-called defeat devices, software that helped the cars evade emissions rules by spewing far fewer pollutants in test conditions than on the open road.
The Justice Department said that Mr. Liang, who has worked for Volkswagen since 1983, was cooperating with its continuing investigation. Mr. Liang admitted that he and other engineers at Volkswagen had developed a defeat device to cheat emissions tests in the United States. He faces a maximum sentence of five years in prison.
The financial toll from the deception has been significant for Volkswagen. The company reached a $15 billion settlement with car owners in the United States, and a further $1.2 billion to dealers.
The case has also hurt the bottom line. In the second quarter of this year, net profit for the company as a whole fell by more than half to 1.2 billion euros, or roughly $1.35 billion. The company’s share price is off by more than a quarter since it admitted to the diesel deception.
“Volkswagen is continuing to cooperate with the U.S. Department of Justice,” Jeannine Ginivan, a spokeswoman for Volkswagen, said in an email. She said that the automaker had no comment on the case against Mr. Liang, however.

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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.
OPEN Graphic
In its indictment, the Justice Department outlined a decade-long conspiracy to mislead regulators and Volkswagen customers over the company’s “clean diesel” technology. And Mr. Liang was one of the engineers directly involved in that deceit, it said.
In 2006, Mr. Liang and other engineers in Volkswagen’s diesel development department in Wolfsburg, Germany, began designing a new diesel engine that executives hoped would lead the automaker’s push into the American market. But his team faced a dilemma: Meeting stricter emissions standards that would be in effect the next year meant compromising on mileage and design.
Rather than make those compromises, Mr. Liang and his team created software that recognized whether a car was undergoing emissions testing or being driven on the road under more normal driving conditions. If the software detected that the car was being tested, the vehicle’s full emissions control systems would kick in, ensuring it passed testing standards. But on the road, those control systems were scaled back substantially, according to Mr. Liang’s guilty plea.
In 2008, Mr. Liang moved to California to help with the introduction of Volkswagen’s new “clean diesel” vehicles in the United States. In meetings with the Environmental Protection Agency and the California Air Resources Board, Mr. Liang and other engineers lied about Volkswagen’s diesel technology and emissions control systems, saying they were fully compliant with federal and state laws, the plea agreement said.
Even when independent testing carried out in 2014 by a nonprofit group pointed to discrepancies in emissions from some Volkswagen cars, prompting an investigation by the E.P.A. and the California board, the engineers scrambled to offer excuses.
In an email dated July 2, 2015, and quoted in the indictment, an unnamed Volkswagen employee sought advice on how to respond to questions from regulators, noting that “the key word ‘creativity’ would be helpful here.” And in a calendar invitation sent to Mr. Liang and other team members later that month, a Volkswagen employee, also unnamed, warned that regulators are “still waiting for Answers.. We still have no good explanations!!!!!”
It is unclear whether Mr. Liang’s cooperation will lead to indictments against higher-level executives at Volkswagen. Three state attorneys general have claimed that Volkswagen’s fraud reached deep into the company’s boardroom and all the way to Matthias Müller, Volkswagen’s chief executive.
Volkswagen has maintained that the deception was limited to a small group of people. The company has said top management was not aware of the cheating software.